Change to Ohio’s historic tax-credit program gives affordable-housing deals a boost

A recent change to Ohio’s popular historic tax-credit program will give affordable-housing projects a lift, boosting the odds of success for deals such as the slow-moving makeover of the former Warner & Swasey Co. factory in Cleveland.

In late February, the Ohio Department of Development tweaked the scoring rubric for the fiercely competitive program, which offers up to $30 million in tax credits twice each year. Officials carved out an affordable-housing category, worth up to 5 points on a 100-point scale.

Five points might not seem like much. But the potential impact is immense, in a contest where there’s little room between the lowest-ranked winners and the top-rated losers.

Affordable-housing developers are ecstatic. Some of their market-rate peers are fuming.

“There’s been a huge, huge pushback,” said Heather Rudge, a Cleveland-area preservation consultant who works on a wide range of developments.

Richard Barga, vice president of economic development at MidTown Cleveland Inc., views the scoring update as “a major policy change” — one with outsized importance to a stretch of the city between downtown and University Circle.

Nonprofit MidTown and Pennrose, a Philadelphia-based developer, have been working for at least three years to salvage the vacant Warner & Swasey complex. Their plans call for turning the city-owned buildings, on Carnegie Avenue near East 55th Street, into 140 mixed-income apartments and commercial space.

The Warner & Swasey project has failed to obtain state historic tax credits twice. Now the partners, fielding their third application, feel much more optimistic.

“The fact that affordable housing is being considered … is clearly an indicator that some change is happening in Columbus,” said Barga, expressing surprise.

For years, affordable-housing deals have struggled to land state historic credits, which are based on the geographic distribution of projects and the likely economic impact of breathing new life into old buildings. Apartments don’t create many long-term jobs. And low-income rentals, which require heavy subsidies, don’t provide the same return on public dollars as offices, retail or mixed-use projects.

Since the state tax-credit program debuted in 2007, development officials have noticed that affordable housing is at a disadvantage. Adjusting the scoring was a way to level the playing field, at a time when housing affordability is a hot topic.

The Ohio Department of Development is talking about ways to support housing as a key component of workforce development, director Lydia Mihalik said last month during a panel discussion at the Vorys law firm’s annual economic-development incentives conference in Columbus. “We are in the process of developing a comprehensive housing strategy for the state of Ohio, one that can be supportive of local needs,” she told the audience.

The opportunity to modify the historic tax-credit program arose when officials scrapped a scoring category tied to construction timelines. That gave them five points to play with. The new formula offers the biggest assist to projects where 80% to 100% of the square footage is affordable housing.

To qualify, developers must show that they’ve secured low-income housing tax credits or other funding with compliance requirements attached, such as loans or grants through the Ohio Housing Finance Agency. State development officials communicated with the agency about the scoring update, a spokeswoman said.

That apparent coordination, and heightened attention to affordable housing, is encouraging to Anya Kulcsar, chief of real estate for Northwest Neighborhoods CDC, a nonprofit community development group on Cleveland’s West Side.

Since 2019, Northwest Neighborhoods has been pursuing a project in the Stockyards area, where the historic Pilsener Brewing Co. Bottling-Works building — an early 1900s relic of a beer-brewing district — could become 40 affordable apartments. The project, called Pilsener Square, is making its third run at state historic tax credits and competitive low-income housing tax credits.

The building likely won’t qualify for extra points in the next round of historic awards. Applications are due Thursday, March 31. Winners will be announced in June. Developers were well into the pre-application process when the state revised its scoring system.

“It could take a while for this to actually be really beneficial,” Kulcsar said. “But I think it overall at least gives these affordable-housing projects more of a chance than they once had.”

Warner & Swasey already has low-income housing tax credits lined up.

The project won a slug of credits in May 2020, for 56 senior apartments. MidTown and Pennrose are seeking a second award tied to 56 units for low-income families. The Ohio Housing Finance Agency makes competitive awards annually, in May.

The partners plan to apply for $2 million in state historic credits this month — and another $2 million after that, with hopes of starting work in early 2023.

Consultants expect the scoring change to reverberate more later this year.

“We might not see a huge impact this round. But in future rounds, absolutely,” said Ken Kalynchuk of Project Management Consultants, a Cleveland-based company that works with tax-credit developers across the state.

Rudge wondered whether the development department’s move will withstand lobbying pressure from major developers and scrutiny from lawmakers, who are considering a temporary expansion of the program and other modifications.

“I think the state has to be really careful,” she said. “They cannot do something like this and have it discourage private investment, because the world can’t work on government subsidies.”

One of Rudge’s clients, CHN Housing Partners, stands to benefit from the revised scoring right away.

The nonprofit developer has fallen short twice in the hunt for historic tax credits for the old St. Michael’s School, at the confluence of Cleveland’s Clark-Fulton and Tremont neighborhoods. The vacant building on Scranton Road, and a former convent next door, are set to become 46 apartments for elderly renters.

CHN has low-income housing tax credits in hand, thanks to an Ohio Housing Finance Agency pilot program focused on establishing mixed-income areas in urban neighborhoods. A $1.1 million state historic award would be the last major skein in a complicated web of financing.

The new points for affordable housing could turn a near-miss into a victory.

“We’ve been right on the verge, the first two times, of getting awarded, but just fell short,” said Joe Hall, CHN’s vice president of real estate development. “Now … we think that’s the scoring piece we really need to get over the top.”