Tax help driving big rehab projects

Historical remakes use federal credits to raise money

Tuesday, September 18, 2007
By Marylynne Pitz,
Pittsburgh Post-Gazette
Thursday’s grand opening of Bedford Springs Resort marks a milestone in its $120 million rehabilitation, capping more than two decades of monumental efforts to revive the Bedford County mountain retreat.

It also represents one of the largest projects in Pennsylvania to take advantage of a federal tax credit program that has spurred nearly $300 million of investment in Pittsburgh the past decade.

Examples include Downtown’s Renaissance Pittsburgh Hotel, Heinz Lofts on the North Side and the Armstrong Cork Factory, a $60 million project with three luxury apartment buildings that opened in May in the Strip District.

More recently, an 18-month renovation that cost upwards of $15 million transformed the former Keystone Grocery warehouse and Try Street Terminal into Shannon Hall, a nine-story Downtown building with 140 apartments that opened in July for Art Institute of Pittsburgh students.

And just last week, Trek Development announced plans to convert Downtown’s Century Building on Seventh Street into affordable apartments, aided by $2.3 million in federal historic rehabilitation tax credits.

Created three decades ago by Congress to spur preservation, the credits help developers clear financial hurdles that accompany the renovation of older structures, which cost more to rehabilitate than building anew. The credits allow lenders, banks and corporations to invest in the projects, while using the credits to reduce their tax liabilities dollar for dollar.

The developer first must qualify for the tax credits, which they then sell to the investors. The process requires developers to submit a detailed application outlining a project’s scope, and the building must be on the National Register of Historic Places to qualify for the full 20 percent credit.

The buyer of the credit “virtually owns the building. They are not just buying the tax credit. They are entering a partnership and … sharing in the profits,” said Jill Paskoff, a certified public accountant with the Reznick Group in Baltimore.

The community benefits from the rehabilitation and reuse of little-used and abandoned properties that are added back to the tax rolls. Since 1978, Allegheny County alone has seen 431 such projects use the credits to spur investments totaling $487.7 million, said Bonnie Wilkinson Mark, a historical architect with Pennsylvania’s Bureau of Historic Preservation.

Francisco Escalante, director of operations for the local development company No Wall Productions, said his firm has used historic tax credits on three Downtown-area projects, including the recently renovated 930 Penn Ave., a six-story building that has 20 apartments, a Subway sandwich shop on the first floor and the restaurant Seviche.

“Without having access to the historic credit, our renovations … would not have been possible,” Mr. Escalante said, adding that No Wall Productions’ partner in the deal was Rugby Realty, which owns the Frick Building and Gulf Tower.

No Wall Productions also obtained credits for its renovation of 905 Liberty Ave., where it created a space called Liberty Lofts in partnership with the city’s Urban Redevelopment Authority. And it used the credits to finance renovation of the Bruno Building, which has seven residential and commercial lofts at 945 Penn Ave.

All three buildings are contributing structures to the Penn-Liberty National Register Historic District.

The Bedford Springs Resort project had six investors who put up $10 million of their own money and qualified the project for a $23 million rehabilitation tax credit, which was sold to oil giant Chevron.

The proceeds helped fund the renovations, said Timm Judson, chief investment officer for The Ferchill Group of Cleveland, a member of the investor group, Bedford Resort Partners Ltd. Historic tax credits aren’t the only vehicle developers turn to when renovating old properties. Often part and parcel with the use of credits are agreements by the developer with preservation groups to maintain the building’s historic character.

On the surface, such restrictions may sound like a deterrent to financing. But in effect, by preventing modifications that could ruin the building’s historic character, they ensure that the building will retain its integrity and even increase in value.

In practice, these easements allow the preservationists, often a group like the Pittsburgh History & Landmarks Foundation, to control changes that are made to the facade or the site of the building, said Martha W. Jordan, a Duquesne University law professor who teaches courses on federal income tax.

Professor Jordan — who also serves on the board of Landmarks, the city’s largest preservation group — said the foundation has an easement on the facade of Bedford Springs Resort as well as its golf course.

“They can’t change the golf course without permission of Landmarks. They can’t make changes to the facade of Bedford Springs,” she said.

Jack Miller, director of planned giving at Landmarks, said the nonprofit has more than 30 restrictive easements or covenants on properties primarily in Western Pennsylvania. The best known of these include the Heinz Lofts on the North Side, the Armstrong Cork Factory and the Bedford Springs project.

John Panno, tax counsel at Sherwin-Williams in Cleveland, likes the use of historic tax credits and facade easements not only because they benefit his company, but because they are helping beautify his hometown. He grew up in McKees Rocks.

“I love seeing what’s happening,” he said. “This is about preserving history and reviving communities.”

First published on September 18, 2007 at 12:00 am
Marylynne Pitz can be reached at mpitz@post-gazette.com or 412-263-1648.