New U.S. tax bill protects historic tax credits — with a caveat

CEDAR RAPIDS - Historic preservation tax credits make the numbers work on complicated restoration projects, such as for the 323 Building in downtown Cedar Rapids, local developer Steve Emerson said during a tour of his property on Thursday.

For the 1909-built Iowa-Illinois Gas & Electric Co. office building - now the 323 - it helped preserve its distinctive overhanging eaves, a box cornice, brick pilasters and an interior space supported by a notable structure of reinforced concrete and 'mushroom” pillars.

'It takes a lot of additional money to rebuild them and breath life into them,” Emerson said. 'They are stout buildings. But they need a lot of new systems, and it has to be done where you are not disturbing the historic value.”

Historic tax credits have been instrumental in Cedar Rapids, particularly since the flood of 2008, where they've been used to restore and recover the city's history. It's been matched by enthusiasm for historic properties by the private and public sector.

The good news for developers such as Emerson is the tax credit has been protected in the bill signed into law by President Donald Trump on Friday. An earlier version of the legislation had threatened to eliminate the credit.

The new law maintains a 20 percent credit for certified projects, with a caveat. Instead of being disbursed in a lump sum, the credit will be doled out over five years, which could have a chilling effect on historic preservation work, some said.

Jim and B.J. Hobart, of Hobart Historic Restoration of Cedar Rapids, said the market for historic tax credits is 87 cents on the dollar, and that could shrink to 60 cents.

'It's definitely better than having no federal tax credits, but it will lean out the field,” Jim Hobart said. 'Some projects won't work financially when spreading the credits over a five-year period.”

Hobart and Emerson have been among the most prolific in the historic preservation business, which has been bustling Cedar Rapids.

Emerson has a portfolio of about eight projects, including two underway. In addition to the 323 Building, Emerson is restoring the Smulekoff's Building at Third Avenue SE and First Street in Cedar Rapids into 'micro-unit” apartments, office and retail space.

Hobart has restored about 14 buildings, mostly in Cedar Rapids, including the Mott Building along the Cedar River. Several projects are in the works, including the Knutson Building, or the Chelsea, a project buoyed by $900,000 in federal historic tax credits.

'The trend has been urban revitalization,” said B.J. Hobart, Jim's wife and an official with the company.

'Now the impact is going to be watching us go back the other direction and have more and more buildings sit and deteriorate.”

Emerson said he doesn't expect to feel the pain of spreading out the tax credit over five years because he doesn't sell the credits to a tax-credit syndication fund - but those who do will be affected greatly.

Emerson said he only began seeking the tax credit in recent years because it is a cumbersome process.

A $2.4 million historic tax credit was important to the $12 million 323 Building, Emerson said. The credit only applies to accepted construction costs, and not building acquisition or design.

The 323 Building qualified after being certified as historic, which has a prerequisite of being at least 50 years old and historically significant for architecture, or connections to people, events or the community.

In exchange for getting the credit, Emerson has a strict script to follow in terms of workmanship, documentation and inspection.

'What they like seeing is the historic character,” Emerson said, while showing off uncovered columns in upper floor apartments of the 323 Building, wood floors and brick walls on the main floor where an Italian restaurant is destined.

'You have to figure out what of the building was built original and what was added on later,” he said.

Iowa saw $195 million in federal historic tax credits supporting 257 projects between 2002 and 2016, and it helped spur more than $1 billion in development, according to the National Park Service, which implements the program.

The credit has been used to fund renovations in more than 40,000 historic structures nationwide since 1981, according a Washington Post report.

In Cedar Rapids since the flood of 2008, the tax credit has benefited 26 historic buildings and supported $64 million worth work, with a concentration in the New Bohemia District.

Among the biggest projects were the Paramount Theatre, CSPS and Hose Station No. 4 and Roosevelt Apartments.

A 2013 National Park Service report highlighted Cedar Rapids as one of a handful of locations where historic tax credits were vital to areas that had suffered natural disasters.

Jennifer Pratt, community development director for the city, called the current tax credit program 'extremely critical to the city in disaster recovery.”

l Comments: (319) 339-3177; brian.morelli@thegazette.com