Stooping to Destruction

The ethics of demolishing heritage

By Bob Graham, Motley Design Group

Pictured above: The Clinton Campbell House, one of fewer than 50 remaining 19th-century homes in Phoenix, will be demolished to make way for an unspecified future development.

Recently we seem to be losing one historic building after another in Phoenix to the bulldozer for lack of regulatory protections. In a political climate that places a high value on private property rights, unless owners voluntarily protect historic buildings they control little can be done without risking huge legal bills or court judgments. But why does it so often come down to us-versus-them? In a reflection of today’s polarized political climate, the answer may illustrate two radically different worldviews about economics and our responsibilities to society.

There is a familiar pattern to many losses of historic buildings in Phoenix that reads like this: A building’s historical importance is recognized by survey, but it is not legally designated historic because of objections by the property owner. The property is put on the market. It sits with a for-sale sign in front for months, and then years, as one developer after another looks at it, evaluates the development proforma of an adaptive reuse project, and walks away because the high asking price can’t be justified. Just when it seems that the seller is going to have to lower the price, a buyer appears that negotiates a purchase close to what the seller was asking. Soon thereafter, a demolition permit is filed, the community cries out, and another piece of Arizona history disappears.

The three examples that come to mind are the Stewart Motors Studebaker building, the Clinton Campbell House, and just recently, the Melrose Drive-in Liquor building. All three of these illustrate the pattern exactly.

The slightly Googie-style Melrose Drive-in Liquor building can’t be economically reused, according to the developer of the multifamily projecct behind it.

Why were these buildings left unprotected, if they are so worthy? Stewart and Campbell were identified by historic surveys in the 1980s, and the Melrose building was on the developer’s radar from the inception of their project. Someone could have nominated them to the National Register of Historic Places, but the documentation needed can be complex and costly to create, and listing is contingent on the consent of the property owner. In any case, National Register listing provides little to no protection except from a federal government action. Real protections are embodied in Historic Preservation overlays written into the zoning ordinance. But since 2006, when the Private Property Rights Protection Act (a.k.a. Proposition 207) was passed in Arizona, cities are more than reluctant to re-zone anything without owner consent.

It’s important to be clear on this point: although not formally listed or zoned, these buildings are unquestionably historic. Having a detailed write-up and federal recognition doesn’t make a building historic. Being zoned with an HP overlay does not make a building historic. The criteria for evaluating whether a building qualifies as historic have changed little since the 1960s. If it’s generally at least 50 years old, represents an important historical event, person, or architectural pattern, and still looks the same as it did “back then,” it’s historic. It’s what preservationists call “National Register Eligible” and it’s just a fact of a building’s existence.

The Stewart Motors building is now about 2/3 gone. The developer plans to use the front corner alone as the focus of their project.

The demolition of these buildings (or in the case of Stewart Motors, 2/3 of it) may be the result of a purely economic viewpoint on the part of the developers. If demolishing a building and putting something bigger and newer on the site can create more value than rehabilitating the historic building, then some people believe that our laissez-faire economic system says it must happen. It’s not me tearing down that building, it’s Adam Smith’s invisible hand!

But economics is more complex than that. There are other forces at work. In a sales transaction, there is a buyer and there is a seller. Negotiation between the two determines the true value. Because these properties sat on the market for several years, it’s apparent that the seller’s idea of their value exceeded what most buyers found to be a justifiable price. They knew that the community would want the building preserved, and that a rehabilitation project couldn’t be economic at the price being asked.

When a buyer does come along who is willing to pay the higher price, it’s often because he’s willing to go farther than everyone else. Whether through ignorance, malevolence, or indifference, they are taking advantage of the fact that there are no regulations preventing them from “maximizing the value” of the site by removing impediments such as old buildings.  And this is where the two worldviews collide.

Do we have a moral obligation to preserve buildings for the good of the community? Morals and ethics are not laws, but they are part of the social contract that we live by. They are the rules of politeness, unselfishness, and humanity that lubricate our interactions with others, creating trust and harmony. In the absence of laws, ethics are the only thing preventing a “tragedy of the commons” effect, a race to the bottom, from occurring. Adherence to the ethical standards of the community is what caused these buildings to stay on the market so long.

In the cases of Stewart Motors and the Clinton Campbell House, either the new owners did not recognize that the buildings were important to the community, or they didn’t care. If the former, they are negligent in not doing the depth of research on the property they should have, and the community was negligent in not making their importance more obvious. But I fear the latter is more likely. In the absence of laws or zoning regulations to halt bad actors, it is up to the community to communicate and enforce the ethical standards we expect people to live up to.

