September 25, 2019
By Janet Annan
SBA Technical Director, Partner Engineering & Science
Contributing Editor, C-Suite Tips Wednesday
Navigating SBA Requirements for National Register of Historic Places (NHRP) Sites
National historic sites are an attractive option for commercial real estate renovation and re-development. Older buildings, particularly in urban areas or previous industrial belts, are abundant and ripe for renewal compared to a tight market for undeveloped land or Class A properties. Creative businesses and companies needing flexible space allocation (such a brewery, for example) are all finding success re-purposing older buildings. These businesses often spark renewal and commercial revitalization in their communities. However, if you seek SBA loan approval for an older property that might be a protected historical site, there are some additional considerations you must take into account to ensure compliance and, ultimately, a successful deal.
In the case of national historic sites being purchased for renovation, an SBA loan transaction can be halted even prior to reaching the due diligence stage. Sites identified on the National Register of Historic Places (NHRP) aren’t always protected when financed by conventional loans. More often than not, there is no protection unless private parties get involved to prevent redevelopment that might significantly alter or damage it. However, if federal funding is involved, protection for the historical significance of the building becomes a loan consideration.
Section 106 of the National Historic Preservation Act mandates that Federal agencies undergo a review process for all federally funded projects that potentially impact sites listed or eligible to be listed on the NHRP. Because the SBA 504 Loan Program is considered a federal program, a Section 106 Review is required to ensure there is no adverse impact to the historic property in question. Listing on the NHRP provides formal recognition of a site’s historical, architectural, and/or archaeological significance. Most communities have historic properties which may trigger a Section 106 review. Furthermore, even if a building might not be individually named on the NRRP, if it is located in a historic district and an SBA 504 Loan is issued, the Section 106 rules still might apply.
The SBA continues to provide information in its guidance document SOP 50 10 5 (K), regarding loan disbursement on sites included on the National Register of Historic Places (NHRP).
To verify if your site of interest is on the NHRP, you can contact your local and/or State Historical Preservation Office (SHPO) or check the NHRP website for information. Please keep in mind if the property is on federal or Native American land, you will need to also verify with the Federal Preservation Office or Tribal Preservation Office.
For an SBA loan involving a property listed on the NHRP, the Certified Development Company (CDC) must consult the SBA counsel for guidance. If there is no potential to affect the historic property, there are no further obligations under Section 106. For example, if the proceeds of the loan are solely to purchase the property and no renovations or changes are anticipated, the SBA counsel may make the determination that no further Section 106 review is required. If the local SBA counsel does determine that the requested renovation activity will make any changes to the historic property, then the SBA is required to consult with the relevant State Historic Preservation Officer (“SHPO”) to determine if the use of the proceeds of the loan will have an adverse effect on the historic nature of the property. Because of the timing needed to undertake the review, it is important that the SBA and SHPO be brought into the process early to avoid unnecessary delays.
The SHPO has 30 days to respond to the SBA counsel before approval can be made on the loan. If it is determined that a negative impact will result on the intentions of the loan, the SBA and SHPO will attempt to find a solution via a memorandum between each party (SBA and SHPO). Finally, once a decision can be made, it must be signed off on by the Associate General Counsel for Litigation.
While this is actually a fairly straightforward process, we get several client calls per month asking for help. A knowledgeable SBA consultant can guide you through the process and help navigate necessary paperwork, contact information, and provide insight into questions regarding renovations and changes to the property. After your loan is approved, the consultant can also streamline the due diligence process, which is incredibly important for historical properties. This can include environmental concerns such as lead paint, asbestos, and site contamination; evaluation of physical building condition to help guide SBA-compliant renovation and help pinpoint what assets need upgrading; and construction risk management to help keep the renovation process on schedule and on budget.
An SBA 504 loan can help you make the most of your investment in your small business’s future. If that investment involves purchase and/or renovation of a national historic site, engage the help of a consultant familiar with SBA requirements to help you navigate through proper channels for streamlined approval and compliance.