Introduction

[Nick Redding] Understanding why preserving historic places makes good economic sense can sometimes be complex. Fortunately, today, we’re joined by Donovan Rypkema, the principal of Place Economics and the president of Heritage Strategies International – someone who’s made a career of doing just that. Donovan is the one the world thought leaders on preservation economics and he and I talked about the economic benefits of preservation, both short-term and long-term, as well as the uncertain future of the Federal Historic Tax Credit Program. Make sure you have your TI-83 batteries in place because this is Preserve Cast.

From Preservation Maryland Studios in the historic podcast district of Baltimore, this is PreserveCast.

[Nick Redding] This is Nick Redding. You’re listening to Preserve Cast. We’re joined today by Donovan Rypkema, who is the principal of Place Economics and the president of Heritage Strategies International. He is probably one of the finest, if not the finest, preservation economists out there; [he] knows the programs inside and out. And now is a really important time to talk with him because the preservation community is facing some pretty significant economic challenges as we grapple with the issue concerning the historic tax credit. Donovan, it’s a pleasure to have you here with us today.

[Donovan Rypkema] Thanks for having me.

[NR] So why don’t you tell us a little bit about yourself? How does one become a preservationist economist?

[DK] Well, I started out… I was in the real estate business – a small-scale developer and real estate appraiser. And when the first of the tax credits came along, out of pure capitalist greed, I bought a historic building and did the rehabilitation simply to get the tax credits. And through that process, what I learned is there were all these people that call themselves preservationists – all of whom talked about real estate, none of whom knew anything about real estate. So I just kind of found a little niche for myself as being the translator between the vocabulary of real estate and economic development and the preservation world.

[NR] And how long have you been doing that now?

[DK] Well, I was just thinking before you called… It was almost 40 years ago. It was 38 years ago that I did my first tax act rehabilitation project. But I’ve lived in Washington for most of the time since [1983], so that’s 35 years almost. And I’ve been doing what I do now, basically economic development consulting in the context of preservation, since then.

[NR] And what kind of work do you get into on a regular basis? For someone who’s listening to this and may not be familiar with what the marketplace would be like for preservation economists, I know you’re pretty busy so there must be a lot of need out there for it.

[DK] Well, I don’t know if there’s need or not. But a lot of the work, particularly in the last few years, that we have done has been analytical work that is looking at the impact, economic and other, of historic preservation. I did one [about] 20 or 25 years ago for the State of Maryland. But we increasingly, in the last few years, we’ve been doing these impact of preservation studies at the city level, which is really interesting because that’s where lots more things can be measured. And that, in the end, is really where historic resources are protected at the municipal level. And so there’s really interesting new findings come out of those studies.

[NR] So for someone who’s listening to this – and we have a listenership all across the country – people who are working within the preservation community and then people who are just generally interested in saving old places and historic places who maybe they don’t understand the economic value of historic preservation. If you were talking to a layman who said, “Really? Economically saving these places makes sense?” What would your argument be to them? I mean, obviously, you’ve been in this for a long time, but how do you make the case that historic preservation also makes good economic sense?

[DK] Well, it’s really on multiple levels, and start with the sheer process of rehabilitating a historic building. Just as a rule of thumb, in a new construction, you build a new building today in America and half the money is going for labor and half’s going to go for materials. If you rehabilitate an historic building, 60 to 70 percent of the money is going to go to labor with a [remaining] balance being materials. And that has a magnifying effect in terms of its impact on a local economy.

First, for the same amount of money, more of it goes to people’s paychecks. When you buy a sink and install the sink, the sink doesn’t spend any more money; but, the plumber who installed the sink does. So there’s first, more of the dollars going to labor; and second, those dollars are recirculated in the community. So with the same amount of money spent, you have a lot larger economic impact just in terms of jobs and expenditures in the local economy with preservation than with new construction.

A second, is the issue of property values. This is an area that has been looked at by more people, in more parts of the country, and more methodologies than any other. And the consistent finding is that properties in historic districts have rates of appreciation greater than the market as a whole, and greater than similar undesignated neighborhoods. And this doesn’t have to do with the income level there. It doesn’t matter if that’s a rich neighborhood or poor neighborhood. The rates of appreciation tend to be greater in those local historic districts. Nobody is paying for the premium on those properties for the privilege of appearing before some goofy preservation commission. They’re paying the premium for the confidence that the lunatic across the street can’t do something to his property that has an adverse effect on the value on my property.

