The New York City Capital Resource Corp. will consider its first recovery zone facility bond deals at its board meeting Tuesday.
The city received an allocation of $120 million of tax-exempt bonds under the program which was created under the American Recovery and Reinvestment Act to help finance projects in economically distressed areas. The issuer heard public testimony yesterday on the deals, the largest of which would be for the first phase of a mixed-use retail, commercial and housing development in downtown Brooklyn.
Albee Development LLC, made up of Acadia Realty Trust, MacFarlane Partners, P/A Associates, and Paul Travis of Washington Square Partners, is seeking to build a 40,000-square-foot, four-story retail development with $20 million of recovery zone facility bonds. The total cost is expected to be $26.4 million, according to an application filed with the CRC.
The developer expects to sell the bonds through either a public offering or a private placement in the first quarter of 2010, said Matthew Adler, vice president of acquisitions at MacFarlane Partners. The structure hasn’t been determined but will likely go out 30 years, he said.
Roosevelt & Cross Inc. is the underwriter and Hawkins Delafield & Wood LLP is bond counsel.
The retail and commercial portion of the project was originally expected to be financed privately and at faster pace. Now the first phase is expected to be completed in 2012, a second phase with housing in 2016, and future phases at time still be to determined.
“Economic times have changed so it’s going to be built out over time,” Adler said. “The market can’t support doing the overall project anymore.”
The credit crunch, recession, and real estate slump has made financing real estate projects more difficult.
The developer has been in talks with “junior box” stores and national and international apparel firms and hopes to announce tenants in near future, he said.
In 2007, the developers indicated they would seek tax-exempt bond financing for the housing portion of the project through the New York City Housing Development Corp. The HDC approved a nonbinding declaration of intent for $650 million tax-exempt bond financing for the development of 1,026 units of affordable and market rate rental housing at Albee Square.
Bonds for the housing portion — now expected to be closer to 750 units and built in phases —w ill probably come to market at the end of 2010 or the beginning of 2011.
The developer expects to seek additional tax-exempt bonds through the CRC for the up to 144,000 square feet of retail and commercial space in the next phase, which will begin construction in March 2011.
Despite increased retail vacancy in downtown Brooklyn and falling rents, there could still be a market for new space, said J.D. Parker, regional manager for the real estate investment firm Marcus & Millichap.
“There still is a market for high-end retail in Brooklyn,” he said.
Developers have built new condos in the area in recent years and although some are having trouble being filled at the moment, high-end retailers will come in to serve the new residents, according to Parker.
“The idea for the entire downtown area is to make it much more attractive for people to live in,” he said.
The project was controversial when first approved because the previous building on the site housed local merchants who were displaced when it was demolished in 2007. Albee Development has a lease to the land, which is owned by the city, through 2078.
The CRC will also consider bond financing for two projects in Rockaway, Queens. Arverne by the Sea is a community developed by Benjamin Development Co. and the Beechwood Organization. Arverne by the Sea LLC seeks to $5 million of recovery zone facility bonds to build a new supermarket and Benjamin Beechwood Retail LLC seeks $10 million to build a retail plaza.
ThinkForward Financial LLC is the underwriter and Winston & Strawn LLP is bond counsel for the two projects.