Cherrytree Group LLC Blog

The U.S. Environmental Protection Agency (EPA) estimates that there are 450,000 brownfields sites throughout the country. To some commercial property owners, brownfields are seen as a major expense. To others, they are a potential financial windfall.

That is because of a tax credit included in the Brownfields Act: Chapter 206 of the Act of 1998, which was created as an incentive for developers to reclaim polluted property, as well as to stimulate economic growth by restoring abandoned properties, putting them back into use, and thereby creating jobs and generating property, excise, and income taxes from land that otherwise would lie fallow.

Under Mass. General Law Chapter 21E, if you buy (or control) polluted commercial property or if someone contaminates commercial property you own, you are responsible for cleaning it up. What many owners don't know is that they may be able to get the Commonwealth of Mass. to split the cost of that cleanup.

How the Brownfields Tax Credit Works
To use a real-life example, a developer wants to determine if they qualify for the credit. They spent in excess of $2 million to clean up the site of a commercial office building. If successful, they could receive a tax credit in excess of $1 million. They have the ability to offset 50% of their taxes in the current year, or carry the credit forward for an
additional 4 years (for a total of 5 years) in order to use the credit to offset taxes. The credit is also transferable, so the developer may choose to sell it.

Practically any costs "directly" relating to an environmental clean-up can qualify for the credit, including the cost to assess, contain, remove or otherwise respond to the contamination. Covered expenses may include the costs of LSP services, engineering, contractors, laboratory analyses and testing, legal fees, DEP and other agency fees.

For a project to qualify, it must meet all of the following criteria:

• The environmental damage must have been reported to the Mass. Department of Environmental Protection (DEP) and a permanent solution to clean the property and keep it clean must have been achieved. If the source of the pollution continues to contaminate the property, it will not qualify for a tax credit,
• The implementation must be conducted based on the Mass. Contingency Plan, generally under the direction of a licensed site professional, * The property must be located in an economically distressed area (EDA), as determined by the DEP. Mass. alone has 351 cities and towns, of which 233 of them are either completely or partially in an EDA, including Boston,
• The cost of the clean up must exceed 15% of the appraised value of the property at the time of clean-up,
• The owner must be in good standing with the DEP, with no violations of any environmental restrictions, orders or mandates, and
• The property must be used for business purposes.

If a project fails to qualify for the 50% credit, it may still qualify for a 25% credit if the cleanup uses an activity and use limitation, which specifies allowable and prohibited uses for the property.

According to Warren Kirshenbaum, president of Cherrytree Group, LLC, a tax credit consultant and syndicator, "The market for brownfields tax credits is very strong. We have sustained demand for these credits, and have recouped millions of dollars of our clients expenditures by using this credit."

Take Advantage Before Credits Expire
In 2010 the deadline for applying for the credit was extended to January 1, 2014. The tax credit is transferable and can be carried forward for up to five years. Therefore, even if the taxpayer does not qualify for the credit they can lower their tax burden by purchasing credits from other companies at a discount.

The state brownfields tax credit can also be used in conjunction with other grants and tax credits, such as the federal historic rehabilitation tax credit, which is for projects listed on the National Register of Historic Places. Anyone who owns a brownfield site that may qualify should seek professional advice quickly, while the act is still in place.

If you think your project qualifies for a brownfields tax credit, contact Warren Kirshenbaum to help gather and document expenses, and to file the necessary paperwork.

This article was written by Robert Calzini, DiCicco, Gulman & Co. LLC with whom we often work.

In order to become more green and to implement greener business practices, more and more businesses are buying Renewable Energy Credits (RECs).

Businesses can buy renewable energy credits, or RECs from power companies who supply power, natural gas and energy products for homes and businesses.

The RECs are Green-e® Energy Certified and sourced from wind energy. The RECs give developers of renewable energy a market-based, financial incentive to build wind, solar and other forms of renewable energy. One Renewable Energy Credit is created for each megawatt-hour of renewable power that is delivered to the electric grid. Once an REC is sold, it is retired, ensuring that each REC is only used once.