The third thing that is kind of related, but is a separate channel, that we really learned in the big real estate crash. We’ve now looked at about 30 cities around the country. In every instance, the rate of foreclosure in local historic districts was decidedly less than in the city as a whole. Here you have this huge real estate crash, worst economic event in half a century. Millions of people lost their homes to foreclosure. Well, somebody ought to be paying attention. If there was a pattern of where the foreclosure was less severe, people ought to be paying attention to what that is. And that was consistently in local historic districts. So those are kind of the three starting things on the connection between economics and preservation.

[NR] And it just sort of mushrooms out from there. I mean, I know you can just go in 10,000 different ways about why it makes sense. But let me ask you this: based on your experience – I mean, obviously, you’re the guy who studies it and not always the one who has to advocate for it but – why do you think it is that even though it makes all this good economic sense, it is still such a struggle? I mean it’s just a neverending fight to keep the policies, the programs in place to make this work feasible and possible. What do you think the disconnect is there?

[DK] Well, I think that we still, as preservationist, are more likely to talk about the beauty of gargoyles than we are about tax base. So I think a lot of the blame falls on our own part not having sufficiently made the case, not often enough made the case, and not being strong enough believers, in that case’s importance. And it’s not as important. The economic arguments for preservation are not as important in the long run as the other whole range of other arguments. But in the short run, those who have the decision-making power over what happens to our historic resources – bankers, mayors, real estate agents, developers – they need that short-term argument. So we have to do a better job and more frequent job of making the case.

Second, politicians in particular, like the “Big Fix”: like the giant stadium, or riverfront marketplace, or casino, or some giant economic development scheme and so are less enthralled with the kind of trickle-up small to big incremental kind of economic development that preservation makes.

And third I think that we haven’t done a very good job of explaining to people what’s important about preservation. The economics is a piece of that argument, but it needs to be in a larger context. And we just haven’t done a good enough job of making the comprehensive case about why preservation needs to be a central part of a broader public policy.

[NR] And speaking of the part about how preservation is valued, your third point there. And then making the case for that, there will be some people who will push back and say, “Yeah, well, preservation was great but really all it does is just gentrify communities and just makes things more expensive.” From your standpoint is there any data that refutes that?

[DK] Well, a whole range of things… I’ve never used the word gentrification anymore because automatically people get mad on one side of the argument or the other – but what is true? First of all, for every one gentrifying neighborhood in America there [are] 10 neighborhoods are, in fact, are getting poorer, not richer and so I think we need to focus on where the problems are. Second, is that more than any other kinds of neighborhoods that we have in our cities, the neighborhood that represents a mirror of the community as a whole that – by race, by income, by education, by age, or the neighborhoods that are the mirror of the whole – it’s historic neighborhoods. There [are] neighborhoods they’re all White and all Black, all rich or all poor. But the neighborhoods that really are a reflection of the whole neighbor or whole community tend to be historic neighborhoods. And here is the reason for that: [it’s] that the character and quality of those neighborhoods have a broad appeal across the spectrum of race, education, income, whatever – people like them. Number two is, unlike new subdivisions, in a historic neighborhood you have a wide variety of sizes, styles, conditions, owner sophistication. And so you have a wide range of price points, both to rent and to buy. You don’t have that in subdivisions. The most expensive to the least expensive spread might be 15 percent. In a historic neighborhood, not uncommon, the most expensive to the least expensive is a 1,000 percent. So you have a much wider range of human beings who live in historic neighborhoods then otherwise.

Number four is that… let’s take the situation where a neighborhood, in fact, is moving up in value very rapidly and becoming too expensive for some people. And arguably, in some cases, creates a need for more affordable housing. Well, what happens when property values goes up is that property tax collections go up. So that this perceived “problem” – increased property value, now that’s a problem – in fact, is generating the revenues to address the many problems being created if city councils simply had the will to do it. If you took that greater rate of appreciation in historic neighborhoods, took the tax revenues from that preservation premium, and applied it to affordable housing issues, if that’s the major problem that you’re observing, in fact, you have the funding stream of the solution in hand.

