The government will pay 40% of your renovation costs…

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Did the title get your attention? Good… This is pretty important…

It’s amazing how much we didn’t know when we bought our place. I was doing TONS of research, thought I knew a fair amount, but first I didn’t know we were buying into the roughest block in the neighborhood, and now I find out there are government programs that will pay up to 40% of our renovation costs. 40% makes a REAL difference and we had no clue when we went into contract… If we had picked the “wrong” building we would have gotten nothing.

Last night I went to a “town hall forum” run by state senator Bill Perkins on tax credits for renovating historic buildings. Luckily (for us) our townhouse is in an area that’s on the National Register of Historic Places. Being in that area is what qualifies us for the tax credits. You also have to be in a census tract that is below the average income in New York State ($51,000). Nearly all of Senator Perkins’ district is below the NY state average income – some 1600 buildings qualify for these credits. HOWEVER, next year they’ll be changing over to 2010 Census data and there’s no guarantee that those buildings will qualify next year. So you should take action pretty quickly to get this money.

Here’s how it breaks down… There are state and federal programs and they’re divided into “homeowner” and “commercial”. “Commercial” means anything that produces income – including rental apartments in a townhouse. In general you can get 20% for homeowner and 40% for commercial. (There’s also a 10% credit for old, but non-historic buildings, but it can’t be used for residential buildings.) There is a max credit of $50,000 for the homeowner credit, and $5M for the state part of the commercial credit, but the federal commercial credit is unlimited.

In both cases there are stipulations… For starters these credits are for historic buildings so they’ll only pay for things that are done inside the historic building envelope. They won’t pay for the fence along the street, they won’t pay for a new sewer connection, the won’t pay for a deck on the back of the building, etc. But they will pay for pretty much everything else. The other big stipulation is that you must follow federal guidelines when doing the renovation (as defined by the Secretary of the Interior and the National Park Service). There are 10 guiding principles which are worth repeating here…

  1. A property shall be used for its historic purpose or be placed in a new use that requires minimal change to the defining characteristics of the building and its site and environment.
  2. The historic character of a property shall be retained and preserved. The removal of historic materials or alteration of features and spaces that characterize a property shall be avoided.
  3. Each property shall be recognized as a physical record of its time, place, and use. Changes that create a false sense of historical development, such as adding conjectural features or architectural elements from other buildings, shall not be undertaken.
  4. Most properties change over time; those changes that have acquired historic significance in their own right shall be retained and preserved.
  5. Distinctive features, finishes, and construction techniques or examples of craftsmanship that characterize a historic property shall be preserved.
  6. Deteriorated historic features shall be repaired rather than replaced. Where the severity of deterioration requires replacement of a distinctive feature, the new feature shall match the old in design, color, texture, and other visual qualities and, where possible, materials.  Replacement of missing features shall be substantiated by documentary, physical, or pictorial evidence.
  7. Chemical or physical treatments, such as sandblasting, that cause damage to historic materials shall not be used. The surface cleaning of structures, if appropriate, shall be undertaken using the gentlest means possible.
  8. Significant archeological resources affected by a project shall be protected and preserved. If such resources must be disturbed, mitigation measures shall be undertaken.
  9. New additions, exterior alterations, or related new construction shall not destroy historic materials that characterize the property. The new work shall be differentiated from the old and shall be compatible with the massing, size, scale, and architectural features to protect the historic integrity of the property and its environment.
  10. New additions and adjacent or related new construction shall be undertaken in such a manner that if removed in the future, the essential form and integrity of the historic property and its environment would be unimpaired.

Curiously, those are not exactly the same standards as the City’s Landmarks Preservation Commission (LPC) uses. The LPC is much more rules based, where the national system is much more interpretive and subjective so you can get approved by LPC and then rejected by NY State or the National Park Service.

