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Dogtown Dish: “Tax Reform Act Will Obliterate Richmond’s Historic Shell Property Values”
12/17/2017 6:15 AM by John M
I am surprised by the number of people who are attempting to spin what is going on in Washington DC right now related to the Historic Tax Credit changes proposed by The Tax Reform Act as “not that bad” or “it could be worse”. True, an outright elimination of the Preservation Credit for Historic Properties could be worse, especially for developers who rely on the program. But the changes could not be more dire for the owners of historic shell properties who will not be able to qualify for grandfathering under the old rules. The City of Richmond’s real estate tax base is also going to suffer a whopping blow. Let me walk you through the math.
The proposed elimination of the preservation tax credits is not only bad for aging urban areas, but for historic towns and individual properties throughout rural VA. The state economy will suffer #notfakenews
“The City of Richmond’s real estate tax base is also going to suffer a whopping blow . . . .”
An overstatement, to say the least. More importantly, why should the federal government subsidize certain development projects. The government should not be picking winners and losers. (I have been involved in renovating properties since the 1980s. I have never utilized historic tax credits, but I do understand why developers take advantage of them.)
#2 – It’s not just the feds that subsidize projects. The city just picked a winner/loser (TBD): $8 million already “provided” and another $4.9 just “provided” (because the developer didn’t get his funding straight before he started)…so, of an estimated $25 million total cost, Richmond’s already provided just shy of half the development cost:
http://richmondfreepress.com/news/2017/dec/15/city-council-oks-money-raises-church-hill-north-pr/
Historic tax credits have become harder and harder to obtain. With these new changes it doesn’t sound worth the risk. Would like to read more on it. Very disappointing. That said I don’t think the value of shells are going to tank. Probably only 1 in 20 homes are renovated with tax credits. (If that). So that should not impact demand or supply very much. Definitely a bummer though. I’ve renovated several homes and used the credits. Not having to pay taxes does not suck.
historic tax credits will not be eliminated. typical fake news political bullshit.
and there is no proposal to eliminate historic tax credits
typical denial of actual facts much there bill?
https://ctmirror.org/2017/11/15/house-gop-tax-plan-ends-historic-preservation-break/
http://www.cleveland.com/opinion/index.ssf/2017/12/eliminating_new_markets_and_hi.html
https://www.washingtonpost.com/local/dc-politics/house-tax-plan-faces-bipartisan-backlash-over-repeal-of-development-incentives/2017/11/15/e2958d1a-ca27-11e7-8321-481fd63f174d_story.html?utm_term=.e4712cb1563d
http://www.chicagotribune.com/news/columnists/kamin/ct-met-preservation-tax-credit-1103-story.html
https://www.freep.com/story/money/business/john-gallagher/2017/11/08/republican-tax-plan-aims-killing-historic-tax-credit-vital-detroits-recovery/839310001/
hey bull. get your self updated. there is no proposal to eliminate HTC. HTC is scheduled for a vote next week.
will you ask your house rep and senators to support it? will they?
yes I heard about a Detroit recovery. I have been there. I don’t buy that.
Their “values” need to fall. They’re artificially kept up by the misuse of tax money. Were they more affordable, it’s more likely they would be renovated.
Though tax credits may have been a good idea at one time, they have outlived their usefulness. The incentives are causing aberrations such as 20th Century warehouses being turned into apartments when letting the market work would have resulted in newer, less expensive, more useful buildings being put in their place. Tax incentives have become a giveaway to connected developers who know how to work the system.
@Keith, Bill, etc. The tax credit is a form of accelerated depreciation which is intended to make it feasible to renovate these buildings properly, preserving and restoring historic features, rather than to do a half-@$$ job. The value of the credit (20% federal, 25% state – 45% of renovation costs) is supposed to be immediately deducted from the buildings basis, reducing future depreciation and, if the building is ever sold, substantially increasing the capital gains tax associated with that sale. It’s a strong upfront incentive, but not as strong long term.
When the program works, developers only “win” if they not only end up with a more expensive building and a commensurately higher tax bill, but also higher rents (not always the case).
The public usually wins regardless, and in multiple ways: Over time, the tax credits generate jobs and economic activity that more than justify the cost in foregone tax revenue. Historic neighborhoods tend to have higher home values, generating more tax revenue for the city. And usually the neighborhoods most impacted are neighborhoods that have already been harmed by government intervention (urban “renewal,” poor planning/zoning decisions, urban freeway construction, suburbanization subsidies, etc.) and private but decidedly noneconomic decisions (i.e. Racist lending and housing practices). The argument that the government shouldn’t pick winners or losers is a moot point in this respect. Finally, the public wins because these buildings are worth preserving, whether you accept that argument or not.