[NR] And to the point of affordable housing, I’ve always felt like we can’t grow our way out of the affordable housing need, we’ll never be able to build enough of it. But we could rehabilitate and reuse existing structures at a much greater rate than we probably even are right now.

[DK] Well, here we have the case in Baltimore where the governor committed $75 million to tear down 4,000 units of housing when every night in Baltimore there are 3,000 people who are homeless. Now where the hell is the fiscal responsibility or the logic or the compassion or anything that is a solution? If you have empty housing that you want to tear down and you’re willing to expand the first 150 of those they’ve torn down in Baltimore costs 38,000 each to tear down, a large chunk of the vacant housing in Baltimore could be put into at least usable condition. Spending $38,000 to fix it up as opposed to tear it down you’ve got housing for people – affordable housing or housing for people who have none. I don’t care of the condition, having a roof over your head is better than sleeping on the street. And so there is just this disconnect between what we have – especially in a place like Baltimore and other legacy cities – you have stuff sitting empty, you have people on the street. There ought to be some connection and them wanting those houses did not meet that connection.

[NR] Yeah, and what do you say… I mean, I’m curious, there is some divide within the preservation community about this idea of “right-sizing,” which for those who aren’t familiar with it, is kind of the sense that some of these legacy communities like Baltimore or a Buffalo will have to downsize, to some extent, because their housing base is just too large in comparison to the size of the city now. Where do you fall on those lines?

[DK] We have unit in our firm, the Rightsizing Cities Initiative, and we believe in that. And some places properties have to be torn down, no question about that. And we’re not one that ever says nothing should ever be torn down, not remotely. We’ve done a number of studies where we just said here’s some properties that need to go. But the point is that decisions need to be made in a larger context. They can’t be made because some city council member goes to the Public Works Director and says, “I’m tired of looking at that vacant house. Go tear it down.” You need to make that decision [with] what does the block look like? What are the properties across the street? Is this a property that can be put back into use, stabilized, and wait? And so we really believe that preservation needs to be a core component of the whole rightsizing initiatives; but it needs to be done on a larger scale from one lot line to the next. It needs to be thought of on the block and on the neighborhood level.

[NR] Have you seen it done well anywhere? Is there a place that would you would point out in the country that’s getting it right? Obviously, you called out Baltimore as an example of where we’re not getting it right and you’re here in PreserveCast’s backyard but –

[DK] I think there are a number of places they’re trying to get it right, at least making – and it’s a big turnaround. For a long time the solution was just what Baltimore is doing and a method, by the way, on this idiotic Hardest Hit Funds that was passed in the Obama Administration in the depth of the crisis. $100 billion was the B?) that was supposed to be mitigating the foreclosure problem instead got shifted around to carrying stuff down and it’s taken a long time for people in legacy cities to think of alternatives to demolition. But some are doing it. In Cincinnati, the land bank there has a priority of acquiring vacant historic properties and putting them back into use. Our Louisville, Kentucky, just this week, announced a whole range of new initiatives of having things to do with these vacant houses other than tearing them down. So I think that the tools are still being invented on how to make the link between kind of appropriate right-sizing strategies and historic buildings but some people are trying to do it right.

[NR] So if Governor Hogan reaches out to us we can let him give you a call and you can help him out.

[DK] Absolutely.

[NR] Well, Donovan, why don’t we take a quick break right here? And then when we come back let’s talk about the hot button issue, the elephant in the room, historic tax credits and the future of that program and we’ll do that right when we come back here on PreserveCast.

Maryland: Mini-America

[Stephen Israel] While Nick and Donovan are talking about the hard facts of preservation economics I couldn’t help but notice that Halloween is just around the bend. According to reports from Marylanders dating as far back as the 1730’s, if you were out in the woods of Frederick County or Washington County in Maryland, something else might lurking just around the bend, the Snallygaster.

