Ohio’s Historic Rehab Boom

7 min read

Old buildings attract young residents

In July, developers plan to close the financing for a $137 million renovation of the Cincinnati Music Hall.

It’s the latest development in the historic Over the Rhine neighborhood, where more than 100 historic buildings have been fixed up since 2000.

Historic rehabilitation is big business in Ohio.

“We are one of the most active states for the federal historic rehabilitation tax credit,” says Judy Williams, a historic preservation consultant based in Columbus, Ohio.

The state has a huge number of historic buildings to fix up. Also, those buildings are often located in neighborhoods, like Cincinnati’s Over the Rhine, that have become trendy after decades of urban decline.

Ohio also encourages historic rehabs with a generous State Historic Tax Credit, which pairs well with federal funding sources, like the Low-Income Housing Tax Credit, the New Markets Tax Credit.

“Any analysis of tax credit allocations will show that we have more historical rehabs than other states,” says Bill Faith, Executive Director of the Coalition on Homelessness and Housing in Ohio (COHHIO).

Unique, historic Ohio
Ohio has more listings on the National Register of Historic Places than any other state except New York and Virgina.

“We have an amazing collection of historic buildings,” says Williams. “From row houses through to major office buildings.”

Developers are suddenly very eager to fix up these buildings as the neighborhoods attract new residents.

Cleveland’s historic downtown area, for example, now has a population of 15,000 people – up from nearly zero just a few years ago. Populations in downtown Columbus and Cincinnati are also growing.

“You’ve got all kinds of young people moving in,” says Joyce Barrett, Executive Director of Heritage Ohio, a group which advocates for historic rehabilitation.

“People are looking back to the city core. There is more interest in urban living,” says Joe Pimmel, Vice President for the Ohio Capital Corporation for Housing, a syndicator of both Housing and Historic Tax Credits.

Ohio is well-positioned to benefit from the trend, because the state has an unusually large number of historic downtowns.

There are six large cities with populations greater than 100,000, each at the heart of its own metropolitan statistical area, plus nearly a dozen smaller but significant cities and 88 county seats, each with a downtown typically lined with landmark banks, factories and old schools.

Ohio grew quickly from the 1860s through to the 1920s, leaving behind an architectural legacy in these downtowns in brick, stone and steel that has in many cases survived to the present day.

These cities lost a great deal of population to years of industrial decline, but redevelopment can bring abandoned buildings back to life.

In 2015, Heinen’s Grocery Store opened one of its high-end stores in the Cleveland Trust Rotunda Building. Built in 1908, the old bank is one of the most recognizable and iconic buildings in Cleveland. State and Federal

Historic Tax Credits helped pay for the rehabilitation.

“Cleveland now has the most beautiful grocery store in the country,” says Barrett.

Extra money for historic rehabs
Ohio also encourages historic preservation with its own Ohio Historic Preservation Tax Credit Program, which pairs neatly with the Federal Historic Tax Credit.

Since it began in 2006, Ohio’s program has helped pay for 309 historic rehabilitation projects in 52 Ohio communities, according to Heritage Ohio.

The program provides tax benefits up to 25% of qualified rehabilitation expenses. “Ohio’s Historic Tax Credit has made the 20% Federal Tax Credit even better,” says Williams.

Ohio has several investors who are willing to pay high prices for its Historic Tax Credit. “We have several large corporations here that can take advantage of it,” says Williams.

Investors especially value the tax credit because it can provide a refund for the tax credit investor for past taxes.

Every year the state officially reserves $60 million in tax credits in two rounds of competition. Developers typically submit applications for three times that many tax credits.

The competition favors projects that have the largest effect on their local economy. “The most impactful projects are the ones that get prioritized,” says Barrett.

The tax credit typically returns 31 cents on the dollar in revenue from sales tax, income tax and property taxes before the tax credit is even paid out, according to the Ohio Department of Development.

For example, a recent cost-benefit analysis of the redevelopment of the Market Block Building in Warren,

Ohio, showed the State’s Tax Credit investment of $630,800 will be fully paid back in just four years of operation, according to data from the National Trust for Historic Preservation.

Ohio’s competition also favors plans to rehabilitate vacant properties. More than half of the developments that receive State Tax Credits were abandoned before redevelopment, and often in serious disrepair, experts say.

The competition also methodically distributes the tax credit over many geographic areas. “This is really important to our political survival,” says Barrett. That’s because individual legislators can point to projects in their own jurisdictions.

Last years, advocates had to fight proposals to cut Ohio’s Historic Tax Credit. In June 2015, the Ohio’s Senate Finance Committee proposed a moratorium on the program.

“All hell broke loose,” says Barrett. “The way they worded this moratorium stopped projects dead in their tracks.”

The proposal never reached the Senate floor, much less the desk of the governor. But it was still enough to freeze historic rehabilitation projects as uncertainty kept investors from closing deals that had been planned for years.

The uproar that followed forced legislators to remove the proposal. “They quickly restored the program in a matter of days,” says COHHIO’s Faith.

Advocates are now especially alert to threats to the program. “Our tax credit is permanent, but ‘permanent’ doesn’t mean anything. They can pull it anytime they want,” says Barrett.

Ohio’s crumbling landmarks also benefit from other tax credits that pair neatly with the State and Federal Historic Rehabilitation Tax Credits.

Every year, another handful of planned rehabs win reservations in Ohio’s competition for Federal Low-Income Housing Tax Credits (LIHTCs).

“It is safe to say historic preservation is becoming a trend in our LIHTC program,” says Kelan Craig, Director of Planning, Preservation and Development for the Ohio Housing Finance Agency.

Historic rehabilitation projects have an advantage in the competition, which gives extra points to historic redevelopments and extra points to plans that leverage LIHTCs with resources, like Historic Tax Credits.

“We like to see historic rehabilitations,” says Craig. “It is an opportunity to reuse buildings.”

The resulting projects often transform their communities. “More often than not, the properties are abandoned and vacant,” says Craig. “Our funding really jumpstarts economic development.”

For example, in June 2016, the agency reserved LIHTCs for the Art Works Lofts, a plan by developer Miller Valentine to create 66 new affordable apartments in part of the landmark Dayton Arcade complex in downtown Dayton. Since the reservation, more investment has already been announced in the buildings in the Arcade, which has stood vacant since 1991.

“The Art Works Lofts are part of a whole downtown redevelopment,” says Craig. “It was the first piece.”

Federal New Markets Tax Credits (NMTCs) have created another funding stream that can be leveraged with State and Federal Historic Tax Credits. These projects tend to be larger, with more than $5 million in total development costs, to support of high cost of closing NMTC transactions.

Fixing up historic buildings always comes with challenges.

“Historic rehabilitation makes us more cautious and more attentive. Our investors have the same concerns,” says Pimmel.

Older buildings are often difficult to insulate to modern standards, which can result in higher costs to heat and cool the building. “The concern for us is always operating expenses,” says Pimmel.

Older buildings can also be full of surprises, like forgotten underground oil tanks and other features, that aren’t on any of the old blueprints.