The FORT Podcast: John Blatchford – Owner of Kunst MF – Historic Real Estate Tax Credits 101
John Blatchford is the Owner of Kunst, a real estate developer in Cincinnati, Ohio that renovates historic buildings into city apartments by utilizing historic tax credits and Opportunity Zone investments. This episode is a deep dive into The Historic Real Estate Tax Credit, John breaks down the entire process from what buildings qualify, how to apply, the difference between the state and federal credits, how they use the credits, and much more. Enjoy!
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(02:09) – John’s Background and Career
(05:37) – What are you focused on at Kunst?
(06:38) – The Cincinatti Market
(08:40) – The Historic Tax Credit
(09:47) – How do LP’s benefit from this Tax Credit?
(11:35) – How do you use the credit?
(12:12) – How do you begin the process of getting the credit?
(13:56) – How often does the state approve these credit applications?
(14:17) – What work has been done before applying?
(15:39) – What are the things you did wrong on the first deal that are easy fixes on deal 14 and onward?
(16:49) – Do you have to own the property before submitting an application or can you be under contract?
(17:30) – Does anyone actually come to visit the property from SHIPO?
(18:07) – How much of the building needs to be ‘saved’ in order to qualify for the tax credit?
(19:38) – How vacant are these properties when you acquire them?
(20:39) – If a building is totally bombed out, do renovations have to match the aesthetics of the time or can it be built to look more modern?
(21:11) – Why do states and federal governments care so much about preserving the historical nature of these buildings?
(22:28) – Is there a point where the building is in such poor condition where you have to demo it?
(23:07) – Would a ground-up development require a historic-style building to go up?
(23:37) – Who’s the target demo for these buildings?
(24:33) – Do you have challenges finding subcontractors for this work?
(25:29) – Does refurbishing of these historic doors and windows usually happen on-site?
(26:21) – What are the typical things that need to be preserved?
(29:50) – Dealing With the Historical Board
(30:59) – Can you start construction during the application process?
(31:15) – What does the approval document look like?
(31:46) – What happens if a project goes over budget?
(32:08) – What do you do when you receive the cash from the state credit?
(32:43) – What do you typically do with the federal credit that comes in?
(33:33) – Could someone with no involvement in the project purchase the federal credit?
(34:00) – How are those credits valued when you go to sell them?
(36:04) – Do you ever sell the credit in whole?
(37:12) – Is there an online marketplace where you can list these credits for sale?
(40:57) – Is there a place people can go to see all the federal tax credits that were awarded in a year to try and buy them?
(42:12) – Who are you usually selling your federal credits to?
(42:47) – Do you use credit value as equity?
(43:16) – Would these deals work without the tax credit?
(43:41) – Do you work with consultants during the application process?
(44:23) – What are the requirements for architecture plans?
(44:48) – What are the three parts of the historic process?
(46:10) – How do you structure your exits?
(46:55) – Do you have to hold the building for a certain amount of time after completion?
(47:38) – Do you need a specific type of loan for these deals?
(48:15) – What confidence do you have in the legislation to boost the credit to 30%, and has it played into your underwriting?
(49:00) – Why do state and federal percentages differ?
(49:17) – Why do consultants stratify State & Federal reimbursement amounts at different percentages and why should one count more on the state than fed when underwriting for total possible dollars reimbursed?
(49:34) – What concerns you most when the size of a project increases?
(50:26) – What’s the largest project you could possibly do in your market?
(51:04) – How often do you see projects that are missing out on these tax credits?
(52:18) – What would it cost to hire a consultant to work on getting these credits?
(52:45) – How would you find a consultant?
(53:23) – Is there anything within landscaping that falls under the criteria?
(53:40) – How long does a typical renovation take you?
(54:08) – Can you sell the building and transfer the credit before occupancy?
(54:48) – Inspection Requirements
(55:40) – Is this process the same anywhere you go?
(56:23) – How long between getting your CO and getting the cash from the state?
(56:40) – Is the timing of finishing a project a big part of your strategy?