Descriptions of the Snallygaster’s appearance vary. But common elements include a long, pointed beak and massive, dragon-like wings and claws. Other features sometimes mentioned are thin, razor-sharp teeth lining its beak and even multiple, octopus-like tentacles. Eighteenth century accounts by early German settlers refer to the beast as a Schneller Geist, or “quick ghost,” that rapidly pounced upon its unsuspecting prey. More accounts and reports of the beast continued throughout the nineteenth and early-twentieth centuries. Then, on February 12, 1909, the Middletown Valley Register published a letter from T.C. Harbaugh of Casstown, Ohio, who spotted a “gigantic monster,” which he claimed was on the loose and headed towards Maryland. Reports of sightings and encounters from wary citizens quickly flooded newspapers throughout Western Maryland. Even more terrifying, other reports suggested it had laid an egg at Crampton’s Gap near Burkittsville, perhaps laying the basis for even more snallygasters.

Sightings continued for many years, including a chance encounter in 1923 with Middletown resident, Charles Maine, owner of Maine’s Ice Cream, who reported to a Cumberland newspaper that, “It’s wingspread appeared to be between twelve and fourteen feet. At times,” he said, “it threw out long streamers, like the arms of an octopus, and would draw them in again.” Then, in December 1932, the Hagerstown Morning Herald reported on the death of a snallygaster. It was purportedly lured to a moonshine still in Frog Hollow in Washington County and was overcome by the noxious fumes and drowned in the alcoholic vat.

Some have suggested that the accounts beginning in 1909 were a veiled attempt at scaring away would-be ne’er-do-wells from Middletown and the surrounding region. Others have explained that the original letter from T.C. Harbaugh is the explanation as Thomas Chalmers Harbaugh was a native of Middletown and an accomplished author with a passion for the area’s history and culture. Perhaps he was looking for an excuse to pen a good story and give the valley some intrigue. Or, perhaps, it’s all true and there’s another snally egg in the Blue Hills just waiting to hatch. Nope. Nope, nope, nope. Too creepy for me. Back to PreserveCast.

[Nick Redding] Do you have questions? We may have answers. If at any point during this podcast you’ve thought of a question that you have for podcast or maybe one of our guests, we’d love to hear about it. You can send an email to podcast@presmd.org and we’ll try and answer it, right here on the air, on the next episode of PreserveCast.

[NR] This is Nick Redding. You’re listening to PreserveCast. Today we are joined by Donovan Rypkema, who is the principal of Place Economics and the president of Heritage Strategies International. We’ve been talking about all things preservation economics, why preservation makes sense from an economic standpoint, how preservation can play an affordable role with affordable housing, what do we do with vacant structures. But the big question right now, moving forward is: what’s going to happen with the Federal Historic Tax Credit Program? Donovan, I could do it, but you probably could do it much better. Why don’t you tell people – if they don’t know what it is – in a nutshell, what this program does?

[DK] Well, the Federal Historic Tax Credit is the singularly most effective tool for getting private sector investment into historic buildings in the world. In the world, period. We do a third – you mentioned Heritage Strategies – a third of our work is international, and, as part of that, we have looked at incentives around the world that encourage the preservation of historic buildings. There is none remotely close to the effectiveness that the Federal Historic Tax Credit has had since it first began in 1976, ‘77, or ‘78. What it does is a tax credit is a dollar-for-dollar reduction of taxes payable. And if I meet the standards and rehabilitate a historic building, I get a tax credit of 20 percent of my investment. So I acquire a historic building and I spend a million dollars rehabilitating it. I get $200,000 as an offset against the income tax I would otherwise have to pay. So that’s a tax credit, and it’s been extraordinarily effective around the country.

[NR] You guys, actually, at Place Economics put together a top ten reasons to save it, and you just had all these stats one after another. I mean, do you have a favorite economic impact of the credit that you would share? If you had only one thing to be able to say in front of Congress, why would you say we should save it from an economic standpoint?

[DK] Well, I can’t limit it to one.

[NR] All right.

[DK] Number one, it’s one of the few federal programs that, in fact, more in the end goes back to the Federal Treasury than it costs the Federal Treasury. David Listokin at Rutgers has looked at this over the whole life of the program. And what he’s calculated is that, over the life of the program, over $1.20 goes back into the Federal Treasury for every dollar that goes out. So I don’t care if you’re the most right-wing conservative, “balance the budget” type in Congress. For God’s sake, here’s a program that more than pays for itself. Why in God’s name would you say, “Oh, that’s one we got to get rid of?”

