Use of Historic Tax Credits to Assist in Adaptive Reuse of Buildings as Hotels
By John Tess President & CEO, Heritage Consulting Group | November 06, 2016
The success of a hotel is predicated on providing a product that is embraced by the market. Some customers value brand loyalty and a standard product while others look for unique experiences with a custom product. In determining the viability of a hotel, product and location are essential to success. Over the past decade, there has been resurgence in the viability and attractiveness of America's urban areas, as witnessed by the proliferation of centrally located hotels. Where buildable lots are at a premium, the reuse of historic buildings as hotels has grown significantly. While old hotels are often upgraded to meet market demands, the reuse of non-hotel historic buildings has been significant and dramatic. The historic tax credit program has been a catalyst and important financial tool in the transformation of historic buildings into modern hotels.
History of the Historic Tax Credit
During the mid-century period, our urban centers were in crisis. As the United States transitioned to embrace the automobile, cities were reconstructed. Some reconstruction was planned by government entities and included highways, grand autocentric urban renewal projects and ample parking for our new way of life. Other reconfigurations were more haphazard, as falling property values forced property owners to demolish buildings to make way for parking and often created a gap tooth appearance which exists in many cities throughout the country. Prior to this period, one would never have preferred less square footage as part of their real estate portfolio, but it became clear that urban buildings could only survive if parking was provided. Real estate demand within cities was already declining and any measure necessary would be taken to protect economic viability.
The change in our cities and urban real estate also had a profound effect on urban hotels. Unable to provide parking, compete with new suburban hotels or shake the growing impacts of crime and poverty, urban hotels began to be converted for other uses, demolished for parking or urban renewal projects, or as was the case with the King Edward Hotel in Jackson, Mississippi, abandoned and forgotten.
It was in this climate that the National Historic Preservation Act of 1966 was enacted to protect the country's historic resources. Now in its 50th year of existence, the Preservation Act put the country on notice of its historic buildings through the creation of the National Register of Historic Places, an honorific list of resources notable for their historical or architectural merit.
While the National Register raised awareness of America's important buildings, it did not provide any incentive to maintain them, and demolitions continued through the mid-century period. It was not until the enactment of the Tax Reform Act of 1976 and the Revenue Act of 1978, that incentives were put into place to promote the preservation of older and historic buildings.
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