Twinning Historic Tax Credits with Opportunity Zones, with Rich Rogers

Rich Rogers

Are two tax incentives better than one? Stacking, or twinning, multiple tax credits can oftentimes help bridge a funding gap on certain real estate projects. The Opportunity Zones program can be paired with a variety of other tax credits.

The place-based nature of the Opportunity Zones program makes it ideally suited to be paired with the Historic Tax Credit. The HTC is a 40+ year old tax policy that encourages private sector investment in the rehabilitation and re-use of historic buildings.

Here to discuss this with me today is land use law and economic development planning expert Rich Rogers. Click the play button below to listen now.

Episode Highlights

  • A primer on the Historic Tax Credits program — what it is, how it came into existence, and how it differs from the Opportunity Zones program.
  • The number of HTC-eligible buildings in the United States (hint: it’s a lot!) — and an estimate of how many are located in opportunity zones.
  • The unique benefits to twinning Historic Tax Credits with Opportunity Zones, and how developers can take advantage of stacking the two programs when raising capital.
  • How the requirement of a taxpayer to reduce his basis in the HTC project equal to the amount of tax credits that are generated may be nullified by a market value basis step-up in year 10 of an opportunity zone fund sale or disposition.
  • How vitally important the Historic Tax Credits program is in certain secondary markets like Rich’s hometown of Buffalo.
  • The 506(c) Funding Portal that Rich is developing at Historic Funds, and how it will be used to connect investors with developers.
  • The different types of offerings that Rich expects OZ funds will make — Regulation A vs. CF vs. D 506(b) and D 506(c).
  • How the government shutdown is affecting the release of the final IRS regulations on Opportunity Zones, and which issues in particular Rich is anxious to see clarity on as it pertains to twinning the HTC with the Opportunity Zones incentive.
  • Rich’s ideas for opportunity zone fund exit strategies.

Featured on This Episode

Industry Spotlight: Historic Funds

Historic Funds connects accredited investors with historic real estate investment opportunities that are poised to take advantage of Historic Tax Credits and the Opportunity Zones tax incentive. With over 30 years of experience in historic rehabilitation projects and real estate investing the group behind Historic Funds is well-equipped to provide an easy and accessible tool to open up this market.

Learn More About Historic Funds

About the Opportunity Zones Podcast

Hosted by founder Jimmy Atkinson, the Opportunity Zones Podcast features guest interviews from fund managers, advisors, policymakers, tax professionals, and other foremost experts in opportunity zones.

Show Transcript

Jimmy: Welcome to the Opportunity Zones podcast. I’m your host, Jimmy Atkinson. Are two tax incentives better than one? Stacking or twinning multiple tax credits can oftentimes help bridge a funding gap on certain real estate projects. The Opportunity Zones program can be paired with the variety of other tax credits, the Low Income Housing Tax Credit or the New Markets Tax Credit, just to name a couple. The place-based nature of the Opportunity Zones program also makes it ideally suited to be paired with the historic tax credits program. The HTC is a 40-plus-year-old tax policy that encourages private sector investment in the rehabilitation and re-use of historic buildings.

And that’s our topic of discussion on today’s episode as I’m joined by land use law and economic development planning expert, Rich Rogers. Rich is an attorney at Borrelli & Yots, a Rochester, New York-based law firm focused on historic preservation and community economic development law. He is also principal at Urban Vantage, an urban planning and real estate development consulting firm. His newest project is Historic Funds where he is currently building a 506(c) funding portal to help developers that qualify for either historic tax credits or qualified opportunity funds to conduct raises geared toward accredited investors. Rich, thank you for joining me today. And welcome to the show.

Rich: Thank you, Jimmy.

Jimmy: That was quite the intro I gave you there. You’ve got a lot going on these days, it sounds like.

Rich: Yeah, definitely. And before we get going, I’d like to just point out that while I am an attorney, nothing that comes up on the call should be construed as legal advice. And listeners contemplating, establishing, an opportunity fund or raising capital should seek competent legal counsel for those purposes.

