Why Moynihan Station Should Use Historic Tax Credits
January 28th, 2008, 1:13 pm
Historic tax credits for the redevelopment of the Farley building could lighten the financial burden on New Yorkers by up to $250 million. But it’s unclear whether the developers and MSG are willing to preserve enough of the historic features, like the lobby’s ticket windows and the brick walls of the future train hall, to qualify. The MAS strongly supports the use of the federal rehabilitation tax credit in the redevelopment of McKim, Mead & White’s Farley Post Office, a city, state and national landmark, for two main reasons: First, adhering to the rehabilitation standards required to qualify for the tax credit will safeguard the Farley building’s historic fabric, including significant interior areas. Second, the tax credit would be a significant financial boost of Federal funding to the project – especially when faced with rising construction costs, tightening lending conditions, and the ever present danger of “unexpected” costs and delays. Since 1976, the federal rehabilitation tax credit has encouraged the preservation and adaptive reuse of historic buildings by offering federal tax credits to owners. The tax credits represent a dollar-for-dollar reduction of federal taxes owed based on 20% of the cost of the rehabilitation project. We think utilizing the rehabilitation tax credit is in the best interest of both the developers and the public. Here is how it could work: Basically, there are 4 factors that determine whether a rehabilitation project meets the basic application requirements for the 20% tax credit. With a strong commitment from the developers to preserve the interior and exterior of the Farley building we believe it is possible for the project to meet all 4 factors: 1. The historic building must be listed in the National Register of Historic Places or be certified as contributing to the significance of a “registered historic district.” 2. After rehabilitation, the historic building must be used for an income-producing purpose for at least five years. 3. The project must meet the “substantial rehabilitation test.” In brief, this means that the cost of rehabilitation must exceed the pre-rehabilitation cost of the building. Generally, this test must be met within two years or within five years for a project completed in multiple phases. 4. The rehabilitation work must be done according to the Secretary of the Interior’s Standards for Rehabilitation. These are ten principles that, when followed, ensure the historic character of the building has been preserved in the rehabilitation. (Source: U.S. Department of Interior) We can check off factors 1, 2, and 3. The big question mark is #4 – whether the developers are willing to complete the project according to the Standards for Rehabilitation. The developers of Moynihan Station will have to work closely with the State Historic Preservation Office to determine which interior and exterior features define the building’s historic character. They must commit to preserving those features in the rehabilitation project. For example, the rooftop addition over the western annex for the new MSG will have to be appropriately set back from the historic façade and not highly visual from the street. The lobby’s ticket windows must be preserved – not blasted through for new hallways. Another hurdle could be the “Wall Retention Requirement,” which requires the project to retain “at least 75 percent of the internal structural framework.” Some early renderings of the train hall showed the historic brick walls of the interior replaced with glass. Due to complex tax rules, it’s likely the Moynihan Station Venture would syndicate the credit rather than redeeming it themselves. Syndication typically means “selling” the tax credit to an investor or group of investors exempt from passive loss rules (typically a large bank, corporation, or other institutional investor). The “investor” enters the partnership and provides upfront equity to the project in exchange for the right to redeem the federal tax credits. In other words, if the developers can’t use the tax credits, they find an entity that specializes in using them, and the developers form a partnership with them. As a result, both the public and the developers benefit from more federal funding. Please let us know if you disagree or see some other way to leverage the tax credits. We’ll have more info on preserving the Farley building throughout the week.