Cascade: No. 80, Spring/Summer 2012

PNC Leverages New Markets Tax Credits in Rural Project*

By Christopher Rockey, Vice President, PNC Community Development Banking, Camp Hill, PA, and David Gibson, Senior Vice President, PNC New Markets Tax Credit Product Manager, Pittsburgh, PA

There are few more iconic images in our nation’s collective memory than that of the 1863 Civil War Battle of Gettysburg, which took place in Adams County, a rural community nestled in south-central Pennsylvania. To this day, the land remains a hallowed place where soldiers courageously fought to honor their convictions and where local residents rose to the occasion to provide soldiers with care and comfort regardless of their political and religious beliefs. Today, area businesses and community and civic leaders remain dedicated to preserving and promoting the importance of the historic event and the quality of life in the region.

Today’s Expertise Preserves a Piece of American History

With the pending 150th anniversary of the Battle of Gettysburg and President Abraham Lincoln’s famous Gettysburg Address, many observances are being planned. One of the most poignant is the restoration of Schmucker Hall, part of the Lutheran Theological Seminary at Gettysburg (LTSG). The 180-year-old building, which some historians believe is one of the most significant structures to survive the battle, will be converted into an accredited history museum to be named the Seminary Ridge Museum (SRM), in honor of its use as a watchtower and hospital during the battle. The museum will feature exhibits describing the first day of the battle, Civil War-era medicine and battlefield hospitals, local religious life, and the African American culture in the region at the time.

PNC served as a one-stop shop — an investor and lender that had the financial expertise and commitment to bring this large-scale project to fruition in a rural area where such complex initiatives tend to be rare and, because of that, the technical experience tends to be limited as well.

From left to right are the Lutheran Theological Seminary at Gettysburg’s Valentine Hall, which contains administrative offices and classrooms; Schmucker Hall, which is being restored and converted into the Seminary Ridge Museum; and a chapel, which is officially called the Church of the Abiding Presence.

A One-of-a-Kind Initiative with a First-of-Its-Kind Financing Solution

This project was particularly complex because it included large capital needs, a number of supporting organizations, and a desire to link the opening of the museum to next year’s commemorative celebrations.

The total cost of the project was $16,349,428. This is inclusive of placement and professional fees and included the following partners:

The Seminary Ridge Historic Preservation Foundation (SRHPF) is a wholly owned subsidiary of the LTSG, which served as the project sponsor, developer, and co-borrower.1
The Commonwealth Cornerstone Group (CCG) was created by the Pennsylvania Housing Finance Agency and certified as a community development entity (CDE) by the CDFI Fund; the CCG received a $14,450,000 allocation of new markets tax credits (NMTCs).
PNC purchased both NMTCs and historic preservation tax credits and provided SRHPF with four loans totaling over $10 million, including a $2,401,250 one-day loan that monetized previously expensed project costs. One-day loans are unique to NMTC projects.
The Commonwealth of Pennsylvania made a $4 million redevelopment assistance capital program grant, and the federal government made a $960,000 federal scenic by-ways grant.

View the NMTC Flow of Funds.

A Renovation with a Modern-Day Impact

The venture is expected to generate $23 million in local commerce during the construction period and $5 million annually in tourism spending. When completed, the SRM will employ 13 people and create 30 additional jobs in rural Adams County.2

“This is an example of an investment by CCG that will help preserve a building of considerable historical value while also providing an immediate and long-term stimulus to the local economy,” said Brian A. Hudson, Sr., CCG chairman and executive director of the Pennsylvania Housing Finance Agency.

Based on its experience with this project, PNC offers four points of counsel for others pursuing the application of NMTCs for rural development initiatives:

Prioritize rural land subdivision, land use, and deed issues early in the process. Many rural properties are expansive with complicated issues involving ownership and use. Hence, it’s important to address the actual project footprint early in the process so that any subdivision requests can go through the appropriate municipal approval process as well as to identify any land use and deed restriction issues that may be present.
Understand local appraisal issues because it may be a challenge to assess comparative values for neighboring rural commercial real estate projects. For many rural commercial development projects, it is difficult to identify real estate comparative values within the neighboring rural markets as well as appropriate and realistic square footage lease rates. Having the project development team clearly communicate all of the details of the project with the contracted appraiser at the beginning of the process will save a tremendous amount of time and help the appraiser come to a realistic and fair market value.
Ensure that all legal entities needed for the project are identified, created, and properly filed with the appropriate state and federal agencies no less than two weeks prior to closing. For this project, the sponsor/developer needed to create four new legal entities in addition to the legal entities that were created by the investor and the CDE. This process can be overwhelming and could take considerable time when working with organizations unfamiliar with the process.
Ensure that all invoices and receipts are provided to tax credit counsel and the lender for project-related qualified pre-development equity expenses that are to be monetized with the one-day loan. These need to be received no less than two weeks prior to closing. Both the tax credit counsel and the lender need to perform due diligence on all invoices and receipts in order to qualify them as eligible project-related expenses.

An image circa the Civil War shows the Lutheran Theological Seminary at Gettysburg’s historic Schmucker Hall, which is being restored and converted into the Seminary Ridge Museum.

Jim Hoehn, PNC regional president, central Pennsylvania, observed that “maintaining a historical icon with the added benefit of fostering economic development in a rural market provides a unique opportunity to maximize the benefits of the varying layers of the NMTC initiative. Through this effort, PNC is proud to help to safeguard the legacy and vital record of the nation’s history while sharing the story of the region’s contributions to preserving our nation.”

For information, contact Christopher Rockey, vice president of community development banking at PNC, at 717-425-7891 or christopher.rockey@pnc.com ; http://www.seminaryridge.org/ . Rockey served as PNC’s lead staff member on the Gettysburg project.

^* The views expressed here are those of the authors and do not necessarily represent the views of the Federal Reserve Bank of Philadelphia or the Federal Reserve System.
1 The Seminary Ridge Historic Preservation Foundation and the Lutheran Theological Seminary of Gettysburg were the co-borrowers for this transaction.
2 The source for these estimates is Delta Development Group, Inc., funding consultant for this project.

Cascade: No. 80, Spring/Summer 2012

PNC Leverages New Markets Tax Credits in Rural Project*

Today’s Expertise Preserves a Piece of American History

A One-of-a-Kind Initiative with a First-of-Its-Kind Financing Solution

A Renovation with a Modern-Day Impact

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