By now hopefully many of you have read my story about the potential impact of the planned two-year moratorium on the use of historic tax credits and my column on how it might kill redevelopment of the old Bond Bakery.
So, how could this hurt projects already underway?
Critics of this move say the two-year moratorium will be most punishing to those developers most active in redeveloping older buildings. Here’s why:
A developer buys an empty 10-story building in 2007 for $1.5 million. They spend three years working with the state’s Historic Preservation Office to get approval for designs that meet the requirements to obtain a 20-percent state historic tax credit and a matching 20-percent federal historic tax credit.
Renovation of the 100,000-square-foot building comes out to $140 per square foot – or $14 million. The tax credits are deemed critical to covering a funding gap that can not be financed through traditional means, and in this scenario developers interviewed by The Oklahoman say adaption to basic lofts could easily lead to a gap of up to $7 million.
This fictional project would likely qualify for state and federal historic tax credits each adding up to $2.6 million.
Assuming all additional financing is obtained through other means, XYZ Bank buys the federal and state tax credits knowing the credits can not be realized until the renovation is completed and a certificate of occupancy is issued by the city. The developer guarantees to over the tax credits if they don’t materialize. If the tax credits are approved in advance of the project and the renovation is done as planned and promised, there is rarely ever any risk to making such a guarantee – the developer is moving forward with the full faith and credit of the state.
If the moratorium goes into effect, even if the project has been approved for tax credits, developers who are midway through construction could find themselves in default of such agreements if, as in this case, the developer couldn’t personally cover the state tax credit of $2.6 million because the tax credits are frozen.
If this is all too complex to understand, let’s put in simpler terms we can all understand.
Imagine that you took advantage of the appliance tax rebate program last week. You could only afford to pay $300 for a new washing machine – but you bought a $500 washing machine by taking advantage of the $200 rebate promised by the federal government. Now imagine, after using the washing machine for a few months that the big box store called you up saying you owe that additional $200 because the feds failed to deliver on that promised $200 rebate. You did everything right. It’s the government that is backing out on the promised deal they made with you.
That’s what developers are facing across the state – only instead of owing $200, the amount will be in the million.
Legislators seem to think that developers stung by this will agree to using the historic tax credits when they are resumed in two years. Don’t be so sure of that. State historian Bob Blackburn suspects many of those developers won’t survive the above scenario and those that do will likely abandon historic renovation projects for years to come instead of believing in the full faith and word of the State of Oklahoma.
So how does this impact downtown Oklahoma City? Ask yourselves about how all of this might affect the future of the Bond Bakery, the old Sunshine Cleaners, the Fred Jones factory, the Rock Island Plow Building and the First National Tower.
And to those of you spending all of your time worrying about the fate of the buildings being targeted for demolition by SandRidge Energy – you’ve got a lot more to worry about.