The list reads like a textbook of Rhode Island history. The state’s oldest indoor shopping complex, former textile mills dating to the booming industrial days and houses with decades of history behind them. They are all, in theory, biding their time for better days and a chance to redeem more than $188.9 million in state Historic Preservation Investment Tax Credits.
Since Rhode Island lawmakers repealed the credit in 2007, dozens of developers with more than $755 million in projects have quietly held on to the credits through one of the worst economic crises in decades.
The developers have kept the credits despite the ability to return them to the state and recover most of the fees they paid for the right to keep them past 2007.
“I take as a positive sign that owners still intend to see these projects through,” said Ted Sanderson, executive director of the R.I. Historical Preservation & Heritage Commission.
Of the 65 projects holding credits, at least 22 are moving forward in some fashion, Sanderson said. What will come of the remaining projects is difficult to tell.
The downtrodden economy likely sapped the credit markets necessary for the projects to move forward and some may never have been solid proposals, said Colin Kane, a principal at the Peregrine Group, an East Providence-based developer. Kane estimated that just 20 percent of projects holding tax credits are viable, even in a good economy.
“People just think, ‘Hey I got state credits I can do a deal’ and that’s just not true,” Kane said. “It takes an enormous amount of sponsorship and equity to get these things out of the ground.”
At least 36 projects were scheduled for completion before the end of 2009, according to the historical commission. Some – such as the renovation of the Elizabeth Webbing Mills in Central Falls and United Theater in Westerly – are moving forward in spurts. Others – such as the Dynamo House in Providence – appear stalled indefinitely.
Also in limbo is The Arcade in Providence, vacant since 2008 when owner Granoff Associates announced plans to renovate the state’s oldest indoor shopping complex for one tenant who never materialized. The company did not immediately return a call seeking comment about the status of the project.
Doyle said he suspects many developers rushed to bank the credits before the deadline without any real sense if the project would move forward. Some projects, he said, may have never been viable because of the location or the sheer cost of renovating an old building.
And in today’s economy, bedeviled by high office vacancy rates and low rents, few developers want to plunge into a multimillion project. So they wait the downturn out, scale back or give up entirely.
Take the renovation of the now-shuttered Weekapaug Inn in Westerly into residences and condominiums. Initially scheduled for completion in March 2009, the project came to an abrupt halt with the economic collapse in 2008 that dried up financing sources and the real estate market.
In response, inn co-owners Lang Wheeler and Chuck Royce scaled back the number of hotel rooms and condos by more than half. They now plan to use about $3 million of the $5.8 million in credits the hotel initially amassed, Wheeler said. The estimated project cost has fallen “significantly” from the originally anticipated $23 million, he said.
While the inn moves forward, developers just now exploring potential projects need to find alternatives in lieu of tax credits. Scott Wolf, director of Grow Smart Rhode Island, said lawmakers should restore the credit to encourage developers to lay the groundwork for projects now so they can build when the economy rebounds.
“We need to be positioned to come out of this economic recession as fast as possible so we need to have the tools to do that,” Wolf said.
Wolf has spent the better part of the summer speaking with developers and state officials and putting together a proposal for a revamped tax credit. He plans to present it to lawmakers after the elections in November.
“You cannot overestimate the importance of the state historic credits,” Gates said. “Were they in place today I would be having discussions with a financial institution tomorrow to finance this project.”
Without the credits it could be a year or more before the project moves forward, if at all, Gates said.
Sanderson, from the state historical commission, suspects the rebirth of the historic tax credit would help developers like Gates who are planning smaller projects with price tags of $5 million or less.
Few though expect the re-emergence of the tax credit to spark an overnight building boom. Many projects stretch into the millions of dollars and involve complex financing deals. Older structures like mills also often need significant restoration work to bring them up to building code. Environmental concerns after decades of industrial work must be cleaned up.
“I do think it would certainly stimulate interest in redeveloping mills but I don’t think lenders would get overly aggressive in financing these mills given the current rental climate,” Doyle said. “But I can tell you, without it you’re going to have a lot fewer mills redeveloped.”
Those empty buildings will remain on the market while their agents await a buyer. Michael Giuttari, president of MG Commercial Real Estate Services in Providence, misses the days of the tax credits that enticed higher offers from buyers.
He pointed to two similar mills in Woonsocket across the street from one another. One owner kept the tax credits and sold for $1.3 million. The other did not and Giuttari expects that mill to sell for $550,000.
“The credit certainly was helping when it was available,” Giuttari said. •
