FOR IMMEDIATE RELEASE: JANUARY 6, 2011
When the Homewood Suites University City® broke ground in December 2010, it was a first to many people for many reasons. For the developer, Campus Apartments, it marks the company’s first hotel project. For the City of Philadelphia, it is the first recipient of an EnergyWorks loan for a green building. For University City, it will be the neighborhood’s first extended stay hotel. For the University of Pennsylvania, it's the first university-affiliated development project west of 41st Street, which was formerly the school's unofficial line of demarcation.
But for Klehr Harrison, it is familiar territory. The situation was complex, but the fundamentals were basic: combine public and private investment to secure the necessary financing to break ground before 2010 year-end, while achieving positive tax results and protecting the investors. The catch? It would take seven separate and distinct deals with five different investing bodies to make this happen. But by listening to the client’s needs, leveraging the firm’s deep tax and real estate finance expertise and remaining flexible, Klehr would find practical solutions to keep the project moving forward.
Financial market conditions during this time were less than favorable, and capital for a hotel project of this nature was not readily accessible. As a result of the economic climate, the project’s primary lender would only provide 50 percent of the project cost as opposed to the normal 70 – 80 percent. In order to proceed, the gap had to be closed, and tax credits were the answer. Klehr’s knowledge of the complex New Markets Tax Credit (NMTC) program was integral to the project’s viability. Klehr worked closely with Campus Apartments, U.S. Bancorp Community Development Corporation, Beneficial Bank, The Reinvestment Fund (TRF), Philadelphia Industrial Development Corporation (PIDC), a private investor and the Commonwealth of Pennsylvania to create unique lending and equity structures appropriate to the project’s needs, and by integrating these programs into the deal structure in a creative manner, the necessary financing was secured and closed on time. “While this transaction was challenging, leading it to market shows that with technical knowledge, patience and creativity, great things can be achieved,” stated Larry Arem of Klehr’s tax department.
To be successful, Klehr had to ensure favorable tax outcomes for the developer and the investors, given the particular requirements of the transaction. That involved listening carefully to each participant’s concerns and molding compromises when competing demands were made. This was in addition to protecting the tax benefits necessary to fund the project. “With so many parties involved, closing this deal was one of the most complicated processes we’ve ever been through,” stated David Adelman, President and CEO of Campus Apartments. “But for Klehr to be able to deliver these results, especially in today’s economic climate, was truly a testament to both the firm’s expertise and their business-driven approach to achieving results.”
While the New Markets Tax Credit program was the key to success for Homewood Suites University City, Klehr’s tax and real estate practices have been a “behind-the-scenes” lynchpin in the success of many high-profile development and adaptive reuse projects across the Philadelphia skyline through its work with another tax incentive program, the long-standing Historic Tax Credit (HTC). Countless landmark projects, including the Le Meridien, the former Strawbridge department store building, the Wharf at Rivertown in Chester, the Budd site, and various retail, office and apartment buildings in and around Philadelphia, have come to fruition by leveraging HTC investments with guidance from Klehr. Klehr also provides the land use expertise to shepherd these projects through a maze of local regulation. “Philadelphia’s ongoing renaissance in both hospitality and residential living can largely be attributed to the use of historic tax credits and collaboration between the public and private sector,” stated Carl Primavera, partner. “By connecting all the parties involved and acting as a liaison between government, lenders, developers and the community, every day we help bring about urban renewal and continued investment in our region.”