Real estate is one of the largest asset classes and offers attractive tax advantages and opportunities for long-term passive income. While some properties are low-risk options compared to other investments, certain real estate assets require specialized skills and expertise. One of the most complex situations where expertise and patience come into the picture is with historic tax credit projects. These endeavors offer similar benefits to normal real estate investing: Cash flow, appreciation, tax deductions, and amortization. However, Cougar Capital Management founder Dan Botwinik notes that this work is a ‘labor of love’, not a lucrative goldmine. It’s critical for preserving culture and supporting the economic health of local communities and is pioneered by real estate development firms focused as much on social impact as on financial returns.
Historic tax credits can be awarded at both the State and Federal levels and create a financial incentive for developers to renovate properties in a historically appropriate way. The credits can often be sold to allow for additional equity to come into the deals to help fund the cost of the renovations. The tax credits are only awarded if the developer submits a project that conforms with what the local and State historical commissions want to see, and typically needs to be blessed by the National Park Service as well at the Federal level, in addition to the traditional requirements of a project to receive approval in terms of meeting the local zoning and building code.
State governments also offer varying programs that allow developers to complete cost-intensive projects while still turning a profit. Depending on a structure’s jurisdiction, it will be subject to different eligibility requirements. Oftentimes this relates to the age of the building, how extensive the rehabilitation process is, and whether or not the renovation will produce jobs in an area where the government wants to promote investment.
Since Mr. Botwinik’s entrance into real estate in 2008, he has traversed different economic climates and found historic tax credit projects deeply fulfilling. Cougar Capital Management has dabbled in this space with a dozen projects since 2015, injecting new life into old projects. Working with historic buildings has been complicated because the process requires legal expertise and tax credit approval to make a project commercially viable. However, the Cougar Capital Management team views these projects as a public service that offers more than financial returns.
Some of Cougar Capital Management’s most impressive historic projects include the renovation of former mills, manufacturing facilities, and industrial buildings into market-rate apartments with attractive amenities. One of these projects involved over 38,000 square feet of development space and $10MM in tax credits and loans. This former toy factory was renovated into 36 apartments with high ceilings, exposed bricks, expansive windows, and solar panels. Cougar Capital Management received over $4MM in tax credits for this property. The company expects to deliver another historic project nearby in the Summer of 2024 that was built in 1890 and vacant since 2008.
“Cougar Capital Management has completed over 200 transactions to date and operates more than 1,000 apartments,” says Dan Botwinik. “Our team also oversees retail, office, hotel, and senior living properties across the United States. Throughout our 15-year legacy, it has been very satisfying to champion numerous projects involving distressed, historic properties offering tax credits for investors and developers. By leveraging decades of real estate expertise, we have received multiple awards for our preservation work including the Paul & Niki Tsongas Award from Preservation Massachusetts for four of our different projects over the years.”
Cougar Capital Management plans to continue working with distressed and historic properties for the foreseeable future. The company is currently exploring how to add more value to underutilized senior living properties through its partnership with Willow Ridge Senior Living. Cougar Capital Management is dedicated to increasing the senior living property supply in the coming years through these efforts, ensuring that residents and investors are satisfied.
The American real estate market is estimated to reach almost $120 trillion in value by 2024. As the second largest demographic globally, the country is seeing growing demand for newer, more affordable properties–particularly suburban homes–in the country’s biggest cities. Although historic tax credit projects can be more complicated than traditional developments, Dan Botwinik, founder of leading real estate development firm, Cougar Capital Management, believes these projects have untapped potential.
One of the biggest positives about real estate investing is its impact on society. While individuals and private organizations hope to make returns from their investments, developments can address critical issues such as homelessness, public service access, and job availability. Sometimes renovations of even a single building can help develop underserved communities by influencing other investors to cultivate projects in the area. Since most developers are looking to have the best return on their investment, they often look for affordable and stagnant marketplaces to disrupt. This could be a small town, an overlooked neighborhood, or a distressed property that shows potential to be transformed.
The last situation is difficult to initiate without the right real estate experience, but it isn’t impossible. As long as a developer and their investors are aware of the risks with older, more neglected structures and possess the time and capital necessary, they can turn underutilized properties into the highlight of residential or commercial communities.
Overall, investing in the renovation of neglected, historic properties can help restore buildings and communities to their former glory and position them for a bright future.
Media Contact
Name: Dan Botwinik
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