Jimmy: Absolutely. That’s a good disclosure to make right out of the gate. I appreciate it. So to start, can you explain to me and my listeners what is the historic tax credits program? I touched on it a little bit in the intro. But can you dive in a little bit more and tell me how did it come into existence and why is it important?

Rich: Sure. So to put it simply, the historic tax credit provides a federal tax credit equal to 20% of the qualified rehabilitation costs for a building that’s either listed on the National Register of Historic Places or it’s contributing in a national registered historic district. It was created as part of the Tax Reform Act of 1976 to encourage investment and historic buildings, and it’s changed pretty substantially over the years, but very significantly in the Internal Revenue Code changes in 1986 which have placed some passive activity restrictions that has changed the way it operates. It’s important because it preserves our architectural heritage and lived history and also prevents sprawl and waste by encouraging reinvestment in historic urban settings and also small towns and villages.

Jimmy: And where are you located exactly? You’re in the Buffalo Rochester region, I believe, and that’s it’s in the Rust Belt. So I think the historic tax credits program applies a lot to the neighborhood that you’re in? Is that correct?

Rich: Yeah, that’s where I am. I’m located in Buffalo, New York and our law firm is located in Rochester. And Upstate New York has definitely taken advantage of the tax credit program. New York State has a complimentary tax credit program that can be coupled with the federal program that, you know, as an additional incentive to restoring historic buildings in New York State. So, that’s really, you know, stimulated this type of activity in our neck of the woods.

Jimmy: I’m sure it has. Absolutely. What are some of the main differences between the Opportunities Zones program and the historic tax credits program?

Rich: Sure. So, you know, first of all, the historic tax credit is a tax credit. It’s not a deduction. It’s not an exemption. So, after the taxpayer takes all of their deductions into account, the credit is applied and dollar for dollar against their remaining tax liability. The Opportunity Zone program is more of an exemption or an elimination of tax, depending how long the investment is held. And so, on that front, they also have different holding periods. The historic tax credit has a five-year holding period. And the Opportunities Zone program has a kind of 10-year holding period, so to really take full advantage of the benefits.

Another key difference is the historic tax credit program is only for real estate, where the Opportunities Zone program could also be used for small business and investing and stuff of that nature. The historic tax credit program, the credits need to flow according to the profits and losses of the partnership and in accordance with the membership interest and in accordance to the partnership interest. That’s not exactly the case of the Opportunities Zone program.

And I would say that, overall, Opportunity Zones are a bit more accessible because of what are called passive activity loss rules, which pretty much, to put it simply, means that you can only use historic tax credits against passive income. Your ability to use them against active income from, for example, a salary position, is pretty severely limited. But overall, I would say that the goals of the two programs are similar. They’re really market interventions using the tax code designed to promote certain types of investments.

Jimmy: Yeah. So the goals of the two programs are similar, but that’s about where the similarities end. There’s a lot of differences, it sounds like.

Rich: Yeah, definitely.

Jimmy: So, Rich, let’s actually back up for a minute and get to know a little bit more about you. Can you tell me more about your background? How did you get your start and where did your passion for urban redevelopment and the restoration of historic buildings come from?

Rich: Sure. There are really two events, I would say, that that really motivated me toward this line of work. First of all, I was in Limerick, Ireland, with the model European Union program. And we were on a tour of the city. And upon reaching the edge of the city, you could just see the countryside and really walk into the countryside and the farms. And that was very unlike what I had seen in a lot of cities in the northeast where you have a significant amount of suburban sprawl kind of surrounding the city that cuts it off from those sorts of hiking opportunities and stuff of that nature.

And then kind of following up also, when I was on the Appalachian Trail, I was hiking after undergrad and that kind of reemphasized this kind of distaste, dislike, for suburban sprawl. And, you know, out west, there are land use options like urban growth boundaries to restrict the amount of sprawl. But up in the northeast, it’s already very much built out. So, at this point, I would say are our best option for preventing the sprawl is, you know, stimulating reinvestment in urban neighborhoods and in areas that are already built. So that’s really what kind of got me into the, you know, land use law and also into urban planning.