In our case we don’t have to deal with the NYC LPC since we’re not landmarked by the City, so we just have to deal with the federal standards. One of the presenters last night worked for New York State Office of Historic Preservation and is the woman who will probably be the primary person making the decision on our project. I asked her a number of questions many of which were about windows. Her responses say a lot about their decision making process.

The windows we’ve been wanting are tilt-n-turn windows. Normally you wouldn’t think of tilt-n-turns on a historic building, but they can be mulled together in a way that makes them appear from the outside to be double hung window. We realized early on in the process that our window openings are so huge that we need “architectural” level windows. Those don’t come cheap, so we started investigating what our options were and looked beyond the standard choices (Marvin, Anderson, Pella) and had an architect recommend Gaulhofer. Gaulhofer is an Austrian company that only has one distributor in North America (located near Vancouver – if you’re interested, contact Eva and tell her Jay & Dan told you about them). Gaulhofer has VERY high quality windows – they don’t use cheap wood like American window manufacturers do – they use either end grain Spruce or Larch. The wood is stunning actually… I’ve heard a number of people this week talk about how their 100 year old wood windows still work. Well very few of the new American wood windows will be around in 100 years – they’re just not built how they used to be, but a Gaulhofer window just might be.

Gaulhofer wood windowOne of my questions was about the protective metal trim Gaulhofer puts on their wood windows (see the picture to the right). The woman answering my questions didn’t want to make a decision on the spot, but she recommended that we should submit plans with the metal trim in the same exact color as the wood. While she made it clear it would have to be discussed and she might say ‘no’, she said she liked the fact that the metal strips would make the window last longer. She also pointed out that even if she approves it, it could get rejected by the National Park Service. But the point here is that these aren’t preservationists who are inflexible. Unlike the LPC, she has the right to subjectively interpret the federal guidelines and use her best judgment.

My other major window question was about reflectivity of the glass. Modern “low-E” coatings have a reflective sheen and the National Park Service says at one point in their clarifications that you shouldn’t change the reflective quality of the glass, so I was wondering whether we would be limited in the glass we used in the windows. Well, it turns out changing the reflective nature of window only applies if you’re restoring an old window (or presumably putting a new window next to an original one). Like durability, energy efficiency is something they’ll bend the rules to accommodate – though only so far…

Because the previous owner gutted the building, we don’t have many original details to preserve so we’re allowed to be completely modern in the interior of the building and the federal and state tax credits will cover those modern renovations. In fact, you can see in the guidelines above that they prefer modern details over fake historical details. They want a differentiation between what’s new and what’s old. In our case we need to pay a lot of attention to our cornice and to our stoop – since those are some of the only original details that are left on our building. We will also need to replicate the original security gates (which will be expensive).

Back to the tax credits…

The homeowner tax credit is the easiest to get. It’s 20% of everything you spend on your property that’s inside the original building envelope. Review is also the easiest, especially if you’re like us and don’t need to go through LPC – it’s pretty much reviewed and approved by the woman I met – and she seemed completely reasonable to me. The homeowner tax credit can also be used for little things – like a new roof, new windows, or fixing up your stoop – as long as you’re spending $5,000 or more and at least 5% of the work is exterior work, you’ll qualify. But as I mentioned above the problem is that it’s limited to a max credit of $50K.

Things get more complicated, but potentially more profitable when you go for the commercial tax credit, especially if your building is a mix of an owner’s unit and rental apartments (like ours). For starters, to get the commercial credit you need to determine the current “adjusted basis” of the building. The adjusted basis is the current value of the property, minus any depreciation, minus the value of the land. Then you need to spend at least that amount on the commercial part of your property. The commercial credit is only for really major renovations. Spending the value of the building on just the rental units can be quite difficult – especially in a case like ours where only about 25% of the building will be rental. You do get to include a percentage of the common elements of the building (the roof, the façade, etc.) to your commercial renovation costs. The percentage you can use is the percentage of your building’s square footage that’s “commercial”. To pull all of this off, you’ll probably need an appraiser to determine the adjusted basis, and an accountant to handle all the cost breakdowns – it’s not easy, but you may get a substantial amount of extra money.

