Nate Rau

nrau@tennessean.com

As the battle between growth and preservation rages, Nashville rarely uses the most lucrative incentive to rehabilitate old buildings, and lags drastically behind Memphis, Knoxville and even Chattanooga over the past 14 years.

The federal historic tax credit pays up to 20 percent of the rehabilitation costs to fix up commercial buildings.

Developers have taken advantage of the program across Tennessee, which ranks 25th nationally in terms of development costs associated with credits obtained. But Nashville is not keeping pace with its peer cities. Since 2002, Memphis projects have used the tax credits 73 times compared with just eight for Nashville. Knoxville had 43 projects use the tax credits, and Chattanooga had 14.

Preservationists tout the tax credits for saving historic buildings, aiding complicated projects and helping the economy. Since 2002, Tennessee’s 169 projects cost $600 million and generated $99 million in tax credits for property owners. According to research by the National Trust for Historic Preservation, those projects have generated $588 million in household income and $114 million in federal, state and local taxes.

There are a variety of explanations for why Nashville hasn’t utilized the federal historic tax credits very often. The most frequently cited reason for Nashville's spare use of the tax credits is the city's development boom. But a national expert pointed out that cities with equally desirable real estate markets have used the credits more often.

Others say the application process can be onerous and time consuming, which deters local developers eager to quickly complete their projects from pursuing the credits. Three of the eight Nashville projects to take advantage of the tax credit were led by local development firm the Mathews Co., which earned more than $7.3 million in tax credits. Despite its success with the tax credits, Mathews Co. President Bert Mathews theorized that the development climate and rigorous application process might diminish the number of such projects in Music City.

“The two reasons I think Nashville may have fewer is our market is a lot stronger,” Mathews said. “So the numbers pencil out better, and to jump through all of those hoops make it more difficult. Even with the 20 percent credit, you didn’t need them. Because we've done them a couple of times, we're not afraid of the process."

To qualify for the tax credits, a building must be eligible for the National Register of Historic Places and be planned for a commercial use. A developer submits detailed design drawings to the Tennessee Historical Commission, which oversees the tax credits locally, for initial approval before the federal Parks Service must sign off.

Mathews said he considers the process onerous, but Louis Jackson, historic preservation specialist with the Tennessee Historical Commission, said the approval must be strict at the local level to clear the high standard the federal government maintains.

In some cases, Jackson raises red flags if a developer plans to use the wrong kind of windows or seeks to add a design flare that would go against the original interior design. For instance, exposed interior brick is a popular design element to accentuate an old building, but Jackson might discourage a developer from using the feature because the original design called for more traditional paneling.

Two prominent rehabilitation projects, the Acme Feed and Seed building on Lower Broadway and the Utopia Hotel project on Printers Alley, pursued the tax credits but ultimately decided against them or were rejected because of their design plans.

Robbie Jones, board member for preservation nonprofit Historic Nashville, said applicants should be grateful that the state commission holds their feet to the fire, because it ensures approval at the federal level. Once approved, developers frequently work with banks or other investors for special financing to access a line of credit against the tax credits, which reduce future federal tax bills.

It falls on local preservation groups, especially Historic Nashville, and the Metro Historical Commission to pitch and educate developers about the tax credits. Historical Commission Executive Director Tim Walker said he feels like the city is doing a good job on educating about the value of the tax credits and other preservation tools.

The problem, according to Jones, is developers are either too impatient to go through the tough application process or are pursuing high-density projects that make teardowns more appealing options.

“Developers in Nashville want freedom to do whatever they want and they want to do it really quickly,” Jones said.

But Renee Kuhlman, director of policy outreach for the National Trust for Historic Preservation, the leading national advocate for the tax credit program, said other cities are seeing development booms and still utilizing the tax credits more often than Nashville. She pointed to Boston and San Francisco as cities that fall into that category.

Kuhlman said an important part of the sales pitch is recognizing the tax credits as more than just a tool to save an old building. She says the tax credits are economic development tools. Between 2002 and 2015, $498 million was spent on qualified rehabilitation costs to save 169 buildings in Tennessee.

Kuhlman said that number might be even higher if Tennessee, like neighboring states Kentucky and Virginia, had its own state tax credit. Those states have programs on top of the federal offering to offer developers.

Kuhlman said Memphis and Knoxville deserve credit for their aggressive use of the program, and have each been proactive in selling the program to building owners.

"I’ve traveled to Nashville for work three times," she said. "I have great appreciation for the city. I do think it is quite astounding (that Nashville is so far behind). But on the other hand there’s nothing like a sense of competition. Look at Memphis. They are outpacing us, and if we want to save our history there are these great tools out there to help us."

Mathews said Nashville's A-list of historic buildings were saved, many with the aid of tax credits, before 2002. He pointed to the Ryman Auditorium, Union Station and historic buildings on Lower Broadway. He theorized that Memphis has a greater stock of vacant or underutilized buildings than Nashville.

Nashville's preservation community scored a major victory last year when interior design firm Karen Goodlow Designs stepped up to save the historic Gallatin Avenue firehouse, which had fallen into disrepair. After over one year of interior construction, the company opened its doors in mid-September and is looking to lease additional space for retail or office tenants.

Karen Goodlow shares Mathews' view that the approval process is rigorous, and expensive, but she said the tax credit program was still worth it for her project despite the extra costs.

“I love historic buildings and historic architecture,” she said. “I always admired the building. I would drive by and say, ‘I hope they don’t tear it down.’ You can’t replace or remake the beauty of a historic structure. I just love them. So for me I wanted to put my business in here and I wanted to see it restored just because I loved it. My love for it was greater than my fear of the obstacles.”

Historic tax credits in Tennessee, 2002-15

Total projects rehabilitated: 169

Total development costs: $600 million

Qualified rehab costs: $498 million

Federal historic tax credits awarded: $99 million

Total taxes generated: $114 million

Source: National Trust for Historic Preservation