While the state historic preservation tax credit program was mostly aimed at residential projects, the Metropolitan Center on Michigan Avenue in Kalamazoo is an example of a commercial real estate project that leveraged the state historic preservation tax credit along with other state and federal incentives. While the state historic preservation tax credit program was mostly aimed at residential projects, the Metropolitan Center on Michigan Avenue in Kalamazoo is an example of a commercial real estate project that leveraged the state historic preservation tax credit along with other state and federal incentives. COURTESY PHOTO

Lawmakers, advocates push for revival of state’s historic preservation tax credit

BY Sunday, May 12, 2019 08:13pm

A bipartisan group of lawmakers in Lansing hopes to revive Michigan’s historic preservation tax credit, which they say will encourage redevelopment in communities across the state.

Bills introduced in the state Senate and House earlier this year would reinstate a tax credit of up to 25 percent for rehabilitation expenses on historic properties. A similar program existed for 12 years, but was eliminated in 2011 as part of former Gov. Rick Snyder’s state tax reform strategy.

While other historic preservation and community redevelopment incentives exist, proponents of reinstating the credit say it provides an equitable tool for maintaining and redeveloping historic properties in historic districts.

For people in those districts, the tax credit is a good trade off for the many restrictions that prohibit altering a historic building, advocates said.

“It’s just so fair to me to ask people to accept a limitation on what they can do to their house or commercial building and to be able to offer them something back to say thank you,” said Sharon Ferraro, the historic preservation coordinator for the city of Kalamazoo.

A previous effort to restore the historic preservation tax credit failed to reach a vote last year, but the new effort marks the first time it has been proposed under Gov. Gretchen Whitmer’s administration. She has promised to support the credit if it makes it to her desk.

The House bill was introduced by state Rep. Ben Frederick, R-Owosso, who said the credit is beneficial to both commercial developers and homeowners.

“This credit was a proven economic development and preservation tool in the past, and it would be beneficial for Michigan’s future,” he said in a statement.

The city of Kalamazoo has the most historic properties per capita in the state of Michigan, Ferraro said. She works with building owners and homeowners to properly preserve and restore historic structures, which includes some 2,000 properties throughout five historic districts in the city.

Historic preservation has been a priority for Kalamazoo since at least 1965, when the city affirmed the importance of preserving its historic character and appointed its first Historic Preservation Commission.

Between 1999 and 2011, when the Michigan historic preservation tax credit was in place, property owners in the city spent more than $3.6 million to rehab historic buildings, making Kalamazoo the largest per capita user of the tax credit in the state, according to data from Ferraro.

The Michigan Historic Preservation Network, a Lansing-based nonprofit that advocates for preserving cultural and architecture sites, said the previous tax credit allowed Michigan to leverage $251 million in federal credits and spurred more than $1.4 billion in rehabilitation activity over the 12-year period from 1999 to 2011.

Restoring activity

Advocates for reinstating the tax credit say its elimination has curbed redevelopment activity in the state. In Kalamazoo, applications for projects at historic properties fell by 75 percent since the tax credit ended, according to Ferraro.

State Sen. Wayne Schmidt, R-Traverse City, who introduced the Senate bill, cited that falloff as a reason for bringing back the credit. Developers shy away from historic projects because of the cost involved, he said, noting the bill would allow them to receive credit for eligible costs associated with the development.

The majority of historic properties in Kalamazoo are single-family homes or small commercial buildings, which mostly do not meet the threshold for receiving a federal historic preservation tax credit. The investment would need to be about half the value of the property to quality for the federal credit, Ferraro said, which would be cost prohibitive for most homeowners.

The federal credit mostly comes into play for major projects, as opposed to a new roof or furnace, both of which are common needs for owners of historic homes, she said. The average expenditure for a historic residential project in Kalamazoo was $22,531 when the tax credit existed, which translates into average income tax savings of $5,632.

“(The state credit) is a nice complement to the federal credit,” said Ellen Thackery, deputy director of the Michigan Historic Preservation Network.

Thackery cites a lot of “pent-up demand” from owners of historic properties, noting that projects have stalled and historic sites have been lost as a consequence of the credit’s elimination.

“We do know these state tax credits matter,” she said. “It’s only 25 percent of eligible expenses, but the projects are done with no extra margins. Even a 25-percent tax credit can make a difference if a project is going forward or not.”

Commercial resources

Ray Kisor, principal at Grand Rapids-based Pure Real Estate Brokerage LLC, said commercial developers in West Michigan infrequently used the former state historic preservation tax credit, which was designed mostly for residential properties.

For commercial real estate developers, the federal tax credits for historical buildings offered a much more useful tool, he said. Still, Kisor sees potential benefits from reinstating the state program.

“It’s a great tool for homeowners and someone with a passion to keep what we have,” Kisor told MiBiz. “I think them getting that tool is going to be very, very beneficial. But it doesn’t impact the commercial developer unless we were to find an older apartment project that was worth restoring.”

As well, Kisor cites other programs such a brownfield tax increment financing or incentives from the Michigan Economic Development Corp. as helping fill the financing gaps for commercial projects that would not have qualified for state historic preservation credits in the past.

For example, the MEDC’s Community Revitalization Program offers grants, loans and other assistance for projects on properties that are either contaminated, blighted or historic resources. However, the CRP program is unavailable to individual homeowners who had been able to use the state historic preservation tax credit in the past.

Layering incentives

As well, developers of certain qualifying projects often layered MEDC incentives along with historic preservation credits, according to Ferraro. She cited the Metropolitan Center on Michigan Avenue in Kalamazoo, a mixed-use project completed in 2012 that involved the renovation of four 140-year-old buildings and adding apartments and commercial space.

Developers used a mix of low-income housing tax credits and state and federal historic preservation credits to finance the project.

The availability of a portfolio of resources is essential to encouraging continued community redevelopment, Ferraro said.

“The more you can offer people to develop, the more they will start looking for downtowns,” she said. “We are out of those (historic downtown buildings that need renovation) in Kalamazoo right now because we have a very robust idea of historic preservation here, but also in part because of the tax credit.”

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