 Hello, we are presenting on the So You Have a Historic Building Now What panel. My name is Amanda Bloomberg and I am joined by my colleague, Kathleen Galvin. I've been in the tax credit finance space for 15 years now and for the last five years of that I've been with NTCIC as an acquisition manager sourcing federal and state historic tax credit opportunities as well as new markets. Kathleen, I'll let you introduce yourself. Hi, I'm Kathleen Galvin. I have been with NTCIC for 11 years and I have worked in asset management, closing transactions and now on the acquisition side along with Amanda. And yeah, so that's kind of my background in the historic tax credit space. Great. Thanks, Kathleen. I'll go ahead and get started with today's slides. Our first one is, you know, you have a historic building and really a lot of people might be throwing their arms up and saying, you know, now what, what's next steps and it's really can be overwhelming looking at a pre-development timeline for a project like this. And I think, you know, once you come into possession of an old possibly historic building that is in need of revitalization, it's, you know, how do you go about getting the people and resources secured to begin this massive undertaking. And I think this timeline looks different for every developer. I think the timeline looks different based on the market, the overall undertaking itself, your experience as a developer, who you bring on as experienced team members and the different financing pieces. Federal Historic Tax Credits, it's the basics, 101 here, you know, there are entire conferences based on 101 so we'll try to give the condensed shortened version here in just a few minutes but I mean it's changed a lot over the last 50 plus years since it was enacted in 1976 to preserve and rehabilitate historically significant properties. It's a part of the permanent tax code, it has been since it was enacted and we hope that continues but, you know, a lot has changed, you know, over the last 50 plus years there's been a few tax reforms including the most recent in 2017. There's been IRS rulings, there's tax rate changes, there's even more before my time that have really changed the Historic Tax Credit outlook. And NTC is involved with Historic Tax Credit Coalition and we're always trying to find ways to improve the credit and make it an easier tool for developers and investors to use alike. But, you know, the, I have here a little bit about how it's changed most recently and prior to 2018 the Federal Historic Tax Credit was claimed over one year so it was, you know, quite a benefit to tax credit investors when the project was placed in service or complete. You may hear me use the word placed in service throughout the presentation and we consider the term placed in service is when the project is complete and ready for its intended use and that's when you can claim your Historic Tax Credit as an investor. And so now the credit is claimed over five years so the 20% credit is now broken up over five years or, you know, earned 4% per year over the five year tax credit compliance period. And, you know, a little bit about allocation here, Historic Tax Credit's followed the investor's profits and interests and can now be certificated. There's also some other structures that can be utilized here and if people are interested in that I recommend reaching out to us after this panel and we can always talk through those structures in a little bit more detail. And I already touched on the compliance period which is five years. The compliance period starts at the time the project is placed in service or ready for its intended use and then five years thereafter. And so during that five year period is where credits could be subject to recapture. Recapture is really unlikely for these projects. I think it's less than, I know it's less than a 1% even lower than that. But it's just really important, you know, during that five year compliance period, you know, the main thing is ownership structure doesn't change and you don't do anything that would jeopardize the historic nature of the property. So everything you said you were going to do in your various approvals to the National Park Service that those stay in place during the compliance period. The four tests that must be met for a project to qualify for the 20% historic tax credit, you know, we've touched on this a little bit already. The building must be a certified historic structure. So it either needs to be individually listed on the National Register or it has to be a contributing building in a National Register historic district. The second item is that it must be, excuse me, a certified rehabilitation. And so this, you know, kind of alluded to this before, but there's various approvals to the State Historic Preservation Office and the National Park Service. And so your renovations that you're doing there, you must have pretty detailed drawings and so forth, and they must adhere to the Secretary of Interior Standards for Historic Rehabilitation. And so all those drawings and plans that you submit to the SHIPL, the National Park Service, they will make sure that those are getting compliance with the Secretary of Interior Standards. The third thing is that it must be income producing. So, you know, this could be a wide variety of uses, apartments, hotel, office, retail, theaters, industrial space. It could really be anything as long as it's income producing. So I think the biggest example is that if you own the property, you can't live there and claim the historic tax, federal historic tax credit. So it can't be owner-occupied residents. And then the last thing is must be a substantial rehabilitation. So, you know, your qualified rehabilitation expenditures or your basis and the work that you're doing has to be greater than $5,000 or the adjusted basis of the building. So this is typically, you know, the adjusted basis of the building is the greater of. So that's typically the number, you know, the buildings that we work with are looking to. So your adjusted basis, that calculation is really your