Struldbrug buildings
By David A. Smith
4 min read
To the visitor from a land (U.S.A.) where a Greyhound bus terminal carries a proud plaque attesting to its pedigree, England abounds in spectacular historic, often ancient structures. Many are the nation’s treasures and wonders, sites lovingly maintained with public funds that bring past centuries alive. But one also finds another kind of historic structure – England’s struldbrugs.
Much like the struldbrugs in Gulliver’s Travels (otherwise normal humans who can never die), Britain’s struldbrugs are buildings that although legally designated historic (and therefore protected) neither disappear nor revive, because no funding is allotted to renovate or preserve them. Instead they sit empty, unimproved and often ringed by concertina wire, aging, derelict, and scarred by graffiti and broken windows, doomed to perpetual structural decline because designation imposes on them extra costs that include:
- Higher hard costs from mandatory restoration of historic architectural features (e.g., facades, windows).
- Higher soft costs from lengthy negotiations with historic preservation officers, neighborhood consultations, and protracted approval/ protest/ appeals cycles.
- Higher operating costs from high ceilings and aged building envelopes.
- Higher reporting and compliance costs from historic certification.
- Decreased earning potential because use options for historic space are limited.
- Higher risk premiums from negotiations with historic preservation officers.
British historic designation is a mandate to benefit society in general, whose costs fall on properties in particular. Instead of new life, redevelopment flows around and away from the struldbrug building, so it dies and keeps dying.
The American Way
By contrast, here in America we have few struldbrugs – because we have the federal historic rehabilitation tax credit, predicated on the equalization principle: if designation adds costs, it must equalize by providing additional money for redevelopment (from tax credit equity). Equalization is achieved through four key components:
- It is large enough to make a difference. At 20% of eligible costs, the historic tax credit neither undercompensates nor overcompensates for the incremental cost of being historic. It’s not so small as to be immaterial in the strategy, nor so large that by itself it leads to bootstrap-effect cost-inflating iteration.
- It is as-of-right, not allocated. Unlike the capped and allocated low-income housing tax credit, the historic credit comes as-of-right for certain buildings. Developers do not have to play the odds on its availability.
- Acceptance-certification is observational, not purely documentary. With historic properties, the National Park Service verifies that the renovation work was done in accordance with federal rehabilitation standards.
- Immediate delivery, fast recapture expiration. The historic credit can be claimed right after the renovation is completed and certified, and the recapture period is an enviably short five years.
Remarkably, the historic tax credit’s biggest advocate isn’t the development industry, but its regulator. The National Park Service commissioned a recent economic impact study from Rutgers that estimated the historic tax credit has levered $106.1 billion in rehab (in 2012 dollars) since the program’s 1978 inception, $3.2 billion of that in FY 2012 alone. According to Rutgers, that $3.2 billion in FY 2012 generated $6.6 billion of economic output, $3.4 billion in GDP, and $0.9 billion in new taxes to the federal government. Overall, the study found that every $1.00 in historic credits claimed generates roughly $1.20 in tax revenues for the U.S. government.
And that’s only the federal government; state and local governments benefit immensely when struldbrug reanimation boosts urban redevelopment in these downtowns. As the Rutgers study says, “Many of these buildings were abandoned or underutilized, and all were in need of substantial rehabilitation to return them to, or for their continued, economic viability.”
In FY 2012, 745 struldbrugs were brought back to life; since the program began, 38,700 properties have been so revived.
A Palpable Landscape
When it comes to urban renewal, the difference between the British and American experiences is palpable and tactile. Today, with the help of the historic tax credit, there are innumerable American downtowns where a turn-of-the-century grande-dame hotel has been refurbished and transformed into an elderly affordable apartment property, and where gleaming high-rise office buildings are skirted by historic renovated row houses, brownstones, and Beaux-Arts department stores.
This rejuvenation is neither accident nor altruism; it’s rooted in economics. With the historic tax credit, we prevent beloved but decrepit buildings from becoming struldbrugs, and instead give them periodic draughts from the economic fountain of youth.
David A. Smith is Chairman of Recap Real Estate Advisors, a Boston-based real estate services firm that optimizes the value of clients’ financial assets in multifamily residential properties, particularly affordable housing. He also writes Recap’s free monthly essay State of the Market, available by emailing dsmith@recapadvisors.com.
