Reuben, Junius & Rose, LLP hopes everyone had a great holiday and New Year. 2018 looks to be another banner year with land use issues, as we look forward to the Central SoMa Plan moving forward, a new Planning Commissioner assignment, and of course many Planning Code amendments. As usual, Reuben, Junius & Rose will continue to monitor the latest planning and development news throughout the year. We open our 2018 newsletter series with a “Preservation Potpourri.”
Internal Revenue Code Changes to the 20% Historic Tax Credit
On December 22, 2017, President Trump signed into law the landmark $1.5 trillion tax package, titled the “Tax Cuts and Jobs Act”. One tax credit that was amended was the federal Historic Tax Credit (“HTC”) (26 USC 47). Enacted in 1981 during the Reagan Administration, the HTC encourages the preservation and adaptive reuse of historic and older buildings and is widely utilized by developers. The HTC consists of two separate tax credits: 1) a 20 percent credit for the rehabilitation costs of buildings listed on or eligible for the National Register of Historic Places; and 2) a 10 percent credit for the rehabilitation of non-historic, non-residential buildings built before 1936.
The House’s version of the Tax Cuts and Jobs Act eliminated the HTC altogether. However, the Senate, after pressure from the real estate and preservation communities, reinstated the HTC but made several amendments to it, which became law. Originally the 20 percent tax credit could be claimed all at once in the first year the building “came into service”, i.e., once the rehabilitation was completed. Starting in 2018, the 20 percent tax credit is spread out over five years. In addition, the 10 percent tax was eliminated in its entirety.
This may impact developers in several ways, as many depend upon these credits to fund projects. It could affect the ability to get financing to start construction projects with larger rehabilitation costs, as some banks provide equity financing for rehabilitation projects by taking ownership interests in entities that hold an interest in the properties or even receive the HTCs themselves. Some developers sell the credits to larger companies, thus getting a cash infusion into the project during construction. By spreading out the tax credit over five years, the Tax Cuts and Jobs Act has diminished the value of the tax credit by up to 17 percent.
The HTC is a popular program and has been attributed to over $131 billion in private investment, created more than 2.4 million jobs, and preserved 42,000 buildings. Developers who utilize this credit should consult with their accountants and tax advisors to see how the modifications in the Tax Cuts and Jobs Act may impact their projects.
Updated Guidelines to the Secretary of the Interior’s Standards for the Treatment of Historic Properties issued
The Secretary of the Interior (“SOI”) has updated the Standards for the Treatment of Historic Properties with a new document that contains Illustrated Guidelines for each of the four treatments (Preservation, Rehabilitation, Restoration, and Reconstruction). The Guidelines have not been updated in nearly 25 years and replace the last version from 1995.
The SOI’s Guidelines help inform the Planning Department when evaluating alterations to historic buildings in San Francisco. This includes buildings regulated under Articles 10 (Individual Landmarks and Historic Districts) and Article 11 (Downtown Buildings and Conservation Districts), as well as any property reviewed under the California Environmental Quality Act (“CEQA”). The updated Guidelines have expanded topics and address issues pertinent to San Francisco such as mid-20th century architecture and adapting industrial interiors for office uses. These Guidelines may be helpful when beginning a project to a historic building. Later this year, we will look at these new standards more closely.
The updated Guidelines can be found here: https://www.nps.gov/tps/standards/treatment-guidelines-2017.pdf
Proposed Legislation Establishing Cultural Districts in San Francisco
Finally, we close with a local ordinance that was proposed by the Board of Supervisors in late October 2017. Supervisors Ronen, Cohen, Kim, Fewer, Sheehy, Yee and Farrell have proposed a new chapter to the Administrative Code that would create a process for establishing cultural districts throughout San Francisco (BOS File No. 17-1140). The stated goals of the legislation are to promote the unique neighborhoods, businesses, and communities in San Francisco while protecting them from displacement.
Cultural Districts are defined as a “geographic area or location [within San Francisco] that embodies a unique cultural heritage because it contains a concentration of cultural and historic assets or culturally significant enterprise, arts, services, or businesses, or because a significant portion of its residents or people who spend time in the area or location are members of a specific cultural, community, or ethnic group.” Five initial cultural districts are proposed: Japantown, Calle 24, SoMa Filipino, Compton Transgender, and the LGBTQ Leather Districts. Other districts may be adopted and approved by the Board in the future.
The legislation outlines a process for proposal and adoption of cultural districts and requires reports regarding certain characteristics of the district as well as recommendations and strategies to preserve and support the culture of the district from various city agencies/commissions: the Historic Preservation Commission, Office of Economic and Workforce Development, Arts Commission, Office of Housing and Community Development, Department of Public works, Planning Department, and Human Rights Commission. Strategies can include new zoning controls, historic districts, funding for businesses, economic development, and affordable housing, as well as new public amenities.
Since this legislation has been introduced, it is currently under review by each Department or Agency listed above, and is awaiting Committee action at the Rules Committee. The impact of this legislation is unclear and Reuben, Junius and Rose, LLP will continue to monitor it and inform our readers when new action is taken.
Authored by Reuben, Junius & Rose, LLP Attorney, Tara Sullivan
The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient. Readers should consult with legal counsel before relying on any of the information contained herein. Reuben, Junius & Rose, LLP is a full-service real estate law firm. We specialize in land use, development, and entitlement law. We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision, and condominium work.