[NR] That’s a pretty good example right there. And obviously, what we’re talking around here if you’re not familiar with it and you’re listening to this, is that as a part of this tax reform process that’s moving forward, it now appears… our colleagues at the National Trust for Historic Preservation have put out the alert that the tax credit may not be included in the new tax bill moving forward. Sort of a stark shift in priorities for a program that has been very successful over the past 30-odd years. You know, the question that we get time and again, and that I’d love to ask you so that we can share this around is: what happens economically if this vanishes? What do you think the economic impact would be? And what happens to preservation?

[DK] Well, preservation as a movement will still exist. I mean, there’s plenty people believe in it with tax credits or not. What’s going to happen is that the rehabilitation of historic buildings will no longer be a central component of downtown revitalization, of neighborhood stabilization, of private sector investment in those buildings. I mean, it’s not because developers hate old buildings that they don’t always do them. The reason a developer doesn’t do a historic building is because it doesn’t make economic sense to do it. And what this tax credits have done is taken a project that did not make financial sense into one that does. And you take away that tax credit, it no longer makes financial sense ergo developers will put their money in building some building at the edge of town. We’re just going to lose the most valuable tool that there is.

Forget preservation for a minute. Not just the most valuable preservation tool, but the most valuable urban revitalization tool that exists period. And we’re going to lose that. And I’ll tell you, on the political side – and I know that the Maryland Delegation’s been pretty strong supporters of tax credit – [it’s] no longer enough to accept as a good answer from your Senator, “Well, I voted to keep it.” That’s not enough. This has to be the deal breaker. Our congressmen and our senators have to say to their colleagues on either side of the aisle, “This has to be – the renewal of the tax credit – has to be in the tax revision or you’re not getting my support on a damn other thing.” It has to be a [dealbreaker]. It’s not enough to say, “Oh yeah, I’m going to support you. I’m going to vote to keep it in.” That’s not good enough. It has to be they have to get enough votes so it stays in there. Democrat or Republican, I don’t care. And I don’t care how they voted. If we lose the tax credit, every one of those who said they were committed but it didn’t pass need to get our wrath in the next election.

[NR] Well, I think people can gauge by the tone of your voice and the sincerity of your argument that this is really serious stuff. I mean, we’ve been involved in it. Obviously, Senator Cardin here in Maryland has been a long-term champion of it and has sponsored the Historic Tax Credit Improvement Act of 2017, which is to try and not only keep it, but to enhance it and improve it to some extent. So we are blessed in Maryland to have some really powerful leadership on this, but you’re right. If we lose this, it could be pretty dire and challenging situation moving forward. I’m also curious, some people have suggested that the value of properties could potentially drop, particularly in downtown areas because without that incentive there it makes the properties even less valuable to a potential developer and so the market will sort of devalue these properties. Do you see that happening as well which –

[DK] That could very well happen, but I’ll tell you what. The other thing that will happen, I think, sooner than that. When a property is sitting unused and vacant, that is – I come from the real estate appraisal world. That time of [vacancy] has an adverse impact on the properties around it. So those building sitting vacant, they are stealing value from the properties around them. So if we lose this, if we lose this valuable tool, more and more of those buildings will be sitting vacant. Certainly, you’re right, that they’ll go down in value themselves. But a bigger issue is they’re going to be costing value of the properties around there. So where’s the property tax revenues [that are] going to go to pay the cops and the teachers and fix the potholes on Baltimore streets? It’s going to disappear. It has to be a priority across the board. I don’t even care if you care about historic preservation. You care about urban life, urban vitality, good investment leveraging with public resources on a huge degree, you need to be for this tax credit extension.

[NR] Yeah. And for all the reasons that the tax credit is a great tool, it’s also kind of scary because when you turn it on the other side those are all the things that then go away. So job creation and the value of property, that drops and then your property tax revenue drops and then all of a sudden, you can’t pay for things. We are sort of at a scary moment. If it were to go away and it’s gone, is there any tool that could be created to fill its place or would you argue that really the tax credit is the best thing? I mean, you were kind of hinting at that and saying that you’ve kind of looked around the world. Are there any other models that we should perhaps consider?

