Expected Investment in HRTC Properties Drops to $3.13 billion in FY2005, NPS Reports

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Tax Credit Advisor May, 2006: Anticipated private-sector investment in historic tax credit properties was $3.13 billion in FY2005, down 19 percent from the record pace of 2004, according to an annual report recently published by the National Park Service.

The NPS study said that the $3.13 billion in expected investments reported in approved 2005 Part 2 applications for Historic Rehabilitation Tax Credits (HRTCs) compares with $3.88 billion reported in 2004. The 2005 figure is the third-highest annual level recorded. The second-highest total was $3.27 billion in 2002. In 2003, the total was $2.73 billion.

Certified investments in HRTC properties in 2005, as reported on approved Part 3 applications, totaled $2.49 billion, compared with $2.20 billion in 2004. Private-sector investment in HRTC projects is estimated on Part 2 applications when they are submitted for approval of proposed rehabilitation work. Certified investments, which are reported on the Part 3 form and used to calculate HRTCs, are the amounts actually spent on the qualifying costs associated with rehabilitation.

The NPS study, titled “Federal Tax Incentives for Rehabilitating Historic Buildings: Statistical Report and Analysis for Fiscal Year 2005,” also said that Part 2 and Part 3 certifications in 2005 were down from 2004 levels. Part 2 certifications totaled 1,101 in 2005, compared with 1,200 in 1994. There were 813 Part 3 certifications in 2005, compared with 883 in 2004. Part I certifications, however, were up slightly last year to 1,943 from 1,932 in 2004.

Based on the expected investment totals, NPS calculated that the maximum amount of HRTCs to be claimed for 2005 projects with Part 2 certifications is approximately $630 million, compared with $780 million in 2004. The average tax credit per project was approximately $570,000 in 2005, compared with $650,000 in 2004.

The average cost of projects receiving Part 2 certification was approximately $2.8 million, with 32 percent of projects over $1 million. This compared with an average project cost of approximately $3.2 million in 2004, with 35 percent of projects over $1 million.

As of the end of the 2005 fiscal year, NPS had approved a grand total of 32,885 Part 3 certifications under the HRTC program, leveraging $36.8 billion in private investments in historic properties.

Decline in Certification Approval Rates

Another significant trend reported by NPS was a decline in the percentage of Part 2 applications approved. In 2005, 1,282 applications were received and 1,101 approved, an 85.9 percent approval rate. This compares with a 92.5 percent approval rate in 2004, based on 1,297 Part 2 applications received and 1,200 approved. In 2003, 1,270 applications were approved out of 1,336 received, for a 95.1 percent approval rate.

The approval rate for Part 3 applications also declined, though less dramatically. In 2005, 813 applications were approved out of 889 submitted, a 91.5 percent approval rate. This compares with a 92.1 percent approval rate in 2004, based on 959 applications received and 883 approved; and a 95.4 percent approval rate in 2003, based on 908 applications approved out of 951 received.

HRTCs and Other Public Funds

Eighty six percent of projects using HRTCs also received other publicly-supported financing in 2005, NPS reported. Low Income Housing Tax Credits (LIHTCs) were awarded to approximately 10 percent of projects receiving Part 2 certification. Approximately 25 percent were awarded state historic preservation tax incentives, and 24 percent were granted a local property tax or ad valorum tax abatement.

Other publicly-supported financing included: U.S. Department of Housing and Urban Development (HUD) programs, 10 percent; historic preservation easements, 2 percent; and low-interest loans, 10 percent.

Individual State Statistics

NPS also assessed HRTC activity within individual states in 2005. It reported that there were almost twice as many Part 2 applications approved in Missouri, 251, than in the second-place state, Virginia, which had 140. Maryland was in third place, with 81. Missouri also ranked first in terms of completed Part 3 applications, with 79, followed by Virginia, with 74, and Ohio, with 69.

California had $281.2 million in certified expenses in 2005, the highest of any state, followed by Pennsylvania, with $237.6 million in certified expenses. California also had the highest average expense per project receiving Part 3 certification, $18.7 million. It was followed by the District of Columbia, with $14.0 million in average expenses per project.

Program Totals

Since the HRTC program was established in 1976, a total of 348,980 units have been completed under the program:192,302 rehabilitations and 156,678 new units. Low- and moderate-income units totaled 80,886, or 23 percent of the housing units completed. In 2005, a total of 14,438 units were completed: 5,469 rehabilitations and 8,969 new units. Of the total completed, 5,342, or 34 percent, were low- and moderate-income units.

Over 1.4 million historic buildings were listed in the National Register of Places in 2005, an increase of 65,971 over 2004, according to NPS. About 20 percent of these buildings qualify as income producing, and are thus eligible for HRTCs.