Connecticut Trust for Historic Preservation – Revolving Fund

The Connecticut Trust for Historic Preservation Revolving Fund (CTHP-RF)

I. Mission & Fund Objectives

The Connecticut Trust for Historic Preservation Revolving Fund (CTHP-RF) invests in and transforms underutilized historic buildings/assets that serve as catalysts to stimulate economic development and contribute to placemaking across the state. The concept of placemaking focuses development and investment on places/communities that are distinctive and inspiring. These places are Connecticut’s historic resources.

CTHP-RF’s objectives are to:

  • Provide short-term financial assistance that fills funding gaps for preservation projects;
  • Implement a comprehensive approach to using historic preservation as an economic development and placemaking tool;
  • Focus on working strategically at the community level with an emphasis on mid-size cities such as those served by CTHP’s Vibrant Communities program; and
  • Integrate with other CTHP programs to leverage their work and maximize the Revolving Fund’s impact.

As a result:

  • The public benefits of preservation will be well demonstrated through active use of historic buildings and sites that define a community’s past;
  • The Connecticut Trust’s and the Revolving Fund’s community and funding partnerships will be expanded and sustained;
  • Completed projects will serve as catalysts for further economic development activity in places that matter; and

The following guiding principles will be keys to the CTHP-RF’s success:

  • A strategic focus on projects that stimulate economic revitalization and placemaking in targeted markets to encourage active use of historic buildings and build credibility for CTHP-RF;
  • Working through existing partnerships and creating new partnerships to share risk and leverage other financing and skills;
  • Programmatic synergy so that the revolving fund supports and complements CTHP’s Vibrant Communities, Making Places and Historic Preservation Technical Assistance Grant programs;
  • Flexibility with respect to the types of the projects that the revolving fund invests in and the terms of repayment options so that CTHP-RF is able to respond quickly to endangered properties and new opportunities;
  • Early intervention that is proactive and allows CTHP-RF to be involved in the planning stage of potential revolving fund projects; and
  • Maximize opportunities to use state and federal tax credits to re-develop historic properties.
  • Preserve fund assets through controlled risk and investment.

CTHP-RF is a non-profit, 501(c)(3) as approved by the IRS, effective July 1, 2013. Its mission is to invest in and transform underutilized historic buildings/assets that serve as catalysts to stimulate economic development and placemaking.

The creation of CTHP-RF is consistent with the Connecticut Trust for Historic Preservation’s (CTHP) charter (Special Act of the General Assembly, 75-93) which authorizes CTHP to “create a revolving fund, supported by private and governmental sources, to finance the purchase, stabilization, and restoration of endangered buildings which may be sold to responsible buyers for contemporary use, including adaptation with covenants protecting features contributing to the historical and architectural heritage of Connecticut.”

The CTHP-RF will leverage CTHP’s grant and technical assistance, as well as local, state, and national partnerships to provide needed funding to preservation projects across the state.

II. Management

The Board of Directors of the CTHP-RFprovides oversight and an annual evaluation of the Fund. The board is comprised of up to nine members with a diverse range of perspectives and supportive expertise including for-profit and non-profit development, real estate marketing, historic preservation, financing and lending, and real estate law. The board of CTHP-RF will include at least three current and/or past CTHP board members.

Staffing: Three CTHP staff members have taken National Development Council training courses in finance and real estate development sponsored by The 1772 Foundation in cooperation with the National Trust for Historic Preservation. Two are Certified Historic Real Estate Finance Professionals.

III. Investment Criteria

CTHP-RF will develop criteria that will be used in the vetting process for potential projects and that will ensure that it invests in projects with the highest probability of success. Options will be vetted in-house, while CTHP-RF will underwrite loans with the assistance of the Connecticut Housing Investment Fund (CHIF) where appropriate. The vetting process will focus on projects’ financial feasibility, clearly identified sources and uses of funds, and likely partnerships. Among others, the fund’s minimum investment criteria may include:

