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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.”

Rebuilding history

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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