More and more companies are searching for options to support sustainability goals and initiatives. The Cherrytree Group represents green developers and businesses that using green products such as renewable energy certificates as well as solar and load response options.

Expiration of the payroll tax deduction, changes to the capital gains tax rates, expiration of the Bush-era tax cuts, health insurance mandates, and diverging opinions between Democrats and Republicans on how to reform the Tax Code are creating much anxiety for both business and individual taxpayers alike. Tax issues are of paramount importance to businesses when faced with investment, expansion, or hiring decisions, and in the case of smaller businesses these decisions often flow through to the principals’ tax planning strategies.

Regardless of your political affiliation, the availability and usage of mechanisms that aid tax planning are important economic drivers. This article focuses on highlighting the role of tax credits as an economic engine, rather than their incorrect labeling as “subsidies”, particularly when they originate from the creation of renewable energy. The demise of companies such as Evergreen Solar and Solyndra, which received expensive loan guarantees or other subsidies only to fail spectacularly, costing taxpayers vast sums has only added to the political distaste for subsidies.

Tax credits, are an incentive that allows the outsourcing of governmental functions to the private sector. Tax credits, which allow a taxpayer an offset against taxes due, usually dollar for dollar, or are sale-able in the marketplace create a financing source for projects that otherwise would not exist. There are tax credits for remediation of environmentally contaminated properties, rehabilitation of historic buildings, producing renewable energy, and the creation of affordable rental housing, to name a few. The market for tax credits is fluid and vibrant, and it is important that the market for these tax credits remains strong. Take the conversion of biomass into renewable energy. Technologies that can perform such a conversion create energy and avoid the need to landfill industrial waste, yet these deals are difficult to finance through traditional lending channels. Generating tax credit equity for such ventures, while providing tax planning benefits to buyers of tax credits, such as large corporations, institutions, and individuals frees up businesses to invest in equipment, personnel, upgrades and other business needs that would inevitably be scrapped if these dollars were being paid as taxes.

Warren Kirshenbaum is the president of Cherrytree Group, LLC, Newton, Mass., a tax credit consultant, broker, and syndicator.

Environmental work yielded jobs and spending

Restoration of river and wetland habitats generates economic benefits in the same manner as work traditionally viewed as an infrastructure investment, such as road and bridge repair, according to a report commissioned by the state.

The recent report analyzed projects at the Eel River in Plymouth, Broad Meadows salt marsh in Quincy, and two other locations - in Brewster on Cape Cod, and in Clarksburg, on the Vermont border. It determined that every $1 million spent generated an average of $1.5 million in economic activity in Massachusetts, and that the number would rise to $1.8 million if all direct spending were done in-state.

The report shows restoration projects create an average employment demand of 12.5 jobs per $1 million spent, according to a news release from the state. The report, by Cambridge-based Industrial Economics Inc., measured employment in “worker-years,’’ which is the amount of time one person works annually. Thus, if a project takes three years and requires 12.5 worker-years, it generates about four full-time job equivalents per year.

The Plymouth project involved rebuilding 1.7 miles of stream at the headwaters of the Eel River, where some 40 acres of cranberry bogs had altered the flow of water for decades. Workers removed a dam and earthen barriers, filled irrigation ditches, and replaced two culverts that were crushed and undersized.

Workers planted approximately 17,000 Atlantic white cedar trees that were grown in greenhouses from locally collected seed. The aim was to create an Atlantic white cedar swamp, a relatively rare habitat. Before the restoration work, the sandy-soiled bogs were turning into a pitch pine forest, but ground-penetrating radar detected peat deep under the bogs, suggesting it was previously a swamp.

Engineering, permitting, and fund-raising were done from 2005 to 2009, and the main part of the construction was done in 2010.

