Throughout Virginia, economically disadvantaged areas are becoming revitalized using enterprise zone real estate investment grants and historic rehabilitation tax credits. Today, I am going to walk you through the Virginia Enterprise Zone Real Property Investment Grant program. We will discuss the types of projects that are eligible for these grants and the grant application process. In part two of this blog series, I’ll discuss historic tax credits and how they can work in tandem with the Enterprise Zone Real Property Investment grants.

What is it and how do I qualify?

Anyone who has spent time in the areas of Manchester and Scott’s Addition in Richmond has probably seen a lot of growth over the past years. These areas are inside an enterprise zone and qualify for financial incentives from the State of Virginia – known as the Virginia Enterprise Zone Real Property Investment Grant. This incentive is designed to improve economically disadvantaged areas through the rehabilitation of commercial or mixed-use real estate or the construction of new commercial or mixed-use buildings.

Over the past several decades, it has become popular to turn older commercial buildings into residential housing. However, these grants are not available for strictly residential buildings, like apartment buildings. In order to qualify, there must be a commercial aspect to the building. For this program, a mixed-use building is defined as a building that has at least 30% usable square footage that is dedicated for commercial use.

When it comes to real estate, as it always does, location is key. The building must be located in an economically disadvantaged area, which is determined by the Virginia Department of Housing and Community Development, the overseeing agency for this program.

After the building qualifies by property type and location, the application process begins. The basic application package consists of the required application forms, the final placed in service documentation and a CPA’s Agreed-Upon Procedures Report.

The grant is calculated at 20% of the hard costs of construction up to a maximum grant of $100,000. If the project has total costs in excess of $5,000,000 – the grant is increased to $200,000. Appliances are not considered a qualified cost. Also - soft costs such as professional fees, real estate taxes or insurance are not qualified costs.

A threshold is applied in calculating the grant basis – this is $100,000 for a rehabilitation project and $500,000 for new construction.

Applying for a Grant

To take advantage of the state incentive, a locality has to offer local benefits. The two that I have seen the most are a real estate tax abatement, for a certain number of years, and the waiver of permit fees.

The Enterprise Zone designation is available for a 10-year period and there is a limited number available.

Enterprise Zone applications are submitted once a year to the Virginia Department of Housing and Community Development before April 1 following the year in which the final placed-in-service documentation is received. A final certificate of occupancy or final building inspection can serve as placed-in-service documentation. If the improvements do not require a permit, letter documentation can suffice but must meet certain requirements. It is important to note that an application will not be granted based on a temporary certificate of occupancy.

Application Checklist

1. Final Certificate of Occupancy or Final Building Inspection
2. Full Legal Name of Applicant Entity
3. Tax ID for the Applicant Entity
4. General Ledger for the applicant entity indicating that all costs have been capitalized
5. Final AIA pay application or Invoices for all qualifying costs noting trade
6. Payment evidence for qualifying costs (final lien waiver, cancelled checks, etc.)

Grant Timeline

The grant timeline is tight and meeting all deadlines is vital to receiving an approved application. There is an online submission system for the application, and there is a strict deadline of April 1^st. Late applications are not accepted.

If the Department of Housing and Community Development (DHCD) has any questions about your application, they will submit them to you by May 15^th and you’ll have until June 1^st to get them the responses.

Finally, the state will send out the awards letters and grant checks, usually by July 1^st.

In some cases, the grants are prorated and you may not receive 100% of the grant amount. To the extent that the total approved applications exceed the General Assembly appropriation, grants are prorated. For the last grant year (2020), applicants received slightly over 90% of their requests, although I have seen some years as low at 60% of the requested amount.

This is a wonderful grant program bringing real change to those disadvantaged areas and revitalizing the neighborhoods. If I or anyone at Brown Edwards can help you apply for an enterprise zone grant, please reach out to us.

Visit the Brown Edwards’ YouTube channel to watch my full presentation on Enterprise Zone Grants and Historic Tax Credits.