May 5, 2008
Living in the past | A new law offers significant tax breaks for developers reworking historic properties
By Douglas Rooks
Nearly a decade ago, Ted Koffman was working on a project called "Eco-Eco," which attempted to balance the state's environmental and economic concerns that often seem to be in conflict. He was particularly struck by the fate of Maine's numerous historic downtowns, many of which were fading and some of which were nearly empty of businesses and people.
People "from away" see these 19th century business districts as priceless assets ˆ something fast-growing states like Florida and Arizona don't have, Koffman noted. Yet most new investment in Maine seemed to go elsewhere ˆ to strip malls, big-box development and office parks out in the suburbs. Maine seemed destined to repeat the experience of big urban centers a generation earlier, which became a hollowed-out core and a drain on the regional economy.
Koffman found there were several reasons downtowns were moribund. Among the most important were building codes designed for new construction that made it impossibly expensive to renovate historic buildings. Even developers who were interested in downtown projects couldn't make the numbers work.
In November 2000, Koffman was an administrator at College of the Atlantic, and had co-founded Eco-Eco with Peter Cox, the co-founder of Maine Times, who died in 2004. Koffman was elected in 2000 to the Legislature as a Democrat representing Bar Harbor. He has co-chaired the Natural Resources Committee for the past six years, but his biggest goal was doing something about the wasted resources downtowns had come to represent. In his first State House session in 2001, he introduced legislation to overhaul building codes and level the playing field for downtown development.
It took eight years, but these efforts finally bore fruit. With the adjournment of the Legislature on April 18, Maine now has a comprehensive state historic tax credit program, and it will have an effective statewide building code by 2010 that accommodates renovation of historic structures. (For more on the statewide building code, see "All for one," page 35.)
Expectations of the new programs range from cautious to enthusiastic, but no one seems to doubt that the state is finally making a concerted effort to solve the puzzle represented by the "doughnut hole" pattern of business investment, which meant that investors skipped over the urban center when planning new projects. Downtowns may not be back yet, but they are at least headed in the right direction, Koffman believes.
Gaining support
Paul Boghossian, a Rhode Island developer whose Hathaway Creative Center project in Waterville benefited from an earlier tax credit bill, said that Maine's new law takes a lot of the guesswork out of doing downtown projects that generally cost more than new construction. "The market doesn't reward taking these kinds of risks, no matter how much the community would like to see them done," he said. "They just don't happen without the tax credit."
Redevelopment projects for National Historic Register properties will now receive a refundable 25% tax credit ˆ 30% if affordable housing is part of the project ˆ added to an existing 20% federal tax credit. Boghossian, who is partnering with Niemann Capital of Raleigh, N.C., to redevelop the Waterville property, hopes to use the credit to rebuild two other mills on the site, known collectively as the Lockwood Manufacturing complex. (For more details on the credits, see "Behind LD 262," page 29.)
Kevin Mattson ˆ whose Harper's Development firm in Winthrop was recently renamed, simply, Mattson ˆ is taking on a huge redevelopment project on Saco Island called Island Point, whose build-out will cost $60 million-$100 million. While the plan was proceeding without the state tax credit, having it available will enable a greater range of uses, he said. Island Point will likely have apartments for moderate-income families as well as luxury condos, thanks to the program's affordable housing component.
If anything, Mattson wonders whether the new credit will become so popular that lawmakers will begin to worry about reduced state revenues. But if that happens at all, it will take some time to develop, according to Kirk Mohney, assistant director of the Maine Historic Preservation Commission, which will administer the new program. "It takes two or three years to get these projects to the bricks-and-mortar phase," he said. "There are still a lot of hoops to jump through."
Other states have tax credits for historic buildings, and some of them are even more generous than Maine's. Rhode Island's 30% credit has fueled redevelopment not only in Providence but also in the mill towns like Coventry and Woonsocket that are analogous to Maine's small service centers, from Bath in southern Sagadahoc County to Houlton in Aroostook County.
But the Maine law incorporates several features that may make it even more attractive in the hinterlands, which have seen few of the historic building makeovers recently taking place in cities like Biddeford, Lewiston and Bangor.
The federal tax credit requires that developers match their "basis" ˆ usually the purchase price of the building ˆ in the renovations they carry out. The Maine credit, however, includes a small-project provision that allows owners to receive tax credits for projects between $50,000 and $250,000. This should benefit smaller communities in particular, according to Koffman. "In other states, there's been a definite spin-off effect," he said. "Once one building is transformed, neighboring property owners are much more likely to invest in their buildings."