Jimmy: Got you. Very good. That’s a good background you’ve got there. That was really cool. You were able to get over to Europe and see a little bit different way of life then Upstate New York. I’m sure that must have been fun for you. So, you’re an attorney at Borreli & Yots in Rochester, New York. What is their focus? And what type of clients do you guys primarily serve up there?

Rich: Sure. Borrelli & Yots represents real estate developers and works on project financing. That ranges from tasks like corporate formation in general real estate practice, putting property acquisition and reviewing loan documents, to more complex issues like the syndication of historic tax credits, low income housing tax credits, and new market tax credit transactions.

Jimmy: And so, these days you’re also principal at Urban Vantage. Can you tell me more about the work you do there?

Rich: Sure. Urban Vantage is an urban planning, economic development, and real estate development consulting firm. Generally, a lot of our work is grant writing and advising municipalities and kind of nonprofits as to how to implement their existing plans, projects, they’ve identified and really lining those up with available incentives that range from tax credits and exemptions to grants and other subsidies, depending on what the project details are. So, a lot of both private and public sector clients and really kind of working with both sides of that equation to get projects done.

Jimmy: So a lot of public/private partnerships you’re putting together up there.

Rich: Yes, definitely. I would say that’s generally a goal that we work towards.

Jimmy: And what are some of the incentives that local governments are providing to help accelerate the impact that these tax rates have? What else are they doing to lure businesses in and lure more development in?

Rich: Well, in New York State, I think we’re kind of notorious for high tax rates, both in the property tax context, but also, you know, income taxes and a lot of business regulations. So, the municipal governments typically will use tax exemptions to try to stimulate investment property tax exemption. Also, the state government has, as I mentioned before, their own historic tax credit. They also have a Brownfield tax credit that assist developers with redeveloping buildings, so previously polluted and, you know, cleaning those up. Also, New York State distributes a lot of grant funding annually kind of across upstate New York to kind of help to stimulate investment in a lot of these communities that have been struggling over the past couple of decades.

Jimmy: That’s great. Those public/private partnerships, especially in locations with high tax rates, California, New Jersey and New York especially, that can make a huge impact on luring businesses to the states.

Rich: Definitely.

Jimmy: How many HTC-eligible buildings are there in the United States? Can you put any sort of number on it? I know it might be kind of hard to estimate. But do your best for me.

Rich: Yeah. This is a little tough to say because a lot of eligible buildings have not yet been listed on the National Register. But currently there are about one million properties listed within the National Register Historic Districts, and about 80,000 buildings that are listed individually. To be eligible, a building that’s within a district needs to be certified as contributing to that district. And if I had to guess, I would say, you know, there may be around three to five million total in the United States. But that’s a pretty rough estimate. I would say in older cities, about 40% of the building stock is at least 50 years old. And the standards are a bit subjective in that, you know, if the building’s only 50 years old and has a good story regarding its history, there’s at least a case that can be made for eligibility.

Jimmy: Sure. That’s a good ballpark guess. Thanks for providing that for me. So, in terms of how many of those may be located in opportunity zones, if I recall correctly, I think there is between about 10 to 12% of the U.S. population resides in opportunity zones. If we kind of extrapolate that to the number of buildings in the U.S., and I know that’s not exactly apples to apples, but, you know, maybe about 10% of the three million, three to five million number that you say, that’s about 300,000 to 500,000 HTC-eligible buildings that reside within opportunity zones. You can kind of twin those two programs together. So there’s a lot of options out there. Of course, again, that’s just kind of a ballpark estimate. Nobody has the exact numbers, at least I don’t think, or they’re not with us today anyway. We’re just doing our best guesswork here. But that’s a lot of buildings that are eligible to take advantage of both of these tax programs.