price paid for the building minus the value of the land and acquisition, plus previous work, minus depreciation and so forth. I mean, most of these, most of the tiny buildings really require a lot of money and work that needs to be done. So this test is generally pretty easy to meet. The exception there is maybe a project in, say, a market like New York City where real estate values are extremely high. So it might be harder to meet the sub-rehab tests based on the work, you know, depending on the work that you're planning for that project. You know, what other financing tools are available? Historic tax credits, federal historic tax credits aren't the holding one, you know, really sometimes comes down to location of the building. Yeah. I think in real estate, people always say location, location, location. I think that's true from when it comes to financing play as well. Look at your local opportunities. Those are always good resources to look into, you know, empowerment zones. Is it in a severely distressed census tract and will qualify for new market tax credits or is it in an opportunity zone area? And the developer has capital gains and they want to create their own opportunity zone fund and take advantage of that opportunity. There's also, you know, brownfield tax credits that are available. If you're doing, you know, various environmental cleanup, different cities have different grants, loans, programs to help clean up sites like that. There's also other types of tax credits that you can look into. I know I've already mentioned new market tax credits and brownfield tax credits, but there's also low income housing tax credits. The great thing about historic tax credits is that it twins well. With a lot of the other tax credit pieces, such as new markets, brownfield, low income housing. A lot of projects that we see also will have tax increment financing or TIFFs involved. And we deal a lot with nonprofits as well. There's a lot of nonprofits that will do significant fundraising efforts and look into grants donations and so forth to fill the capital stack for these types of projects. This slide is interesting because it talks about, you know, what are your options when it comes to traditional gap financing? So if you've acquired a building, you're probably, your head is spinning in how I'm going to pay for not only the acquisition of the building pre-development work, but to actually get the work done. And so if you look at this chart and you see your total development budget, you know, developers probably don't want to come, you know, 100% of the pocket. They want to find a way to put some conventional debt or financing on the project as well as find different incentives to help fill that development budget capital stack. This this can often result in, you know, more sponsor equity coming into the project. And if you're just doing debt or looking at incentives, this can put some burden on your bone to value ratio, as well as market terms involved with the project like this. So the second option here is non-conventional financing. And this is really, this is what a lot of our projects look like. You have the total development budget and then you have all these tax credit pieces that are lining up to fill the capital stack. So you can see here, you know, you have your conventional debt. You have oftentimes state historic tax credits. I haven't really talked much about that, but yeah. But there are many states have a state historic tax credit program. So definitely look into that. That's a huge gap filler. Federal Historic, some states have state new markets. You could also qualify for federal new markets if you're in the right census tract. So these really add up. Not only do they add up, but they make a deal very complex. So it's important to work with the right team, but it does lower the debt burden on a project like this. There's less sponsor equity required. There's fewer incentives to chase after. You could typically get below market rates. So this really provides some stability for a project to get up and running. All right. And now it's Kathleen. She's she's going to I'm going to turn it over to her and she's going to talk about the key development partners and the team that we assemble for projects like this. There we go. So as Amanda mentioned, one of the most important things that you can do to ensure the success of your project and make sure that you can make it to that finish line of closing is to put together an experienced team and development partners both on the development side and the financing side. So we'll start with kind of the real estate focused development partners. And the first the first consultant that I would that I would reach out to as Amanda mentioned is a historic consultant and the historic consultant will help you draft the NPS applications in order to qualify for the credits. So they are well aware of, you know, I would get an experienced consultant that has successfully accomplished all three phases of the new of the NPS process. And they're well aware of the NPS rules and the things that the National Park Service looks for as in order to get these these projects approved. So first is the part I'll go back to them in a little while and kind of take you through the NPS process and what that entails. The next partner that would be extremely important is an experienced general contractor. The general contractor will make sure that the project is completed on time and on budget and also if they've had historic experience, they also are sensitive to making sure that they accomplish all of the things that are outlined in your NPS application. And on some of these tax credits are time sensitive and for various reasons for if you are getting an investor, for instance, on historic tax credit side, they may be sensitive to when they will receive the credits. They are investing in these credits in order to for their tax planning purposes. And so if the project is delivered a year late or January of the year after you thought that it would be placed in service, that could be a material difference