Historic Hotels Tax Credits Incentive

 

Historic hotels may realize further incentives to assist in the funding of rehabilitation. The federal Historic Tax Credit (HTC) program was enacted in 1976 to encourage the preservation and rehabilitation of historically significant buildings. Administered by the National Park Service and the Internal Revenue Services in partnership with State Historic Preservation Offices, the HTC program is the nation’s most effective program to promote historic preservation and community revitalization through historic rehabilitation.

 

HTCs provide supplemental funding for developers that rehabilitate certified historic landmarks and buildings into income-generating properties that create jobs and promote economic revitalization. Historic hotels are especially prime candidates for rehabilitation, further driving economic impact in downtown districts. Current federal tax incentives for historic preservation were established by the Tax Reform Act of 1986 and included:

 

• A Federal 20 percent tax credit of Qualified Rehabilitation Expenditures (QREs) for the cost incurred during the rehabilitation of a certified historic structure for commercial purposes.

• Many States offer a 10-20 percent historic tax credit of QREs for the associated costs incurred during the rehabilitation of an older, non-residential building built before 1936, provided its listed as a certified historic structure.

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HTC Qualification Criteria

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• The development property must be a certified historic structure, which can include:

• A certified historic building listed in the National Register of Historic Places, which is the official list of the nation's districts, sites, buildings, and structures in American history

• A building located in a registered historic district and certified by the National Park Service as contributing to the historic significance of that district

• An older, non-residential building built before 1936 that is not yet listed as a certified historic structure

 

Legendary Hospitality possesses the expertise to maximize these valuable incentives, significantly reducing overall project cost and/or hotels’ operating debt​​

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New Market Tax Credits Incentive

 

The New Markets Tax (NMTC) Program was created in 2000 under the Community Renewal Tax Relief Act to attract private capital to those projects benefiting low-income communities and persons, create jobs, and encourage additional economic development.

 

Projects in these communities have historically had trouble finding such investment, resulting in a lack of resources to meet community needs, including projects like job training centers, community health centers, grocery stores, mixed-use commercial developments, hospitals, and others. NMTC helps these projects happen.

 

The Program, administered by the Community Development Financial Institutions Fund (CDFI Fund), a division of the U.S. Treasury Department, attracts private investment by awarding federal income tax credits to investors in return for their equity investments in qualified projects. These credits, equal to 39% of the investment made, are a dollar-for-dollar reduction in an investor’s tax liability and are claimed over a 7-year period. According to the CDFI Fund, the Program has been very effective, noting that since 2003, the NMTC Program has:

 

• Created or retained an estimated 275,000 jobs

• Supported the construction of 37 million square feet of manufacturing space, 80 million square feet of office space, and 61 million square feet of retail space, and

• Catalyzed a ripple effect spurring further investments and revitalization in low-income communities

 

Like many incentive programs, while the concept of the Program is relatively simple, its requirements, implementation, and legal and tax consequences are extraordinarily complex. However, by the end of this summary, you will know the most important points about NMTCs, including:

 

• The general criteria for project eligibility

• How a project can apply for NMTCs

• Who the players are, and what they do in a NMTC transaction

• The structure of a typical deal, and most importantly

• What all those NMTC acronyms mean…

 

Once we understand these points, its plausible to recognize when a project might benefit from NMTCs. Let us first look at what projects are eligible for the NMTC Program.

 

NMTC Eligibility Requirements: The short answer to what is required for project eligibility is that a project must be the right type of business in the right census tract. The more specific answer is that the project must be one of the following permitted businesses:

 

• Commercial real estate development

• Mixed-use real estate development, so long as the commercial component (as opposed to any residential components) create at least 20% of the project’s gross income

• Community facilities

• Non-profit facilities

• Skilled nursing and assisted living developments­­­­

• Hotel developments

 

The following are prohibited business:

 

• Golf courses

• Country clubs

• Casinos, racetracks, or other facilities used for gambling

• Tanning salons, hot tub facilities, or massage parlors

• Liquor stores for off-premises consumption

• Farming or types of Agriculture

• Development or holding of intangibles for sale of license, and

• 100% residential rental housing (as noted above, subject to income limitations, residential rental housing can be part of a mixed-use project)

 

If a project meets these requirements, it’s maybe eligible to become a qualified active low-income community business (QALICB) and use the Program. However, this doesn’t mean its automatically able to use the Program. 

 

Legendary Hospitality will address the approval process, provided the project is large enough. Given the significant costs associated with putting together a NMTC deal, there is a point at which the costs outweigh the associated benefits. This threshold amount is often estimated at $5M in project costs. If a project is smaller than that, NMTCs may not be the way to go.

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