Rich: Yeah, I’m curious, you know, what that number might be. When we first noticed the qualified opportunities zones provisions in the tax code rewrite, we reached out to the New York State Historic Preservation Office to advocate for prioritizing the zone designations and tracks that have a lot of National Register Districts already in them. Also, I think it’s worth to point out that many states that have either their own historic tax credit or low income housing tax credit program limit those incentives to low income census track.

So, you know, there may already be some kind of coordination in the works where maybe it’s a bit more likely that that opportunity zones census tracks have already had the nominations done for those areas. Also, I noticed the kind of handy mapping tool that you have on your site. So, for the opportunity zone, I would point out that a lot of states have kind of publicly available GIS map data regarding their historic districts that you may be able to overlay on that map. And that may kind of tell a better story.

Jimmy: Well, you just gave me a bunch of work to do. I got to go back and go to that map now. Maybe I’ll have it up in time for when this podcast episode airs in a week or so. Fingers crossed. If I do, I’ll link to in the show notes. Anyways, getting back to our conversation here, so, talk to me more about combining different tax incentive programs. What are some of the unique benefits to combining programs? And what type of impact does credit stacking make for investors?

Rich: So, first of all, I think it’s important to point out that the final regulations haven’t yet been issued. But one of the nice things about twinning the programs is the substantial rehabilitation cost that applies to qualified opportunity zone investment is similar to that in a historic tax credit context. This substantial rehabilitation tax already exists for historic tax credit projects. The taxpayer needs to exceed their basis in the building for the amount of qualified rehabilitation expenses that they incur. So, for example, if they purchase a building for $1 million, they need to spend more than $1 million fixing it up in order to be eligible for the credit.

And other kind of nice thing about twinning the programs, and this is a bit more technical, but the historic tax credit program requires that the taxpayer reduce their basis in the project equal to the amount of tax credits that are generated. And the way that the opportunity zone program works, the taxpayer can step up their basis to market value on sale or disposition in year 10. So, in a unique way that may, with the proper structure, allow for the basis reduction due to the historic tax credit to be negated in the context of a twinned deal.

Also, I would say that depending on how the offerings are structured, if an opportunity zone investment, for example, or an opportunity fund offering occurs first, then later on, as the project, you know, gets closer to implementation, the developer or sponsor can do a second offering for historic tax credit equity, which would bring a lot more cash into the deal. And kind of following up on what some of your other guests have pointed out, that will reduce the risk on the long-term stability of the investment. You know, also it’s a bit of a stabilizing force to prevent the project from being as susceptible to things like rent changes or increasing interest rates. So, I think those are some of the key things.

Jimmy: That’s great. That’s a lot to unpack there. So, there would be potentially multiple pools of money coming in or at least two pools of money coming in. The first pool being the opportunity zone equity. And then the second pool, maybe a few years down the line, would be the historic tax credits. That’s just one example of way to structure it. I understand there’s multiple ways to do this. But that’s an interesting way of doing it.

Rich: Yeah, we see…you know, some of our clients now will conduct an initial raise just among kind of local investors that I think would potentially be replaced by qualified opportunity fund investors, you know, in the early stages of the project. And then, I wouldn’t say a couple of years later, but kind of subsequently, performing a historic tax credit transaction or investment to, you know, then reduce the risk or potentially even return some of the capital to the initial opportunity fund investors.

I would also point out…I think one thing that’s important to remember is that you have kind of distinct investors for qualified opportunity funds and historic tax credits. In some cases, the same investors will be able to utilize both benefits. But overall, I think, you know, it doesn’t follow that just because someone has capital gains, that they also have passive income to shield through the tax credit program.

Jimmy: Right. So, twinning the two programs may not necessarily benefit a lot of investors. But it is hugely beneficial to a developer who’s looking to raise funds because now they’ve got different pools to put together their capital stack. Is that the main point you’re making there?

Rich: Yes, definitely.

