TAX-EXEMPT BONDS
Bond Demand On the Upswing
BY LIZ ENOCHS
AFFORDABLE HOUSING FINANCE • DECEMBER 2007
Demand for tax-exempt
bonds to finance multifamily
projects is on the
upswing, and will rise even
further in 2008, according
to industry observers.
State and local housing finance agencies
across the United States have allocated
more than $5 billion in tax-exempt
multifamily bonds so far this year, an
increase of 18 percent over last year’s
$4.25 billion, according to data gathered
by AFFORDABLE HOUSING FINANCE. Some
of the nation’s largest issuers said they
expect to see demand climb even further
in 2008.
"This is a gathering storm," said Wade
Norris, a partner with Eichner & Norris,
PLLC, a Washington, D.C.-based law firm,
and an expert on multifamily tax-exempt
bond finance. He expects more states to
start bumping up against their total volume
cap of tax-exempt bonds, and to
move to more competitive application
processes as a result.
The New York City Housing
Development Corp. (NYCHDC), for
instance, which is one of the biggest
issuers, had already allocated $320 million
in multifamily tax-exempt bonds by
June. At that point, the agency warned
state officials that it would not be able to
finance any further deals until January
unless its supply of volume cap was
replenished. Gov. Eliot Spitzer allocated
another $100 million to the agency the
following month, and as of late October,
NYCHDC said it had allocated $415.6 million
to 21 projects representing 2,844
units.
NYCHDC and the New York State
Housing Finance Agency (NYSHFA) this
fall were "talking about not allowing really
big deals," said Norris at AHF Live: The
Tax Credit Developers' Summit in
October, as he recounted discussions with
the agencies. "They’re under a lot of pressure
because [the big deals] suck up so
much volume so fast."
NYSHFA allocated $291 million in
carryforward volume cap this year in addition
to $322 million in 2007 volume cap,
and said it expects demand to remain
steep next year. "The demand is high
because the need to preserve and create
affordable housing in New York is great,"
the agency said.
The California Debt Limit Allocation
Committee (CDLAC), the nation’s largest
single allocator of tax-exempt bond
authority, doled out $1.2 billion in taxexempt
multifamily bonds to 104 projects
this year, which will fund 10,204 units.
That’s $100 million more than multifamily
projects received in 2006.
CDLAC expects to see even more
requests next year "due to both changes in
interest rates and a decrease in acquisition
costs," said the agency. "As requests for
allocation increase, it will become necessary
for every project to fully maximize
each point category. As a result, we may
see more projects with deeper rent affordability,
more service amenities, site amenities,
and so on."
Other states that allocate large
amounts of tax-exempt bonds for multifamily
projects will be more likely to move
to competitive allocation processes over
the next year or two, said Norris.
Ohio, which expects to set aside
$174.4 million in tax-exempt bonds this
year for multifamily projects, is already on
track to make such a move. At present, the
state’s volume cap is allocated by lottery.
The Ohio Department of Development
this fall said it was "establishing criteria
that will empower the director of the
Department of Development to prioritize
projects based on merit, rather than being
constrained by chance."
Factors the department is likely to
take into consideration include: preservation
of existing affordable housing, perunit
costs for rehabilitation, affordability,
energy efficiency, physical evaluation of
the property by government agencies,
time sensitivity of the project, and local
government support.
"Going forward over the next year or
two or three, if competing uses continue to
grow the way they are now, and we have
more demand for multifamily, prices for
land and buildings are coming down a little
bit, construction costs are attenuating,
I think we'll be in a more competitive
world," said Norris.
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