The business model for real estate redevelopment of historic properties has typically been one of two primary approaches. In the first approach, a preservation advocacy group identifies a significant building where its use was inherently tied to its significance, for example, the private home of a noted community or business leader, or a beloved theater or civic building. The group then raises funds from foundations and individuals (often over many years) with the intent of preserving the property as a museum or maintaining the use in the case of, say, a performing arts theater.
In the second approach, a for-profit private developer finds an older building that qualifies for historic tax credits and repurposes the building into a contemporary, economically viable/income generating use. The classic example is an old mill / factory or brewery that becomes hip and funky market-rate housing.
The first approach relies on the good will and significant volunteer efforts of a large number of people often over a long period of time. This approach often requires on-going fundraising for operating expenses including needed repair and maintenance. This is typically referred to as the “museum” approach to historic preservation.
The second approach requires that the capital structure of the deal works using only the
typical and reasonably available finance mechanisms – developer cash equity, state and federal historic tax credits, low income housing tax credits (LIHTC), New Market Tax Credits (NMTC), market debt, and possibly some city financing such as Community Development Block Grants (CDBG) or, in some locations, Tax Increment Financing (TIF). Some of these mechanisms are specific to an intended use and all come with certain criteria that need to be met over time. They can all be layered together to support the economic feasibility of the development, and yet all come with added transaction costs that increase the total cost of the development. In contrast to the first approach, the buildings are repurposed into contemporary uses and, in the end, are designed to be financially self-sustaining and provide a return on the investment to the developer and their investors. This approach is a “market driven” approach to historic preservation.
Each of these approaches is important and will likely continue as these types of properties are found or made available for redevelopment.
Nonprofit approach to preservation redevelopment for long term economic sustainability
At HBI, we most often find ourselves in a third approach to development. It could be called the “developer of last resort” approach to historic preservation. This approach involves buildings that do not have program uses intrinsic to their historical significance like museums nor are they financially viable enough to attract the market driven developers. They are buildings that may or may not retain a similar historic use but need significant redevelopment for contemporary reuse and income generation. And, even after applying all the typical and reasonable finance mechanisms available, they simply will not be financially self-sustaining. They therefore have what we call a funding “gap” and require significant donor funds to offset the development costs and allow them to become financially self sustaining going forward.
This third approach, while filling an important need in the preservation of buildings that would otherwise face the wrecking ball, often ends up with only small financial returns to the organization and still takes many years to realize a fully redeveloped building.
Partnering increases preservation capacity
More recently, HBI has been considering ways in which we can ma te the third approach with the second approach and partner with for-profit real estate developers to increase HBI’s capacity to do more and larger projects and address endangered or underutilized historic buildings of architectural merit. Let’s call this the “preservation partnering” approach to historic preservation.
This has recently shown itself valuable and financially viable when there is developable land adjacent to a historic building. In this scenario, HBI can perform a key role in the stewarding of the historic property to the for-profit developer, and in some cases also through the finance and development process while the for-profit developer primarily addresses the larger adjacent development parcel. This approach leverages the new construction development to provide a financial “cross-subsidy” to the otherwise financially infeasible redevelopment of the historic property.
The redevelopment of the Roslindale Substation was one such project. HBI in partnership with Roslindale Village Main Streets (RVMS) ushered the long vacant and functionally obsolete MBTA Substation Building to a new purpose by acquiring and consolidating adjacent developable land. This allowed us to create a large enough project to attract the for-profit partner, Peregrine Group, LLC, which was interested in developing an apartment building and located a destination restaurant and retail micro brew store as tenants for the historic Substation.Once completed, this preservation partnering approach will result in the redevelopment of a significant historic property, new middle income homes, and new entertainment options for the community of Roslindale and its business district.
Stay Tuned -- more preservation partnering approaches to come
HBI is considering many different “preservation partnering” approaches. We are currently engaged in the redevelopment of a historic farm in Mattapan, partnering with three other non-profits, and the redevelopment of a Mission style comfort station along the unrealized section of Fredrick Law Olmsted’s Emerald Necklace.
In what will become an ongoing series of blogs, HBI’s Jeffrey Morgan will discuss these various preservation partnering scenarios and the opportunities they present to steward long vacant and blighted properties to new uses that add new life to their communities thereby contributing to the economic revitalization of their neighborhoods.