  • Focus on communities: Rather than basing a its fund on individual projects, the CTHP-RF aims for a broader initiative that provides opportunities to collaborate with partners it already has an established relationship with or new partners, and to work more in-depth on projects with which it has prior involvement. The Vibrant Communities program offers such an opportunity, allowing CTHP-RF to focus its efforts on generating economic development opportunities within a specific community.
  • Emphasis on leveraging other CTHP programs: The CTHP-RF will provide opportunities to leverage the work of CTHP’s existing programs in order to maximize results. CTHP’s Circuit Riders, who have been working in the field for more than a decade, will contribute their technical expertise. CTHP-RF will use the Historic Property Exchange to market residential and commercial spaces along with CTHP-RF optioned property. CTHP-RF loans will be combined with Historic Preservation Technical Assistance grants to provide property owners with support for both technical assistance and capital expenditures. This integrated approach will significantly leverage CTHP-RF's investment and, by concentrating its historic preservation efforts, enhance the visibility and impact of its work.
  • Clear and consistent financial underwriting criteria: CTHP-RF decisions will be made on the basis of 1) clear economic criteria, 2) risk analysis, and 3) the application of a rigorous underwriting process.
  • Clear and consistent feasibility criteria: In addition to financial feasibility, the CTHP-RF will focus on preservation projects that are physically and politically feasible. Properties chosen for the CTHP-RF support should be structurally capable of rehabilitation. They should have clearly identified end uses as demonstrated through the submission of a business plan, feasibility analysis, and operating pro forma. Project developers and partners should have appropriate real estate development expertise and financial capacity. Finally, selected projects must be able to demonstrate local (community, preservation and government) support and local funding.
  • Local participation: The CTHP-RF will work in conjunction with local for-profit, non-profit and/or government partners. The fund will collaborate with local groups to get site control of strategic historic properties and buy time to implement preservation solutions. As well, it will develop relationships with local preservation organizations and community groups that can serve as project advocates.
  • The “But for” Test: The CTHP-RF will participate in projects where its intervention will make a critical difference. CTHP-RF intervention funds will be the tipping point, leveraging other funds that have been raised for the project.

IV. Details of the Revolving Fund

A. Loans

1. Predevelopment Loans

Purpose: To support and enable predevelopment planning including identification of financial sources & uses, and the preparation of detailed project plans and specifications. CTHP-RF will give priority to properties for which it has exercised a purchase option.

Property Types: Eligible property types include institutional, commercial, multi-family residential and mixed-use structures. Subject properties must be listed or eligible for listing on State Register of Historic Places.

Due Diligence: Predevelopment loans will be offered to projects located in CTHP’s Vibrant Communities Initiative (VCI) communities and in partnership with its partners, the Local Initiatives Support Corporation (LISC) or Connecticut Housing Investment Finance (CHIF), and the local municipality.

Qualified developers must have a successful track record of completing historic rehab projects. Developers must have a financing plan in place for the project and letters of interest from potential tenants, as well as construction and permanent lenders.

The subject property must be seen as an economic development priority for the city and as a catalyst for further revitalization of a neighborhood or district that has already received assistance through the VCI program.

CTHP-RF will give priority to projects with strong local partners. Partners may include municipalities, community development corporations, economic development entities, banks, corporations, and other local stakeholders.

Eligible Costs:Eligible costs include: real estate broker fees, marketing costs, architect/engineering fees, environmental consultant fees, feasibility studies, legal fees, appraisal, and market studies.

CTHP-RF will be a co-lender or participant with other pre-development lenders. Depending on the size of the project, risk and developer capacity, CTHP-RF may require additional collateral for the loan. CTHP-RF will manage market and credit risk by having clear criteria for revolving fund intervention and by taking a senior lien position whenever possible to secure revolving fund investments.

Loan Size: capped at $100,000 per project; evaluated on an annual basis, but no more than 50% of the total predevelopment costs for the project. The maximum loan size will be reevaluated on an annual basis.

Term: Up to 2 years

Payment Terms: Monthly payments of interest only. Interest rates would be set based upon the risk profile of the loan and whether the borrower is an individual homeowner, a for profit developer or a non-profit developer.

Easement: For pre-development loans, CTHP-RF mayrequire a term easement of up to five years on the exterior of the building in order to ensure the architectural and historical integrity of the property.

Exit strategy: Full repayment of principal upon closing on development financing.

2. Bridge Loans: Grants and Historic Tax Credits

Purpose: To guarantee financing in the period of time between the approval of tax credits or grants and final disbursement of a permanent loan or grant funds. Loans will initially focus on bridging the Historic Homes tax credit for owner-occupied 1-4 unit buildings; eligible uses will be expanded as the fund raises capital.

Property Types: Income-producing properties including multi-family residential, commercial, and mixed use properties.