and may have some negotiated penalties and things like that. So you really want to make sure that you have a general contractor that has not only developed a project of the size that you're looking at, but also has some experience in the historic realm. The other important partner is an architect that is experienced, your architect and your historic consultant should be talking to each other so that they know that they're designing plans that are in line with what you said you would be doing your Part 2 application. So again, they should work hand in hand and make sure that the changes that you're making to the building are in compliance with the NPS standards. Another partner is a construction consultant. This consultant will likely be required by both your lender and your historic tax credit investor. And what that individual or group does is they will before closing the financial part of the transaction, they'll provide a plan and cost review. A plan and cost review is a document that outlines the plans that were delivered by the architect and contractor. And we'll say if the timing that they're estimating to get it placed in service is reasonable, as well as the cost that they're proposing are reasonable. So your general contractor before you go out will give you an estimate of how much they think it will cost to construct your building or revitalize your building. The construction consultant will look at those costs that are estimated and say if it's kind of reasonable at the time and also just in your market. So for instance, after COVID or recently because of supply chain issues, we've seen construction costs go up. The construction consultants are sensitive to that and will be able to tell us that if that's within range of other projects that they've seen, et cetera, so that we don't underestimate or overestimate how much we think we need in terms of incentives, loans, et cetera. So that's why that document is important to both the lender and to an investor. And finally, an environmental consultant. Before we can close, we have what we call a phase one and phase two. And what that does is determine whether or not there needs to be any remediation done on the property, if it's safe for use, et cetera. Some of these older buildings were used for many different types of uses. And so they might have storage tanks underneath. They might have other asbestos. They might have lead based paint. There's a lot of different environmental concerns that you want to identify and understand before you and before you obviously use the building, but also in order to understand how much it's going to cost to remediate and and move into the construction period. So first things first. When you have an old building, sometimes the floors aren't the most stable, sometimes the walls are a little shaky. You want to make sure that you stabilize that building before you have individuals coming in and out of the building. You want to make sure it's safe to do walkthroughs and things like that. So and also you might want to get begin some remediation work and or kind of look behind the walls and see if there's anything of concern that you might have to tackle earlier in the process and understand as you're going through the architectural drawings and things like that. So I'm sure you're wondering how do you finance this? So either you can come out of pocket and put your own equity into the project and kind of take care of these things early on. You can apply for a pre-development or construction loan early in the process that could potentially be either rolled into or taken out once the financial closing occurs. Or you can also look to see what kind of programs that your local or regional government and other preservation related grants are available that you might be able to use. For instance, a lot of times if there is a remediation work that needs to be done, sometimes that could be that could be an incentive that your city offers to help with and things like that. So again, just like Amanda mentioned, I would see what tools are available to you and reach out to your city, state offices and see what kind of tools are available in that stage of the process. Next slide. So we've been mentioning the NPS process. So there's three individual applications that need to be submitted throughout the process. The first is the evaluation significance that Amanda mentioned, getting your building listed on the National Register or determining whether it's part of a historic area. The once that is approved, then you know that your building is eligible for the historic tax credits. The part two application is where you present your plans and a description of exactly how you're changing the building. So what are you changing? What walls are you taking down? Are you planning on changing the windows in any way, the doors? So the NPS is sensitive to multiple different things. But I feel like the sensitivity is highest at windows and doors. So things that the outside, from an outside perspective that you can see, also the facade of the building. So sometimes there is a painting on the side of the building that says ACES hardware or whatever. And you might think it's not really a big deal, but that's part of the fabric of the building. So they may want you to preserve some of those things. So before you change anything, I would put that into your part two application, identify things that you're going to change and then make sure that you're not demolishing or changing anything early in the process that may make you ineligible to receive the credit. So again, this is an important step and your historic consultant should be able to guide you through that process and let you know which things you can and can't change or according to the NPS rules so that your your part two application will likely be approved after you complete your building. So you've received the certificate of occupancy and you apply for what's called the part three application. And that application is basically saying, here's what we did. I did everything I said I was going to do in the part two