Q: What does the Federal Historic Tax Credit (HTC) Program do and can you provide an example of a Federal HTC project?

The Historic Tax Credit Program (started in 1976) preserves cultural assets, frequently helping reposition under-utilized buildings while preserving a community’s shared history. In that time, the program has leveraged $200 billion in investments in over 47,000 buildings. Just last year, it leveraged $7.2 billion in real estate assets in just over 1,000 projects. We have included one example from the past work of our CEO, during his time at Green Coast Enterprises.

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This building was the first chain pharmacy in the City of New Orleans but had deteriorated substantially. It was last used as a brothel prior to restoration.

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The South Broad Community Health Clinic was born on this site with the help of the Historic Tax Credit.  It is now owned and operated by Access Health Louisiana, and serves as a primary care clinic for Central New Orleans.

Q: What is the experience of your principals?

A: Will has spent his career as both a tax-advantaged real estate developer and educator. As a developer, he spent twenty years structuring tax advantaged deals and passing the tax benefits from those deals through to large corporations and wealthy individuals that wanted to invest in the tax benefits, but who weren’t connected to the places he was rebuilding. He always felt like there had to be a way for the tax credit benefits to pass to regular folks that wanted to invest in the communities where he was working, so some of the people that live and work there could have the opportunity to invest and have a direct stake in the project’s success, as owners of a piece of the rebuilding process in their neighborhoods – he just didn’t know how to make that happen.  Will understood that Historic Tax Credits were supposed to be an available investment for any investor but in practice, it didn’t work that way; this problem nagged at him.

Will’s father died just before the covid pandemic lockdown began, and in the period of self-reflection brought on by these two events, he was inspired to (1) shift his career path, figure out how to make Historic Tax Credit investing available to people in the communities such real estate projects are meant to serve, (2) create a streamlined process for developers to use for their tax-advantaged projects,  and (3) create an educational resource for anyone interested in learning how to use Historic Tax Credits.

Daniela is a career community development and disaster recovery professional and a PhD economist and educator. She and Will work together on the faculty at the Tulane University Sustainable Real Estate Development Program. She was an early supporter of the idea and liked it so much that she joined forces to build our initial operations process. Prior to this collaboration, she was on the executive team at the Louisiana Land Trust, and prior to that she was the Director of Rebuilding Together New Orleans. She started her career as an Industrial Engineer in El Alto, Bolivia, and has worked for two decades across two continents helping people build and rebuild a bright future for themselves and their families.

Q: How do these tax credits work?

A: We have created a framework to make tax-advantaged investments available to unaccredited and accredited investors* (see definition in our glossary) who may wish to invest in tax-advantaged real estate projects, but currently are not. This approach blends the rules, restrictions and requirements of Historic Tax Credits with the rules, restrictions and requirements of Crowdfunding investing.

Historic Tax Credits: To utilize an Historic Tax Credit, the real estate project must include a the renovation of an historic building. To qualify as “historic” buildings have to specifically be listed on the national register of historic places or be contributing members to a national register historic district. You can read more about this process here and here.

Regulation Crowdfunding: Title III of the JOBS Act of 2012 is known as Regulation Crowdfunding (or Reg CF). Reg CF regulates how a company trying to raise money from investors by selling its securities may use a regulated Funding Portal to exclusively sell its securities on the internet. This process, called a Reg CF offering, must follow specific rules.  We are currently partnering with Common Owner, a FINRA and SEC registered Funding Portal capable of hosting Regulation Crowdfunding raises.  The role of Reimagine is to provide a framework/process and educational information.  Reimagine Fund is not an issuer or seller of securities. Affiliates of Reimagine Fund work with real estate developers as a co-developer and service provider for real estate developments that involve Historic Tax Credits which may result in a Reg CF offering through Common Owner.

Q: Why haven’t I heard about this before?

A: The conventional tax-credit leveraged real estate investing market has generally required relatively specialized legal and accounting advice, and the mechanisms to coordinate or pool multiple investors into an offering has not been something that most financial services companies working in this space have wanted to take on. The goal of every tax credit syndicator our CEO has ever interacted with was to have fewer numbers of large investors. But we believe this shuts out a number of taxpayers who would be very interested in this market, and separates one of the substantial benefits of a project from the community it is in. Reimagine Fund affiliates and partners are building a streamlined process that makes these investments available to more taxpayers and the Reimagine Fund helps taxpayers understand how they can participate.

Q: What are these affiliates and what do they do?

A: RF TCI Manager, LLC - is a manager of the Tax Credit Investment (TCI), which manages the Historic Tax Credit compliance process, and the securities that are issued and offered by the project developer via crowdfunding (through the Common Owner Funding Portal).

RF Developer, LLC is a real estate Developer that co-develops projects with other third-party real estate developers.

RF Asset Manager, LLC is a manager for the real estate project (construction/rehabilitation) and manager of the physical property/asset (the building, the land) during the five-year historic tax credit compliance period.

Q: Where can I find more detailed guidance about how this works?

