A look at the first floor of 21 S. Front St. in downtown Wilmington on Friday morning helped provide a current example of what developers and preservationists have said for decades – that embarking on a project to rehabilitate an historic building often comes with hidden costs.

"The first floor is completely gone. We're having to do a lot of structural to save the upstairs," said James Goodnight, the owner of the building, who is renovating the property to turn its top floors into a headquarters for Wilmington-based app developer Next Glass.

“We knew it would be some work. We didn’t think it would be everything. We were hoping we could patch some of the places where some of the moisture damage had been done,” said Brian Wallace, vice president of Raleigh-based York Properties, who works with Goodnight. Eventually, 4,500 square feet on the first floor will be leased to retail tenants, Wallace said.

Costs associated with the unexpected problems an historic property can have are one of the major reasons why, developers and officials say, the state’s historic preservation tax credits that expired at the end of last year need to be reinstated.

Wallace and Goodnight, who is the son of billionaire SAS founder Jim Goodnight and has undertaken similar projects in Raleigh, discussed the project and answered questions Friday during a tour of downtown Wilmington that highlighted local historic tax credit success stories, and needs, for Susan Kluttz, secretary of the N.C. Department of Cultural Resources.

In 24 other similar stops across the state, Kluttz has been advocating for the reinstatement of state historic preservation tax credits, which she and other state and local officials, along with property owners and developers, say are critical to save homes and businesses of historical significance.

In the case of 21 S. Front St., which was built around 1937, Next Glass will bring 40 jobs to downtown Wilmington when the company moves in.

“Next Glass is like a lot of young companies,” Goodnight told Kluttz and local officials Friday. “They want a hip, cool space in an urban area versus being stuck in an office park. There’s definitely a market for renovations.”

That market and others, along with the jobs they create, is another reason why, Kluttz said, the preservation tax credits must come back.  

“When [Gov. Pat McCrory] appointed me a little over two years ago, he made it very clear what I was to do in my job. I was to use the Department of Cultural Resources, which is a huge and diverse department, for economic development and job creation,” Kluttz said during a news conference after the tour. “And I can tell you I know of no better way that I can do that than to work for these credits, and they have been my focus since the first of the year.”

A grant program like the one that replaced tax credits for film projects in North Carolina won’t work for historic preservation, Kluttz said Friday.

“The banks don’t recognize them for financing. We would have to pick winners and losers if we gave out grants. We would have to decide who they would go to not knowing who would complete them or if we waited and promised the money afterwards, we would not know that a future legislature would have the money there in place,” she said.

Instead, her department has formed a coalition of groups that want the historic tax credits back, establishing a website, historictaxcredits.org. Additionally, her department has worked with other state officials to come up with a compromise plan that was introduced as a new bill in the N.C. House.

“Just yesterday, a compromise bill was also introduced in the Senate as well,” Kluttz said Friday. “The plan has lower percentages, it has caps on large projects. It has reduced residential and it is something that the governor feels the legislature can and should pass,” Kluttz said. “I’m here to ask for your help with that.”  

Introduced in the late 90s, the state credits have been used in 90 out of North Carolina’s 100 counties since then, the secretary said.

“We have seen $1.67 billion in private investment, and that’s what we need to continue,” she said.

During the trolley tour of downtown taken by Kluttz and city and county officials, Historic Wilmington Foundation director George Edwards pointed out an office building at 411 Chestnut St. as an example of a successful rehabilitation completed with the help of the state tax credits.

Edwards said the property had been condemned and was under threat of demolition before Matt Scharf bought it in 2007.

“By getting the credits, we were able to make the property financially feasible,” Scharf said. “We bought it for $200,000 through the Historic Wilmington Foundation and we spent $200,000 on renovations.”

The building, constructed in 1884, now holds six tenants and serves as a kind of incubator space for growing businesses, Scharf said.  

While federal historic preservation tax credits are still available to property owners, the 21 S. Front St. project will likely only qualify for state credits on the cost of work done before the end of 2014, Wallace said.

The credits, Goodnight said after the news conference Thursday, let “you go the extra mile in doing it right. It’s absolutely cheaper to build new than it is to rip out the entire floor and recreate it.”

At the start of the tour, Glenn Harbeck, director of planning, development and transportation for the city of Wilmington, said greenfield development is not always the best thing for communities dealing with traffic problems and other issues that can come along with sprawl.

“Historic preservation tax credits level the playing field. What they do is make restoration of historic properties a little bit more manageable,” Harbeck said. “I think we need to take advantage of our existing infrastructure, and historic preservation is a great way to do that.”

Officials said they are optimistic about the chances for reinstatment of the credits.

"It appears this is one of the few issues being tackled by the legislature that has support from both Republicans as well as Democrats," Wilmington mayor Bill Saffo said at the news conference Friday. "As it stands in the state of North Carolina, there is currently no [state] incentive for preservation. If the legislature does not correct this, we expect there to be dire consequences for Wilmington's tourism industry, the economy, the workforce and its unique historic nature."