DALLAS — An inner-city neighborhood once left behind by Houston's explosive urban sprawl will continue its comeback Tuesday with a $33.5 million sale of tax-increment revenue bonds.
The Midtown Redevelopment Authority, created in 1995 to revitalize a mixed-use neighborhood near downtown, will restructure its debt while financing a project known as the Super Block along the Metro light rail line on Main Street.
Under the new structure the authority will extend bond maturities to reduce maximum annual debt service in future years. The move is prompted by Harris County reaching its $58.9 million investment cap in the zone six years earlier than originally anticipated.
While the county's participation in the zone will end in 2019, the city of Houston, the Houston Independent School District and Houston Community College will continue to pledge revenues.
"If the county goes away early, we don't want to be tight on our coverage," said Drew Masterson, managing director at financial advisor First Southwest Co. "So we are shaving the debt service in those years that follow."
Since creation of the reinvestment zone, Midtown's taxable value has grown by $1.1 billion, providing the revenue base to support the bonds. The authority's success in growing the neighborhood's property value caused Harris County to reach its investment cap early, said Mathias Thibodeaux, who has served as executive director of the authority for eight years.
"It's amazing how much it's come back," said Thibodeaux. "It's growing tremendously, with a lot of young professionals and upscale apartments. It's a very happening part of town."
After the Nov. 19 pricing, the authority will have $79.5 million of bonds outstanding, with ratings of A-minus from Standard & Poor's and A3 from Moody's Investors Service. Fitch Ratings does not rate the debt.
Anderson Bynam is lead banker on the deal for senior manager Mesirow Financial Inc. With 22 years of public finance experience, Bynam joined Mesirow in 2012 from Citi, where was lead or co-lead banker on more than $12 billion of senior managed transactions for Texas issuers.
Co-managers are RBC Capital Markets, Cabrera Capital Markets, Rice Financial Products Co. and Siebert Brandford Shank & Co.
TKG & Associates is co-financial advisor with First Southwest, with Bracewell & Guiliani and Burney & Foreman as co-bond counsel.
Thibodeaux said he expects a strong response to the authority's debt.
"I've have had questions from wide variety of investors asking when we are going to issue more debt," he said. "They are going to pick up those bonds really quickly. I expect those bonds will be gone in two hours."
Refunding the Series 2003 and 2005 bonds to align debt service payments with pledged revenues is expected to cost the authority about 1.58% in net present value loss, according to Moody's.
"The restructuring recognizes that pledged revenues from Harris County will end prematurely given substantial growth in the zone and the county's maximum contribution of $58.9 million which is expected to occur in 2019 rather than the original 2025," wrote Moody's analyst Kristin Button.
While Moody's provided no outlook on its rating, Standard & Poor's provided a stable outlook.
"The stable outlook reflects Standard & Poor's opinion that debt service coverage will likely remain adequate and that management will likely prudently administer additional debt issuances," said S&P analyst Emmanuelle Lawrence. "We expect the property tax base to continue to diversify, further insulating the authority from any taxable value fluctuations. We do not expect to change the rating during the outlook's two-year period."
About $20 million of this week's bond proceeds will go toward redevelopment of an area known as the Midtown Super Block, a long strip of land between Travis and Main streets currently occupied by a strip shopping center.
The authority plans to swap the land under the strip center with Camden Property Trust in return for two properties at the northern end of the Super Block, where a park and a seven-story apartment complex will be built.
Camden already operates a 253-unit multifamily development in Midtown, Camden Travis Street that is 98% occupied.
Covering 770 acres between downtown Houston and the Texas Medical Center to the South, Midtown was the second neighborhood redevelopment zone in the city. With roots in the city's early days as an oil boomtown, the city was adopted by Vietnamese immigrants who built shops and restaurants, earning the name "Little Saigon."
After discovery of oil at Spindletop near Beaumont in 1901, Houston began its history as an oil industry hub. Many of the homes built for the Humble Oil & Refinery Co. in the Midtown area were large Victorian houses of up to 6,000 square feet.
After flourishing through the mid-1940s, Midtown began to decline into the 1980s and 1990s as a result of the sudden decline in oil production. After phenomenal growth, Houston's population grew less than 1% between 1980 and 1990. Midtown was the only district in the state of Texas to lose population during that time.
To bring the neighborhood back to life, Houston created one of the largest tax-increment reinvestment zones in the state. The Midtown Development Authority was also authorized by state legislation.
Since then, some of the historical buildings have been saved while the authority installed new lighting and improved the streetscapes in the area with parks and other features.
In the decade between 1990 and 2000 Midtown population grew 73% from 3,070 to 5,311. During that period about 2,200 multi-family units opened. As of 2012 Midtown has about 8,600 people, representing a 65% increase in a decade.
"What was a blighted area of town is now one of the fastest growing residential and retail neighborhoods in Houston," Thibodeaux said.