application. We didn't tear down or change anything that wasn't supposed to be changed. And once that part three is approved by the National Park Service, then your credits are eligible for investment. So you want to make sure that you do everything you said in the part two so that you get that part three application, which makes them eligible. Again, Amanda mentioned the State Historic Preservation Office. That's the first step of the approval process. They pass it their recommendation on to the National Park Service. And that is kind of the final final say on your federal historic application. There's also State Historic Credits as well. And that should go through your State Historic Preservation Office. The process in general is pretty similar and the standards in terms of the actual building are similar. So I'd highly recommend if you're pursuing the federal credits to see what state tax credits are available and apply for those as well. And there's no reason not to. You're already going through the brain damage. And usually depending on your state, those are even easier to find investor for depending on whether they're certificated or allocated credits. So highly recommend if you're pursuing federal to see if you can layer into the state as well. And next slide. So the key items that come out of working with your development team are obviously the construction design drawings with your architect and GC, the construction budget that you create with your general contractor, the environmental reports, et cetera. And just like I mentioned, there will be a plan and cost review to make sure that that budget is reasonable. You want to have all of your environmental reports done so that you know what you need to remediate before jumping into the project. And then your HTC application to get that first part one and part two in place as you move through the next steps of the process. Next slide. So the the other partners that are extremely important are obviously your financing partners. The you want to find an attorney that has again structured or been involved in the closing of historic tax credits in the past. And that will save you even if you get someone that seemed a little bit more expensive at first, it will save you a lot of time and money at the end of the process. Having an experienced attorney representing you. The the more time that you spend learning the structure and things like that, the more time hourly wages that you'll pay play across the board. So again, it's extremely important to find someone who knows how to structure these deals or knows what the documents look like. The process will happen a lot more quickly and more efficiently. So the next important partner is the accountant. Again, you want someone who has historic tax credit experience. If you're using the historic credits new markets experience, if you're also layering in the new market tax credit program or and things like that. Sometimes again, it seems a little bit cheaper if you go with someone you know or someone that helps you on the business side. But you will the other individuals in the transaction will likely require that you use someone who's experienced and structuring these kinds of transactions. We rely on the the projections that will go over later pretty heavily after the the project is closed. And if those aren't correct or if it's not structured correctly, it could create not only recapture a lot of headaches, but then legal work down the line. So it's it's really helpful to have someone that has been approved by your lenders and investors to to manage this type of transaction. I think everyone's familiar with lenders, you know, the lenders from conventional financing, things like that, bridge loans, et cetera. A lot of times we can suggest a bridge lender for the the two bridge certain types of tax credits and things like that. So it's it's it's a great way to use your other partners in your transaction. I'm going to skip down to syndicator what we do. And as a syndicator, we close both historic new markets, lie tech, a lot of different kinds of transactions. And it's helpful to use us as a resource as well to help explain the process, how to structure your deal, any kind of questions you have, any kind of referrals you need, for instance, a bridge lender or construction monitor, things like that. We have a lot of people we've worked through with in past transactions and usually have a list of of people that you could use that will help navigate that process. And then also, finally, the investors. So the investors are going to be usually larger institutions that could use these credits at the size that that these buildings put off. So a lot of times the reason that the developers don't I use the credits themselves is because there's so many credits that they just don't have that kind of tax liability. But these larger institutions, banks and other kinds of investors do have that tax liability and can use these credits and will pay, you know, equity to the project that you don't have to pay back that you can use to construct the building. So as a syndicator, we have a pool of investors that we work with that we compare with you. So I would reach out to a syndicator and and see if they compare you with the investor that makes most sense for you, for your project, the kind of use that you're you're proposing. Some of them are very interested in certain parts of the country, certain cities, things like that. So we are experts in kind of knowing who the best investor partner would be and for you with that investor. Also, we will kind of serve as the face of the closing on their behalf. And so you can talk to us and we can guide that process for you. And we will be part of the process from the time we signed it up in negotiate initial L.O.I. all the way to the financial close. And then we are asset management team will then help to navigate that process of all of the reporting, things like that for the compliance period, as Amanda mentioned, which is five years. So we will be involved in most of the transaction to make sure that your credits