(57:58) – Will banks forward you cash to cover the credit early?
(58:30) – Do you have a lot of competition in your market?
(59:26) – Do you have the runway to do a lot of projects in your market?
(59:52) – Do you have a favorite historical building?
(1:00:26) – John’s Cincinnati Preservation Collective
(1:01:00) – Are there any political or governmental risks that keep you up right now?
(1:01:56) – How do you project job creation?
(1:02:37) – Who is usually the owner of the building before you enter the picture?
(1:03:41) – What do conversations with public owners look like?
(1:04:20) – Can you get the credit for ground-up dev?
(1:04:34) – Is there anything you’ve learned along the way when creating your budget?
(1:06:07) – Have you come across any treasures in these old buildings?
(1:07:49) – What are the biggest differences in how people used to build things back then?
(1:09:50) – What buildings can get these credits?
(1:11:21) – Is there a yearly influx of these buildings getting approved with the 50-year existence requirement?
(1:12:29) – Can you get a building out of a historic designation?
(1:13:02) – What’s your end goal?
(1:13:30) – Are there any resources that people can learn more about this industry?
Episode Summary
The conversation was a journey through the intricate pathways of real estate, emphasizing the significance of meticulous property inspections, particularly for older buildings. Blatchford highlighted the financial and structural risks that might befall investors who overlook this crucial step, accentuating the importance of a comprehensive evaluation for ensuring a sound investment and robust property integrity.
As the dialogue unfolded, it seamlessly transitioned into the exploration of real estate’s societal impact. Blatchford and Powers delved into the role of real estate in community building, underlining the essential contribution of positive role models and the transformative influence of strategic property development. The lifecycle of a real estate deal was also dissected, offering listeners a clear and concise overview of the process from property identification to development. The conversation provided a panoramic view, equipping enthusiasts and professionals alike with the knowledge to navigate the complex world of real estate transactions effectively.
Tackling the topic of affordable housing, the podcast shone a spotlight on the low-income housing tax credit process. Blatchford’s expert guidance led the audience through the intricate corridors of affordable housing, elucidating the application, evaluation, and acquisition processes with clarity and precision. This section served as a comprehensive guide, illuminating the path for those venturing into the affordable housing sector, ensuring they are well-prepared to overcome the challenges and harness the opportunities within this vital real estate niche.
With a deep dive into the Section 8 voucher program, the podcast offered valuable insights into this essential initiative. Blatchford demystified the program, explaining its operation and the mutual benefits it offers to renters and landlords. This segment fortified the listener’s understanding of the diverse opportunities and programs within the real estate realm, enhancing their competence and confidence in navigating this sector.
Further enriching the conversation, the podcast explored the intricacies of managing older properties, particularly those built around the mid-70s. Blatchford shared his seasoned insights into the challenges and strategies associated with acquiring and renovating such properties, especially those under Section 8 or with tax credits. His expert knowledge equipped listeners with practical tools and understanding, enabling them to effectively manage and transform older properties into thriving real estate investments.
Delving into property transformation, the dialogue offered pragmatic insights into handling properties with a troubled past or negative reputation. Blatchford’s guidance on dealing with problem tenants and the eviction process was a beacon of wisdom for real estate professionals grappling with these challenges. His emphasis on the importance of establishing a positive and safe community environment resonated as a key takeaway, reinforcing the role of real estate professionals in enhancing societal well-being.
Tackling the impact of illegal activities within properties, the podcast shed light on the financial and operational repercussions of such occurrences. Blatchford’s expertise offered a roadmap for effectively dealing with these situations, ensuring properties remain viable and prosperous investments despite such challenges.
In the concluding segments, the discussion highlighted the perils of solely relying on numerical analyses for real estate investments. Blatchford championed the importance of on-ground property assessments, drawing a clear distinction between smart high net worth individuals and sophisticated real estate investors. His insights served as a valuable reminder of the multifaceted nature of real estate investment, urging investors to adopt a holistic approach for sustained success.
The FORT is produced by Johnny Peterson & Straight Up Podcasts