Giving credit

Tax programs target historic preservation.

In a region rich with historic buildings, incentives that encourage maintaining such structures for future generations are especially attractive. That's why some Baton Rouge-area developers sing the praises of historic restoration tax credits.

Launched as a federal program more than 30 years ago, the tax breaks aimed to stimulate private investment in the preservation of historically significant buildings around the country. Over the years, they encouraged the work of many developers with a preservationist bent, and in Louisiana the credits became even more effective after the state created its own set of complementary incentives.

Baton Rouge real estate developer Darryl Gissel says the programs' impact on local historic buildings has been huge. “In a lot of cases, you could not afford to make these projects work without the credits,” he says. “This enables you to go in and put a beautiful old building into first-class condition.”

The federal program, which is administered by the National Park Service in partnership with the Internal Revenue Service, settled into its current form in the late 1980s. The program provides a 20% tax credit to persons who restore qualifying buildings, such as those listed in the National Register of Historic Places. Under the program, the owner of an approved restoration project can apply 20% of qualifying construction expenses to reduce federal income taxes.

Louisiana sweetened the incentives about 10 years ago by adding a 25% state tax credit for restoration of commercial, or income-producing, properties. More recently, lawmakers expanded the break to include historic residential properties as well.

Alison Saunders, tax incentives director of the Louisiana Division of Historic Preservation, says the combined credits have been a boon to restoration. More than $3 billion worth of commercial and residential restoration work has occurred in Louisiana under the federal and state programs since 1978, according to state records.

“Louisiana is one of the top 10 performers in the nation based on the number of projects reviewed and dollars leveraged through the program,” Saunders says.

Among notable local projects done under the program, she points to the $25 million renovation of the former Hotel King into Hotel Indigo Baton Rouge Downtown, by the InterContinental Hotels Group, and the $70 million makeover of the former Heidelberg and Capitol House Hotel into Hilton Baton Rouge Capitol Center.

Many rehabilitation efforts have focused on office, retail, school and warehouse buildings; but the state's new residential program has revved up interest in rehabilitating single-family, owner-occupied homes as well.

Gissel's love of old buildings has made him a proponent of all of the restoration programs, and he has encouraged their use by others through such organizations as the Foundation for Historical Louisiana, which he chaired for three years.

One of the first properties Gissel transformed under the programs was a former nurses' dormitory once associated with Baton Rouge General Hospital. In its “second” life, the structure located just off North Boulevard had served as a shelter run by Volunteers of America.

Several years ago, Gissel spent close to $200,000 turning it into apartments designed to serve students and professional people in need of short-term or temporary housing.

Qualifying for both federal and state historic restoration programs, along with additional benefits under the post-Hurricane Katrina Gulf Opportunity Zone program, the project returned some $90,000 in tax credits. Gissel quickly converted the credits to cash, thanks to a provision in the state law that allows selling the credits to a third party.

“We sold the state credits for about 88 cents on the dollar, which really helped us get the project off the ground,” he says.

In another project, Gissel relied on state credits to help fund his restoration of a circa-1900 triplex in Beauregard Town. The building's extensive deterioration made it an ideal target for the program, he says. The roof had caved in on one side, the middle unit of the triplex was largely wrecked, and the building had no central air or heat.

Gissel purchased the 1,500-square-foot structure for $134,000 and spent more than $80,000 renovating it, including stabilizing the foundation, reworking the bathrooms and refinishing the floors. About $70,000 of his costs qualified for the 25% credit, which enabled him to reduce his state tax liability by more than $17,000.

A key benefit of the credits, Gissel says, is that they facilitate a rehabilitation that doesn't merely return a property to useful or habitable condition, but also adds lasting value through the use of high-quality finishes, enhanced architectural details and the like. “The credits encourage you to do the maximum rather than a minimal restoration,” he says.

Under terms of the tax programs, rehabbed residences must operate as rentals for at least five years in order for the owner to receive the full tax benefit. After that period, owners often convert the apartments to condominium units and put them up for sale, at which point the added architectural features can enhance the selling price.

Gissel has two more residential projects under way, and he's looking forward to starting on another property he bought some years ago that now qualifies for the program.

“I bought a 1962 apartment complex in Spanish Town that was a real eyesore,” he says. Once the building turned 50 years old, it became eligible for historic tax credits. “That gives me the ability to do a lot of things I wouldn't have been able to do otherwise,” he says.

With roots reaching to the early 19th century, Spanish Town is a prime target for historic preservation tax credit restorations. Real estate partners Lance Bennett and Ben Babin own several properties in the neighborhood and like the idea of creating interesting new living options in the downtown area.

“People love the architectural details and uniqueness of the properties in Spanish Town because they represent a different era,” Babin says.

Tax credits were crucial to the partners' rehabilitation of the 80-year-old Thomas Duplexes, four buildings located along Lakeland Drive and North Sixth Street. “We probably wouldn't have done it without the tax credits,” Babin says. “The credits make the deals work.”

Babin and Bennett applied for credits to renovate five more Spanish Town properties, known as the Brousseau cottages, which they recently purchased. The nearly 100-year-old buildings have appealing features, such as wainscoting and casement windows that need to be preserved, Babin says.

He and Bennett aim to have the buildings ready for occupancy this fall.

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