In Quincy, the Broad Meadows salt marsh restoration, led by the Army Corps of Engineers, recreated 31 acres of marsh in an area where 106 acres had been filled with dredged material from the Town River in the 1930s and 1950s. Not all of the marsh could be restored, partly because there are buildings on filled land.

Material removed from the marsh was used to create upland areas planted with native coastal grass, she said. The changes are expected to encourage use by migratory shore birds and waterfowl, songbirds, and possibly shellfish in the tidal areas.

Jon Kachmar, Southeastern Massachusetts director at the Nature Conservancy, said the Broad Meadows project included extensive planting of coastal grasslands. The project aimed to build 23 acres of coastal grassland and 4 acres of wet meadow.

The positive economic effect of the work could echo into the future. Among the probable long-term effects outside the scope of the report, he said, were increased property values, reduced flooding, and “ecosystem services,’’ such as the ability of wetlands to remove excess nutrients from the water.

Not only are ecosystems healing, but a sort of a micro- or mini-economy around the work is being created.

Boston Globe

The latest unemployment rates tell you what you need to know about these Massachusetts cities’ economies. Lawrence’s topped the list, at 15.8%. Fall River’s wasn’t far behind, clocking in at 15.5%. Its South Coast sibling, New Bedford, was at 14.1%.

Once again, the “gateway cities” had some of Massachusetts’ highest jobless rates. The rates in February were also high on Cape Cod and the Vineyard. But those economies will come alive in a couple months, as they always do. The same rebirth won’t happen this spring in many of the states old industrial cities.

This has been a problem in Massachusetts for years, if not decades, amid the slow decline of our once powerful manufacturing industry. Mayors of these cities have long pressed state officials for solutions.

Well, there’s at least one possible fix on the way now. The state Department of Housing and Community Development is putting the finishing touches on a tax credit program for projects in these mid-sized cities that would bring new market-rate housing into the mix.

State and federal agencies have plenty of ways to spur the creation of affordable housing. But many city officials don’t want affordable housing to be the sole driving force behind downtown construction. It’s not easy to build a strong economy on a population that doesn’t have much in the way of expendable income.

Industry experts say there is no tax credit geared for creating homes for the middle class. There are programs that help renovate specific kinds of properties, such as historic buildings or polluted sites. But none are specific to market-rate housing.

That’s going to change with the launch of the Housing Development Incentive Program this spring. As one of his first actions the new undersecretary of housing and community development, Aaron Gornstein, is ensuring this program is ready for developers by June.

The Legislature authorized the program in a broad economic development bill. The program, for now, will be capped at $5 million for each fiscal year — a budget that likely could help finance 5 to 10 projects each year.

The program will give a developer a 10% tax credit on eligible rehab work. The credits will be capped at 50 market-rate units and at $1 million per project. Because most of these tax credits are sold off at a slight discount, he says, a typical developer could reap up to roughly $900,000.

The credit would only be available for projects in one of 24 designated mid-sized Massachusetts cities. Some already have relatively healthy economies, others are struggling. Most, if not all, fall under the “gateway cities” umbrella. Most of these cities now face constant cycles of high crime rates, low graduation rates and weak employment opportunities.

The cities have to play a role in this new program. Local property tax exemptions need to be offered and city officials have to approve the best places to put such projects.

Many Developers view this tax credit as an important tool to breathe new life into some of these economically-distressed cities. South Shore Housing will approach officials in Brockton, Taunton, New Bedford and Fall River to see if they have any local properties in mind that would be suitable. South Shore Housing might go it alone, or it could partner with a commercial real estate developer for a mixed-use project.

The credits would be best suited for cities that already have some demand for market-rate housing in their downtown areas. Otherwise, a 10% credit might not be big enough to draw interest from developers.

Some developers believe that the program but it would only work in cities where market-rate housing is viable or close to being viable already. Higher-rent areas, such as Lowell, would be good targets. Regardless of the city, lining up these tax credits could mean a significant amount of work for relatively short dollars.