Mike Pullen, a principal of Bangor-based WBRC Architects-Engineers, said he and his firm are "pretty thrilled" about passage of both the tax credit and building code legislation. Put together, they "should be very beneficial for redevelopment," he said.
A mixed outlook
The federal tax credit, which was put into place in the early 1980s, led to a wave of building renewals in the 1980s, but that impetus waned following a recession in the early 1990s. Developers say the Maine tax credit should be useful to most downtown building owners. "It should revive a lot of activity," Pullen said. "For a lot of buildings, this may be the difference that makes the project viable."
Bob Kelley of House Revivers in Bangor is a developer who's eyeing the tax credit with interest. He's overhauled a number of old buildings in Bangor and Orono, and credits those communities with being helpful when renovation projects hit snags, as they often do. He's currently eyeing a downtown Bangor building on Central Street as a likely candidate. The multi-story building, which was damaged by fire 20 years ago, has only received cosmetic improvements. As a result, it's experienced a rapid turnover of tenants despite its favorable location.
"You really need to take on the whole structure, and bring the upper floors back into use, probably for apartments," Kelly said. The tax credit may make the project work. "Instead of seeing empty buildings downtown, there's a sense that these properties are valuable again, and can contribute to the community," he said.
As to how quickly projects can get going, Kelly is less sure, noting that there has been a noticeable decline in potential projects. "There's a lot of hesitation and nervousness now, among the banks in particular," he said. "Usually, the phone is ringing off the hook this time of year."
Others are more bullish about the short-term prospects. New state regulations restricting construction around vernal pools, higher construction costs for utilities and roads, and steeper energy costs generally are all factors that will channel development back toward existing centers ˆ downtowns in particular. "It's making less and less sense to try to find greenfield sites to build on," said Scott Tompkins, director of business development at South Portland-based Ledgewood Construction. "In southern Maine, there aren't that many good building sites. It only makes sense to look at what we already have." (Disclosure: Scott Tompkins writes for the regular "From the Ground Up" column for Mainebiz.)
Ledgewood has overhauled the Martin's Point complex in Portland, but hasn't landed other renovation projects it has bid on, such as Island Point in Saco. Still, Tompkins thinks prospects for more historic renovation work are good for the near-term future, once jittery financial markets settle down again.
At Consigli Construction, which is known for historic renovations, Matt Tonello takes the middle ground in the debate. Consigli has offices in Portland, Bangor, Milford, Mass., and Enfield, Conn., and Tonello manages the Portland branch. The firm has undertaken renovation work in Bangor, Skowhegan and Bar Harbor as well as in southern and central Maine, including many highly visible projects, such as the Walker Art Gallery on the Bowdoin College campus, budgeted at $24 million.
Yet the bulk of Consigli's business is still new construction. "About 15% of our work is on historic buildings, but that gets about 75% of our media coverage," Tonello said. And even among the institutional clients that have been most likely to want to renovate ˆ colleges, churches and museums ˆ new projects are as common as renovations. The Walker Art Museum is under construction at the same time as Consigli is building a new dining hall at Bates College ($26 million) and a state courthouse in Bangor ($30 million).
Still, Tonello sees definite possibilities in the historic tax credit and the building code overhaul. "It will drive more projects in currently empty commercial buildings, and hire a lot of skilled craftspeople who already live in Maine," he said. The affordable housing component is also important, he said, and should yield community benefits by bringing middle-income families back downtown.
The downtown movement
Ted Koffman also likes to emphasize the overall goals of the preservation movement beyond just the financial investments that, while essential, are only part of the rebuilding equation. "Everything we've learned about cities says that they work best when people of all ages, and all incomes, are part of the mix," he said.
The downtown movement could be crucial to determining if Maine can attract young people ˆ a demographic largely missing from recent population growth. "They're looking for an interesting place to live, not just someplace they can pay the rent," he said.
Another plus for the tax credit is that, because it is refundable, it provides guaranteed cash for investors, making it possible to syndicate and market some projects that require more capital than Mainers can raise on their own.
Though cheap now, the cost of the program is expected to jump. The legislation was relatively easy to tuck into the budget because it requires only $290,000 in the current biennium. But in the 2009-2010 fiscal year, after the Legislature convenes, the tax credit is projected to cost $11.3 million, and another $3.8 million the following year.
Boghossian said that other states have reined in tax credit programs. Rhode Island, facing a budget gap much larger than Maine's this year, has placed a moratorium on new projects, and Massachusetts has capped annual spending.
Supporters, though, remain confident Maine will stick with the new venture, for several reasons. One is that property taxes paid to towns and cities increase almost immediately ˆ and continue to rise as more renovations are completed.
