“The timing is right. It’s the right project with the right people. We are bullish on this project. And we are bullish on downtown Springfield.”
-Governor Charlie Baker
One of the fundamental principles that guides state and federal historic tax credits is the goal of creating a better city (or state, or even nation) through partnerships between developers, investors and our state and Federal governments. A recent Cherrytree-backed project — the rehab of the Massasoit Block and Paramount Theater in Springfield — is a perfect example of this partnership, and it is gratifying to learn that public officials such as Gov. Baker and U.S. Congressman Richard Neal are so “bullish” on what’s happening in one of the state’s largest cities.
If you live in Springfield or have visited recently, you may have witnessed the Paramount Theater in its unfortunate decay. The previously magnificent building, built in 1843 as the Massasoit House Hotel and last renovated in 1926 to create the theater, has become a place of rotted wood and dangling ceilings. Soon, however, the glory will be returned to the entire structure thanks to a $38 million restoration, which could only have happened with the added leverage of historic tax credits.
The ability to utilize tax credits intended for the restoration of historic building across the United States was what made possible the groundbreaking for the new Paramount Theater. The project, with an anticipated 2021 opening of the 1,750-seat venue, is under the watch of The New England Farm Workers Council, a non-profit organization that owns the vacant property.
Meanwhile, there will be a return of the Massasoit House Hotel within the same building, after a planned renovation to bring its 85 rooms back to the splendor of days gone by. Notable guests of the hotel included Ulysses S. Grant, Jefferson Davis, Charles Dickens, Andrew Johnson, P.T. Barnum, Daniel Webster, Samuel Colt, Jenny Lind, Franklin Pierce, and Mary Todd Lincoln.
At the recent groundbreaking ceremony, Congressman Neal recalled his visits to the Paramount theater as a young man. “The redevelopment of the northern blocks bedeviled Springfield mayors for as long as I can remember,” he told Springfield’s The Republican. He is now a one of a number of local and state officials shepherding the preservation project.
The restoration contributes to a gradual but steady make-over of downtown Springfield. Most prominent was the 2016 restoration of the transportation center: Union Station. A single project such as the Paramount Theater renovation will provide about 200 jobs. Both the theater and the hotels will attract more tourism, generate more revenue, and help revitalize the city.
I am extremely proud to announce that my incredible team at CherryTree Group can be credited for funding approximately half of the total cost of the historic renovation project. Using state and federal historic tax credits in addition to utilizing the Opportunity Zone Tax Credit, CherryTree Group was able to finance about $20 million.
Other funding came partly from the $3.8 Million through HUD 108 Loan funds, a $2 Million state grant, as well as private funding.
Many of these projects have become possible thanks to the designation of “Opportunity Zones” by Congress last year. The Opportunity Zone Tax credit is specifically designed to provide tax benefits to investors by spurring economic growth. Investors are able to defer tax on prior gains invested in a Qualified Opportunity Fund (QOF). If the QOF investment is held for a time exceeding five years, there is then a 10% exclusion of the deferred gain, and if held for over seven years, there is a 15% exclusion of the deferred gain. If the investor opts to hold the investment in a QOF for at least 10 years, he or she is eligible for an increase in basis of the QOF investment equal to its fair market value on the date which the QOF investment is sold or exchanged.
The Bottom Line
There is a general misconception that projects involving historic commercial and residential rehabilitation yield too steep of a cost. This leads some contractors, investors, and owners to miss out on the opportunity to find the financing necessary to make their restoration project dreams a reality. Projects like the renovation of Western Massachusetts’ most iconic theater serves as proof that this is simply not true.