don't ever get to a point where they're at risk. So it's another helpful tool in working with us in the cater. So from the financing team, you'll end up with the term sheets, the main term sheets, the whatever terms you'll be getting for the credits, things like that. You'll end up with the with a set of projections that will outline exactly what is happening financially through the process. I haven't touched on the reasonable most report. This is something that is a report that if you're using historic credits, essentially says that the various fees and other elements of the transaction are reasonable or within a reasonable range. And and it's just one of those things. It's it's more on the compliant side, so we'll go too far into that. And then, as I mentioned a couple of times, the plan and cost review that indicates whether the plans and the financing financial part of that is is is reasonable and within, again, range at that time in your region. So what is a pro forma and projections? Why is that important? The pro forma is basically a financial analysis that outlines the structure, all the financing and all the sources and uses for the various entities. Just like we mentioned, the structuring can seem a little confusing at first. And you're going to see a lot of different documents for different entities that are going to be put in place to maximize your benefit, the investor's benefit and make sure that we're following all of the tax credit rules and protecting your tax credits. So this document is probably three pages in. We'll have a what we call a structure chart. And that's going to have all of the boxes of the different entities who is which entity and where the money is flowing. So you can use this to look back once your deal is closed and say, you know, where the bank accounts, where's the money supposed to move? You know, what are these different entities and how are they related? Who which entity has ownership of which entity and things like that? So it's a really crucial piece to have that as accurate as possible. It also ensures that the structure is in line with the tax credit and accounting rules. So your attorney and and, you know, the other attorneys that will be working on the transaction use that to say, this is this is structured correctly. It also outlines all the nuances and all the terms she's negotiated. So not only the interest rates that that your commercial lender has given you, but also what reserves were expected when you closed, which what percentage of ownership the cash flow that should be going to which entity and things like that. So all of those nuances that you negotiated early on in the process should show up in these financial projections and be pretty clear of what the expectations are as you move into the project. And it'll also predict the timing of the cash flow inflows and outflows to make sure that your deal punsles out so that your bridge loan comes in when it's supposed to come in the capital contributions from your investors come in where they're supposed to come in, what the expectations are for all of these and also, you know, from the appraisal, how much rent should you be expecting? What the expenses? What do we think the expenses we're going to be when we close? So they're kind of just like a prediction of how the project will pencil out going forward. Next slide. So this is kind of a summary of all the things that we were talking about. So first, you're going to decide how you're going to use your building, engage an historic consultant to help you start the application process. Then you're going to engage your accountant, attorney, GC, architect, et cetera, and have them start to work on the plans of what your project will become, begin to look at the numbers. How much of a loan do you need? How much how much how many historic tax credits can you expect? Et cetera, you're going to create your budget and your pro forma, figure out how many tax credits are available for you to go and pursue and things like that. Then you will identify what you have in place, start your pre development work. Also, early in the process, it's good to start looking for who will be a tenant in your building. Start to start to pursue LOIs with tenants with whatever building use that you plan to pursue. Then you'll start to obtain commitments from your lenders and investors, syndicators, et cetera. So that's when you will start to receive term sheets. You can see how you need to adjust your budget, et cetera. Then, obviously, you go through the construction process. Once that's complete, you'll be applying for your Part 3 approval, which will make your credits eligible on the historic side. You can go to the next slide and this kind of outlines. It looks a little overwhelming, but which maybe it is. I'm not sure, but this kind of gives you a general outline. As Amanda mentioned, every project is different. This may not happen in the sequence, but this is a good idea of when you should start looking out for different elements for your project. It's good to do certain things early on, not only so that you know what your expectations are, but also their lead time items that may take a while. So, for instance, once you identify lenders, perhaps getting an appraisal or starting your environmental reports as early as possible, it's because you're going to need those things to close and you're going to need to know what you're working with, as we mentioned earlier. As some of this is pretty straightforward and I think we covered most of these elements already. So you can go to the next slide. So this is an example of a project that we've worked on. I actually closed this transaction. It's called Academy Lofts. It's located in Atlanta, Georgia. It previously was vacant for 50 years, I believe, as a former school, and the developer restored it as affordable housing for artists and non-profit education, Center for Local Children. And they used a lot of different tools in the toolbox. They used both the state and federal historic tax credits, new markets tax credits, their own equity, and a variety of