The New York City Housing Development Corp. last week approved the first deal in the nation to use recycled private-activity bond volume cap.

HDC expects to price the recycled tax-exempt Series 2008 I housing revenue bonds this week at a par of $160 million. The bonds will be sold as convertible term rate bonds that reset on a fixed schedule. The first reset will be in May.

The bond proceeds will be used to provide mortgages for housing projects that the corporation expects to close in the first half of next year. As mortgages are made, the bonds will be remarketed and converted to another mode, which is likely to be variable-rate demand bonds. HDC has the flexibility to use the bond proceeds for mortgages on multiple projects.

JPMorgan will underwrite the bonds, which will mature in 2039 and UBS Financial Services Inc. will do retail distribution for part of the issue.

Recycling is a way for housing agencies to stretch their limited resource of bond volume cap and is permitted under the federal housing law that passed in July. It allows issuers to recapture private-activity bond volume cap that has been refunded or retired on multifamily housing, as had already been permitted for single-family housing. Recycled bonds don't include low-income housing tax credits, but the projects can be built using multiple funding sources.

"Over the coming four-year period, we will be in a position to recycle approximately $600 million of volume cap, allowing us to conserve new volume cap that comes with valuable tax credits," said HDC president Marc Jahr. "So you mix tax-exempt with credits, tax-exempt without credits so you come up with a good mixed structure - you mix and match to get what you need."

"We're very excited that they're able to use it. We lobbied quite intensively to get that provision," said John Murphy, executive director of the National Association of Local Housing Finance Agencies. NALHFA pushed for recycling after HDC initially approached them with the idea. Other housing finance agencies haven't used the recycling option because the market has been so difficult in recent months, he said. "I think we'll find a lot of communities using it when the market gets back in order," he said.

HDC expects the projects to include a mix of low-income, middle-income, and market-rate housing.

The corporation also approved $72.5 million of tax-exempt and $3.5 million of taxable bonds to finance the construction of a 419-unit low-income housing development in the Bronx called Bruckner by the Bridge. The project will be developed by the Atlantic Development Group.

HDC also approved $12 million of bonds to finance the construction of the Hewitt House Apartments in the Bronx. The project will create 83 units of low-income housing and is being developed by Hewitt Westchester LP, which is controlled by principals of the Arker Cos., a developer of low-income housing. HDC expects to provide a second mortgage for the project from its reserves in the amount of $4.6 million.

HDC chairman Shaun Donovan did not attend the meeting. Donovan, who is also the commissioner of the city department of Housing Preservation and Development, has taken a leave of absence to work on Sen. Barack Obama's presidential campaign.

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