The most successful proposals would be those that are part of broader redevelopment visions. In some cases, the tax credits could be that one critical piece to get a deal financed, the difference between a loan closing and a loan falling apart.

This program won’t solve all the problems that these cities face. It’s not going to turn them around overnight, by any means. But it could provide an important spark. Who knows? Maybe it won’t be long before the economies in some of these distressed cities are humming once again.

Herald

The Cherrytree Group has developed a streamlined procedure for getting their clients Brownfields Tax Credits. What is the Brownfields Tax Credit? Massachusetts General Laws forces developers or owners of a site that has environmental contamination to clean up that site. The law holds the current owner responsible for the cleanup costs.

However, if the issues were caused previous to your ownership, Brownfields Act absolves you the owner of the property, of the liability for cleanup, and gives you a tax credit of up to 50% of the eligible costs of cleaning up the site. What you do with the credits is up to you, take the credits on next years taxes, or monetize those credits by selling them for cash to a buyer.

Why use The Cherrytree Group?

We are able to sift through the all of the information, determine which costs are eligible for the credit and prepare and file the application to the DOR. There are three functions to applying for these credits:

1. securing tax credits
2. brokering the sale of the tax credits
3. closing on a tax credit purchase

The Cherrytree Group can perform all 3 of these functions. The benefit here is that the costs to the client is significantly less when we provide those services than if separate professionals were retained for each service.

By using The Cherrytree Group, you employ an accounting professional to work on analyzing the eligible costs, a legal professional to close on the tax credit purchase, and a developer to assist with, and advise on the cost and development issues.

The Cherrytree Group acts as a consultant and a syndicator, applying for and obtaining the Brownfield Tax Credit for you. We can also sell that tax credit for cash.  Please contact us.

The town of Stratford, CT has been awarded a $500,000 grant from the state for clean-up of the U.S. Baird Property, where a brewery is planned.

The Governor announced last week that the Connecticut Department of Economic and Community Development (DECD) has awarded more than $16 million in loans and grants for several brownfields projects throughout the state, including the Stratford project.

The Stratford grant would go toward a hazardous building materials report, remediation and abatement at the site, which is projected to cost a total of $574,000. The grant is pending state bond commission approval.

Two Roads Brewery Co. just purchased the site for $2.85 million.

Two Roads company co-founder Brad Hittle said it is expected that the brewery will create 15 new jobs within a year and 70 jobs overall.

"Our brewery tasting room will retain the manufacturing esthetic, with bridge cranes and booms being kept and old pictures of Stratford’s manufacturing might throughout.  We want to honor this proud history.”

The governor announced that Stratford had received the grant last Friday.

“Cleaning up Connecticut brownfields is an important component of our economic development agenda. These contaminated sites are a blight to their communities and significantly damper development and prosperity for adjacent sites,” Gov. Malloy said. “Investing in these redevelopment efforts is smart policy—we create jobs and thriving communities, expand our tax base, and clean up pollution in Connecticut.”

This round of awards includes $8.7 million in loans and $7.5 million in grants for projects encompassing commercial and industrial remediation and expansion; affordable, disabled, student, and workforce housing; train stations and transit oriented development; and mixed-use developments with hotel, residential and retail space. It is estimated the state funding will leverage over $300 million in additional private and public investment.

Funding will go directly to municipalities, businesses, developers and regional development agencies and can be used for environmental assessment, planning, design, remediation, demolition, construction and acquisition. The state also offers a third party liability protection program for eligible developers of brownfields.

“There is a renewed commitment for brownfield redevelopment in Connecticut, and DECD is leading the way,” DECD Commissioner Catherine Smith said. “In the last six months alone, we’ve gotten more than $33 million in brownfield funding to our cities and towns and other parties that are helping to capitalize on the economic potential of these sites. Cleaning up these sites so they are ready for redevelopment is vital to our efforts to spur economic activity and make our communities more vibrant and accessible.”

