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July 20, 2025 18 mins

Zach Westerfield is based in Forsyth Georgia where he specializes in renovating historic properties. The economics of these projects are impossible without the inclusion of either Federal or State tax credits that are confined to specific historic districts and properties that meet the historic designation criteria. This is a fascinating segment that is often overlooked. To connect with Zach, visit southvp.com

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Episode Transcript

Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:02):
Welcome to the Real Estate Espresso podcast, your morning
shot of what's new in the world of real estate investing.
I'm your host, Victor Minash. This is the WEEKEND edition
where we interview notable people from the world of real
estate investing. Today is no exception.
We have a great guest all the way from Forsyth, GA Welcome to
the show, Zach Westerfield. Hey Victor, thanks for having
me. Big fan of the podcast Listen
for many years. Great to have you here now.

(00:24):
Zach, you're in a unique segment, which we've not talked
about on this show ever in the close to 8 years that we've been
publishing the show. So it's a unique segment.
I'm excited to talk about it. But perhaps before we do, give a
little bit of your back story and how you got to this point in
your journey. Yeah, so as a military guy, Air
Force officer went to the Air Force Academy, where I met my

(00:47):
best friend and now business partner.
And we'll circle back around to where we're at now, but spent 10
years active duty, almost 11 years after the Academy,
traveling around the world, living around the world, got
into real estate investing back in 2016.
I'm engineer by trade, did 2° inengineering.
And after six years of engineering school, always been
super interested in finance. I was excited to study something

(01:09):
other than engineering. So I had the opportunity, my
first deployment to Afghanistan to, you know, at the time
thought I'm going to be a stock trader because that's, that's
investing about two months of that realized that's not
anywhere where I can compete. And that led down the rabbit
hole through bigger pockets in the real estate investing and
got back and within a month bought my first rental property.
Kind of started up the scale where a lot of people do buy in

(01:32):
single families doing the Burr method, really like that model
and got into flipping houses as well.
And eventually some small multi and then did some traditional
syndications initially on the LPside and did AGP, some
multifamily stuff kind of cash flowing already more stabilized
properties. And then 2000 when COVID hit and

(01:53):
it was very hard to find deals if you're going to if you're
syndicating multifamily, it was nearly impossible.
You know, we were getting cash offers way above where we could
even fathom offering properties.And then that's on the flip
side. The only properties I could find
were the worst ones out there. Nobody else would touch.
So always had been a history nutanyway.
So started doing some historic homes, you know, homes with

(02:15):
basements collapsed and massive rehab projects to flip houses
that kind of let us into our current sector.
I say us, my partner, he also isAir Force officer.
He did a six years in private equity world working for a
couple family offices in Dallas and Houston in 2021.
We've always stayed in contact. So we launched our current
company, Southern Venture Partners to be a real estate

(02:37):
investing company. Then Fast forward about that
same time, we kind of threw a mutual contact of ours, became
aware of these historic tax credit deals.
Basically, you know, we can get more to the details of what the
actual model is after we get to the intro, but it's like the
ultimate Burr. I'll just to tee it up, put it
that way. They're the ultimate Burr on a
commercial level and we built a lot of experience doing it said

(03:00):
really complex rehab. So it's kind of our step into
the development world. Did our first project, took it
full cycle. It was a success, sold state
credits, kept the federal credits, offset income and
decided that this is a niche that we really want to go full
bore into. So that's where our current
focus is. We currently operate and
secondary and tertiary markets. I'm located just on the South

(03:21):
metro side of Atlanta. So pretty advantageous market
both from the macro level of it's a growing area.
Atlanta is continuing, continuing to expand outward,
particularly in the southward direction.
So some great markets here just from a baseline investment
thesis. But then also the state of
Georgia is full of these historic deals, particularly in

(03:41):
these smaller markets. So that's where we're at now and
really love the model and tryingto push it forward.
Love it. Well, one of the things of
course about historic propertiesis so many of them are were not
built to a current building code.
And if you are undertaking any kind of improvement, you have

(04:03):
this tension between preserving the historic nature of the
property and building something that are delivering something
that's going to meet modern safety standards and building
codes. And sometimes that's impossible.
And then of course, there are things hidden that you can't see
that represent risk. To what an extent do the tax

