Historical Property Preservation
The “Historic Properties” Preservation and the Valuation Process by Judith Reynolds, MAI and published by the American Institute is an absolute masterpiece of American history that follows the preservation movement up to today.
The Historic Preservation Program started in the US with the passage of the National Historic Preservation act of 1966. To date, there are over 79,000 listed properties covered under the Act. The purpose of this Act was to create a means for the documentation, designation, and financial assistance necessary to save landmark properties from total extinction or destruction.
As time went on, the Federal government empowered local municipalities and authorities to create ordinances with standards and guidelines for incentives and the control of historic places and properties.
Thanks to the Advisory Council on Historic Preservation federal support was gained that resulted in the above named Tax Reform Act of 1966. This Act created economic incentives and disincentives, benefits, and penalties that included the beginning of investment tax credits.
Further incentive efforts resulted in the Economic Recovery act of 1981 which accelerated property depreciation and attracted large scale developers.
However, 1982 saw the tax credits base change from a 3 tier savings to only 2 tiers. One, the 25% investment tax credit for historic rehabilitation was reduced to 20% while the 15% and 20% credits for 30 and 40 year old non-historic buildings were combined into a single 10% credit for buildings built before 1936. The one year passive loss rule set at $7,000 to be used up annually now could only be applied against the tax on income generated by the projects themselves. (High-income taxpayers could not use the tax credit at all).
The overall savings and write offs on investment tax credits were forever changing and more and more individual funding again was being relied on.
The 1978 Urban Development Action Grant (UDAGS) allowed grants up to 50% of rehab costs. This changed and ITC’s now were only being applied at the local and state levels and allowed for economically feasible projects only.
The 1995 Historic Home Ownership Assistance act capped the housing tax credits from 20% of costs to $50,000 maximum. These credits however, could be transferred and could reduce interest on mortgages.
Other issues began to rise such as actual uses vs. economic uses, Eminent Domain, and Condemnation Authority conflicts, exemptions and/or tax freeze actions. Also, many properties became subject to the ability to achieve competitive market sales, a reasonable return on investment and a proportion of rent allocation to business income in order to meet eligibility requirements. More and more local, state, and federal authorities are requiring appraisals as the means for establishing eligibility, benefits and analysis of Investment Tax Credits and values for these Historic Properties.
One or all of the common approaches to value are typically used to identify value benefits to individual corporations or agencies who participate in these projects. The appeal, besides third party oversight, is that the appraisal or valuation process is an orderly program by which the problem is defined; the work necessary to solve the problem is planned, and the data involved is acquired, classified, analyzed, interpreted, and translated into an estimate of value.
Some of the available benefits and incentives are as follows:
- Subsidized interest loans
- Tax exempt bond financing
- Mortgage guarantees
- Relief from local sales tax, tax moratoriums, freezes and abatements
- Assessment tax relief
- Zoning and building code relief
- Public purchase and private resale at low prices
- Public/private joint ventures
- Sale of Development Rights (Transferable Tax Credits)
- Accelerated depreciation
- Charitable Donations and Grants
Appraisers must thoroughly document what they are appraising and sometimes must be creative in their approaches. Incentives are created to benefit participants and can create added value. A $50,000 rehab grant in the Cost Approach may create additional return in the Income Approach. Restricting the building height of a historic property may mean analyzing land value by dividing the floor area by the existing building and comparing it to the potential floor area to find the difference in lost density dollars per square foot of land area. Relief from real estate taxes may well mean lower expenses and a higher NOI (net operating income) and a higher market value. Many times historic properties are tourist attractions and create substantial income advantages; all must be measured properly.
Of the 37 listed historic places in Seattle including properties in the Ballard District, Georgetown, Columbia City, Harvard-Belmont Capital Hill, Pike Place Market, the Stimson-Green house, the Arctic, Lyon and Hoge Buildings, Pioneer Square, The International District, and so on, listing them all, Lamb Hanson Lamb has appraised 14 properties.
Those who would like additional information on Historic Properties in Seattle may view the Preservation Advocate website at www.historicseattle.org, or call Christine Palmer at 206-622-5444 ext.226.
