Thread by @US_CRE_Finance

The prettiest deal I've ever been part of was a Historic Tax Credit deal. I am not an expert in these but it got over the finish line and the numbers worked out pretty well. It was hard but not so tough that I wouldn't do it again.

Thread below
1/12

I first walked Bella Villa in 2015 and it was a DUMP. So bad that I sent the deal to a home builder and thought he'd tear it down and build 3 spec houses.

Luckily, he didn't try. As it turns out, the neighborhood had already taken notice and probably wouldn't have let him
2/12

It had deteriorated further by 2017. The physical asset was in horrible shape but the rents would be high if we could put it back together.

The building had tons of character and is well located in the middle of the M-streets neighborhood where very few apartments exist.
3/12

We got it under contract at the very top of our comfort range knowing that the CapEx budget was a guess at best with a huge contingency on top of the guess.

A week after DD began we got a call from City Hall. The process had started to designate the building as a landmark
4/12

Basically some of the neighbors knew that the property was being sold and they wanted to protect it from being torn down. In the process, our hands were tied as far as what was and was not allowed on the renovation.

We became "accidental preservationists"
5/12

We could have dropped the deal and only would have lost some DD money (EM wasn't hard). But...we had fallen in love with the building and knew that we could get historic tax credits...the designation as a landmark actually helped that process move faster
6/12

HTC has some pros/cons

Pros: you can get state/federal tax credits for up to 45% of the qualified rehab costs

Cons: Paperwork, red-tape, you have to follow rules, it has to look like they want it to, you have to use materials they want, you're on a government timeline
7/12

We hired Jay Firsching @architexas1 to be our HTC consultant and he handled all of the hard stuff. His firm is awesome for this type of deal in Texas.

Highly recommend!
8/12

@ARCHITEXAS1 Our initial underwriting had us doing $50k/unit of CapEx. A lot in 2017 on 24 units!!

We ended up spending $80k/unit. Part of that was due to major structural problems we couldn't see in DD. Part was windows/materials that we were forced to use by HTC guidelines
9/12

@ARCHITEXAS1 Essentially we got $36k/unit in tax credits which is 45% of qualifying rehab work. This is an oversimplification because there are costs associated with getting tax credits.

So our final Rehab/unit was actually $44k. We came in under budget!!!
10/12

@ARCHITEXAS1 I think this is how the program is supposed to work. We created a financially viable deal and were rewarded for maintaining the historic character/materials of the building.

It is hard to find these opportunities in Dallas but we would do another if we could.
11/12

@ARCHITEXAS1 Plus the good press and awards are always nice. Always nice to be known as something other than a greedy developer

We had very flattering writeups in several newspapers/magazines. We won "Best Rehab Deal of a Residential Property" from Preservation Dallas
12/12