(04:23):
credits offset that risk? Do they more than make up for
it? That's one of the reasons I
think a lot of people stay away from historic properties is
because of the that big variable.
Yeah. And to answer the question, I
think I first need to give a very brief explanation of a very
complex world of historic tax credits.
But so basically the way it works is you have what's called

(04:45):
qualified rehabilitation expenses or QR ES.
You submit your, the whole process is submitted through the
state Historic Preservation Commission office, which serves
as a gatekeeper to the federal government.
It's the Department of Interior,the National Park Service runs
the program for historic preservation and they're the
ones that ultimately approve your application and issue your

(05:06):
credits. So these QR ES are basically
anything related to rehabbing the property.
It's easier to say what they don't include.
They don't include utilities andsite work, non permanent stuff
like appliances. But in general, again quote in
general, most other expenses arecovered as a QRE.
Your credits on the federal sideare 20% of your QR ES on the

(05:29):
project. So if you spend $1,000,000 in
rehab, the qualified QR ES, you get a 20% federal credit for
that. And then there's about 30
something states that have matching state credit programs.
In the case of Georgia, they have a 25% credit for QR ES.
So if you total that up on $1,000,000 rehab, you have 45%

(05:50):
of that or 450,000 in combined credits and the state credits
are eligible be sold like paper and there's a very robust market
for those. So you can actually monetize
them and they trade typically anywhere from 85 to $0.92 on the
dollar. So if you're $250,000 state
credit, you can actually recoup,you know, 200 + 200 and you
know, something $1000 in investment.

(06:12):
And you know, the beautiful thing is that's not equity that
someone puts in that they're expecting back.
It's not a loan. Basically that money is is
coming from Uncle Sam. The way I like to say it is, you
know, an investor gives us a dollar and Uncle Sam gives it
back to him. So we don't have to give them
back their dollar. So to circle back to your
question, you're actually incentivized to spend as much as

(06:33):
possible in the rehab. And our basic underwriting, you
know, model starts a little bit differently than traditional
underwriting. We look at the end game of
right, what's our, what's our market rants, what's the
potential income of the building, how much, you know,
debt can we service on that? Because ultimately we do hold
these assets long term. That is the goal is to you know
have long term cash flowing assets.

(06:53):
So what's the most amount of debt we can put on there with
some conservative terms and in cash flow and that's our rehab
budget. So we're able to spend, you know
in these small markets. I mean, without the credits,
most of these projects aren't even viable and you know you get
on a current rehab is going to be somewhere.
The current project we're working on 2 to $2.4 million and

(07:17):
we're looking at nearly $1,000,000 in in tax credits,
you know, or tax credit equity produced.
You couldn't spend $2,000,000 inthis market and ever make it
close to pencil out. So just finally circle back to
your actual question. We're looking for the worst
properties possible because you don't get credits on the
purchase of the property. So the ideal property which is
like the one we have right now, it's in a downtown sector and I

(07:39):
did fail to mention requirementsare the property has to be
either a contributing property or in a contributing within a
historic zones or a nationally recognized federal historic
district. So that is a requirement.
And a lot of times these are in downtown areas.
A lot of those downtowns were built, you know, wall to wall.
So there really is very limited site work which doesn't qualify

(08:01):
for credits and you want the worst possible building that way
because if it's not there, you don't have to preserve it on the
historic side. So as far as building modern,
modern buildings, really what we're doing in the ideal case is
we're just using the outer shellof a building.
There needs to be enough left for it still to be contributing.
But in our current building, allwe used was the brick outside
walls and the one center brick wall.

(08:23):
We're basically building a brandnew building inside of it with
fully up to date everything, every utility fully code
compliant. It's like a brand new asset.
It just looks like an old building from the from the
outside. Very similar to the work that we
did in Philadelphia in some of these older neighborhoods where
we would literally demolish the inside of the building, keep the
historic facade and put a new building on the inside.

(08:45):
We did very, very similar work without the historic tax
credits, mind you, but but then we are also buying them for
pennies on the dollar as well. So what I'm hearing is if the
Main Street you're looking at could be the set of a a movie,
chances are good and if there's a historic designation on the
neighborhood and the property that it might qualify.

