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:
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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 midsize 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:
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The public benefits of preservation will be well demonstrated through active use
of historic buildings and sites that define a community’s past;
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The Connecticut Trust’s and the Revolving Fund’s community and funding
partnerships will be expanded and sustained;
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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:
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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;
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Working through existing partnerships and creating new partnerships to share
risk and leverage other financing and skills;
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Programmatic synergy so that the revolving fund supports and complements
CTHP’s Vibrant Communities, Making Places and Historic Preservation
Technical Assistance Grant programs;
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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;
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Early intervention that is proactive and allows CTHP-RF to be involved in the
planning stage of potential revolving fund projects; and
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Maximize opportunities to use state and federal tax credits to re-develop historic
properties.
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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-RF provides 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:
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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
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specific community.
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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.
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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.
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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.
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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.
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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
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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 may require 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
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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 a new 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 may require 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.
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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:
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Option price and market viability;
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Cooperativeness of the owner/seller;
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Financial feasibility of renovating/rehabilitating the property for an economically
sustainable use;
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Physical feasibility of adaptive reuse of the historic resource;
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Potential to generate revenue for CTHP-RF;
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Historic, cultural or architectural significance; and
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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
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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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