Complex New York City Transaction Will Modernize 20,000 Units
By Caitlin Jones
4 min read
The New York City Housing Authority (NYCHA) has closed a complex, innovative housing bond transaction that will finance renovations and close operating deficits for a large chunk of public housing properties in its portfolio.
The deal, which closed in mid-March and took six months to complete, will generate approximately $400 million in public and private funds to fund the modernization of 21 aging public housing properties containing 20,139 units, and unlock $65 million per year in future federal dollars to subsidize future operating costs. Until now, NYCHA has covered annual operating deficits for the public housing units in these 21 properties without any dedicated federal, state, or city subsidies. Instead, it has tapped federal operating subsidies received for its other public housing projects.
The transaction required the participation of federal, state, and local governmental entities as well as private-sector players.
“Residents’ long term quality of life will be improved as dedicated funding and subsidies will result in improvements in building standards and conditions, as well as service enhancements into the future,” said NYCHA Chairman John Rhea.
Two Portfolios of Properties
In the transaction, the 21 public housing developments were split into two groups and sold to two limited liability companies created and managed by NYCHA. One portfolio contains 13 properties with 14,465 units of which 85% are expected to ultimately qualify for 4% federal low-income housing tax credits. Citi Community Capital, the equity investor in this portfolio, will provide $210 million in tax credit equity, as well as purchase more than $350 million in tax-exempt private activity bonds to be issued by the New York City Housing Development Corporation. The bond proceeds will fund acquisition and rehabilitation costs as well as provide bridge financing. All 14,465 units will be public housing or LIHTC units.
The second portfolio contains eight properties to be modernized containing 5,674 units, not receiving housing credits, which will mostly remain as public housing units. Funding sources for this portfolio will include proceeds from about $28 million in bonds and federal stimulus funds received under the American Reinvestment and Recovery Act of 2009 (ARRA).
Some 3,378 of the 20,139 apartments are occupied by residents holding tenant-based Section 8 vouchers, which the U.S. Department of Housing and Urban Development has agreed to eventually convert to project-based vouchers. This pledge enabled the issuance of additional bonds, backed by future revenues from the Section 8 units, to generate another $51.9 million in debt for the transaction.
In addition to the bond proceeds and tax credit equity, the transaction unlocked $108 million in federal ARRA dollars and $42 million in state modernization funds.
Operating Subsidies Unlocked
Keys to the transaction were an ARRA provision enabling NYCHA to qualify its unsubsidized public housing units for federal public housing operating subsidies, and state legislation permitting the sale of the 21 properties. Various waivers and approvals also had to be obtained from HUD.
HUD has executed agreements to enable NYCHA to collect federal public housing operating subsidies going forward à about $65 million per year à for 11,743 of the 20,139 units.
“It’s an enormous benefit for the State of New York and for the housing authority and for the residents because the transaction turns on all of these operating funds for these units,” said Denver tax attorney Wayne Hykan, a partner in the law firm of Ballard Spahr LLP, which represented NYCHA and worked on multiple aspects of the transaction. “And it was a unique provision in ARRA that allowed this turn-on of the subsidy as a one-time thing to occur.”
He added, “In addition to the operating subsidy, they were able to get hundreds of millions of dollars in money that can be used to modernize all of the 20,000 units.”
The 21 properties are 30 to 60 years old, and will be modernized by NYCHA. Renovations will include brick work, facade and roof repairs, elevator replacement, front and rear entrance renovations, and heating upgrades.
NYCHA’s entire portfolio includes 334 developments with 178,556 apartments.
