The New York City Capital Resource Corp. gave final approval Tuesday to the issuance of $19.7 million of recovery zone facility bonds for a Harlem hotel as it tries to get deals out the door before the program expires at the end of this year.
New York City aggressively promoted its RZFB program, but difficulties in getting deals done mean its $121 million allocation may not be fully utilized.
“By nature, these are very difficult deals to close because the recovery zone bonds are supposed to be given to the most marginal projects,” said CRC chairman Seth Pinsky. “We’ve had some disappointments with projects we hoped would move forward that weren’t able to.”
The CRC, the city’s chosen issuer for the private-activity bonds, has issued bonds for three deals totaling $31.5 million. The issuer selected nine projects totaling $133.7 million, but two of them dropped out — $28 million for Staten Island Terminal LLC to finance a cement facility and $2.2 million on behalf of MIST at Kalahari, a cultural center in Harlem.
Unless Congress extends the program created in the American Recovery and Reinvestment Act beyond 2010, or issuance ramps up dramatically, most of the $15 billion of private-activity bond volume cap allocated to municipalities nationwide will expire without being used on Dec. 31.
Nationally, issuers sold $56.3 million of RZFBs in 2009 and $996.1 million to date in 2010, according to Thomson Reuters. The largest deal to date has been the Illinois Finance Authority’s issuance last month of $135 million on behalf of Navistar International.
The CRC plans to issue $19.7 million of RZFBs on behalf of ESmith Legacy Harlem LLC, an affiliate of ESmith Legacy Inc. that plans to build a $74.6 million hotel and retail development on 125th Street in Manhattan in a private placement. The bonds are expected to be issued into escrow to meet the Dec. 31 deadline.
Urban Hayman LLC, a real estate investment fund, has agreed to provide up to $41 million of tax-exempt and taxable financing.
Vernon Marrow, chief operating officer and co-founder of ESmith Legacy, declined to answer questions about why the bonds would go into escrow or provide information about Urban Hayman.
The ESmith project will not be the CRC’s first RZFB deal to work with a financial firm that is not a familiar name in the municipal bond market.
A $3.3 million RZFB issue that partially financed a grocery store at the Arverne by the Sea development complex in Rockaway, Queens, was privately placed last month by Think Forward Financial Group LLC.
“We’re looking at the most marginal projects,” Pinsky said. “The purpose of this program was to help projects that otherwise wouldn’t go forward to go forward, and so when you’re dealing with difficult projects you may end up dealing with nontraditional players.”
The corporation also gave preliminary approval to $15 million of RZFBs on behalf of WytheHotel LLC, a company controlled by New York developer Two Trees Management Co. The company plans to use the bonds proceeds to build a hotel in the Williamsburg section of Brooklyn. Roosevelt & Cross will underwrite the bonds in a limited public offering.