(09:06):
Pretty much, and it's pretty easy research.
There's a national database withall the districts and properties
on there. So it's a really quick National
Park research project to determine and it's it's not a
showstopper because we're in a Newtown that we actually have
already bought a our next project is in design phase
currently. They don't currently have a
National Historic district, but we are helping the town get that

(09:28):
established. There is a process to get it
registered. It is take several years.
We work with some third party specialist consultants to do
that process. It's basically writing a thesis
on the downtown. But thankfully this particular
area, the reason we're in this market other than, you know, the
macro level fundamentals is theyhave full archives, great

(09:49):
documentation, and they already have a state district, which is
kind of a leg up in that process.
So we bought a building in kind of at risk.
We got it super cheap, you know,$80,000 for a building, which is
why, another reason we like thismodel in these markets, we're
getting these buildings dirt cheap compared to the total cost
and we're helping the city get the district established.
And once that's established, it will be eligible for the

(10:10):
credits. Now, how many of these
properties are in fact on municipal services versus on
maybe detached services like well on septic?
Given that they're downtown, I mean pretty much all of them
that we either have already acquired looking at we have one
under contract or we have a listof of properties available.
You know, you do have your typical development due

(10:32):
diligence items that we always do before purchase, which they
usually are on municipal surfaces.
But given these are small towns,sometimes those are very
outdated, in some cases 100 years old and you know, just not
feasible. So that's, you know, the three
big show stoppers for us. You know, our utilities, parking
and zoning, we typically do haveto rezone.

(10:54):
You know, the benefit of doing what we love about this model is
the cities generally love us. In fact, after we finish our
first building, we have not really marketed for any more.
We have cities calling us saying, hey, we, we love our
downtown. We've got this public safety
hazard decrepit asset right in the middle of it.
Nobody wants to buy it. Can you please come help us?
So zoning so far has been prettysmooth.

(11:15):
You know, we had to rezone. We're three projects now and
it's all passed but flying colors because there's nothing
else you can do with the building.
I mean, nobody else is going to come in and put $2,000,000 in in
that building. And so they're very favorable.
But utilities are definitely show stopper because if they
don't have, you know, adequate utilities, there's you know,
you're not going to have the budget unless it's a very

(11:35):
simple, I mean, you know, as a developer, it's a, it's a very
big item to look into. So what is the end product that
you are targeting? Is this turning this historic
property into a mixed-use product with a retail and A and
a multifamily component? Is it detached single family?
What? What are you targeting as the
finished product? It's a mixed-use and that's

(11:57):
actually by several requirements.
First is part of the requirements in the historic
preservation rules is the first one third of the building has to
remain open. That generally lies more towards
commercial use. The buildings we're doing
generally have one or two commercial units up front at the
street level and then the rest of them are residential units.

(12:18):
And then a lot of the zoning in these areas does require some
level of commercial use. On the 1st floor, we're able to
typically put residential units in the back and then all the
upstairs. We like multi level buildings
for smaller footprint with more units because unit density
matters. To answer your question, we lean
heavily on the as far as a ratioheavy on the residential side.

(12:40):
Ultimately, we do kind of focus,you know, our, our company
focuses in residential real estate, but there are mixed-use
commercial units as well. Now when you're talking about
building multi unit and mixed-use commercial, my mind
immediately goes to fire separation because that's a
requirement under the under the building code.
And when I think about water supply to a building, I'm not

(13:02):
thinking domestic water use, I'mthinking fire suppression as the
limiting factor. So while there might be water,
there might not be sufficient flow to meet the fire
suppression requirements. How do you factor that?
How early in the process are youworking that out in your due
diligence? That that's part of our initial
due diligence before we even go under contract is talking with

(13:22):
the city saying, all right, what's your capacity here?
You know, can we get a will serve letter saying, and like
you mentioned, usually the residential supply is even if
it's old and dated, can can be adequate.
It's the fire suppression that gets you.
So that is, you know, we are looking for buildings that's
right up at the very first of the list is are we going to have
enough? We're going to have to sprinkle
the buildings as you said and we're going to have enough

(13:44):
capacity to support that. And there's been some buildings
that we've looked at that you know, in great areas, I mean
great markets and they didn't, they didn't have the water.
That's what killed the deal is didn't have water to put in fire
suppression. Amazing.
So let's talk a little bit aboutthe the tax credit process.
Are these following a specific quota?

