Historic Tax Credit Market Still Lagging

3 min read

The amount of investor equity for new stand-alone historic rehabilitation tax credit deals still hasn’t rebounded to the level of a few years ago before the Historic Boardwalk Hall decision. Industry officials reported that investors, developers, and tax attorneys are still trying to reach agreement on certain structuring aspects for new deals to be comfortable they will fall under the safe harbor outlined in recent IRS Revenue Procedure 2014-12.

“With respect to historic investors, I think it’s safe to say that there are a number of the traditional investors who are still contemplating what it would take for them to do a deal,” says Eric Darling of Carlisle Tax Credit Advisors, LLC, a Boston-based firm whose clients include investors and syndicators. “Very few of them have been done.”

“What I see is that with respect to the big investors, most of them are still on the sidelines,” said Darling.

David Leopold of Bank of America Merrill Lynch, a major historic credit investor, said the bank is continuing to close stand-alone historic tax credit transactions. He said the bank has seen more deals since the IRS safe harbor guidance came out. “But the pace of closing those deals has not exactly picked up the way we would have hoped.”

“The safe harbor guidance, Revenue Procedure 2014-12, provides a great deal more clarity around deal structuring,” said Leopold. “And we intend for our deals to fit within that safe harbor. The hope was we roadmap, we quickly execute against the roadmap, and everything closes very smoothly. But no two deals are exactly the same. So while the revenue procedure does contribute to clarity and uniformity within stand-alone historic deals, there’s still a lot of ambiguity. The industry is still feeling its way through and there’s some stuff in [the revenue procedure] like third party reports and validation or structure for which there aren’t a whole lot of comps. It’s hard to get that stuff.”

Industry officials, though, expect the remaining issues to be worked out and for investors and developers to come to agreement in the near future on the structural characteristics and terms for new deals and the level of credit pricing. But they said there is not likely to be any single cookie-cutter structure or uniform credit pricing for all stand-alone historic deals, but rather variations in structures and pricing based on the type of project, specifically the amount of free cash flow generated.

In the meantime, some historic tax credit developers are hurting, Carlisle noted. “Some deals have gone forward with the credit going to the developer,” he says. “Some deals have gone forward with no credit. A few deals have been done and have happened. And some deals are under construction and the developer’s feeling great pressure finding an investor. So it’s very difficult for the developer.”