The brewery is expected to open by September 2012.

Stratford Star

The "Commercial Building Tax Deduction" establishes a tax deduction for expenses incurred for energy efficient building upgrades made by a building owner . The deduction is  for $1.80 per square foot of the property, with allowances for partial deductions for improvements in interior lighting, HVAC and hot water systems, and building envelope systems.

Commercial real estate owners and business owners who have upgraded their buildings to be more energy efficient may qualify for tax deductions or investment tax credits. Consumers and business people should take advantage of the tax incentives. Generally, a tax credit is more valuable than a tax deduction because a tax credit reduces your taxes. A tax deduction only reduces the taxes that you owe by a percentage.

As a commercial real estate owner, if you have improved the energy efficiency of your commercial property or added energy efficient systems into your new building, you could be eligible for a tax deduction of up to $1.80 per square foot.

To qualify for the full deduction, the energy efficient investments must reduce energy costs by at least 50%.  A partial deduction of $0.60 per square foot is available for investments in one of three systems—lighting; heating and cooling; or building envelope. Remember, tax deductions reduce your overall taxable income which reduces the percentage of taxes you owe.

Do you want to know if you qualify for energy efficient tax credits or tax deductions? Contact The Cherry Tree Group, a Massachusetts based business consultant, and broker and syndicator of tax credits.

A downturn may be a good time to go asset shopping… at least for some small and medium enterprises.

Recently one entrepreneur acquired over $100,000 worth of printing machinery from another firm that was looking to exit the business. "It made sense as it increased my capacity by 40% and also cost much less than what we would have spent for brand new machinery.”

"The transaction provided us with an excellent opportunity to strengthen our position ahead of a future upturn."

Welcome then to the rarefied world of distressed asset sales or asset stripping. Businesses — and their owners — looking to make an exit altogether are trying to make full use of their assets — either their machinery or the land they own. And there are many looking to acquire these distressed assets.
 
They are usually marked by intense negotiations, with creditors of the defunct business taking on the role of the interested spectator. More often than not, it turns out to be a test of who has the most patience.

"Buyers of such assets are confident they can survive until the economy starts looking up and then seek a high return on investment. Also, as weaker units quit the game, the buyers will be in a position to increase their market share."

Construction space

A more relevant issue has to do with the current land values. "Some of the distressed businesses could have land holdings or offices that can be sold and funds recouped," said a banker. "But in the current real estate marketplace, finding a median value acceptable to all parties is impossible."

According to industry sources, the construction space is one where asset disposal could take place in higher volumes this year. Even wholesale acquisitions of a business could become a more regular feature. Raising additional resources through such transactions would come in handy to those firms looking to participate in projects nationally or internationally. Or so goes the conventional thinking. But acquisitions or partial equity participation can be considered everywhere.

"The impetus will be felt in three areas: where there is a technology play; where there is a clear benefit of market access or customer access; and in niche areas where such a deal can significantly increase competitive strength".
 
The coming months will see how well such forecasts hold up. But there is no denying that for the right price, the right kind of distressed asset is there for the taking. Those on the lookout to buy or sell just need to know the where and the when.

GulfNews.com

• What type of legal structure do I have to have to invest with other people’s money?
• What are my options for compensation for myself from the fund?
• What sort of equity should/can I retain?
• What rules or regs do I need to be aware of before I start soliciting investors for funds?
• Who can (or should!) invest with me?
• How do I determine what I should set for a minimum level of participation?
• What are some acceptable ways to find investors? Who can help me with that?
• What happens if an investor wants out?
• What does it cost to put this all together?

Capital is capital, it doesn’t matter if you’re looking to raise it to buy real estate, notes or other assets, what we talk about in this podcast likely applies.

It’s important to note that we are not providing legal advice. You should seek out personal advice from Warren or someone like him before you attempt any of the things we talk about in this podcast.