A: There is a very helpful FAQ page on the historic tax credit process on the IRS website. You can find it here. If you want to read the actual text of the Internal Revenue Code governing this program, that is here. There is also information about Reg CF that you can find from both the SEC and FINRA. The Reimagine Fund is dedicated to helping people find the information and support that they need to understand whether investing in historic tax-credit leveraged real estate projects is right for them.

Glossary of Terms

Accredited Investor – This is a legal term managed by the Securities and Exchange Commission. It refers to a person or entity that has a minimum level of wealth and/or income and reasonably expects that to continue. You can read more about the definition of an accredited investor here.

Active Income – This is the money you make through your job or some other activity in which you actively participate. Active means that you run the enterprise or are engaged in its management in some substantive, regular way. It is distinguished from passive income, defined in this glossary.

Adjusted Gross Income (AGI) – This is the amount of money that a particular taxpayer has earned and on which every taxpayer pays income tax. It is the final calculation of a taxpayer’s income after all earnings, investment income, deductions, credits, write-offs, etc have been calculated and tallied. In a standard 1040 (the form for an individual tax return), it is line 15.

Cash Flow – The money available to owners of a piece of real estate after operating expenses, debt service, and other costs have been paid.

Cash flow waterfall – the order in which different equity investors are paid out of available cash flow.

Co-develop – to develop (see in glossary) real property (see in glossary) in partnership with another group or organization. For example, an affiliate of Reimagine Fund, RF Developer, LLC might work in collaboration with one of our development partners to co-develop a particular piece of real property (see in glossary).

Community Investor – This is a term of art we have created for this page to talk about people who are not accredited investors but may still want to participate in tax credit investing. The Regulation Crowdfunding rules provide an avenue for community investors to do this.

Construction – the physical transformation of land and buildings. This might be building a new building or dramatically altering an existing one.

Develop – to change the bundle of rights associated with real property (land and buildings). This often involves construction (see in glossary) but doesn’t have to.

Federal Historic Tax Credit (FHTC) - Federal Historic Tax Credits are a tax credit available to taxpayers who purchase and rehabilitate certified historic structures. The program is run jointly by the National Park Service and the Internal Revenue Service. This program has been in place since 1976, and was changed substantially with the tax laws passed in 1986 and 2017. For a nice overview of the program, check out the National Park Service website on the topic and this brochure, also available on that site. The tax rules are contained in the Internal Revenue Code (IRC) Chapter 47. There are also a number of state programs run individually by the Department of Revenue in each state.Federal Historic Tax Credit (FHTC) Compliance period – This is the period (five years after construction is complete) during which FHTC deals have to follow the rules associated with the program, and the real estate must be operated as a commercial enterprise (i.e. it cannot be sold or transferred). If it is not, then all or part of the tax credits can be recaptured.

Financial Industry Regulatory Authority (FINRA) – is a congressionally authorized agency responsible for protecting America’s investors by making sure that the financial industry, and especially broker-dealers, operate fairly in the marketplace. You can read more about them here.

Issuer – A person or group who offers securities for sale.

Modified adjusted gross income – This is the amount of income you can earn in order to qualify for particular tax credits or deductions. For rehabilitation credits (the term the IRS uses to refer to Historic Tax Credits), people who make up to $200,000 can use historic tax credits to offset the tax liability from their last $25,000 in income. Between $200,000 and $250,000 the benefit starts to phase out. You can read more about it here, see especially Question 5 in the section titled Carry Back/Forward, Passive Activities, and Other Limitations.

Pari passu – This is Latin and literally means with an equal step or on equal footing. In finance, it is a way of saying that every dollar is treated equally. For example, if I put in $1 dollar and you put in $9, our dollars are treated proportionately the same. You will still get 9x the benefit that I do (you put in 9x the money), but you will not get additional benefits I don’t get because you put in more money. This type of investing is a hallmark of the way most Regulation Crowdfunding offerings are established.

Passive Income – This is money that you make as a residual for activities in which you are not actively engaged. This would include any potential future income from making an investment in historic tax credit leveraged real estate investments. It is distinguished from active income, defined in this glossary.

Real property – a legal classification of property which is trying to distinguish between personal property (cars, phones, other movable possessions) and real estate (land and buildings).

Regulation Crowdfunding – This is a securities exemption created in 2012 that allows for issuers to offer securities to both accredited and unaccredited investors, so long as the business of selling those securities is transacted entirely on the internet. Common Owner is a FINRA (see definition in this glossary) and SEC (see definition in this glossary) registered Crowdfunding portal capable of managing regulation crowdfunding offerings. You can learn more about Reg CF on the SEC Website here, and you can learn more about Funding Portals on the FINRA website here.

Securities – A certificate or agreement offering ownership in a particular business venture.

Securities and Exchange Commission (SEC) – is a government agency responsible for protecting investors, maintaining fair, orderly, and efficient markets; and facilitating capital formation. You can read more about them here.

Tax Credit – A dollar for dollar reduction against one’s income taxes. This is in comparison to a tax deduction which is a reduction of taxable income (which still has to be multiplied by your tax rate). For example, if you are taxed at 22% and have a $1,000 dollar deduction, then you have 1,000*.22 = $220 in a reduction of your tax liability. But a $1,000 credit means that you have a $1,000 reduction in your tax liability.