To the development community, I say: please be aware that the set of historic buildings that the community cares about is much larger than the set of buildings that have preservation overlays on them. You should expect resistance to their destruction, even without protections being written into law. The community expects you to do right by our historic buildings because when you are doing development work in an urban context, there needs to be a cooperative process where everyone comes out a winner, as much as is possible.

And to the community, I say: we need to do a much better job of identifying, recognizing, celebrating, and publicizing all our historic building stock, whether or not formally recognized. Without such recognition, it is far too easy for developers to claim ignorance in defense of a development scheme that requires demolition of an historic building to pencil out economically.

Will Grand Avenue be Next?

Grand could suffer the fate of Roosevelt Row if we aren’t careful

The Chocolate Factory, Smith Radiator sign, and one of the planters decorated by ceramicist Tammi Lynch-Forest

Part One of Two

By Bob Graham, Motley Design Group

Most Valley residents know Grand Avenue as the diagonal street standing out from the metropolitan grid like an arrow pointing to downtown Phoenix. But they may not be as familiar with the most interesting neighborhood in the city, Historic Grand Avenue, the southernmost mile of this fifty-mile road.

Historic Grand hit a low point in the 1980s and 90s, but bounced back through the efforts of hardy artists and entrepreneurs looking for affordable rents and inspiration. That success could now be its downfall, as real estate investors look for the next trendy area to redevelop. Will the hard-fought gains of the last twenty years be lost?

The last few years of changes on Roosevelt Row (known to downtowners as RoRo), a neighborhood with a similar history just a mile away, have amplified this concern. Redevelopment of RoRo kicked into high gear in 2016. Down came many little old buildings and up went  five-story, full-block urban residential developments. Rents have risen, driving out small local coffee houses, boutiques, and galleries. It’s a pattern seen over and over in America’s gentrifying urban centers. What can Historic Grand learn from RoRo? And most importantly, is gentrification the inevitable fate of every Bohemian neighborhood, or can we do better?

What’s so special about Historic Grand

Historic Grand is a neighborhood like no other – a rich stew with a flavor that transcends its ingredients. If the object is to save it from predatory development and its side effects, it’s important to understand what it is about Historic Grand that merits saving.

The diagonal of the street itself, forming angled intersections and pie-shaped building lots, is the canvas of the neighborhood. Such a street is a stark contrast in a city of right angles. When you drive on Grand, you know where you are.

Grand Avenue, 1957

Homes and businesses grew within this cockeyed framework over the first seventy years of the 20th Century. In the same block, you will find some historic buildings and some “vintage” buildings – but very few new buildings. As Grand developed, things were constantly churning – buildings being built, others being torn down, some being remodeled – until about 1970, when highway traffic started to be diverted onto the Interstates. Then nothing happened, for a long time.

If location is important, you couldn’t do much better. Grand Avenue’s front door, historically known as Five Points, lies at one corner of the downtown central business district. That provides excellent access to all the services downtown, as well as potential shoppers and clients.

One of the most important qualities of the historic environment is its fine-grained texture. Blocks on Grand average about 500 feet long, but the average building or lot has a frontage of only about 100 feet. From a pedestrian’s perspective, you are encountering something different every 20 seconds or so. Contrast that with typical full-block developments that bore you for two minutes at a brisk walk.

Something different every fifty feet on this block

In 2012-13, the “Greening Lower Grand Avenue” plan created Phoenix’s first “complete street” along Historic Grand by reducing traffic lanes to one in each direction and adding bicycle lanes,  curbside parking, and raised planters in the street that have been decorated by local artists. While the street looks more inviting and colorful than it did before, this configuration has also slowed and reduced traffic on the street, contributing to walkability. Landscape enhancements to the plan are still being developed.

So the street, the buildings, and the other improvements offer something unique to Phoenix. But what really makes Grand special are the people.

It’s the people who make the neighborhood Grand

Historic Grand is a model of economic and ethnic diversity. It is home to artists, merchants, beauticians, wholesalers, professionals, brewers, landscapers, musicians, restaurateurs, luthiers, and mechanics, to name a few. Grand together with its adjacent residential areas represent an affordable place to live and work close to downtown. This kind of diversity is important to the life of the city.

Much has been made about the impact arts and artists have on any community or neighborhood. In Historic Grand, art is found not only indoors within the galleries that have made Grand their home, but also in murals, planters, crosswalks, and yarn-bombed trees and street improvements.

