An HTC bridge advances capital against the future equity pay-in from the 20% federal Historic Tax Credit. Two dominant structures: master lease (the credits flow through a lessee tax-equity investor) and direct investment (single-tier). Bridge typically funds at construction start and takes out at placed-in-service date.
HTC bridge mechanics and the master-lease vs. single-tier choice
Tax credit programs change with IRS, Treasury, NPS, and CDFI Fund guidance. This page is sponsor-POV process commentary, not tax or legal advice. Engage tax counsel and a tax-credit syndicator for every transaction before relying on the mechanics described.
HTC basics: the federal Historic Tax Credit equals 20% of qualified rehabilitation expenditures (QRE) on a certified historic structure. The credit is taken ratably over 5 years starting the year the building is placed in service (after recent statutory changes from the prior single-year rule). The credit flows to whichever party is the owner or lessee for tax purposes.
Master-lease structure: the building owner (typically the sponsor's special-purpose entity) leases the building to a master-lessee SPE controlled by a tax-equity investor. The lessee elects to pass the credits through to itself under §50(d) regulations. The tax-equity investor takes the credits and any depreciation; cash flow returns to the owner net of the master lease payments.
Single-tier (direct investment) structure: the tax-equity investor takes a direct equity interest in the building owner SPE and earns the credits through that investment. Simpler than master lease but constrains the owner's flexibility because the tax-equity partner sits in the operating entity through the recapture period.
Bridge sizing: the HTC bridge is typically sized to the gap between cumulative construction draws and the expected tax-equity pay-in at placed-in-service. Tax-equity pay-ins on HTC deals concentrate heavily at placed-in-service date (one large payment) rather than tranches over time, so the bridge is more like a take-out loan than a traditional draw bridge.
Recapture risk: HTC carries a 5-year recapture period, if the qualified rehab is altered or the property changes use within the recapture window, a portion of the credits is recaptured. Bridge lenders typically do not bear recapture risk (the equity investor does), but indemnity language in the loan documents is important.
Senior debt layering: HTC bridges layer with senior construction or perm debt the same way LIHTC bridges layer with senior debt. The intercreditor between senior debt, HTC bridge, and HTC equity governs cash flow priority during recapture and other adverse events.
Sources
- Federal Historic Preservation Tax Incentives (Historic Tax Credit) · U.S. National Park Service, Technical Preservation Services · current
- Partnership Taxation: IRC Subchapter K (Form 1065 Instructions) · U.S. Internal Revenue Service · current