Due Diligence: CTHP-RF will require a purchase contract between the property owner and the tax credit investor (using its network to connect homeowners and investors when necessary), as well as the State Historic Preservation Office (SHPO) approved reservation of tax credits for the project. CTHP-RF will focus on underutilized properties that will be rehabilitated for resale to anew owner. It will ensure that the developer is experienced and has sold tax credits to investors in the past.

Eligible Credits: Connecticut historic homeowner's tax credit, State historic rehab credit, and Historic Restoration Fund grants. The CTHP-RF will not provide bridge loans for Federal tax credits.

Loan Size: Up to $100,000, but no more than the combined value of the state tax credits and/or grants approved for the project.

Collateral: CTHP-RF will be in 2nd lien position on the real estate behind first mortgage construction lender. CTHP- RF will require a commitment letter from the first mortgage lender prior to issuing a commitment. CTHP-RF will close its loan and disburse loan proceeds coincident with or after the first mortgage closing.

Fees: Commitment fee equal to 2% of principal amount of loan amount. The construction period interest rate will be set according to the risk profile of the loan and whether the borrower is an individual, non-profit or for profit developer.

Easement: For bridge loans, CTHP-RF mayrequire a term easement of up to seven years on the exterior of the building in order to ensure the architectural and historical integrity of the property.

Term: Up to 2 yrs.

Return on Investment: The loans will require monthly payment of interest only during the term of the loan. Interest rates would be set based upon the risk profile of the loan and whether the borrower is an individual homeowner, for profit or non-profit developer.

Exit strategy: Full repayment of principal upon disbursement of the permanent loan or within 3 months of completion of project, whichever is sooner.

B. Purchase Options

Purpose:In certain circumstances when buildings with a high degree of architectural or historical significance are threatened by demolition or neglect, CTHP-RF may acquire purchase options in order to temporarily hold historic properties until a viable preservation solution or adaptive re-use concept can be achieved. Through the strategic use of purchase options, CTHP-RF will facilitate a sale to a preservation-minded buyer, while yielding a minimum 5% return on the option and covering due diligence costs to CTHP-RF. The return of and return on CTHP-RF’s capital will be paid from the proceeds of the end purchase price.

Property Types: Eligible property types include residential, institutional, commercial, and mixed use structures that face an imminent threat of willful demolition or serious damage through neglect. Eligible properties must be listed or eligible for listing on the Connecticut State Register of Historic Places.

Due Diligence: CTHP-RF staff will prepare 1) an initial assessment and 2) a basic financial pro forma before making purchase option decisions. Among other factors, this assessment will evaluate:

  • Option price and market viability;
  • Cooperativeness of the owner/seller;
  • Financial feasibility of renovating/rehabilitating the property for an economically sustainable use;
  • Physical feasibility of adaptive reuse of the historic resource;
  • Potential to generate revenue for CTHP-RF;
  • Historic, cultural or architectural significance; and
  • Community and placemaking impact.

Eligible costs: In addition to option fees, eligible costs include: real estate broker fees, marketing costs, architect/engineering fees, environmental consultant fees, stabilization costs, feasibility studies, legal fees, appraisal, and market studies. These costs will be analyzed as part of the CTHP- RF’s initial review of the project to ensure that these costs can be recouped and that CTHP-RF can earn a return.

Generally, the fund will look for stable properties that are physically and financially feasible to renovate. If necessary, CTHP-RF may conduct a feasibility study on the optioned property or provide grant funds to commission a feasibility study on the optioned property to help market the property to a prospective buyer. This cost would be recovered from the sales proceeds.

Upon exceptional circumstances, the CTHP-RF may invest money in structural work to stabilize a particularly significant historic resource that is in more deteriorated condition. However, preference will be given to properties for which a feasibility study or emergency stabilization is not necessary. The exception may be highly significant properties that have structural challenges which impact their adaptive reuse.

Maximum Loan Size: Up to 10% of appraised value, but not to exceed 5% of the Revolving Fund balance.

Duration: Up to one year

Return on Investment: CTHP-RF anticipates full repayment plus a return of 5% to 25% on the cost of its investment, with a goal of covering staff salaries and overhead.

Easement: For optioned properties that are resold, CTHP-RF will require an easement in perpetuity on the exterior of the building, placed on the property at the time of sale.

Exit Strategy: Sale of property or expiration of option. If CTHP-RF fails to identify a purchaser before the end of the due diligence period, it will let the option lapse without purchasing the property. In these instances, the option fee and any related costs will be forfeited and considered an operating cost of the fund.

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