grant sources that they were able to source from the city and state. So you may use some of these tools. You may use all of these tools. It was in a severely distressed census tract, which is why they were able to utilize the new markets tax credit program. NTCIC is also a new markets tax credit syndicator. So if you are in a severely distressed census tract and you're planning on using your building to either create jobs for the community or service your community in some way that is significant, please reach out to us for a syndicator. You can look up the new markets program and see which CDEs, whether they're called community development entities have allocation in either in your area or nationwide and see if you can find a match in that way. This was a very successful project for this community. It's been able to help a lot of artists in the community. It's a vibrant space. I know that it's been featured in various articles about the great benefits that it was able to bring to the community. This is one of the reasons that we do what we do to save a beautiful building like this, but then also to serve as a catalyst and a place of generation for the surrounding community. And you can move to the next slide to kind of understand a little bit about what this capital stack look like. So in this case, the capital stack you see here is the capital at what we call the landlord level. And that's the entity that owns the real estate and kind of undergoes the construction expenses. In this case, because they used a federal new market tax credit program, the federal equity stayed at a different level to kind of help facilitate the creation of those. I won't go into this, it's very complicated, but otherwise you might see the federal tax credit equity in this part of the capital stack. So again, because of structuring and things like that, we may keep the incentives at different levels in order to help facilitate the use of as many incentives as possible. So in this case, 25% of the budget, construction budget was for the senior loan. 25% was, I believe we gave a $2 million allocation to the project, which is 25% of the construction budget. They also got a housing opportunity bond. That's one of those grants type programs that we discussed, 18% of their project was facilitated by that bond. They also utilized the state historic tax credit program. It ended up being 17% of their capital stack. They put in 13% of equity and deferred developer fee. And then another state grant that was a smaller grant that added in 2% of additional equity for the project. So as you can see, there's a lot of different ways that you can tackle your construction budgets. And there are, again, the federal historic tax credit be at this level, it could be at a different level to help you with reserves and other requirements that may fall into the budget and things like that. So I've had some projects that just used federal and historic tax credits. Some projects that have used everything. I've had a project that was $250 million and they used historic tax credits, state historic tax credits, multiple new market tax credit community development entities, EB-5 financing. They were Opportunity Zone fund. I mean, they found all of these different incentives to use in order to make that project possible. A lot of times, again, it's overwhelming sometimes to see a project of that size, how can this get done? And it can get done by using a lot of these incentives and making it so that the senior loan makes sense for the loan to value, that it is not as high risk as other just a traditional loan and equity situation. So in the new market tax credit program, for instance, while they're structured as loan, all of them are below market. So in an environment where the interest rates are going up significantly, this is a great tool to get some financing for your project that is very much below market. I mean, it could be 1% interest only during the seven-year compliance period. So this is a great tool to use to make the project work. So I know it's overwhelming. And for instance, for the Academy Lofts project, the developer wasn't as familiar with some of the tax credit tools. And we were using a new investor that we were educating in investing in these types of products. And because they used a syndicator and they put together an amazing team of experienced individuals, the project closed successfully and within a reasonable timeline. And you can use these tools. And I guess, as we're nearing the end, I just wanted to, I guess the summary of this entire presentation is these are the steps that you can take, but definitely don't be overwhelmed if you haven't done this before. If you put together an experienced team, if you use the knowledge of other individuals, such as syndicators, attorneys, and things like that in your market, you can put together one of these complex transactions and really make a project that may or may not seem feasible, make it work for you. And again, it's helpful to have a background in it, but you have to start somewhere. And so definitely just lean on your team and get some experienced people together to help you close. So I don't know if, Amanda, you had any other? Yeah, that's great, Kathy. And I was just going to add that I think more than half of the deals we see are first-time historic tax credit developers. And they've put together the right team. So that doesn't scare us away. Like a syndicator, we're familiar with developers have done lots of real estate, new construction-type projects, but this is their first time utilizing the historic tax credit program and so looking for assistance from us and others as part of the team to help them get through a project like this. I know we covered a lot in this short presentation. And I was just going to say our website is ntcic.com. And you can find our contact information out there on our website. We have a lot of great blog posts and resources out there as well that I would encourage people to look at. And of course, reach out if they have any more questions that we can help with. Absolutely.