The New York City Housing Development Corp. plans to boost the number of housing preservation deals it finances relative to new construction projects due to difficult market conditions, city officials said this week at a conference in Manhattan.
“We have a unique opportunity to focus on preservation,” New York City housing commissioner and HDC chairman Rafael Cestero said at the New York State Association for Affordable Housing’s annual conference. “Within every crisis, there is an opportunity.”
Preservation deals are easier to do these days in part because the risks inherent in refinancing and rehabilitating an existing building are less than those of building something new, said Richard Froehlich, HDC executive vice president for capital markets and general counsel.
“There are limited construction risks,” he said. “You don’t have the rent-up risk because usually these things are done to occupied properties, so right there you’re starting off with these strong advantages.”
Froehlich said they didn’t yet know what the new ratio of preservation deals compared to new construction would be. The agency expects its board to approve six to 10 new construction financings at its meeting next month.
“Right now about a quarter of our business is preservation and I think we’ll see a ramping up of that,” he said. “We believe that preservation is a good use of our resources today.”
The HDC is the financing vehicle for Mayor Michael Bloomberg’s New Housing Marketplace Plan, which is intended to build or preserve 165,000 units of affordable housing using a variety of programs by the end of 2013. Cestero said that the city was retooling the program.
The agency currently finances deals to preserve affordable housing built under the federal Mitchell-Lama program, as well as Section 8 housing for low-income residents and senior housing. Both the HDC and the New York State Housing Finance Agency are looking at refinancing multifamily housing in which the owners face financial difficulties.
“Projects that were over-leveraged or projects that need new financing, we’re definitely going to be taking a look at and trying to see what we can do.” Froehlich said. “It’s a question of resources. We don’t have unlimited resources, but we believe that we can play a role providing permanent financing for developments and making sure that there’s affordable housing.”
The HDC sold $1.21 billion of bonds last year, according to Thomson Reuters.
Affordable housing deals have been harder to get done in recent months due to the credit crunch, recession, and devaluation of low-income housing tax credits.
But deals are getting done — the first quarter of 2009 saw more housing bonds sold than any first quarter since 2005, according to Thomson. Even after the collapse of Lehman Brothers in September, more housing bonds were sold in New York in the fourth quarter than in the fourth quarter of 2007 — $751.3 million compared to $700.1 million.