The California Housing Finance Agency tapped into a 12-year-old federal bond recycling program for the first time in July.
MUFG Union Bank purchased $36 million, $24 million in new volume cap bonds and $12 million in recycled volume cap bonds July 29 at a 3.56% interest rate on bonds maturing on Feb. 1, 2024 in a privately-placed deal, according to CalHFA.
A zero interest credit line from tech giant Apple helped pay off debt issued for Hookston Senior Apartments, freeing up capacity to issue the recycled bonds for Redwood Apartments, an apartment project in Santa Rosa that will create 96 units of affordable housing. The area lost thousands of apartment units in the 2017 Tubbs Fire.
“Working alongside Apple, we looked at California’s housing landscape — the dangerously low affordable housing supply and the rising cost to build while state and federal resources get increasingly scarce — and endeavored to address that issue,” Tia Boatman Patterson, CalHFA’s executive director, said in a statement. “Bond recycling provides an additional resource to help finance affordable housing for struggling California families.”
The credit line from Apple enabled CalHFA to pay off the bonds for Hookston without tapping a line of credit, which would have incurred financing costs.
Apple’s program worked with California Gov. Gavin Newsom, the state and community-based organizations to craft how the money would be used.
Newsom said at the time that Apple’s financial commitment was unparalleled and he encouraged other corporations to do the same given that the sky-high cost of housing is defining the quality of life in the state, and the only solution is to build more housing.
The so-called bond recycling capability created under the 2008 federal legislation allows states to use allocations from previous year caps, if they pay off the debt on existing bonds and issue the new bonds in tandem. The switch in funding from the old project to the new one has to be done in tandem. The new bonds must be issued within five months after the old bonds are paid off.
This is California's first time using the program though New York, New York City, Colorado and Massachusetts have used it before, said Francesc Martí, CalHFA’s director of legislation and policy.
California found itself in the position of hitting the federal cap for private activity bonds for the first time in 2019, so state officials needed to find new ways to meet demand for affordable housing funding. The state has an affordable housing crisis and has ramped up efforts to provide housing for homeless people as their numbers surged in the years following the 2008 economic crisis.
CalHFA has been working in conjunction with State Treasurer Fiona Ma and her office of California Debt Limit Allocation Committee on the bond recycling program. CDLAC determines how the state’s private activity bonding capacity will be used.
The $4.1 billion in private activity bonding capacity California was allowed last year by the federal government was three times oversubscribed, Martí said. Massachusetts and New York also expected to see demand for their PABs to exceed the cap.
CalHFA borrows money in the tax-exempt municipal bond market to fund mortgages for first-time homebuyers as well as multifamily housing. The housing agency said it is actively working to expand its bond recycling program and looking to partner with lenders, developers and local governments to find projects that could use recycled bonds as a financing source.
CalHFA, created in 1975, has helped more than 201,000 low and moderate income homebuyers with $32.6 billion in first mortgages and used $6.1 billion in financing to construct and preserve more than 70,000 affordable rental housing units throughout the state.