Jimmy: So, Rich, as we mentioned before, you’re located in the Buffalo Rochester area in Upstate New York. Can you talk to me about the market in your neck of the woods? Upstate New York in particular, I know, is a pretty weak market in real estate. So, just how important is the HTC program to getting these projects off the ground? And how will the Opportunity Zones program further improve your ability to raise capital?

Rich: Yeah. So, Buffalo in particular, has had an absolutely stagnant real estate market for I would say at least 30 years, if not longer, leading up to 2008, 2009. Since then, there has been some increased investment activity. But overall, it’s still a relatively weak market. You know, it’s a shrinking area overall population wise. So, it’s a bit more dependent on the subsidies.

I would say within the city of Buffalo and also the city of Rochester, for the most part, almost all new development has been driven by historic tax credits or other tax credits or grants. And a little bit of that’s starting to change. You’re seeing kind of the market forces catch up. And you’re starting to see a little bit of infill development here and there. But with the cost of construction and interest rates, the historic buildings kind of get done first, if you will.

Jimmy: Sure. Yeah, that makes sense. So these programs are crucial to getting these products off the ground and this real estate development going. How does dealing in a weak or secondary market like Buffalo differ from putting together deals in healthier markets?

Rich: The deals in these markets are more dependent on subsidies and as a result move a bit slower. And to some extent, they’re harder to get financed. It’s hard to find access to capital, access to credit, especially if you’re a newer developer without kind of a proven track record and strong guarantees. And, you know, I would say just given the general market conditions, the capital that does exist in these places is often very careful and conservative, which slows things down a bit further. That being said, there’s comparatively low acquisition prices because the property values are low, which I think does lead to some opportunity.

It makes it easier to get past that substantial rehab test that we talked about. And that being said, construction costs can be on the high end sometimes. And I guess one thing to point out about the historic tax credit part of this is that, you know, you don’t have to syndicate your tax credits. You don’t have to admit an investor. And in larger markets, it may be that the developer will just keep the tax credits or, you know, even some of the more larger well-off developers in these markets may just keep the tax credits, rather than admitting an investor to monetize them. So, I think that’s kind of a key difference in how the program operates in these markets.

Jimmy: That makes sense. Speaking of Upstate New York, Preservation Studio is up there. It’s an historic preservation consulting firm that serves that area. I understand you have a relationship with them. What exactly are doing with with Preservation Studios?

Rich: Sure. So, I am a part-time employee of Preservation Studios, typically only working about 5 to 10 hours a week. I mostly help with reviewing client budgets and calculating tax credit eligible expenses or qualified rehabilitation expenses. And we share office space with them through Urban Vantage and Borrelli & Yots. But I would say that the major function of Preservation Studios is getting buildings listed and districts listed on the National Register, which they’ve really done very well with. They have a lot of expertise in architectural history and, you know, working with developers, working with architects, and in kind of making sure that that process goes smoothly.

Jimmy: So, what’s the process like for getting on that register?

Rich: There’s a three-part listing process through the National Park Service. Part one more so is determining that there’s some level of eligibility. Part two has more to do with or finding the designs to meet the Secretary of the Interior Standards. And then part three is after project completion kind of claiming the credits. There’s a lot of coordination with the state’s Historic Preservation Office prior to submitting things to the National Park Service. The State Office does a cursory review and they issue their approval first. This isn’t as much my area of expertise as some of, you know, the Preservation Studios, the other workers. They’re the owners and employees, but that’s the basic process.

Jimmy: Got you. Got you. I understand. So, well, we’ve talked about your work as an attorney at the law firm, Borrelli & Yots. We’ve talked about Urban Vantage. We’ve talked about Preservation Studios. And as if that wasn’t enough, you’re a busy guy, Rich. Let’s talk now about your other project you’re working on, which is Historic Funds, specifically the 506(c) funding portal that you’re currently putting together. Can you give me some details of that project and why you think it’s necessary to build it out?

