Tax Credit Marketplace, LLC (TCM) presents investors a fresh look at Historic Tax Credit projects.
In today’s low interest rate environment investors are constantly searching for yield and safety. There is new hope. Buried in the December 2017 Tax Cuts and Jobs Act (TCJA), overshadowed by Opportunity Zones legislation, was a hidden gem. That gem was the Federal Historic Tax Credit, commonly called HTC. And in the TCJA’s construction, HTCs were saved from elimination. The TJCA introduced new rules for HTCs, while removing others. Gone was both the pre-1936 construction, ten percent credit and also one year credit utilization. Untouched was the twenty percent HTC, but that credit was now married to a longer five-year credit utilization. This reshaped the HTC landscape.
HTC redevelopments in the South generally fall into two categories, the larger rural textiles rehabs and small to medium sized urban “Main Street” rehabs. Historically the large institutional credit buyers (HTC investors) of one year credits feasted on the larger projects. Now that HTCs are spread out over 5 years, the investor profile has changed. The large HTC investors may still consider the larger projects, but the main street projects are not their target. Here lies the opportunity for new HTC investors who are better suited under the new rules. The five-year credit utilization produces a steady, predictable and digestible annual allocation of Federal credits to an HTC investor. The rules regarding investment timing remain unchanged. The net result is a substantial drop in the pricing of the HTCs.
The new pricing discount alone can produce a double digit return. This is achieved by the HTC investor paying their federal taxes at a substantial discount for the next five years. HTC Investment structures also produce annual dividends based on the investor’s capital contribution. The HTC investor is allocated the majority of project profits, losses and depreciation during the hold period. Investments are held for a minimum of five years, then the investor can choose to exit the project after all the credits are realized. HTC Investors best suited for investing in projects are some C-corporations, banks or high net worth individuals with significant passive income.
The Federal HTC program encourages private investment to historic buildings. Communities experience enhanced property values, creation of local jobs and form the “sense of place” that has become such an important factor in deciding where we live, work and play. This program encourages the reversal of the flight to the suburbia and continues the trend of the return to urban, providing additional “Main Street” safety to HTC investments. HTC legislation is effectively underwriting the rebirth and redevelopment of our cities and towns.
HTC - History and Benefits at a Glance
The program and investment structure has a 40+ year history. Since 1977, the HTC program has facilitated the rehabilitation on over 44,000 buildings and is administered by the National Park Service and State Historic Preservation Office. In 2019, $5.7 Billion was invested into HTC investments.
Some of the many benefits of HTC Investments:
- Credits purchased at a substatial discount and utilize at par value
- Investor receives allocation of project depreciation, profit and losses
- Attractive Internal Rate of Return
- Investor receives annual preferred dividend
- Federal Tax Credits can be used with State Tax Credits
- Historic Projects may be granted favorable tax status
- Credits allowed 1-year carry back and 20-year carry forward
- 5-year minimum investment time period; then investor has divestiture option
- Investor's equity investment reduces debt burden on the project
- Recapture risk low when properly structured (IRC Rev-Proc 2014-12 Safe Harbor)
- Banks can combine HTC investments with other bank financing for the same project
- Bank investors may be granted as qualifying CRA Investment
- Tax Savings result in lower effective tax rate and permanent GAAP Earnings
- Creates immediate GAAP gain
For more information regarding current HTC projects available in the market, give Tax Credit Marketplace a call at 844.825.4337.