[DK] Well, sure. You could give people grants to do it. It’s kind of the British model. You can just hand out money. With a strained budget, that’s not going to happen. I mean the reason the tax credit is good is you don’t have to do anything. But if you do A, then you get B. That’s not the same as saying, “Oh here, I’m Uncle Sam and I’m writing checks to all of you to fix up that stuff.” No, it requires you to make an investment.

The other thing that I think is really important… so I’m the developer. I buy the building. I spend the million dollars. I get the $200,000 tax credit and I have a piece of real estate with an adequate return. But the real beneficiaries of that are, in fact, external to that property. The geeky economics terms is “externalities.” What happens is you do that project and around that project, property values go up, business licenses go up, building permits go up, construction permits go up. A great example: one of the best examples in the country – Miller’s Court, I think, in Baltimore. Inner-city redevelopment of industrial property in a neighborhood where nothing was happening for decades. And that project went in and business licenses went up and property values go up and residential building permits go in the couple blocks around there. And those are the externalities generated, triggered by that project. And that’s also going to go away when those projects don’t get done. Here you have, in Miller’s Court – and I don’t remember the exact numbers – but you had the City of Baltimore that was still losing population. Around the Miller’s Court, the population went up 16 percent. It’s those investments that drawing people.

We’re just finishing a study in Rhode Island and Rhode Island is a slow growth state. Rhode Island historic districts constitute about 11 percent of the land area in the state, but 54 percent of all of the population growth in the last 15 years in Rhode Island was in local historic districts. That’s where people want to go. And to stop having a tool to incentivize people to invest those places, a huge mistake.

[NR] Well, hopefully, we can have you back on in the future and celebrate the fact that we’ve saved this credit because it is absolutely a priority. Not only for this organization but for organizations like us all around the country and we’re doing everything we can right now to make that happen. Donovan, if people wanted to get a hold of you or they wanted to contact you about perhaps doing an economic impact study or talking to you about some type of challenge like that, how might they find you?

[DK] They can find us on our website, PlaceEconomics.com and we’ll be happy to get back to anybody on any inquiry.

[NR] All right. And before we let you go, we ask the most difficult question here for any preservationist or someone working in the field which is: what is your favorite historic building, site, place? What takes the cake?

[DK] Well, again, because I spend 230 nights in hotel rooms a year and so there’s a whole range. But I have some both big city and little towns that I love for the kind of respect for their historic context. And not the immediate, the usual suspects. I love Astoria, Oregon. It is a really gritty kind of industrial tradition, but great historic resources and a community that understands it. I love Guthrie, Oklahoma. The first territorial capital of Oklahoma and a great place for economic development purposes, driven by a local banker [who] said 30 years ago, “These are resources that we need to keep.” If God came down and said I had to live in a city under 100,000 people, I’d have two choices: Portland, Maine or Asheville, North Carolina. Both are great cities where there’s a synergy between arts, food, culture, and historic buildings. There’s just lots of places that are great.

[NR] Those are great. I guess I got to get to Guthrie. It sounds nice. Donovan, it’s been a pleasure. Thank you for all your doing on the tax credit front, all that you’re doing to advocate for these places from the economic standpoint, all that you’ve done over your long career, and we appreciate the good work you’re doing. Hope to talk to you again soon in the future.

[DK] Thanks for having me here.

Credits

You don’t need to open a history book to find us and available online from iTunes and their Google Play Store as well as our website: PresMD.org. This is PreserveCast.

This podcast was developed under a grant from the National Center for Preservation Technology and Training, a unit of the National Park Service. Its contents are the sole responsibility of Preservation Maryland and the Maryland Milestones Heritage Area and do not necessarily represent the official position or policies of the National Park Service or the National Center for Preservation Technology and Training.

This week’s episode was produced and engineered by Ben and Stephen Israel. Our executive producer is Aaron Marcavitch. Our theme music is performed by the band Pretty Gritty. You can learn more about them at their website: PrettyGrittyMusic.com, on Facebook, or on Twitter @PG_PrettyGritty.

To learn about Preservation Maryland or this week’s guests, visit: PreservationMaryland.org. While there, you can check out our blog and learn about what’s current in historic preservation. We’re also on Facebook, Instagram, Flickr, and Twitter @PreservationMD. And of course, a very special thank you to our listeners. Keep preserving!