By: Tom Daykin, Milwaukee Journal Sentinel, February 8, 2014
Jim Haertel was considering the financing options for expanding his tavern at downtown Milwaukee’s former Pabst brewery.
His decision was made much easier when state officials quadrupled the value of a tax credit given to developers of historic preservation projects.
“We were on the fence,” Haertel said. “And suddenly that tipped the scales toward definitely wanting to go for the credits.”
He is among several owners of historic buildings who are tapping the increased tax credits, which are expected to cost state taxpayers millions of dollars. The new credit level took effect Jan. 31, following the 2013 approval by the Legislature and Gov. Scott Walker.
The new law raised the state income tax credit to 20% of the qualified remodeling costs of historic commercial buildings, doubling it from 10%. The Legislature passed the bill in October, just months after the credit was increased from 5%. The state credit supplements a federal program that provides tax credits for 20% of such costs.
The state tax credit’s boost received bipartisan support. Advocates said the credit increase was needed to help Wisconsin compete with other states for investor funding of preservation projects, which are more costly than new construction. In return for the credits, developers follow federal rules on preservation remodeling techniques and materials.
According to the National Trust for Historic Preservation, 31 states provide historic preservation tax credits. Most of those credits are in the 20% to 25% range for commercial restoration projects.
Wisconsin Economic Development Corp., which operates the state program, has seen increased interest from developers with the higher credit taking effect, said Mark Maley, the group’s public information manager.
The higher credit may help attract national historic preservation development firms to Wisconsin, said Milwaukee Development Commissioner Rocky Marcoux.
It also could help bring to life commercial preservation projects that otherwise would have languished because of feasibility concerns, he said.
“It’s a move in the right direction,” Marcoux said.
That higher credit level could be especially valuable for smaller projects, said Matt Jarosz, an associate adjunct professor at University of Wisconsin-Milwaukee’s School of Architecture and Urban Planning. He’s organizing a March 28 workshop about the state and federal tax credits.
“In the past, small projects just weren’t worth the complexity of the tax credit program,” Jarosz said. “Moving to the 40% zone can start to make it possible.”
Milwaukee historic developments under consideration include the possible conversion of the upper floors of a downtown building into market-rate apartments, Maley said.
The seven-story Posner Building, 152 W. Wisconsin Ave., features Mo’s Irish Tavern on parts of the first and second floors, but is otherwise largely vacant.
Kyle Strigenz, co-owner of HKS Holdings LLC, which is considering the redevelopment plan, declined to comment, saying it was too early to discuss the possible project. The Milwaukee firm has done other historic preservation projects, including last year’s conversion of the former JH Collectibles clothing factory into the 50-unit Junior House Lofts, 710 S. Third St.
Another proposal on downtown’s west side would convert the Germania Building, 135 W. Wells St., into 78 apartments, along with 14,000 square feet of street-level commercial space. The developers, Endeavour Corp. and Vangard Group LLC, have declined to comment on that proposed project, which could combine tax credits for both historic preservation and affordable apartments.
At the Pritzlaff Hardware Co. complex, at W. St. Paul and N. Plankinton avenues, developer Ken Breunig is continuing his restoration project and plans to use the higher state tax credits. Portions of the buildings have been converted into offices and banquet rooms, and Breunig is proceeding this year with plans to restore additional space for commercial use.
“It has definitely helped make the numbers work,” Breunig said.
At the former Pabst complex, now known as The Brewery, Chicago-based Blue Ribbon Management LLC hopes to begin work this spring on converting the former Pabst bottling house into apartments marketed to international students at Marquette University, University of Wisconsin-Milwaukee and other area colleges.
The increased state tax credits “will be a great help” in financing that development, along with plans to convert a nearby former church into commercial space, said Tom Gehl, Blue Ribbon Management chief executive officer.
Haertel is adding around 6,000 square feet of banquet space at the former Pabst brewery’s visitors center and offices, known as Best Place at the Historic Pabst Brewery, 901 W. Juneau Ave.
Best Place includes a gift shop, Blue Ribbon Hall banquet room and The Little Tavern on The Hill. The additional banquet space, converted from an 1880 office building, will provide an additional room for wedding receptions and other events.
Haertel plans to spend around $750,000, with around $500,000 qualifying for the preservation credits. Combining the state and federal programs would raise around $200,000 in tax credits, which Haertel plans to use to reduce his income tax bill.
A U.S. Small Business Administration loan through First Bank Financial Centre is providing $670,000 for the project, with Haertel providing around $100,000 in equity cash. He plans to begin the work in March, and have the banquet room completed by July.
Cost to taxpayers
Elsewhere in Wisconsin, other projects tapping the higher credits include separate plans to convert a former Manitowoc factory and a former Madison seminary into apartments.
Oregon, Wis.-based Gorman & Co. is pursuing the Madison project, which would create 87 apartments at the Bishop O’Connor Catholic Pastoral Center. The additional tax credits help attract more equity cash because developers have the option of selling them to banks and other investors, said company President Gary Gorman.
“Some of our projects in the pipeline may be more feasible now,” said Gorman, whose firm’s historic redevelopments include the Brew House Inn and Suites at The Brewery, at 1215 N. 10th St.
Another project that was already in the works — but now will be easier to finance — is the proposed redevelopment of a former Mirro Co. factory in Manitowoc into 40 apartments, an $8 million project known as Artists Lofts. Robert Lemke and Todd Hutchison, who operate Milwaukee-based Wisconsin Redevelopment LLC, are the developers.
The higher credits “really enhance the viability of these projects,” said Lemke. The firm’s other projects include helping with the planned restoration of a historic Wauwatosa building into a charter school.
The higher credit comes at a cost for state taxpayers.
The Legislative Fiscal Bureau estimated the credit will cost taxpayers $8.6 million over the next two years, based on the level of past use by developers of the credit when it was at the 5% level.
The agency also said quadrupling the credit’s value could result in a significantly higher cost to the state if developers increase their use of the program.
Supporters say the higher cost amounts to an investment that creates jobs and higher tax revenues. Lemke also cites another benefit.
“We’re saving these buildings for future generations,” he said.
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