One other detail is that you must own the building for 5 years after completion for the commercial credit and two years for the homeowner’s credit – otherwise they’ll want at least some of their money back. However, if you don’t use the entire credit the first year, you an roll it over to subsequent years – up to 20 years on your federal taxes and indefinitely on your state taxes. You also aren’t allowed to change things during those 2 or 5 years – at least not details that were conditions of the tax credit.

These tax credits only help a bit when you get your mortgage. They are considered assets by the bank, not income, so you become a better credit risk, but it doesn’t change your debt-to-income ratio. So somewhat unfortunately you may need to do a more expensive renovation to get the tax credits, but those extra costs may put you beyond your loan limit based on your debt-to-income ratio.

So this is definitely the time to renovate a shell in a historic area. Below is a list of historic districts that are covered. Contact Kathleen Howe at the New York State Office of Historic Preservation (518/237-8643) if you’re not sure if your building is in one of these areas (the City’s landmark boundaries are not the same as the boundaries set by the National Register of Historic Places)…

  • Mount Morris Park
  • Manhattan Avenue (around 120 to 123)
  • St. Nicholas (Strivers’ Row)
  • Hamilton Heights
  • Sugar Hill
  • West 147-149
  • Audubon Terrace
  • Jumel Terrace

And make sure you start the application process soon. The 2010 Census data may disqualify areas that are currently qualified since Harlem changed so much over the past 10 years.

If you have any questions about these tax credits start by calling the New York State Office of Historic Preservation – 518/237-8643. They’re incredibly helpful and knowledgeable and want to see people using these programs to fix up old buildings.

[And yes, I do understand there’s a certain contradiction in not wanting to be landmarked, but making use of tax credits for historic buildings… More on that in another blog post.]

Different approaches to being “green” with tenants’ utilities

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The other night when we were having drinks with Peter Holtzman, who owns one of the Astor Row townhouses and is an architect with The Downtown Group, the question of how to handle tenants’ utilities came up. His approach was to go all out for efficiency. He has one high efficiency boiler that provides heat and hot water for him and his two tenants. He doesn’t even have hot water heaters – just an insulated tank attached to his boiler. It’s worked for him – he’s got very low utility bills to show for it.

Our approach is different, but it’s only different – I don’t know that either of us can say our approach is better. We’re going to sacrifice a little bit of efficiency to emphasize conservation. To achieve this we’re having the tenants pay for many of their own utilities. For example we’ll meter the water separately. We figure if the tenants are aware of the cost of their water, they’ll use less of it. In a similar vein we’re giving them their own hot water heater which will be powered by their (separately metered) gas. Again, if they see the cost of their hot water they’re more likely to use less of it.

With heat it’s a bit more complicated. If we provide heat, NYC requires that it be up to a certain temperatures. We want our own unit cooler than the legal minimums – we like a little chill in the air. So we’re shooting for “a bit cool” but not so cool that our hands will get cold. To us that temperature is invigorating. For other people it just feels cold. We’ll extend the concept of awareness leading to conservation by giving our tenants combo heating/cooling units so they can raise the temperature in their unit even higher if they like a warmer apartment. But the supplemental heat will be electric heat and the cost of the additional heat will show up in their electric bill.

There’s another difference between Peter’s approach and our approach – ours requires a lot more equipment. We’ll have a boiler, two water heaters, as well as mini-split units for supplemental heat for the tenants. He just has a boiler. If you’re strict in your approach to being green you do need to consider the carbon footprint of making and maintaining that extra equipment (we’re not that fussy in our approach).

Where we agreed with Peter was on using closed cell foam to insulate all the exterior walls. The 2 1/2 inches of closed cell foam, plus everything else in the wall will give our exterior walls an r-value of R20. That will drive down utility bills for everyone, require a smaller heating and cooling system, etc. But it’s beyond that point where you need to figure out which you like better – maximum efficiency, or slightly less efficiency with an emphasis on conservation.

