What Does Tax Reform Mean for Macy’s Project?
What does tax reform have to do with the proposed redevelopment of the former Macy’s store in downtown Minneapolis? The proposed tax bill in the U.S. House of Representatives would eliminate federal historic tax credits, a key financing component for renovation and redevelopment of vintage properties.
The Macy’s development team has previously said that overhauling the property would likely include tax credits.
Bloomington-based United Properties is the local development partner and a minority investor in the project. Bill Katter, president and chief investment officer with United Properties, declined comment on Friday about tax credits and the Macy’s project.
New York-based 601W Companies paid $59 million in February to acquire the Macy’s store with ambitious plans for overhauling the property. In broad strokes, the initial redevelopment concept calls for 750,000 square feet of office space and 250,000 square feet of retail space.
The project team also includes San Francisco-based design firm Gensler.
According to a March press release about the project: “Grant Uhlir, a principal with Gensler in Chicago, indicated that the team is ‘likely to pursue a purposeful renovation of this landmark property with historic tax credits’.”
The oldest part of the Macy’s property at 700 Nicollet Mall in Minneapolis was built in 1902.
“Killing the historic tax credit will change developer’s ability to renovate or do adaptive reuse projects on historic structures,” said Rick Collins, Phoenix-based Regional President for Minneapolis-based Ryan Companies US Inc.
When he was working in the Twin Cities, Collins led Ryan Companies’ redevelopment of a long-vacant Sears store in south Minneapolis. Ryan converted the building into Midtown Exchange, a mixed-use project with office and retail space, plus residential housing units.
Historic tax credits were an important element of the project’s financing.
Collins said that the costs of redeveloping some historic properties are “simply too significant” to work financially for a developer without the credits.
“Either those developers will have to pay less for the historic structures, or the historic structures will need to be subsidized in some other way,” Collins told Twin Cities Business. “In the short term, this will probably significantly dampen developer enthusiasm for even pursuing these projects without some certainty as to how they can possibly replace the equity that was represented by the historic tax credit.”
Properties must be listed on the National Register of Historic Places to qualify for federal historic tax credits. The tax credits can cover up to 20 percent of a project’s renovation costs. A project’s tax credits are typically syndicated and sold to investors, who get a dollar-for-dollar reduction in their taxes.
“I think it would be really detrimental to preservation in Minnesota,” said Doug Gasek, executive director of the Preservation Alliance of Minnesota. “It would have a large impact in the construction and design industries. This credit has really boosted the economy here when it comes to these historic places.”
Minnesota also has a state historic tax credit program. But Gasek said that eliminating the federal program would effectively kill the state credits as well, because a developer needs to receive federal tax credits to get the state credits.
Gasek notes that tax credits have been used by a wide range of projects across the state including the NorShor Theatre in Duluth and the Faribault Woolen Mill Co. facility in Faribault.