For Boghossian, community pride can be a potent factor as well. "These building's are part of a city's soul. There's a huge physic benefit when they're restored to life, and people see how beautiful they are," he said. "They can really produce more products, and provide more jobs, than they did when they were mills and factories."
People "from away" see these 19th century business districts as priceless assets ˆ something fast-growing states like Florida and Arizona don't have, Koffman noted. Yet most new investment in Maine seemed to go elsewhere ˆ to strip malls, big-box development and office parks out in the suburbs. Maine seemed destined to repeat the experience of big urban centers a generation earlier, which became a hollowed-out core and a drain on the regional economy.
Koffman found there were several reasons downtowns were moribund. Among the most important were building codes designed for new construction that made it impossibly expensive to renovate historic buildings. Even developers who were interested in downtown projects couldn't make the numbers work.
In November 2000, Koffman was an administrator at College of the Atlantic, and had co-founded Eco-Eco with Peter Cox, the co-founder of Maine Times, who died in 2004. Koffman was elected in 2000 to the Legislature as a Democrat representing Bar Harbor. He has co-chaired the Natural Resources Committee for the past six years, but his biggest goal was doing something about the wasted resources downtowns had come to represent. In his first State House session in 2001, he introduced legislation to overhaul building codes and level the playing field for downtown development.
It took eight years, but these efforts finally bore fruit. With the adjournment of the Legislature on April 18, Maine now has a comprehensive state historic tax credit program, and it will have an effective statewide building code by 2010 that accommodates renovation of historic structures. (For more on the statewide building code, see "All for one," page 35.)
Expectations of the new programs range from cautious to enthusiastic, but no one seems to doubt that the state is finally making a concerted effort to solve the puzzle represented by the "doughnut hole" pattern of business investment, which meant that investors skipped over the urban center when planning new projects. Downtowns may not be back yet, but they are at least headed in the right direction, Koffman believes.
Gaining support
Paul Boghossian, a Rhode Island developer whose Hathaway Creative Center project in Waterville benefited from an earlier tax credit bill, said that Maine's new law takes a lot of the guesswork out of doing downtown projects that generally cost more than new construction. "The market doesn't reward taking these kinds of risks, no matter how much the community would like to see them done," he said. "They just don't happen without the tax credit."
Redevelopment projects for National Historic Register properties will now receive a refundable 25% tax credit ˆ 30% if affordable housing is part of the project ˆ added to an existing 20% federal tax credit. Boghossian, who is partnering with Niemann Capital of Raleigh, N.C., to redevelop the Waterville property, hopes to use the credit to rebuild two other mills on the site, known collectively as the Lockwood Manufacturing complex. (For more details on the credits, see "Behind LD 262," page 29.)
Kevin Mattson ˆ whose Harper's Development firm in Winthrop was recently renamed, simply, Mattson ˆ is taking on a huge redevelopment project on Saco Island called Island Point, whose build-out will cost $60 million-$100 million. While the plan was proceeding without the state tax credit, having it available will enable a greater range of uses, he said. Island Point will likely have apartments for moderate-income families as well as luxury condos, thanks to the program's affordable housing component.
If anything, Mattson wonders whether the new credit will become so popular that lawmakers will begin to worry about reduced state revenues. But if that happens at all, it will take some time to develop, according to Kirk Mohney, assistant director of the Maine Historic Preservation Commission, which will administer the new program. "It takes two or three years to get these projects to the bricks-and-mortar phase," he said. "There are still a lot of hoops to jump through."
Other states have tax credits for historic buildings, and some of them are even more generous than Maine's. Rhode Island's 30% credit has fueled redevelopment not only in Providence but also in the mill towns like Coventry and Woonsocket that are analogous to Maine's small service centers, from Bath in southern Sagadahoc County to Houlton in Aroostook County.
But the Maine law incorporates several features that may make it even more attractive in the hinterlands, which have seen few of the historic building makeovers recently taking place in cities like Biddeford, Lewiston and Bangor.
The federal tax credit requires that developers match their "basis" ˆ usually the purchase price of the building ˆ in the renovations they carry out. The Maine credit, however, includes a small-project provision that allows owners to receive tax credits for projects between $50,000 and $250,000. This should benefit smaller communities in particular, according to Koffman. "In other states, there's been a definite spin-off effect," he said. "Once one building is transformed, neighboring property owners are much more likely to invest in their buildings."
Mike Pullen, a principal of Bangor-based WBRC Architects-Engineers, said he and his firm are "pretty thrilled" about passage of both the tax credit and building code legislation. Put together, they "should be very beneficial for redevelopment," he said.