But… We don’t want to be landmarked…

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Generally I’m a big advocate of landmarking – certain places just need special protection. But these days most of those places have been identified and now some of the places they’re trying to landmark don’t really warrant landmarking.

Case and point is the Mount Morris Park Historic District – there are pluses and minuses to the proposed expansion. The core of Mount Morris Park was landmarked by the City in 1971 – just a few short years after landmarking began in New York. The neighborhood was then put on the National Register of Historic Places in 1973. Then in 1996 the boundaries defined by the National Register of Historic Places were extended (see map below). Now residents are talking about changing the City’s landmark boundaries to reflect the national boundaries.

mount morris historic district map with extension shown

There are parts of the MMP extension that make perfect sense and should be landmarked. The Historic Districts Council shows examples on their website that demonstrate this perfectly. I want to be clear, I’m not against the expansion of the Mount Morris Park Historic District. BUT, not all the blocks in the proposed extension are as homogeneous as the ones they show. I think the boundaries of the extension need to be reconsidered. For example, our block is nothing like the blocks they show, yet they want to landmark it. Here are a few pictures of our block…

West 123rd Street between Lenox and Adam Clayton Powell
Variety of architecture on West 123rd Street

How is that something that should be landmarked? That’s not the streetscape of a historically significant area that needs landmarking. That’s just a nice street in Harlem. There are brownstones on the south side of the street, but I wouldn’t say they warrant landmarking either. It’s not like every brownstone in Harlem needs to be landmarked.

Brownstones on West 123rd Street between Lenox and Adam Clayton Powell

Landmarking is supposed to be reserved for things that are special – and we’re just not that special. The row of townhouses one block down that were designed by Francis Hatch Kimball – are a completely different situation…

Townhouses on 122nd Street designed by Francis Hatch Kimball

Those townhouses are incredible. They absolutely need to be landmarked, and everything adjacent to them that can be landmarked should be landmarked to preserve the general feel of the era when they were built (unfortunately, there’s a 1950s-era school across the street from them). But my point is, we’re not that special.

The other night we were walking around lower Manhattan. What struck me was the layers of history you could see in the buildings. New and old were mixed together and there were new interpretations and adaptations of old buildings. I liked the mix of it all. As you can see in the pictures above, our block is a bit like that. There are a few old brick townhouses with mansard roofs, there are classic brownstones in a few different styles, there are a couple churches on the block (both landmarked), and there are apartment buildings. One apartment building looks like it’s from the 1930s, others look like they’re more turn of the century. And then there’s the gleaming new condo – Windows on 123. We have that wonderful patchwork of different historical eras. Thing is, you don’t preserve a patchwork of eras by freezing it in time. You preserve it by letting the patchwork continue to evolve. For example, when new and old are co-existing so closely, why shouldn’t the old buildings have modern doors or windows? Yet that is what would be prevented if the block were landmarked.

Yes, there is something special about our block, but the best way to preserve it is through zoning, not through landmarking. Many of the old apartment buildings on our block are built over their currently allowed F.A.R. (floor area ratio) which means if they were torn down you’d have to build a smaller building in their place. That’s a huge incentive for their owners to keep them in tact and renovate them. Even  our townhouse – it’s currently at a FAR of 3.0. The max is 3.44, so you can’t even add another full floor to our building (though the previous owners did manage to fudge the numbers and get plans approved that included an additional floor).

If it were no big deal to own a landmarked building we wouldn’t really care. But it’s a huge headache to own a landmarked building. So many things are more complicated and more expensive. And there are certain things you’re just not allowed to do. For example, we’ll be putting in large tilt-n-turn windows that would not be allowed if the building were landmarked. I’m sure our doors wouldn’t meet with landmarks approval either – they’re modern interpretations of old doors – still wood, and similarly proportioned to the original doors, but lacking the details you would find on an old door. If I lived on a block that warranted landmarking I’d gladly put up with the headaches associated with being landmarked. But our block doesn’t warrant landmarking so neither Dan nor I feel we should have to deal with the hassles of owning a landmarked building.