Rich: Yeah. So, Historic Funds is a project with some partners from Preservation Studios and some other business projects I’ve been involved in. And mostly, it’s a reaction to kind of changes in the securities laws initiated by the JOBS Act or the Jumpstart Our Business Startups Act of 2013, which really changed the types of offerings available under Regulation D and specifically Regulation 506(c). And so, we’re working with a securities law firm from New Jersey in establishing this. And really, our focus is driving capital to historic rehabilitation projects. And, you know, that doesn’t necessarily mean the tax credits indication or the opportunity zone piece of it. That could be anything from mezzanine debt to a bridge loan for some other sort of tax credit program.

But what we’ve noticed a lot in Preservation Studios is there’s a lot of smaller projects that don’t get funded and don’t move forward because they can’t find investors for their tax credits. A lot of the traditional tax credit investors look for kind of as few large projects as they can find. Some of this has to do with the transactional costs between attorneys and accountants. But some of it is just a kind of a lack of exposure between the investors and these projects. So, we’re hoping to have this platform allow smaller developers to get to get their projects out there and really bring a bit more transparency to this market.

Jimmy: What are the size of some of these smaller projects?

Rich: Yeah, I mean, really anywhere from $1 million total project cost to about $5 million of total project costs are pretty difficult to place right now. You know, you’re talking about anything below $1 million of federal credits is really kind of tricky to place. So, we’re hoping to open that up a bit. You know, a very small project, something around $500,000, would be perhaps prohibitively small, just given some of the transaction costs. But we’re hoping that, you know, we may be able to identify some strategic partners to work on that side of things, as well.

Jimmy: Got you. So, and what asset class are these smaller projects. And are these multi-family units or retail?

Rich: Most of the projects that, you know, we work on are conversion from the legacy use, like a factory type of industrial use, to more of a mixed use project with some level of commercial, either office or retail space, and then a lot of residential units. That’s kind of the typical recipe. Sometimes they’re totally residential. Sometimes there’s more commercial uses. But I would say that almost always, they’re mixed use projects.

Jimmy: Got you. So, you spoke a little bit earlier about the JOBS Act and regulatory offerings. Can you dive into that a little bit more? What type of regulatory offerings are your clients using typically? Is it C, F or D? What are the pros and cons of the different types of offerings?

Rich: Yeah. So, I think this is a little tricky without the final regulations. And I would like to point out that I’m not a securities lawyer. We’ve engaged a securities lawyer because that’s not really our background on the law side. That being said, I think regulation crowdfunding would be a little difficult since it prohibits the crowdfunding investors from investing in an upper tier entity, an LLC that then invests in the project. So, since they would have to invest directly in the owner, that kind of limits the ability to also syndicate the tax credits. There’s ways to do it through what’s called a master lease structure. But, you know, it just generally might cause some uncertainty with the bank. The bank might not want to see so many individual participants in the owner entity, if you will. And I think that has kind of caused problems across the board for regulation crowdfunding for real estate.

You know, it’s not only for historic projects. But a bit more generally. That being said, depending on the final regulations, it may be possible to set up a crowdfunding thing. But I think mostly we’ll see Regulation D either 506(b) or 506(c). And kind of depending on what the underlying assets are, I also wouldn’t be too surprised to see some regulation A offerings and some intrastate offerings, as well. I think one of your prior guests had even pointed out that, you know, you could have a corporation that was set up that, you know, would be less dependent on these types of exempt offerings. So, that would be kind of interesting to track and follow.

Jimmy: Yeah, definitely. So, we’ve brought up the IRS regulations a few times, and I want to ask you about that. We’re recording this episode on January 16th, 2019. And we’re currently in the midst of a government shutdown. An IRS hearing on the topic of opportunity zones was recently postponed last week, I believe. And we’re not really sure when the regs are going to come out now. I think a lot of people were expecting them sometime this month and I’m not sure. I don’t know if anybody knows really what’s going to happen here with this. Things seem to have been delayed. But that being said, Rich, what are some of the key issues that you’re hoping the IRS clears up soon, whenever they do come out with the final final regulations? What some of the sticking points with you?

