The New York City Housing Development Corp. will begin providing credit enhancement for certain housing preservation projects, the agency said yesterday at its monthly board meeting. It approved $16.9 million of bond financing for two projects that will use the corporation's credit enhancement during the construction period that will be subject to monitoring by HDC staff.
The approvals were among $339.5 million of bonds given the green light yesterday by the HDC's board to finance 14 projects that would create or preserve 2,590 apartments.
"In the current tight credit market there are substantial savings to projects of not carrying high letter of credit fees and an opportunity for HDC to charge its own credit enhancement fees of approximately 125 basis points a year during the construction period," said Richard Froelich, HDC executive vice president for capital markets and general counsel.
The construction monitoring will be similar to that done by the agency on preservation financings for affordable housing built under the Mitchell-Lama program and carried out by the corporation's asset management department, he said. The program will provide financing for projects with "limited rehabilitation budgets." The risks to the corporation are mitigated by the fact that the buildings are already occupied and because the owners already have substantial equity in the buildings, Froelich said.
the HDC finances projects either as standalones or as pooled financings through its open resolution. Typically, most of the projects are stand-alones but at yesterday's meeting only two financings - $25 million of bonds on behalf of the Related Cos. for a project called the Gateways Apartments and $30.5 million on behalf of an affiliate of the Richmond Group Development Corp. for project called Balton - were stand-alones while the remaining 12 projects were approved as pooled financings.
"The mix [of deals] is emblematic of the current state of the financial markets with the difficulty in arranging long-term credit enhancement, the thinning of the ranks of lenders, the increased cost of doing deals is driving projects into our open resolution ," said HDC president Marc Jahr.
He said that letters of credit are two to three times more expensive than they were 18 months ago while the value of federal low income housing tax credits has fallen by about 25%.
"The terms being exacted both by LC and equity providers are far more stringent, indeed more punishing than they've been in more than a decade," he said.
Jahr said that HDC staff and developers have told him that it has "never been more difficult to finance deals and deals that have been painstakingly assembled from a range of financing sources have never seemed more fragile. Nothing can be taken for granted as debt and equity providers pull in different directions, making new demands on borrowers and threatening to unravel carefully crafted financial structures."
The projects approved yesterday use $210 million of private-activity bond volume cap, $50 million of recycled bond volume cap and will require approval by the state division of budget for an additional $100 million of volume cap. They also use $90 million of loans from the HDC's corporate reserves and $140 million of state, local and federal subsidies.
The agency expects to price the bonds on June 17 with a one day retail order period followed by institutional pricing on June 18.