There’s a community meeting this Tuesday evening (October 5th) at 7pm at the Rice High School library (74 West 124th Street). I plan on being there to see what the chances are of dropping 123rd Street from the proposed extension.

Double Checking Code Compliance

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Even though we’ve got approved plans I’m a bit paranoid about getting our C of O at the end of the construction process. These days it seems like there are no guarantees when it comes to dealing with the NYC DOB. We don’t want the C of O examiner to find some code violation that was missed earlier and deny us our C of O. The changes could be expensive or even impossible. We want to get things right from the beginning.

A Harlem townhouse owner and architect, Peter Holtzman of the Downtown Group, had posted a few helpful comments here on the blog. He seemed to know code really well, especially as it pertains to townhouses. We started chatting via e-mail and I asked if he’d be willing to sit down and review our plans to see if he could spot anything others had missed. Our architect is quite good, but townhouses aren’t his specialty. Fortunately Peter was kind enough, and interested enough, to say yes. So we met Peter at Bier last week, went over the plans, and got mildly drunk.   😉

Peter had a variety of suggestions – everything from the practical (e.g. you’ll wish you had a gas fireplace in your master bedroom, not wood burning), to aesthetic (e.g. do a 3D rendering of the parlor floor to make sure you’re happy with how everything resolves), to code issues…

The most substantial code issues he brought up were related to what we we are doing on our freestanding sidewall, which is on the lot line. Our approved plans show bathroom windows, bathroom exhausts, dryer exhausts, kitchen exhausts, and a fresh air intake for the boiler – all on the lot line wall. Other than the fresh air intake, which he wasn’t certain of, he thought we’d have problems with the other items.

Those comments sent our architect scrambling to confirm what exactly was “up to code”. Mind you – we did get the plans approved, and the plans had an entire sheet showing clearly what we were doing on that lot line wall – you would think the plan examiner would have said something if they were real problems. Our architect dug through the code and talked to a few other architects and found 1) the code is contradictory and 2) experienced architects disagree… One camp of architects says we should assume the worst and do as little as possible with the lot line wall. The others say there are parts of the code that say at least some of what we’re doing is just fine, and most importantly the plans went through many months of review and were approved – so we should just go ahead and if we run into any problems we should ask for a reconsideration.

There are a number of factors in our favor if it came to a reconsideration. First, the building next to us is overbuilt. It won’t be torn down and rebuilt because the owner would need to replace it with a smaller building. Second, there is discussion of landmarking the block. That would also prevent the building being torn down and rebuilt. And even if it were torn down and rebuilt, zoning requires there to be a side yard / rear yard, so they can’t build to our lot line anyway. That means the alleyway is there for the foreseeable future. In fact it would probably be made even bigger if the building were rebuilt since the neighbor’s windows on it are not “legal windows” based on the current code.

As the plan examiner was stamping our plans he noticed that our bulkhead didn’t provide the 8 foot “side yard” that’s required on the roof (plan examiners do miss things – they’re human). So that’s one thing we know should be changed. We can either narrow the bulkhead or widen it to full width and provide a ladder over it. We’re going to make it wider to get even more light into the building. That requires at least one round of alterations to the approved plans. When we make that change we will also make some changes to how we’re using the lot line wall to be extra safe.

  • We’ll vent bathrooms up the plumbing wall and out the top of the bulkhead. Some parts of the code say we don’t need venting in the bathrooms, others say we need a small, 50 cpm fan. Since it’s relatively easy to do, we’ll err on the side of caution and vent through the roof.
  • We haven’t decided what we’ll do regarding the kitchen exhausts. Apparently we’re not required to have any exhausts since the kitchens are part of rooms that have proper ventilation (in the form of windows and doors). The rental kitchen can probably be vented up the plumbing wall, but our kitchen is rather far from the plumbing wall, so venting it would be a much bigger challenge. Yet that’s the kitchen we most want vented, so we still need to figure that out.
  • We’ll probably vent the dryers out the rear wall.

