By Mike Palien
Twenty years ago, the National Trust for Historic Preservation formed the National Trust Community Investment Corporation (NTCIC) as a dedicated subsidiary to finance impactful preservation and community development projects. Today, NTCIC raises money through several state and federal tax incentive programs, such as the Historic Tax Credit (HTC), New Markets Tax Credit (NMTC), and Solar Tax Credit (STC); and makes investments in mission-oriented projects. Since its inception, the subsidiary has invested over $1.6 billion into over 200 transformative projects across 36 states.
To recognize the organization’s twenty years of saving places, I interviewed Merrill Hoopengardner, the president of NTCIC, to talk about the role of tax credits and creative financing in revitalizing communities and protecting the historic places we love.
NTCIC is currently celebrating its 20th anniversary. What do you see as your most significant accomplishments?
NTCIC has assembled an exceptional track record as an allocatee in the NMTC program which we use to finance HTC projects in our country’s most economically challenged communities. NTCIC is the only Community Development Entity (CDE) in the country that exclusively invests in historic redevelopments and has one of the program’s highest allocation success rates. NTCIC is one of only six participants to win 12 or more times and ranks 17th (out of 333 CDEs) of total allocation awarded with $633 million.
We are most proud of the dramatic benefits to the community that our 92 NMTC-financed projects have achieved, such as revitalizing over 9 million square feet of vacant or underutilized historic space; supporting over 34,000 jobs; and providing access to critical healthcare, healthy food, and social services to more than 200,000 people annually.
Recognizing the impact of climate change on historic preservation and the mission-alignment with renewable energy development, NTCIC formed NT Solar in 2012 to expand our investment reach into solar tax credit investing. NT Solar has since invested over $315 million in more than 30 solar portfolio projects, which generate an estimated 320 Megawatts of clean energy.
NTCIC also serves as a key leader in the preservation field through our public policy efforts. NTCIC formed and chairs the federal Historic Tax Credit Coalition, which advocates with the Executive Branch and Congress to sustain, improve, and enhance the HTC. In collaboration with HTC industry stakeholders, including the Trust and its many state and local partners and preservation supporters, the Coalition leads the HTC industry’s legislative affairs outreach. The most notable success is the preservation of the HTC in tax reform in 2017. NTCIC and the Coalition continue to advocate with Congress to enhance the credit’s value and expand its availability to more small projects, low-income housing developments, and nonprofit services.
How does NTCIC support the Trust and its mission?
NTCIC supports the National Trust in three primary ways. First, we are guided by the mission of the Trust and use a preservation-based lens to evaluate and provide the critical financing needed for the rehabilitation of vacant and underutilized historic properties. Second, we frequently partner with the Trust on programmatic initiatives, educational opportunities, and historic preservation advocacy efforts. Finally, as a wholly-owned subsidiary of the Trust, NTCIC provides financial support as our profits are paid as royalties or dividends to the Trust. This source of unrestricted revenue is a critical funding source to further the Trust’s ongoing operations and programmatic priorities. NTCIC is the Trust’s largest source of unrestricted funds, which facilitates everything from the African American Cultural Action Fund to organizational administration.
How has COVID19 impacted NTCIC and the historic rehabilitation industry over the past year?
The past year was definitely challenging for NTCIC, like many who work in the historic rehabilitation, real estate development, and tax credit industries. Many of our projects struggled at all phases of the development cycle because of shutdown orders, which impacted construction or operations, delays or modifications of underwriting requirements from other investors, and labor and material availability. Across the wide range of asset classes we finance, some fared much worse than others. Projects that provide education, entertainment, and hospitality were particularly hard hit, and we expect them to be slow to recover.
HTC projects have additional considerations as labor shortages have impacted an already limited subset of laborers who have experience with historic building materials. Historic building materials are often harder to come by, exacerbating broader market supply chain issues. In addition, disruption in the financial markets is creating difficulties for historic building owners to access capital. Many banks and other capital providers have tightened underwriting criteria and paused new business development for certain asset classes that are common uses of historic rehab.
Additionally, with COVID-19 impacting local budgets, local governments have been challenged to fulfill funding and partnership agreements with developers and enter in new agreements that incentivize revitalization in their communities. Finally, we are also seeing increases in material and construction costs. The net result is that many projects are currently facing financing gaps, leading to stalled projects that are no longer feasible.
Fortunately, the prospects are not all doom and gloom! We have been fortunate that State Historic Preservation Offices and the National Park Service have been able to transition almost seamlessly to a remote working environment and have continued processing applications that are part of the HTC certification process.
We’ve also seen widespread creativity across the industry, a particular resilience in solar and housing developments—in which NTCIC finances—and are seeing signs of impacted asset classes beginning to recover. We are encouraged that after significant delays in closing new transactions in the middle of 2020, we have closed nine transactions across all our business lines, committing over $134 million in tax credit capital since November.