Rich: Yeah. I think one of the biggest things as far as twinning some of these programs is getting a bit more clarity on the active trader business standard. That kind of informs what structure will be used for these twinned offerings. If a landlord entity, essentially, is considered an active trader business, I think you’ll see opportunity zone investors and the landlord or owner entity. And then you’ll see the tax credits, the historic tax credits, passed through to a tenant by making an election under Internal Revenue Code Section 50(d).

If not, I would expect to see a flip of the partnership interest in year five, essentially where the tax credit investor would leave after year five or their interests would revert back to both the project sponsor and the opportunity fund. Also, again, this could be a bit different in larger markets. You could see some interesting creative things resulting from an opportunity fund structured as a corporation. But as we’ve said before, typically, I think you’ll see kind of investors with different motivations.

I think one kind of structuring thing, and this is maybe a bit more practical than, you know, dependent on the regs, but by having these two mouths to feed, if you will, on the investor side, cash flow might be pretty tight in the first few years. So, that’s kind of a practical structuring question.

And I think…I’m not sure that the final regs will shed some light on this. But we’ve had clients that are very curious about setting up a year 10 option, if you will, to buy out the opportunity fund, a lot of developer clients. Obviously, this is going to limit the upside for the opportunity fund investors. And I’m not exactly sure, you know, that the final regs would even allow for that or if there’d be any opportunity or any appetite for that among the opportunity fund message. So, I think exiting from these deals might be…it may take a little while to finalize that part of the structure.

Jimmy: Yeah. I was going to ask you about that. A little bit down the road here, when we get toward the end, I wanted to ask you…I’ll ask you now. What are some exit strategies that you’re proposing for your clients and the investors at year 10 and beyond? At some point, the investor has to dispose off his equity in the opportunity fund in order to be able to step up as bases to the fair market value and actually achieve the capital gains elimination. What are you advising your clients to do or maybe you’re just still in wait-and-see mode on that?

Rich: Yeah. I think we’re mostly in wait-and-see mode. I think we’ve heard different things from different people, as far as those expectations might be. It does seem that there’s a bit of adverse relationship almost between the developer and the opportunity fund. Obviously, the developer wants some level of predictability. So, maybe a right of first refusal where the opportunity fund might be able to solicit offers. And then the developer might have the right to match it to buy them out. I could see something like that. I could potentially see some sort of a put or a call option that, you know, is based on an appraisal maybe in year 15 or year 11.

So, I think that there’s going to be a few different ways to structure it. I also…you know, I wouldn’t assume that the fund will wait until year 10 to exit the deal, based on the proposed regs. The fund may be able to leave in year five when the tax credit investor leaves, allowing the developer to kind of refinance and buy them out. And then the fund can go and invest in second project and hold that project through year time. So, it’ll be interesting to see how that shakes out. But I say that we’re definitely still in wait-and-see mode and see how this market kind of settles in.

Jimmy: Right. Yeah. Those are some interesting ideas you mentioned there. Yeah. Let’s keep an eye on that and see what the final regulations say about that. Well, let’s…Rich, let’s say I’m interested in investing in one of your clients’ projects. How do I invest in…what criteria do I have to meet? Is there a minimum investment amount?

Rich: So, obviously, that’s going to vary based on the project-by-project basis, what the offering opportunity is. You know, I would say if you visit our site at, that’s where projects will be listed, at least on that side of things. So, I would say that’s the best approach. I would also say that we’re kind of pursuing some partnerships on the capital side with some fund managers who, you know, have experience in historic tax credits and opportunity zones to kind of help underwrite the deals and kind of bring in some of their existing investor base and stuff of that nature. So, yeah, I would maybe keep an eye on the website as we really start to roll out some projects here over over the next few months.