(There are also environmental considerations vis-a-vis preservation, but they are complicated and I’m going to guess that any attempt to argue those considerations is probably pointless in this context…)
I do agree that there are problems with the historic tax credits, though. It is not so much the credit itself that is the issue – the problem is developers who get away with shady stuff – like demolishing or removing historic features *PRIOR* to starting the Tax Credit review process so that they don’t have to restore them or who unfairly inflate their expenses, for example. The solution is to rework and to better enforce existing rules, not to get rid of the tax credit.
Finally, it is my understanding that the current proposal eliminates the ten percent tax credit for buildings fifty years or older. This seems unfortunate, as many historic structures fall outside of surveyed districts (i.e. Aren’t eligible for the twenty percent credit). Furthermore, the current proposal (i.e. The conference proposal, not the individual house or senate bills) also restricts how quickly the credit can be used. Although the credit is not being eliminated, Michael Hild is correct in pointing out that, due to the time value of money, this reduces the value of the credit (possibly substantially). This seems like it will be especially problematic for developers that syndicate their credits to investors to finance their projects, and may make a lot of HTC projects unviable, even if the credit is not eliminated
I am in favor of what the Hild’s are doing to revitalize Manchester. But they have bought several uninhabitable shell properties for over 600K. Those were a risky speculative actions they took. A speculative bubble if you will…
This tax bill is going to hurt so many people. Low income people, grad students, those on Obamacare, working stiffs who needed to deduct their state income taxes to itemize, etc… Having sympathy for speculative purchases of shell properties being adversely impacted is not real high on my list.
Besides, Mr Hild is a CEO of a reverse mortgage company in his day job. I’m sure he’s going reap major rewards in that part of his life from this fiasco of a tax bill…
the trumpet tax bill is like obamacare, you get to find out what is in it after it passes. that is how it is done in a third world shithole country.
Hey MJR, the point of the article is that historic un-renovated building shell owners who can’t qualify for grandfathering under the old rules, are going to take a hit. That isn’t necessarily Laura/I. All our “risky speculative” Manchester projects qualify for grandfathering under the old rules because we have already started renovation work.
And yes, our Manchester projects are highly risky. We know that. But we are trying to help Manchester get back on its feet. The only way to accomplish that is for someone to take a seemingly crazy risk, when no one else will. We thought we would give it a shot. No idea if that turns out to be a colossal financial mistake for us, but we are trying to help the area. We’ll see how it turns out.
The folks who are all but guaranteed to get crushed by the changes to the HTC program however, are the building shell owners who don’t have the ability to start renovation RIGHT NOW. That means all those building owners on Hull Street, Broad Street, etc, who have held on to their buildings (in many cases for generations with the hope that property prices will rebound) are going to take a big hit. Their property values will drop dramatically as a direct result of this tax change.
The City of Richmond will also see its tax base drop like a rock for all these properties. That means tax collections will suffer. When tax collections suffer, our schools, sidewalks, street paving, and services suffer.
Bottom line, the tax reform act is going to hurt the City of Richmond.
Your “bottom line” comment completely overstates the impact tax collection from shell properties have on funding city services. It’s disingenuous. what the city can charge empty shells doesn’t move the needle much at all. This is just the typical pro development “think of the schools” claptrap that’s been used for years to distract people. As if anything and everything a developer is lobbying for will somehow be the key to magically yet indirectly improve the schools.
As for the devaluations impacting families who have been sitting on vacant for decades in hopes of a big payday? Such land bankers have been part of the problem with Richmond.
so what happened to the HTC in the trumpet tax law?
The proposed cuts to the HTC program as outlined in the article were included and officially signed into law (Senate Version). Federal credits are now spread over five years. Because of the political risk and time value of money, these federal credits have become essentially worthless collateral to the banks that finance historic renovations. All the recent/former sales “comparables” appraisers and city officials use to value historic shells are drastically overstated as a result, and no longer applicable.
The only remaining question is will the City write down (reduce) its assessments for the thousands (perhaps tens of thousands) of these properties throughout the city and cut its tax base as a result? Or will the City keep all the assessments unchanged in a desperate attempt to collect more taxes while these buildings rot and are eventually torn down since it is no longer economic to renovate them? My guess is the City goes with the route of the old Jedi mind trick (there is nothing to see here), and collects what it can despite having inflated values in its systems from owners who are stuck with a depreciating asset but left to pay taxes at the prior values using the old math.