Historical Mixed Use

17 Replies

I am interested in using a FHA 203K loan to renovate a Mixed-Use building. I am looking to have four residential units and two commercial units. Does anyone have experience with historical renovations? How does the process usually work?

@Devonte Dinkins  hey you've got a fun project on your hands but it will likely be very expensive. I helped revitalize a historical theater and managed several renovated historical building. You will run into surprises.  Budget accordingly. Enjoy the journey.

@Al Williamson  thank you for the reply. I am looking to take advantage of some grants to complete the project as well.  What should my first step be, should I have a developer go out with me to the property I'm interested in? By the way I am a young property manager, and I love your Leading Landlord blog site, it's very informative and has really helped me out.   

@Devonte Dinkins  glad you're enjoying the blog. Hope it leads to a big payday for you.

Bringing a developer along can't hurt. You're going to need estimates of what the work will cost. But my biggest tip for you is to be resourceful. If you're going to tackle a historical project then you're going to need a BIG compelling story to get others to help you.

Even with grants, you need to demonstrate resourcefulness to complete the project - otherwise the nickel and dimes will run out as soon as the 50th surprise catches you off guard. Recruit others to help you  - historical projects need a big group of cheerleaders to help out.

Is it already on the register?  I do lots of renovations but avoid historical projects because my focus is income and they take a lot of love...that said there are architects who really know the process and who to help you through.  I know who to go to in my area and I wouldn't consider trying it without them.  Find those people in your area and your job will be much easier.  If you need a referral, get back to me and I'll ask who they know in your area.  Enjoy the process.

@Joe Fairless the property that I have under contract is different from the one mentioned above.  The property is a large historical home converted into three units,  that is zoned as a office/residential. The city I am investing in has several incentives for business offices, so I hope to at least create one more apartment unit and a small office space. 

Hi Devonte- I love historic mixed use projects-- especially those that revitalize the urban core of our great little cities & towns! These have had a lot of interest in my market, and I've had the opportunity to be involved from the design side. The first question is are you going for historic tax credits? These are worth 20% of your construction cost (but you need to spend more than you paid for the building). Meeting these historic guidelines is often counter-intuitive to some developers (ie you can't expose a brick wall if it was originally plastered), but the t.c. Is often what makes the deal make sense. Some states have an additional 20% state historic tax credit that you can piggyback onto your application (looks like md may). It'll make you want to rehab mills all day! As you're assembling your team, if you're being held to the dept of interior historic preservation standards make sure at least someone on your team (architect, contractor, developer or tax credit consultant) is familiar with the standards & process. I'd love to answer any specific questions. We're outside your area, but if you want some inspiration / projects to ask questions about: http://studiomeja.com/urban-rehab/

Massachusetts has great historical rehab incentives, check out below:

Federal Programs

20% Rehabilitation Tax Credit: applies to any project that the Secretary of the Interior

designates a certified rehabilitation of a certified historic structure. It may be for

commercial, industrial, agricultural, or rental residential purposes, but it is not available

for properties used exclusively as the owner's private residence. The building must be

listed individually in the National Register of Historic Places, or in a registered historic

district (state or local) and certified as contributing to the district. The rehabilitation work

must be certified by MHC as consistent with the historic character of the property or

district. (A 10% Rehabilitation Tax Credit is available for the substantial rehabilitation of

non-historic, depreciable buildings on their original site and built before 1936).

Charitable Contributions for Historic Preservation:

(may be combined with the rehabilitation tax credit) The Internal Revenue Code

provides for income and estate tax deductions for charitable contributions of partial

interests in historic property (principally easements or restrictions). Generally, the IRS

considers that a donation of a qualified real property interest to preserve a historically

important land area or a certified historic structure meets the test of a charitable

contribution for conservation purposes. For this purpose, a certified historic structure

need not be depreciable to qualify, may be a structure other than a building, may also be

a portion of a building such as a facade if that is all that remains, and may include the

land area on which it is located.

Investment Tax Credit for Low Income Housing

This credit is for the acquisition, construction, or rehabilitation of low income housing.

The credit is approximately 9% per year for 10 years for each unit acquired, constructed,

or rehabilitated without other Federal subsidies, and approximately 4% for 10 years for

units involving the 20% rehabilitation tax credit, Federal subsidies or tax-exempt bonds.