Jimmy: It sounds good. We’ll be sure to do that. I definitely want to keep an eye on historic It looks like a good product you putting together there. So, we’ve been talking about how great the opportunity zones program is and how incredible the opportunity is for investors, and even more so for real estate developers, to be able to combine that work, to twin the opportunity zones program with different tax credits. But let’s take a glass half empty approach for a moment, if you don’t mind. Do you suspect that the opportunity zones initiative may actually dry up some investment in HTC-eligible buildings that aren’t located in opportunity zones?

Rich: Yeah. I don’t really think so because the investors have such different motivations. You know, the capital gains deferral exemption might not equate to the need for passive activity credit. You know, a lot of the tax credit investors are, you know, large C corporations or large banks that have Community Reinvestment Act consideration. So, they’re going to, you know, keep going for the HTC deals that come to them.

And, again, I think, you know, they kind of seek out deals that are investing in a small number of large deals to the extent possible, at least your more traditional HTC investors. You know, that being said, I think developers generally might shift their focus to opportunity zones, which could cause the historic tax credit investors to follow. But again, the historic tax credit investment process is highly institutionalized. There’s a lot of syndicators and broker dealers who kind of have the existing relationship. So, you know, I think a lot of the decisions will be centered around the project sponsors and developers, to some extent.

Also, you know, I think what’s more likely to dry up are kind of historic tax credit eligible buildings in opportunities zones because, you know, eventually you’re going to… I mean, I guess you could run out of buildings, if those are the first ones that people go for as far as twinning deals, you know. The buildings have to be at least 50 years old. So, hypothetically, you could run out. But, obviously, as we talked about earlier, there’s lots and lots of buildings. So, that would just necessitate, you know, getting some new ones listed on the National Register.

Jimmy: Yeah, I think if we ever run out of HTC-eligible buildings within opportunity zones, it actually be a good problem to have. That means the program is working really well.

Rich:Yeah. I absolutely agree.

Jimmy: Well, Rich, we’re getting to the end of our time here today, but before we go, can…and I know you already mentioned historic too, but can you tell my listeners if there’s anywhere else they can go to learn more about you and your projects?

Rich: Yeah, you know, Borrelli & Yots. There’s a website, Preservation Studios has a website and a blog called Preservation Exchange. Also, Urban Vantage has a website. We have a blog that where we’re kind of working on picking up here. We’ll be kind of doing a blog through, which is the parent company for Historic Fund. We’re looking at launching a donation-based portal called Neighbor Funds and potentially, also, getting into the crowdfunding space, depending on whether or not the Fix Crowdfunding Act, which has been proposed, kind of eliminates some of those issues that we were discussing earlier regarding kind of the capital stack and the number of owners. So, yeah, I mean, I guess my LinkedIn page. If anyone wants to reach out, and message me or email me, I’m happy to discuss these issues.

Jimmy: That’s great. Thanks for that, Rich. And for my listeners, I’ll have links to all of the resources that Rich and I discussed today in the show notes for this episode. I’ll have links to, to Urban Vantage, to Rich’s LinkedIn page, and everything else we discussed. And you can find the show notes on the opportunity zones database website at Well, Rich, thanks for joining me today to talk about historic tax credits and opportunity zones and twinning the two programs together. I really appreciate your time. And I hope to talk more with you soon.

Rich: Yeah. Thanks for having me. I think this is kind of a really great opportunity. You know, I’ve been kind of promoting OpportunityDb, too, with that map. It’s so much better than kind of what New York State put out as far as accessibility and, you know, kind of seeing what’s going on there.

Jimmy: Oh, good. I’m glad to hear that.

Rich: That calculator product that you have on there is pretty great I would say, for just, you know, introducing people to the program.

Jimmy: Oh, very cool.

Rich: That was really exciting.

Jimmy: Well, thank you for the endorsement. And I will be sure to link that in the show notes, as well. And, Rich, thanks again for joining me today.

Rich: Thanks a lot, Jimmy. I really appreciate you having me on the show.

Jimmy: Absolutely. We’ll see you soon then. Thanks.