In the last year a there has been strong push for organizations to be less performative and more transparent when it comes to the issues surrounding systemic racial and social inequities. What are some ways in which NTCIC is addressing these issues?
The community development financing we provide is a critical tool for revitalizing underinvested communities, including many communities of color that have traditionally lacked access to necessary funds. We recognize that systemic racism has shaped the communities that need capital and the institutions that provide it, resulting in a persistent gap between those that need financing and those that have dollars to invest.
We acknowledge that we can be more intentional in our support of racial justice and equity to influence change at the system level and deploy capital more intentionally to projects that deliver equitable outcomes. We are providing additional training support for our staff in collaboration with the Trust and industry partners to more effectively listen to the needs and struggles of those we work to support and incorporate the feedback into our daily work.
Our current priorities include working closely with our Board of Directors to evaluate our investment strategies to ensure our investments engage and support, both directly and indirectly, BIPOC communities, businesses, and issues. We are also participating in the recently launched Open Access Initiative, which seeks to increase diverse representation in community development finance with a focus on Black and Latinx communities, to increase the diversity of our own talent pool.
NTCIC and NT Solar just celebrated a major win with the establishment of a new multi-credit investment fund and the financing of four large-scale solar developments. How does solar financing fit into the organization’s mission, and what is next for this team?
As with our HTC and NMTC investments that enable the completion of preservation work by providing critical sources of capital, our solar investments through NT Solar enable us to directly mitigate climate change impacts through renewable energy production. NTCIC’s new Climate Impact and Revitalization Fund (CIRF) represents another first for NTCIC: a multi-credit fund that can provide capital to both historic and solar projects nationwide…under one big green umbrella! This fund gives NTCIC/NT Solar a consistent and flexible financing option to support all facets of our business lines— historic preservation, community development, and solar.
For several years, we have had significantly more demand for solar financing than the supply of capital, so we are delighted that the new fund will enable us to finance more projects of this type than ever before. NT Solar will finance solar projects that provide cost-effective energy options for utilities, residential subscribers, commercial end-users, municipalities, and businesses located in low-income communities.
NT Solar is particularly experienced with financing Community Solar installations, which allow multiple customers to share the electricity generated by a solar installation or farm, removing the need to install solar panels directly on a home or business. While solar can be compatible with almost any historic property, Community Solar projects can be particularly beneficial for buildings with limited rooftop space, design limitations, or insufficient economies of scale to make the installation worth the investment. By generating energy offsite for more than one end-user, more properties can benefit.
With the new administration, what news/updates can people expect to see coming from the industry?
We were delighted to see Congress address several critical community development-related needs at the end of 2020. In December, Congress passed the $1.4 trillion Omnibus Spending Bill, which included a 5-year extension of the NMTC (originally set to expire in 2020) and increased the total allocation to $5 billion per year. It also provided a two-year extension to the current valuation of the HTC through 2022, which will help continue the rapid growth of investment in solar renewable energy projects.
Our HTC advocacy network will be working very hard as we transition to a new administration. Now, more than ever, we believe we are in a position to gain significant traction in HTC legislation because of the credit’s broad bipartisan support in both the House and the Senate, as well as President-elect Biden’s expressed focus on infrastructure, racial equity, and community development initiatives.
The credit is the federal government’s most significant investment in historic preservation and a tremendous tool for community and economic development. Though use of the credit is technically a cost to the government as it reduces the revenue raised by the Treasury Department, the credit actually delivers a net benefit because of the increased economic activity that results from the credit. Because the credit revitalizes historic community assets, creates jobs, and delivers multiple community benefits, the HTC enjoys broad bipartisan support in Congress.
Our 2021 legislative priorities include:
- a temporary increase of the credit to support projects impacted by the pandemic,
- several changes that would make more projects eligible, and
- elimination of the basis adjustment rule, making the HTC more compatible with low-income housing tax credit projects and increasing the credit’s value.
We anticipate that HTC legislative priorities will be incorporated into a broader tax package. Early this year, there will be multiple “must-pass” legislative vehicles, along with unresolved issues related to COVID relief, that may contain robust tax titles. These will provide opportunities to enact some or all of the HTC enhancement provisions outlined in the proposed legislation. HTC Advocates are preparing to ramp up advocacy efforts upon introducing a new HTC bill in the 117th Congress.
Advocates are currently connecting developers facing HTC-related project challenges with federal legislators to share their stories and ask them to cosponsor the new legislation. Please join our advocacy efforts to enhance and improve the HTC.
Mike Palien is the marketing & communications manager at the National Trust Community Investment Corporation