Hotel Lakeside Project Presentation Recap III

Posted on August 03, 2015

The last of three scheduled workshops focused on the Hotel Lakeside Project was held on July 30 in Chautauqua Hall. Approximately 50 Lakesiders were in attendance.

This session focused on the details of the Historic Tax Credits and how they apply to this project. Peter Ketter, director of Historic Preservation for Sandvick Architects in Cleveland, Ohio, was the featured presenter.

Ketter started his discussion by summarizing a number of Sandvick’s historic preservation projects – the firm has been involved in design work for more than 200 such projects. He then described the details of what is necessary to qualify for the 20% Federal Historic Preservation Tax Credit and for the 25% Ohio Historic Preservation Tax Credit.

The Federal government credit is seen as a program that has paid for itself with increased tax revenues over time, and similarly, Ohio’s program, which generally piggybacks on the Federal program as to qualifying standards, has resulted in benefits resulting from development and jobs stemming from the program.

Ohio’s program allocates $60 million annually (in two $30 million tranches available in a competitive process held twice a year), available as Historic Preservation Tax Credits. Starting in 2007, the most recent semi-annual process awarded $30 million to winning projects – the total amount of credit requested was $75 million in this round.

Projects that are submitted can qualify in one of three categories:

  • Large projects exceeding $8 million
  • Intermediate projects in the $1-8 million range
  • Small projects less than $1 million

Competition for the credits is based on geographic considerations, including location, demographics, leveraging the investment, vacancy in the existing facility, secured funding, job creation and economic benefit. Projects awarded credits in this round scored at least 90 out of 100 points for the large project category, 88 points for the intermediate category and 85 points for the small category.

The most recent state budget arrangements suggested in the reconciliation process a two-year moratorium in awarding tax credits. The moratorium provision was removed, and the credits retained for a two-year period, following a very large outcry from communities, developers and other beneficiaries of the program, to be followed by further study as to the program effectiveness.

Ketter then described what he referred to as “What’s the catch” for qualifying for the tax credits – that, is, that the awardee must follow U.S. Department of the Interior Standards for the historic preservation process.

Key points in the standards include:

  • Retaining the character-defining historic features of the facility
  • Repairing existing elements as preferable to replacement
  • Do no harm to retained elements (e.g., do not sand-blast masonry)
  • Differentiate any new work from historic preservation; adaptive re-use is permitted

Key historic review matters include such elements as:

  • Exterior repairs
  • Masonry repairs
  • Historic window repair or replacement
  • Signage
  • Public interior spaces
  • Decorative lobbies
  • Historic circulation elements and patterns

Secondary spaces in the project are open to redesign.

Additional regulations impact new additions to the historic property:

  • Historic design is to remain predominant
  • The new addition should not detract from the historic character of the structure
  • New work can be contemporary but needs to be compatible with the original work

Ketter continued by describing application of the historic tax credits to the Hotel Lakeside, which he described as “our public living room.”

The preservation project under consideration would reinstate some historic elements that have been removed over the years, and would surgically remove other parts of the structure no longer useful, such as non-compatible kitchen additions, and certain interior walls. The goal is to appeal to contemporary audiences while preserving the historic character of the hotel.

Financially, the tax credits could yield $5.6 million, available on the completion of the project. The 20% Federal benefit is expected to net a total of $2.1 million, based on a yield rate of 90% to account for investor demands and accounting, legal and financing fees. The state credits have yielded a lower rate, about 75%. The Federal credit is assured, as long as the project compliance requirements are met.  In contrast, as suggested earlier, the state credits are awarded through a competitive process.

So, is compliance with the Historic Tax Credits a net value? As Ketter reviewed the expected costs of compliance that would be necessary for the historic tax credits, he indicated that a non-qualifying rehabilitation project would be able to reduce about $300,000 in construction costs for siding and windows and another $300,000 in soft costs, such as historic preservation design fees and other legal and related costs. But, that total savings, surely less than $700,000, must be compared to the $2.1 million in Federal tax credits and a potential total of Federal and state credits of $5.6 million.

Ketter responded to a wide range of questions regarding the tax credits. He indicated that a condominium structure is generally unsuccessful due to the requirement that the owner is disabled from selling an interest in the project for a five-year period.

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