Rental housing prominent among tax-credit projects

Rhode Island has approved 23 projects for state historic preservation tax credits since temporarily reviving the program a year ago – none of them private mansions or social clubs.
Suspended during the 2008 budget crisis under criticism for financing work with little public benefit, such as the posh Hope Club on Providence’s College Hill, the program is now mostly being used to create new rental housing, with about half the projects also including at least some commercial element.
When lawmakers reinstated $34.5 million for new credits in 2013, they banned social clubs and any project with fewer than three apartments. Then they capped the amount any single project could collect at $5 million.
The projects that have come out of this new funding round, roughly a dozen of them already under construction, are fairly similar to the ones proposed during the scramble for credits before the 2008 suspension.
There are fewer megaprojects like the soon-to-begin South Street Power Station, which reserved its credits before the program was put on ice, and very few small projects like single-family homes or diners.
So what is being built with the help of state historic tax credits and what could Rhode Islanders expect if the program is restarted again next year?
Only one project currently in the pipeline, the conversion of the American Tourister mill in Warren into a mixed-use complex with 200 apartments, maxes out the $5 million credit cap.
Now going through local permitting, the American Tourister proposal comes from Brady Sullivan Properties and Starr Development, the team responsible for two other projects on the tax-credits list: Eagle Street Lofts in Providence and the recently completed American Wire apartments in Pawtucket.
As it happens, the Eagle Street Lofts, which would convert the former U.S. Rubber Factory into apartments, is the second-largest project with $4 million in estimated credits. American Wire, with 143 apartments on Central Avenue, is slated to receive $1.85 million.
One common criticism of historic tax credits, and development incentives in general, is that they often subsidize construction that would have happened anyway.
Of the 23 projects that have signed contracts with the state Division of Taxation, at least three, including American Wire, were already in progress when the program was restarted last summer. The others were two phases of the Providence G project in Providence. A fourth, the Dean Hotel in downtown Providence, could be poised to join them. It is listed as “contract pending” on a list of projects from the R.I. Historical Preservation and Heritage Commission.
Many of the other projects, if not most, were in planning stages when lawmakers brought the credits back, although it is virtually impossible to know exactly how many were pushed over the top by their additional financial boost.
As they were before the suspension, mill conversions feature heavily in the new projects, with eight under contract.
Providence has the most projects with 13 properties under contract, but eight other communities are represented on the list.
“We think the projects are very strong as a group and poised to accomplish a lot of the objectives state leaders set for the program,” said GrowSmart Rhode Island executive director Scott Wolf, a leading historic-credit proponent. “A lot of activity is happening in distressed neighborhoods. I think we are going to see significant economic impacts before end of this year.”
Rhode Island’s program offers credits worth 20 percent of the cost of rehabilitating a historic building, generally one on the National Register or in a historic district, plus an extra 5 percent if the project includes commercial space. Thirteen of the 23 qualify for the bonus.
Projects also typically receive federal historic credits at the same time as state credits. Both can be sold on to brokers or other third parties to use against their tax liability.
To secure credits, a developer has to convince the Preservation and Heritage Commission of the building’s historic credentials and that the restoration will be faithful to the original. After that is approved, they have 30 days to enter into a contract with the R.I. Division of Taxation, which includes a fee equal to 3 percent of the qualified rehabilitation expenses.
The $34.5 million in credits authorized by lawmakers in 2013 came from projects that had previously secured credits and later abandoned them. That was supplemented by an additional $11.4 million left over from the old program and $3.6 million added from fees, according to R.I. Tax Administrator David Sullivan, for a total of $49.5 million. This year Gov. Lincoln D. Chafee hoped to deploy for new credits an additional $52 million in borrowing that had been previously authorized as a reserve account. Lawmakers did not approve the new spending.
Since the program was oversubscribed, the state held a lottery to put projects in line for credits.
The tax credits of the 23 projects under contract with tax officials are estimated to be worth $26.5 million, said R.I. Tax Administrator David Sullivan.
That leaves $23 million still available as of Aug. 5, Sullivan said.
He said the state is in talks with up to 12 additional applicants whose projects might fit within the amount of credits remaining are under review. There are 22 projects still in line for them.
Despite the oversubscription, Sullivan advises developers with a potential project to apply to get on the list in case more credits become available or lawmakers restart the program again.
“The historic tax credit program is going to continue, but we’re taking a one-year break from funding it,” said Speaker Nicholas Mattiello in an email through spokesman Larry Berman on where he stands on the program.
Mattiello cited the amount of money still being worked through in the existing credit plan and the cost of the South Street Power Station project as reasons for the one-year hiatus.
At least six projects that had secured credits have abandoned them for a variety of reasons. According to the Historical Preservation list, that includes The Providence Journal headquarters building in downtown Providence, the Ruben Sweet House in the Elmwood section of Providence, the Wickford Elementary School building in North Kingstown, the Lapham Building in downtown Providence and the Exchange Bank Hotel in Newport.
Neither Taxation nor Historic Preservation officials said they could discuss the reasons projects have dropped out.
The Journal building remains for sale, the boutique hotel conference center planned for the Wickford Elementary school has been dropped, the Lapham Building was sold in May and the Exchange Bank Hotel has stalled over the relocation of existing occupants. •

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