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Seattle YWCA Does Innovative Bond Deal

BY DONNA KIMURA

AFFORDABLE HOUSING FINANCE • April 2008

SEATTLE -- The YWCA of Seattle, King County, and Snohomish County has a long history of providing affordable housing but knew it had to do more. The group owned about 400 units and wanted to grow to about 1,000 as it looked at expanding its efforts a few years ago.

"Affordable housing is in short supply," said Sue Sherbrooke, CEO of the YWCA in Seattle. "If we were going to make a dent in the problem of family homelessness, we were going to need to work with homeless families and provide a place for them to go once they stabilize their lives."

Good intentions only go so far however. What's needed is financing.

Nonprofits using traditional sources of funding often cannot respond fast enough to tie down and preserve properties that are affordable or acquire land for new construction.

Sellers aren't going to sit around for two years to wait for a group to get its financing together, Sherbrooke said. And, meanwhile, real estate prices continue to rise.

The YWCA needed a financing strategy that would allow it to put together cash quickly, acquire buildings with fairly short-term money, and then over time "bring in public funding sources."

The organization and Seattle- Northwest Securities Corp. (SNW), an investment banking firm, came up with a creative solution that other communities may replicate.

Cynthia Parker, senior vice president at SNW, used a two-series financing mechanism, featuring both junior and senior bonds. This financing allowed the YWCA to purchase three buildings and add more than 200 units to its portfolio. It is the largest affordable housing purchase in Snohomish County. Other buyers were considering acquiring the properties for market-rate housing. The acquired properties are Victorian Woods, Somerset Village, and Wear to Live.

The $28 million bond deal closed last year and was recently recognized as The Bond Buyer deal of the year for the far west region.

A partnership was created with the YWCA and four Puget Sound housing authorities-Everett, King County, Seattle, and Snohomish County. This joint powers agreement was established in an effort to help making issuing bonds and buying affordable housing properties easier across the entire region, according to Parker.

On the senior series, the Everett Housing Authority issued the bonds. The $13.5 million bonds are repaid on a fixedrate basis and are backed by a pledge from Snohomish County's new contingent loan program, which can be used by other affordable housing developers.

The junior debt was designed to be more patient capital, according to Parker. This $15 million bond is set up as a residual receipt note over 12 years, so it is paid back only to the extent there is available cash flow. The King County Housing Authority was the issuer.

The junior bond is important because it gives the YWCA time to bring in low-income housing tax credit equity or other funds into the deal.

The two-series structure also provides the YWCA the certainty of a 30- year fixed rate on the senior permanent debt and flexible terms on the junior debt, said Parker.

"The benefit to us is it's getting us to scale more quickly than we could have," Sherbrooke said. "And, from a mission standpoint, we're housing families that need it."

Legal costs associated with the transaction were partially subsidized through Appleseed, a national nonprofit association of attorneys. Local law firms Foster Pepper, PLLC; Davis Wright Tremaine, LLP; and Kantor Taylor McCarthy, P.C., provided their services.