(14:05):
What are some of the other pitfalls with the historic tax
credit process? Yeah.
So the way the process works is you submit several parts, they
call them different parts withinthe state and federal.
The federal calls it a part 1-2 and three, and the state of
Georgia calls it a part A&B. But they're basically equivalent
applications and you can in factjust copy and paste one and

(14:25):
submit the same thing to the state.
But the first part is an initialtermination, making sure it is a
viable project. And that is like I said, is it
in an either on the register individually listed or in a
national recognized historic district?
In the case of the state, it just has to be a state district.
But without we don't typically look for properties without that
extra 20% federal credit. So and then is it contributing?

(14:48):
So just because it's in a district doesn't mean it's
contributing. Quick examples why it might not
be if the facade was altered post period of history.
And I say period of history is 50 years before the
establishment of the district. And that's important because I
think a lot of people when you say historic preservation
thinking putting the building back to original state, it's for

(15:08):
the purposes of tax credits is actually what was done within
the period of history. So even if it was modified 60
years ago or 70 years ago, if that's within the period of
history that is considered historic, no or current project.
The I think the district was established in 19 or 1880,
sorry, 1985. So the period of history or
maybe 1990 because the period history is like 1940.

(15:30):
So once that that's kind of a quick just due diligence type
thing. Once that's complete, the second
is to actually submit your plans.
So do you have to go through your design phase, at least
through architectural design? They want to see and you submit
a whole photo package of dozens and dozens of pictures of the,
of the existing structure and, and all the features that are
there. And that's where they're going

(15:51):
to go through and look and say that's a historic feature.
Everything from trim to windows to wall coverings, every feature
of the building flooring. And they'll, they'll, and then
also, you see, submit existing conditions.
And then here's what we want to do.
We want to change this. And it's really a back and forth
and you go and it takes. So we, we use, utilize
consultants that have a lot of experience doing these

(16:13):
applications, that initial applications very important
because once it's approved, yourcredits are approved and
allocated. You don't get them until the
final part, which is Part 3, which is once you finish the
projects, you get, go back around, take photos, submit them
and basically say, Hey, we did what we said we're going to do.
You can now release our credits and we get our credits.
But that Part 2, or in the case of the state part A, that is the

(16:36):
really important part. And that's where when you write
that application, you want to bevery careful on how you write
it, not to hamstring yourself incase of if you want to, you
know, move a wall or whatever, you want to give yourself
flexibility because it is a, it is not a partial process.
As far as credits, they don't say, well, you only did 10% so
you get 10% of your credit. It it's all or none.
Either you met all our stipulations and you get your

(16:57):
credit or because of this one item, we don't, we didn't like
it and you wouldn't, you don't get your credit.
Wow. So there is a little bit of risk
there now when you're dealing with architects.
Some architects actually do specialize in historic
properties. You probably don't want to be
working with someone where this is their first rodeo.
Now I understand there's consultants that under, you

(17:18):
know, work with the process, buteven on the architectural side
and even structural for that matter, those would be areas
that I would imagine it's important to find the right
specialist. Absolutely.
In fact, across the board general contractors as well.
And I do want to circle back to GCS, but yeah, architects, we
work with a great one here in the state of Georgia.
He's done over 80 historic projects across the state.

(17:39):
They definitely have to have an intimate knowledge, everything
from floor plan layouts to like I said, finalize features and
trims and what the state is looking for.
From you mentioned the risk in an ideal world, you do your
design submit, you get your approval before you start
construction. So you're not really heavily
invested in the project till then.
There's no requirement. You don't have to do that.

(17:59):
You can go at risk people do it,but you're the risk is if you
have some feature that they agree with, you're going to have
to redo it to their compliance otherwise you don't get your
credits. Well, fascinating, Zach.
If folks want to connect, if they want to learn more, what's
the best way? Best way?
e-mail zach@svp.com. That's S victorpapa.com.

(18:20):
Terrific. Well, Zach, love what you're
doing. And for the listeners at home,
definitely connect with zachwesterfield@svp.com.
The links will be in the show notes.
And in the meantime, have an awesome rest of your weekend.
Go make some great things happen.
We'll talk to you again tomorrow.
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