Rehabilitation Mortgage Insurance (Section 203(k)

This section of the HUD program enables homebuyers and homeowners to finance both

the purchase (or refinancing) of a house and the cost of its rehabilitation through a single

mortgage - or to finance the rehabilitation of their existing home. This may apply to

many historic homes, and may be combined with specific historic preservation

incentives. See: http://www.hud.gov/progdesc/203k

State Programs

State Building Code: Section 34 Existing Buildings, Provisions for Historic

Buildings This section of the state building code contains exemptions from the

regular code for National Register listed and other Massachusetts Historical

Commission designated structures. 

The Massachusetts Preservation Projects Fund: This state-funded matching grant

program is available for the preservation of properties, landscapes and sites listed on the

State or National Register of Historic Places. Applicants may be a municipality or a

non-profit organization, and funds may be used for stabilization, protection,

rehabilitation, restoration and acquisition. See www.state.ma.us/sec/mhc

Preservation Restrictions: MGL Chapter 59 Section 11, MGL Chap.184 Sec. 31-33)

allows a property with a perpetual preservation restriction to be reassessed on January 1

of the year following the implementation of the restriction. Any property listed in the

State Register of Historic Places qualifies, but such listing is not required. The property

must be historically significant for its architecture, archaeology, or historic associations

to be eligible.

Local Option Property Tax Assessment: MGL Chapter 59; Section 5J. Special

Assessments; Historic Owner-Occupied Residences regulations at 950 CMR 72:00

In 1996, the State Legislature passed legislation which allows cities and towns to adopt

an ordinance or bylaw known as the Local Option Property Tax Assessment. The purpose

of this bylaw is to provide tax relief for homeowners of State Register listed property

undertaking substantial rehabilitation. Within this bylaw, the increased property taxes that

result from a rehabilitation can be phased in over a period of five years. Massachusetts

Historical Commission certification of the work is required. 

Massachusetts State Historic Tax Credit: Chapter 141 Sect. 22 of the Acts of 2003

MGL Chapter 62, Sec. 6J. This new legislation, intended to provide economic stimulus

for the substantial rehabilitation of depreciable historic structures at least 50 years old, is

a five year pilot program similar to the 20% Federal Tax Credit. It will make $10million

available each year from 2205-9. MHC certification of the structure, plans and work is

required. The credit could be combined with the federal 20% historic and other tax credit

programs when applicable. Guidelines similar to the Federal standards and the Secretary

of the Interior's Rehabilitation Standards will apply. See www.state.ma.us/sec/mhc

Local Option Property Tax Assessment (see State Programs)

This program is unique in applying to homeowner occupied historic buildings.

Preservation Restrictions: (see State Programs) under the provisions of MGL Chapter

59, Section 11, a preservation restriction may be held by the state or local historical

commissions, or a charitable trust with the power to acquire land. Restrictions must be

approved by the Massachusetts Historical Commission.

Brownfields Municipal Tax Abatement: a local option tax abatement bylaw gives the

municipality freedom to negotiate with a purchaser/developer when property taxes owned

stand in the way of redevelopment of historic commercial and industrial buildings. (used

in Lowell)

Community Development Block Grants: these funds may be used for the rehabilitation of

historic buildings in designated downtowns, neighborhoods or commercial and industrial

areas, and may be combined with federal or state preservation programs.

thanks @Colleen F. ! We've been fortunate to have inspiring work! Sometimes I see the craziness my developer clients have to deal with and I wonder why I want to be in on the investor size!

@Devonte Dinkins and I were talking about how to use for-profit development as a means to effect targeted revitilization... I.e. Selecting an outcome you'd like to produce (i.e. Mission) and finding the right investment / development strategies to accomplish this.

It seems like we (investors) start looking for a return first, and then an outcome second. I think if we want to give our work meaning and be part of a bigger narrative, we need to flip the equation. 

@Colleen F. I have closed on the property and I will try to keep you posted on my progress. Im excited about taking on the challenge of improving and sustaining a historic district.  Do you have any tips or advice from your renovation?

@Eric Army  I agree completely with the fact that as investors should look to provide value to the community, and returns will come.

@Devonte' Dinkins good luck with the project! Keep us posted on how it goes. 

@Eric Army I find your investing philosophy inspiring especially in our area of the country. We're blessed to have gorgeous architecture and history in New England and I hate to see it being torn down for the same old condo blocks. I'll look forward to seeing what transpires at the Mechanical Fabric Mill. Such a cool space. 

@Devonte Dinkins    one thing I would advise is pay attention to sound.  There are lots of obvious pieces of advise but this is thing I wish I had managed before occupancy.  The building has older high ceiling and hardwood floors that you don't really want to cover but  I wish I had made some sound improvements in the downstairs bedrooms.    It is too hard to address after occupancy. It is just more of an issue in older buildings.

Also fire codes- know what you need to have and lead laws.  Good luck!