Tools in the toolbox: Historic Tax Credits
One of the most powerful tools in real estate finance - especially for redevelopment projects - is the federal Historic Tax Credit (HTC), an incentive that provides a tax credit equal to 20% of qualified rehabilitation costs for the redevelopment of historic buildings.
At a high level, HTCs help fill gaps in a project's capital stack, which often includes:
- Senior debt;
- Mezzanine, bridge and/or subordinate debt;
- Developer and Investor equity; and
- Public and/or quasi-public incentives
Where HTCs fit in:
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HTCs can generate investor equity, reducing the amount of cash a developer must contribute to the project;
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They can improve overall project feasibility and returns;
They can often be layered with other financing incentives, such as state historic tax credits, PACE financing, Tax Increment Financing (TIF), Opportunity Zone (OZ) equity, grants and other local incentives.
Like any financing tool, HTCs require weighing the benefits of added equity against the compliance requirements, timing, and transaction complexity they introduce. When used thoughtfully, they’re a highly effective tool in the toolbox for funding complex real estate redevelopment transactions.
If you’re considering a project that might benefit from historic tax credits - or thinking about how incentives fit into your project's capital stack, reach out to attorney Kirstyn Wildey Fritz.
