NPS Allows Separate HRTCs For Lessees, Indicates Leeway with “Functionally Related” Buildings

By Caitlin Jones & A. J. Johnson
January 16, 2009 4 min read

Tax Credit Advisor February, 2006: The National Park Service had recent welcome news for the Corky McMillin Companies, as the developer works to complete its part of the Liberty Station project, the redevelopment of a huge former naval boot camp in San Diego, Calif. The NPS has agreed to allow McMillin, which is leasing one part of the Liberty Station property, to separately apply for historic tax credits.

NPS treats multiple-building projects that it considers to be “functionally related” as single properties when certifying Historic Rehabilitation Tax Credits (HRTCs) requested for those projects. Because these projects can take a long time to complete, this often creates financial problems because NPS does not permit final certification of the HRTCs until the entire project is finished. Tax credit syndicators do not release the full HRTC equity until this certification occurs.

NPS, however, does allow for separate certification when the buildings within a project are divided among different owners. In a letter responding to an inquiry from McMillin, NPS recently extended this principle to entities that separately lease property from a single owner. McMillin and the second developer, the NTC Foundation, each lease buildings from Liberty Station’s owner, the Redevelopment Agency of San Diego.

In its letter, NPS also indicated that that it may allow for further separate certification within the Liberty Station project by refining its interpretation of “functionally related” buildings included in multi-building projects.

The Liberty Station Project

Liberty Station project is redeveloping the former San Diego Naval Training Center at Point Loma, which the federal government closed in 1997. Ownership of the base was transferred in 2000 to the Redevelop-ment Agency of the City of San Diego. Two separate parcels in an historic district established within the property were then leased out. McMillan, chosen as the project’s master developer in 1999, received one of the parcels under a 66-year ground lease. The other went to the NTC Foundation, a non-profit set up by the Redevelopment Agency, under a 55-year ground lease.

McMillin is working to develop its leasehold into a mixed-use project involving 36 of the historic district’s 64 existing buildings. McMillin’s portion of the project will include office and retail space, hotels and a 22-acre educational campus anchored by a public charter high school. The NTC Foundation is rehabilitating 28 of the historic district’s buildings into an art, civic, and cultural district called NTC Promenade. The historic district comprises about a third of Liberty Station’s area, which totals 300 acres. Its buildings were constructed between 1922 and 1946.

Door Open to Further Separation of Certifications

William MacRostie of MacRostie Historic Advisors, historic consultant to the Liberty Project, said that since the NPS sent its letter to McMillan in August 2005, it has also been allowing further separation of HRTC certification for the Liberty Station project to permit different clusters of buildings within the project to be established as “functionally related.” For example, he said, NPS is permitting training barracks built together at the same time to be grouped together, while a chapel and medical facility are being considered separately. The consultant said that details of these clusterings are just now being worked out.

MacRostie commended NPS for working with McMillin to determine how to best handle certifications of HRTCs in multi-building properties. “I give them credit for responding to the development community on this matter,” he said.

NPS’s approach to the Liberty Station project could set the tone for certification of multi-building HRTCs for years to come, MacRostie said.

“Many more multi-building projects that use historic tax credits are going to be developed, including conversions of hospital and industrial complexes as well as closed military bases,” he said. Finding the best way to bring historic tax credits into these projects, he added, “is a big deal, and NPS is helping to resolve this issue.”

MacRostie has also worked as an historic consultant to another large multi-building project that has made use of HRTCs, the American Tobacco project in Durham, N.C. He will discuss the project and its use of tax credits at a panel entitled “Re-Developing Multi-Building Historic Properties” at the National Housing & Rehabilitation Association’s 2006 Annual Meeting in Miami Beach, Fla., held March 8 to 12, 2006.

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