The expiration of a tax credit program providing incentives for the rehabilitation of old or historic buildings could have a “devastating” impact on redevelopment efforts in the city Mobile, a developer recently warned.
Georgia-based developer Pace Burt said he was attracted to Mobile largely because of the state’s historic rehabilitation tax credit program. He said he would like the credits to remain on the books past the sunset date in 2016.
“It allows for projects that may never have been developed,” he said, calling it a “game changer” for Downtown and Midtown. “You can’t afford to renovate taller downtown buildings without it.
“There are so many great historical buildings that need help,” he said.
The credit was put in place in 2013 and set for three years. The program gave a total of $60 million in tax credits to developers who offered to save older buildings in the state, with certain limits.
According to the Alabama Historical Commission’s website, the tax credits can account for 25 percent of qualified rehabilitation expenditures for certified historic buildings used for income-producing or residential purposes, or 10 percent of rehabilitation expenditures on structures built before 1936.
To qualify for the credits, project expenses must exceed 50 percent of the owner’s original purchase price, or $25,000, whichever is greater, and work must follow the Secretary of the Interior’s standards of rehabilitation.
Guidelines state that commercial projects are limited to a reservation of $5 million in credits and residential projects are limited to a reservation of $50,000 in credits. A total of $20 million in credits is reserved each year and excess credits will be carried over each year.
State Sen. Trip Pittman (R-Fairhope) said the $60 million limit in credits had already been reached by year two, but the state is still taking applications for the program. He said the legislature is still considering whether to renew the program when it sunsets next year.
Pittman said a report on the program’s effectiveness has been commissioned and he’ll study the report before making a final decision.
“We’ll look at the projects,” he said. “We’ll evaluate the projects before looking to renew it.”
Elizabeth Stevens, president and CEO of the Downtown Mobile Alliance, said it was too early in the program to make judgments about its economic benefits based on a report.
“It’s too short a period of time,” Stevens said. “It passed in 2013, but there were no applications until October 2013 and things really got going in 2014.”
She said the average length of time to complete rehab projects is two to three years.
“We’re doing an economic analysis of projects that are a year and a half old,” Stevens said.
The program has so far been successful for Mobile, as more than a third of the approved projects — about 11 of 30 — are in the Azalea City, Stevens said. Those reservations represent $35 million to $40 million in investment and a total of $8 million in tax credits, Stevens said, although it’s hard to nail down the amount of total investment because the credits are only applicable to qualified rehab expenses.
Some of those 12 projects include the Gayfer’s building, which was purchased by the New Orleans based Gulf Coast Housing Partnership, as well as the Old Shell Road School and 951 Government St. in Midtown, both of which are being developed by Burt.
“It’s created interest in projects no one was looking at,” Stevens said. “It has triggered so much interest in Downtown and Midtown from people outside of the state.”
It is still unclear what GCHP has planned for development of the Gayfer’s building, but 951 Government St. and the Old Shell Road School will be developed as apartments.
The redevelopment of the historic Russell School building on Broad Street, which was approved for apartments at a Planning Commission meeting Aug. 6, also benefited from the tax credit program. In fact, local developer Taylor Atchison said the project would not have been possible without the credits.
The plans are to turn classrooms in the old school in the Oakleigh Garden District into mostly one-bedroom apartment units, Atchison said. He said the main building at 304 S. Broad St. would become 24 one-bedroom units, while a second building on Augusta Street would become either four one-bedroom units or two two-bedroom units.
Stevens said the credits are beneficial because redeveloping a historic building can be costly. She said the structures were originally built under a separate set of codes and many new building codes adopted nationwide tend to be more geared toward new construction.
“It becomes very expensive to bring a building up to those new codes,” Stevens said.
Without the tax credits, Stevens said, historic buildings can sit empty because of high redevelopment costs.
Another benefit, Stevens said, is the redevelopment of old buildings tends to have a “halo effect” in communities.
“Once these big white elephants come back, small buildings come back all around them,” she said.
Stevens said there was work this session to pass an extension of the credits. The extension was passed unanimously by the state House of Representatives but held up in the Senate. She said they’d try again during the next regular session.
Burt said one issue that might be affecting the legislature’s decision on an extension could be that few areas of the state have historic buildings. Many of the structures that qualify, he said, tend to be in larger cities, like Mobile and Birmingham.
“The problem is you don’t have a lot of historic areas in the state,” he said. “[Legislators] look at it like a specialty program for big cities.”