As a part of House Bill 233 (HB 233) recently passed by the Ohio General Assembly and signed by Governor Kasich, Ohio cities now have a new financing tool to use toward helping historic tax credit projects succeed.
Currently, proceeds from a tax increment financing (TIF) bond, which is issued by a government agency based on the expected real estate tax increase resulting from a development project, generally can only be used for public improvements, such as local streets, sewers, public parking garages, etc.
Effective August 5, 2016, HB 233 allows a municipality to establish downtown redevelopment districts (DRDs) and then issue TIF bonds — the proceeds of which can be used to directly support a project, as long as it is an historic renovation project. This is an important change in the process, since many historic tax credit (HTC) deals fall apart because the syndication of the federal tax credits doesn’t generate cash for the project until it is complete and the rehabilitation is certified — which may be two or more years from the start of construction. That funding (as much as 20-25% of the project) is generally bridged via some type of subordinated gap financing, which is often hard to get. Beginning August 5th, TIF proceeds can be used for any number of pieces of the capital stack, including grants, loans, infrastructure improvements and gap funding, which should move the needle on many HTC projects.
If you are involved in or are contemplating an HTC deal, talk to your advisors about maximizing this new tool.
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