A mixed outlook
The federal tax credit, which was put into place in the early 1980s, led to a wave of building renewals in the 1980s, but that impetus waned following a recession in the early 1990s. Developers say the Maine tax credit should be useful to most downtown building owners. "It should revive a lot of activity," Pullen said. "For a lot of buildings, this may be the difference that makes the project viable."
Bob Kelley of House Revivers in Bangor is a developer who's eyeing the tax credit with interest. He's overhauled a number of old buildings in Bangor and Orono, and credits those communities with being helpful when renovation projects hit snags, as they often do. He's currently eyeing a downtown Bangor building on Central Street as a likely candidate. The multi-story building, which was damaged by fire 20 years ago, has only received cosmetic improvements. As a result, it's experienced a rapid turnover of tenants despite its favorable location.
"You really need to take on the whole structure, and bring the upper floors back into use, probably for apartments," Kelly said. The tax credit may make the project work. "Instead of seeing empty buildings downtown, there's a sense that these properties are valuable again, and can contribute to the community," he said.
As to how quickly projects can get going, Kelly is less sure, noting that there has been a noticeable decline in potential projects. "There's a lot of hesitation and nervousness now, among the banks in particular," he said. "Usually, the phone is ringing off the hook this time of year."
Others are more bullish about the short-term prospects. New state regulations restricting construction around vernal pools, higher construction costs for utilities and roads, and steeper energy costs generally are all factors that will channel development back toward existing centers ˆ downtowns in particular. "It's making less and less sense to try to find greenfield sites to build on," said Scott Tompkins, director of business development at South Portland-based Ledgewood Construction. "In southern Maine, there aren't that many good building sites. It only makes sense to look at what we already have." (Disclosure: Scott Tompkins writes for the regular "From the Ground Up" column for Mainebiz.)
Ledgewood has overhauled the Martin's Point complex in Portland, but hasn't landed other renovation projects it has bid on, such as Island Point in Saco. Still, Tompkins thinks prospects for more historic renovation work are good for the near-term future, once jittery financial markets settle down again.
At Consigli Construction, which is known for historic renovations, Matt Tonello takes the middle ground in the debate. Consigli has offices in Portland, Bangor, Milford, Mass., and Enfield, Conn., and Tonello manages the Portland branch. The firm has undertaken renovation work in Bangor, Skowhegan and Bar Harbor as well as in southern and central Maine, including many highly visible projects, such as the Walker Art Gallery on the Bowdoin College campus, budgeted at $24 million.
Yet the bulk of Consigli's business is still new construction. "About 15% of our work is on historic buildings, but that gets about 75% of our media coverage," Tonello said. And even among the institutional clients that have been most likely to want to renovate ˆ colleges, churches and museums ˆ new projects are as common as renovations. The Walker Art Museum is under construction at the same time as Consigli is building a new dining hall at Bates College ($26 million) and a state courthouse in Bangor ($30 million).
Still, Tonello sees definite possibilities in the historic tax credit and the building code overhaul. "It will drive more projects in currently empty commercial buildings, and hire a lot of skilled craftspeople who already live in Maine," he said. The affordable housing component is also important, he said, and should yield community benefits by bringing middle-income families back downtown.
The downtown movement
Ted Koffman also likes to emphasize the overall goals of the preservation movement beyond just the financial investments that, while essential, are only part of the rebuilding equation. "Everything we've learned about cities says that they work best when people of all ages, and all incomes, are part of the mix," he said.
The downtown movement could be crucial to determining if Maine can attract young people ˆ a demographic largely missing from recent population growth. "They're looking for an interesting place to live, not just someplace they can pay the rent," he said.
Another plus for the tax credit is that, because it is refundable, it provides guaranteed cash for investors, making it possible to syndicate and market some projects that require more capital than Mainers can raise on their own.
Though cheap now, the cost of the program is expected to jump. The legislation was relatively easy to tuck into the budget because it requires only $290,000 in the current biennium. But in the 2009-2010 fiscal year, after the Legislature convenes, the tax credit is projected to cost $11.3 million, and another $3.8 million the following year.
Boghossian said that other states have reined in tax credit programs. Rhode Island, facing a budget gap much larger than Maine's this year, has placed a moratorium on new projects, and Massachusetts has capped annual spending.
Supporters, though, remain confident Maine will stick with the new venture, for several reasons. One is that property taxes paid to towns and cities increase almost immediately ˆ and continue to rise as more renovations are completed.
For Boghossian, community pride can be a potent factor as well. "These building's are part of a city's soul. There's a huge physic benefit when they're restored to life, and people see how beautiful they are," he said. "They can really produce more products, and provide more jobs, than they did when they were mills and factories."
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