Art seems to be everywhere on Grand Avenue

It’s the people who make the art. They also make wonderful events. The area pulses on First and Third Fridays and ArtWalk, and hosts a significant crowd during the Grand Avenue Festival in the fall. If you lose the people, you lose these events.

The challenge

All of the properties along Historic Grand are privately held by a wide variety of owners and investors.   These properties can and will be bought and sold, and some buyers may only be interested in the neighborhood assets to the extent that they improve their own property value. Very few buildings have any level of historical protection, and it’s always easier to tear down and build new.

Can this development be controlled, or at least shaped? Can we keep the street welcoming to pedestrians? Can we keep the funky buildings, historic and otherwise? And can we keep rents affordable for homes, art space, and small businesses?

I think we can. I’ll share my ideas in Part 2 of this article.

Robert Graham is President of the Grand Avenue Members Association and the Grand Avenue Rail Project, but the views represented in this article are strictly his own and do not reflect the official position of these organizations.

Hey NPS! My Building is Historic

The Part 1 application for historic preservation tax credits

SECOND IN A SERIES

By Bob Graham, Motley Design Group

So you want a 20% tax credit for rehabbing a historic building? You won’t get past square one if you can’t prove your building has historic cred.

Welnick Arcade Market, Phoenix
The Welnick Marketplace in downtown Phoenix is making use of federal historic preservation tax credits.

In my prior post, “Historic Preservation Tax Credits: Worth the trouble if you know how to get them,” I gave an overview of the federal Historic Preservation Investment Tax Credit (ITC) and when it may be an appropriate tool for enhancing the financial package for a renovation project. In this article I will review the first step in the three-step process by which a project achieves status as a “certified rehabilitation” and becomes eligible for the ITC.

The three steps to certification relate directly to the National Park Service (NPS) Parts 1, 2, and 3 certification forms that are filed to prove that your project qualifies for the ITC. In Part 1, you are establishing that the building you’re working on is historic. Part 2 outlines in detail what work will be performed on the building and how it meets preservation standards. Part 3 documents the finished project and requests certification.

The challenge and the strategy

Getting approval from the Parks Service for your Part 1 filing could be hard or easy, depending on the circumstances around your building. Simply stated, your building must be listed in, or eligible for, the National Register of Historic Places. That may sound onerous, but it’s really not as big a hurdle as you may think.

If you are considering applying for the historic rehabilitation ITC, presumably you either know that your building is listed as historic or you suspect that it might be eligible. I’ll go over three cases: a property that is listed in the National Register of Historic Places, either individually or as part of an historic district; a building that has been determined eligible or likely eligible to the register by a past survey; and the third case, what I would call an “unrecognized” historic building that may be eligible, but that has drifted along under the radar. Each case requires a different approach to getting your Part 1 form approved.

Like most things in life, your best approach is to make sure you have done your homework. Gain a full understanding of the history of your property and how it fits into the larger history of the place. Become an expert on these subjects, and you will have a much easier time convincing others of the historic value of your property.

It’s a good idea to bring your State Historic Preservation Office (SHPO) representative into the process as early as possible and recruit him or her as an advocate for your project. (Arizona SHPO’s page linked here.) They have an interest in seeing that your project get tax credits, because it helps to justify the value of their preservation program politically. Their role in the process is to provide the first line of review, and in effect serve as the field agent for NPS.  Your initial discussions are with a SHPO representative. They will review and comment on your form submissions and construction plans, and will be the one forwarding your documents to NPS. Of particular relevance to this article, your SHPO is the best source of guidance about whether or not your building is historic, and an ITC candidate.

The Historic Preservation certification Application part 1 - Evaluation of Significance" is just a quick 2-pager, but needs to have the right information to convince the reviewers.
The “Historic Preservation Certification Application part 1 – Evaluation of Significance” is just a quick 2-pager, but needs to have the right information to convince the reviewers.

National-Register listed buildings

If your building is already listed, then the Part 1 form is a mere formality. All you need to know is the name of the property, the date of listing, and whether it was listed individually or as part of a group (an historic district).

Eligible buildings not yet listed

Because the National Register nomination process costs money and time, many buildings have been identified in the course of local historic surveys as being eligible to the National Register but which have never actually been nominated. In most cases, those surveys include a certain amount of historical background research that provides the context for the recommendation of eligibility. The survey usually says explicitly why a given building is recommended eligible. This initial information is a valuable head start on showing NPS that your building is eligible, but is often not definitive. In most cases, additional research will need to be completed to flesh out the details of the building’s history and the historical context under which it is considered eligible.