The one thing we don’t have to change is our plans for windows in the sidewall. Distance between our building and the next is about 4 feet with a few places being 3 1/2 feet. Because we’re over 3 feet and we’re “R-3” (a type of residential building), the new 2008 code says not only can we have windows on the sidewall, but they can cover up to 25% of the wall and do not need to be fire protected. That means we can keep our 4 small bathroom windows. They may not count as legal windows for light and air, but they will come in handy for everyday usage.

The moral of this story is that there are many things that could potentially be considered “wrong” with any townhouse that’s rehabilitated. For example the old brick walls don’t meet current seismic guidelines. The placement of the windows in the walls aren’t up to current code, etc… The list could go on and on. But there’s a practical side to it as well – there are somethings you just can’t fix without making the owner tear down the building completely and start over – that’s not desirable, so compromises are made. All we can hope for is inspectors who understand that perfection is impossible. And if that doesn’t happen, then there’s always the reconsideration process…

I’m just going to cross my fingers and hope for the best…

What It Costs To Just Own A Townhouse Shell

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As the months waiting for DOB approval have been clicking by we’ve been telling ourselves “it’s no problem, it doesn’t cost us much at this point”… Relative to what it will cost once we have the rehab loan, that’s true, but a couple days ago we added up the costs and were a little shocked at how much we’re actually spending on an empty building…

Taxes

Our taxes are relatively low… $3,441/year or $286.75/month.

It’s worth saying that we’re lucky we have low taxes. Some of the places we saw in our search were paying over $2,000 per month in taxes, though $3K to $6K per year is more typical for Harlem townhouses.

Assuming we get construction started before the end of the year, one trick I learned from a friend is that you can file the change of occupancy with DOF as soon as you start construction – you don’t have to wait for construction to be complete. That means our taxes will drop to the rate for 2 family before we’re done with construction, so next year they’ll be even lower and will go up more slowly than they do now.

The “Building Super”

The apartment building next to us has a bodega with rather messy customers. Unfortunately the prevailing wind drives their garbage down the block in front of our building. Also, by the time some of them walk past our building they’ve gotten their purchase out of it’s bag or wrapper and they throw what they don’t need in front of our building. We’re not on some brownstone-only block that’s relatively clean. As a result, it’s cheaper to pay someone $200/month to keep things clean than it is to pay the ECB tickets for garbage.

The first day we owned the building we went to it and there was a $100 ECB ticket waiting for us – the snow was melting and we got a ticket for the garbage that was in the melting snow. The City needs money and they’re pretty aggressive about ticketing for garbage.

Paying the $200/mo also helps build relationships with our neighbors. We went with the (self-appointed) super of the apartment building next to our townhouse (the building has a mostly-absentee landlord, so he approached the landlord and worked out a deal to watch over the building). He has a group of guys who watch that building and they now watch ours. Those eyes are worth something. We plan on continuing to use him even after we move in (though at lower rate).

Our Line Of Credit

We bought our place mostly with cash, but we took out money from a line of credit to make up the difference between what we had available and what we needed. Our accountant suggested taking out more than we needed since he was seeing lines of credit get reduced and didn’t want to see us in a position where we didn’t have access to cash. We took out $80K, and a fair amount of that is sitting in our checking account which means we’re paying interest on money we’re not really using… Luckily, the interest is low since it’s tied to the prime rate (lower than the rate we’d pay on a mortgage – and with a MUCH lower principle amount), so we’re just paying about $345/month in interest on the money.

Grand Total

So that means we’re spending about $835 per month on an empty building – not including all the architectural fees, permits, etc. for the actual rehab of the building. It’s not a huge amount, but it does add up. Still that’s a lot less expensive than getting something wrong and having costly delays and change orders during construction. I’m sure we’ll have some, but the fewer the better.