By Jennifer Dockery, Assignment Editor, Novogradac & Company LLP
This article first appeared in the March 2012 issue of the Novogradac Journal of Tax Credits. © Novogradac & Company LLP 2012. All Rights Reserved.
In the fall of 2011, New York and New Jersey state housing finance agencies (HFAs) were granted permission to issue direct purchase bonds to finance affordable housing projects. The New York City Housing Development Corporation (NYCHDC) and New York State Housing Finance Agency (NYSHFA) received the permission via state legislation and the New Jersey Housing & Mortgage Finance Agency (NJHMFA) received the same authority via an NJHMFA board policy change. The change could mean big things for housing development in the two states, and so this month, we’re sitting down with Nixon Peabody Strategic Policy Advisor Deborah VanAmerongen to discuss how the change could affect affordable housing.
Why did the HFAs receive direct purchase authority?
Unlike other agencies in New York, NYCHDC and NYSHFA could only issue bonds that had been rated by a rating agency. As the New Issue Bond program (NIBP) drew to a close last year, affordable housing stakeholders searched for a way to finance some of the bond transactions that would not be able to close by the December 31, 2011 program deadline. “The desire for direct purchase came at a time when many people were saying, ‘What are we going to do with the NIBP ending?’” said VanAmerongen. Although the U.S. Department of the Treasury extended the NIBP, stakeholders still see the direct purchase authority as useful for affordable housing development. “The direct purchase option, when it is implemented, will just be another tool in [our] toolbox,” said VanAmerongen.
New Jersey, which did not use the NIBP to finance multifamily properties, hopes that the policy change will decrease the cost of tax-exempt bond (TEB) financing for multifamily developments and make it competitive with other financing options.
How have the HFAs reacted to the direct purchase authority?
At press time, the New York agencies were talking with financial institutions and developers about the best way to use the new authority. NYCHDC and NYSHFA are thinking long and hard about how they want to use direct purchase bonds, VanAmerongen said. The agencies have some concerns about what it would mean for banks and other financial institutions to underwrite the bonds. Would the underwriters be willing to commit to the 30-year mortgages that the HFAs typically provide? Would 15-year direct purchase bonds trigger another event for the property? Could bonds be beneficial for housing developed through the 80/20 program? “It’s really an evolving conversation still. Both agencies are open to the discussion … they’re just not there yet with the structure and type of transactions that make them comfortable,” said VanAmerongen.
New Jersey, on the other hand, has jumped into its direct purchase program and closed on its first transaction at the end of 2011. VanAmerongen said that NJHMFA had been out of the multifamily TEB market for at least a year. The direct issue bonds will make bond financing through the agency more competitive. “It’s going to have a dramatic impact. This is going to give them an opportunity to get back in the market. There really was not an execution available through the HFA for the past year, 18 months. This really puts them back in business,” VanAmerongen said.
What will the change mean for developers?
The direct issue bond financing will increase developers’ access to TEB financing. Typically, developers are able to get only one 9 percent low-income housing tax credit (LIHTC) multifamily development proposal before the HFAs each year. The direct purchase bonds could enable them to submit additional 4 percent LI- HTC developments to the HFAs and also present more than one proposal a year to the HFAs’ financing boards.
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