Lawmakers listen to local developers on key issue

March 21, 2011
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LANSING — Grand Rapids developers Mike De Vries and John Green testified in Lansing last week before the state House Committee on Tax Policy about the value of Michigan’s historic tax credit policy, a program that Gov. Rick Snyder has targeted for elimination in his 2012 budget proposal.

While De Vries and Green emphasized that they are sympathetic with the governor’s situation in trying to reinvent Michigan’s economy, they also pointed out that the credits have helped to put vacant and deteriorating properties back on the tax roll. De Vries underlined the fact that a developer can’t collect a credit until a project is completed.

“My testimony was somewhat brief. But the focus of what I said was the historical program allows for the creation of a tangible asset. Really, the historical and brownfield (redevelopment tax credit) are the only two that do that. The other ones are operational in nature; they go against operational expenses,” said De Vries, an executive with Ed De Vries Properties, a development, property management and construction firm that also assists others with finding financing for a project.

“So at the end of the day, these tools enable the creation of an asset in an urban area that will continue to be there, and it only accrues once you’ve completed the project. So you have the concept that you’ve created a tangible asset out of something that was either dangerous or an eyesore or falling down, and you’ve put it back into productive use,” he added.

Green, a principal with Andy Winkel in Locus Development, said he told the committee that renovations are fiscally challenging projects that require additional capital, and the credits are a vital component of a financial package.

“It’s typical that a renovation cost of historic buildings exceeds the value of the asset at the end of completion. So it’s critical that the incentives — the brownfield credits, the historic credits, federal credits and local support — help bridge that gap to get the project out of the gate,” said Green.

“I stated that I foresee urban redevelopment coming to a grinding halt, which I’ve said before, without the incentive. So the sooner that a replacement can be put in place, the sooner we can continue renovating these historic structures,” he added.

De Vries said there are a lot of benefits to restoring the urban core, including job creation. He said reviving old buildings is sort of the flip side of space preservation and agricultural preservation, which the county has done on both accounts. He also explained that the credits help cover the excessive costs that are inherent in a restoration project, such as dealing with an urban site, structural issues and the aging problems an older building presents. “There are just a lot of those types of costs,” he said.

De Vries Properties, which has been around for more than 30 years, has rehabilitated a number of underused buildings in and around downtown. The most recent was Clear Water Place, the city’s former water filtration plant on Monroe Avenue. The firm was honored with the Governor’s Award a year ago for its restoration of that plant, which was named the year’s best historic renovation project last May. “Let’s just say there were parts of that building that didn’t even have floors,” he said of the costs associated with the renovation.

Green spoke to the committee about his firm’s recent acquisition of the former Junior Achievement building on the southeast corner of Fulton Street and Division Avenue. “Our concern about the J.A. building is, as we’re putting equity together to get a project off the ground, there is uncertainty from the investment community because we don’t have a defined program in place that would replace these credits if they’re removed,” he said.

Locus Development recently began its historic rehabilitation of the Flat Iron building on Monroe Center, a $4.5 million project that will turn the more-than-century-old structure into a modern office address. When the Business Journal asked if he and Winkel would have gone ahead with the project without the historic credits, Green said, “We would not have. On that project, we received an additional 15 percent in an enhanced historical credit. So with that additional enhanced credit, it pushed the project over the edge and got it done. I can say with certainty that without the brownfield and the historical tax credits, that project would not be under construction right now.”

In his testimony, De Vries said he was asked to talk about the interaction between Michigan’s program and the one offered by the federal government. He told the committee the state program leverages the federal credit and both go to cover the extra costs natural to a restoration project. The state credit covers 5 percent of a developer’s investment, while the federal credit covers 20 percent. “It enables a restoration to happen,” he said. So, as De Vries told the committee, the state credit can leverage four times the incentive amount for a project from the federal government, if a project also gets federal approval.

“His point was significant,” said Green of De Vries’ comment. “Every dollar invested by the state in a historic credit is leveraged fourfold with a federal credit. That’s a huge leveraging tool.”

The Michigan Historic Preservation Network asked De Vries and Green to testify. According to the latest figures compiled by the MHPN, 87 homes and commercial buildings were restored in Grand Rapids from 1999 through 2010 with the help of historic credits. Those projects created 6,644 jobs and were worth an estimated investment of $267.5 million. Across the state, MHPN reported the credit has leveraged $1.46 billion in investment from $128 million in credits, created 36,000 jobs and brought $251 million in federal credits to Michigan over that period. Each dollar of credit has been worth $11.37 in direct economic activity.

MHPN Program Director Gary Scheuren attended the committee hearing and said it was difficult to gauge the members’ reaction to what they heard. “I think there were some points we made that were enlightening to some of the members,” he said in an e-mail to the Business Journal. “Did we convince all of them to retain the historic tax credit? That’s doubtful, but there was some discussion about what a replacement to the tax credit could look like to encourage redevelopment in the city centers and urban areas.”

MHPN Officer Janet Kreger reported that one member wasn’t aware that the state credit leverages the federal credit, and without the state credit, Michigan would lose the federal credit. She also reported that another member seemed “comfortable” with appropriating a set amount for historic renovations because he felt doing so would give the Legislature more control over the issue. Kreger said both members were Republicans.

“One of the biggest concerns we have going forward, if the credits are pulled away, is a lack of certainty that there is an incentive in place to allow us to even begin the pre-development of a new project,” said Green. “Without knowing exactly what incentives are in place and how they work and having certainty that they will be there, it doesn’t make sense for us to take on new projects.”

“It helps with the creation of a tangible asset for the community, rather than having something sit there vacant and abandoned,” said De Vries. When asked if rehab projects would be put on hold if the historic tax credit went away, he simply answered, “Yes.”

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