In order to claim your tax credits when your project is complete, your building will need to be listed in the National Register, and that will require a nomination form to be prepared. Don’t wait to get this started. The best proof to NPS that your building is historic is to be able to show them the nomination, even if it has not yet been fully reviewed or approved.

The Part 1 form documents the same types of information that would be eventually submitted for National Register listing but in brief, narrative format. It boils the question down to two short statements: a “description of physical appearance” and a “statement of significance.”  If the case for eligibility is simple and strong, then just submitting the information gleaned from past studies or surveys can be enough. After the summary information has been submitted, NPS will let you know if they agree with your eligibility claim.

Sometimes NPS does not agree. Don’t take an initial rejection too seriously! In reviewing a Part 1 form they are making a judgment on very little information. Providing them a copy of your full, draft National Register nomination at that point can make a big difference.

Unrecognized buildings

There are many buildings around the country that are National Register material (and thus candidates for the ITC) but which have not been recognized or surveyed. Here are some of the categories of buildings that could present hidden opportunities for a rehabilitation project using the ITC.

Newer buildings:  50 years is the usual cutoff age for historic consideration. For this reason, historic surveys don’t normally consider younger buildings, and as time marches on, more and more buildings reach that magic 50 year birthday and need a fresh look. As of 2016, buildings constructed between 1956 and 1966 have only recently been old enough to be considered for their historic value – and many of these have never been evaluated.

Building types that have become rare: The conditions around which buildings are evaluated for historic status can change over time. Ordinary-seeming buildings that are old enough to qualify, but are deemed to lack importance, may be skipped over by historic surveys.  Consider the case of just such an unremarkable and common old commercial building that was built in a typical downtown. If the area around it is redeveloped, tearing down so many of its neighbors that it becomes one of the last of its kind … suddenly it becomes a lot more important.

Buildings with reversible alterations: Old buildings are frequently passed over in historic surveys because they no longer represent their original architectural appearance. Some common alterations include “re-facing” a building, filling in door and window openings, or making additions to the front side.  By National Register rules, if you can’t see the building’s important architectural features, they can’t contribute to its character and the building is ineligible. But what if you were to remove the covering, or open up those old window openings? That’s a different story. If you can show that enough of the original historic features are present and visible to collectively define the historic appearance of the building, it can regain eligibility.

The Liefgreen Seed Co. Building was considered ineligible for tax credits until its storefronts were uncovered and restrored
The Liefgreen Seed Co. Building was considered ineligible for tax credits until its storefronts were uncovered and restored

Flawed or incomplete surveys: Historic surveys aren’t perfect. Sometimes important buildings are passed over for any number of reasons, such as incorrectly identifying the building age, or failing to uncover an important bit of data, such as who the architect was or that it was the home of an important person.

In each of these cases, proving the eligibility of an unrecognized resource will require some research and understanding of how the arcane rules of the National Register are applied. If you are not knowledgeable about the criteria then it can be difficult to tell an eligible building from an ineligible one. Fortunately, your state or local historic preservation office or a qualified preservation consultant can offer guidance.

This was the easy part

In most cases, proving that your building has the qualities necessary to be considered historic is just a matter or proper documentation. You can usually receive approval of your Part 1 form within a month or so from NPS. The real challenges are in formulating your project approach and gaining approval of your Part 2 form in the ITC process, which will be the subject of the next article of this series.

Historic Preservation Tax Credits – An Overview

Worth the trouble if you know how to get them

First in a series

By Bob Graham, Motley Design Group

One of the most powerful financial tools in the preservation toolkit is the federal Historic Rehabilitation Investment Tax Credit (ITC). Qualifying a project for an ITC can be difficult, but the reward is recovering 20% of your building improvement costs in the form of income tax credits. This article will give an overview of the rules, benefits and liabilities of attempting a certified rehabilitation.  In later articles I will address the process in more detail, and review some of the common pitfalls to watch out for that could derail an otherwise worthy project from being certified.

The DeSoto Central Market in Phoenix, Arizona was certified by the National Park Service for the Historic Rehabilitation Investment Tax Credit in 2016
The DeSoto Central Market in Phoenix, Arizona was certified by the National Park Service for the Historic Rehabilitation Investment Tax Credit in 2016

As a disclaimer, I’m an architect who has been doing preservation projects for 30 years, so I have been around ITCs for some time. But I’m not a CPA and I’m not an attorney; if after reading what I have to say about the ITC you are inspired to do a certified rehabilitation, you’ll need advice from those professionals as well.

The Historic Preservation ITC provides for direct tax credit of 20% of the investment in a certified historic building undergoing a substantial, certified rehabilitation. In essence, if you plow a million dollars into fixing up a building that’s eligible for the National Register of Historic Places, you can recover $200,000 in forgiven taxes – using just this one incentive.

Of course, there are strings attached – and a process that many find to be daunting and incomprehensible. But with a little foresight and the right team, you can cover any increased costs many times over.

What kind or project is eligible? In short, the project must involve a registered historic building that undergoes a “substantial rehabilitation” that conforms to the Secretary of the Interior’s Standards for Rehabilitation. Let’s address each part of those requirements in more detail.

Any income-producing, commercial building that is listed in, or eligible for, the National Register of Historic Places could be a candidate for the ITC. The building doesn’t have to look like much, or even be individually listed; it could just be a contributor to an historic district. Most local governments and the State Historic Preservation Office (SHPO) keep track of what’s already listed and have surveys of places that are eligible, but not listed yet. There are also lots of other buildings around that could be eligible, waiting for someone to come along and do the research and paperwork necessary to get listed. The same governmental entities can usually render an informed opinion if there is any doubt. A good consultant can also advise you with some degree of assurance.

Even buildings that are not yet listed on the National Register, like the Stewart Motor Co. Building in Phoenix - are eligible for the ITC.
Even buildings that are not yet listed on the National Register, like the Stewart Motor Co. Building in Phoenix – are eligible for the ITC.

The ITC is intended to encourage re-investment in historic buildings that are currently underutilized. So, to qualify, the project must be a “substantial rehabilitation,” in which the investment in improvements is worth at least as much as the value of the building (not including land) before rehabilitation (technically, the “adjusted basis”). This requirement tends to exclude small projects like tenant improvements and quick fix-and-flips. What they really want to see is a project that is transformational – that reverse years of deterioration and neglect and put the building back into service.

The standards that must be met in order to be named a “certified rehabilitation” are what many developers and their architects find to be hardest to understand. The

The origin of the Secretary of the Interior's Standards
The origin of the Secretary of the Interior’s Standards

Secretary of the Interior’s Standards for Rehabilitation can be thought of as the “ten commandments” of the historic preservation approach. The intended affect of the Standards is to allow certain kinds of changes and updates to be made in order to keep (or return) a building in service, while still protecting the very qualities that make it qualify as an historic building in the first place. If you have an eligible historic building and you follow the standards, it will still be eligible after you have completed the work.

Rehabilitations are certified using a 3-part process that I will cover in more detail in a later article. In the first step, you establish that the building itself is eligible for the program. In the second step, you document what you plan to do, and in the last step you show that you did it. Each of these steps is reviewed by the SHPO (largely advisory) and then by the National Park Service (which actually decides if you have met the bar).

The obvious benefit of a certified rehabilitation is the tax credit itself. That credit can be carried back one year, and best of all, can be carried forward 20 years. And if the ownership entity does not pay enough in income tax to make a 20% credit worthwhile, or doesn’t want to wait that long to recover the funds spent out of pocket, it’s good to know that there is a secondary market for these credits and that they are transferrable.  Even nonprofit entities that don’t pay any income tax at all can take advantage of the ITC by partnering with for-profit investors to whom the credits can be assigned.

There is some risk of failure, particularly if your project needs to stick to a tight schedule and you have to proceed with construction before you have received approval from NPS. At a minimum, you will have spent some money on consultants to register the building and to do the paperwork to apply for the credit. You may have compromised the function or size of the project in an attempt to make it “certifiable,” and you may have incurred significant additional construction costs in preserving things that would have been cheaper to replace (or demolish).   For these reasons, it’s always best to get your project certified before it is built.

If you have incurred some of these sunk costs and then are denied certification, all is not necessarily lost. If the reasons for NPS denying certification are minor, then it may be worth re-doing the part of the design that they object to. If not, then there is also a back-up plan: the 10% rehabilitation ITC.  A 10% credit is available to ANY rehabilitation of a non-residential building constructed before 1936 – the building does not have to be certified historic, and the rehabilitation does not have to be certified by NPS.

Knowledge is power and the risks of embarking on a project using the Historic Rehabilitation ITC can be controlled. Make sure that you fully understand the requirements of the program, and hire an architect and contractor that “get it” and won’t do something that will disqualify the project. If your architect doesn’t have the in-house expertise to get your building listed as historic, apply preservation standards, and guide you through the ITC process, there are preservation consultants who can fill this gap in the team.