AKRON, OHIO -- Tax-exempt bond financing has helped the Akron Metropolitan Housing Authority (AMHA) jump-start an ambitious 221-unit development on the city's west side.

When the AMHA received a $20 million HOPE VI award for the redevelopment of the Edgewood neighborhood - an 11-acre public housing development originally built in 1942 - the authority planned to apply for 9 percent low-income housing tax credits (LIHTCs) to help finance the project.

But the AMHA was halfway done with another HOPE VI project, Cascade Village, and needed 9 percent LIHTCs to take that project to completion. The AMHA knew its chances of winning two 9 percent allocations were slim - the Ohio Housing Finance Authority no longer had a public housing set-aside, and the authority didn't want its projects competing against each other.

So, the AMHA applied for, and received, $11.25 million in tax-exempt bonds for the Edgewood redevelopment in the 2007 allocation round.

"On large projects like this, taxexempt bond financing is a very good tool, even though the issuance costs are high," said Tony O'Leary, executive director of the AMHA. "It's generally much easier to get the 4 percent credits, and in our case, it was the best way to go, because we knew we weren't going to get two 9 percent awards."

Red Capital Group structured and was the sole underwriter on the $11.25 million issue of private-activity bonds. The bonds were sold as fixed-rate bonds at par, or equal to face value, and priced to yield 4.25 percent. Ohio Capital Corporation for Housing syndicated the 4 percent tax credits. The Summit County Port Authority served as the bond issuer.

The bonds were cash-collateralized, with the HOPE VI money serving as the revenue stream on the bonds. Red Capital was able to eliminate any negative arbitrage on the deal. Negative arbitrate is the difference between the bond rate (or what is paid to the bondholders) and what is earned on the investment agreement.

"If we were to do a similar transaction today, that would not be the case," said Brad Cain, a vice president at Red Capital Markets, part of Red Capital Group. "Not too long after we closed, the interest rate environment really started to change. We were able to price and close this at a time that was most viable for the project."

Redeveloping Edgewood

Located near the city's central business district, as well as the Akron Zoological Park, the Edgewood neighborhood had fallen on difficult times since the late 1960s.

In 1968, the neighborhood played host to several riots fueled by racial tensions, and as factory jobs began drying up and working families moved to the suburbs, the once-strong homeownership community grew blighted.

But in recent years, the zoo underwent a $25 million renovation, a new library was built nearby, and a magnet school for the performing arts opened, as did a new elementary school. "The public housing that was still there was a drag on the neighborhood," said O'Leary.

The 65-year-old project "stuck out like a sore thumb" from the surrounding community, O'Leary said. One objective of the redevelopment's design was to blend the public housing in with market-rate units and surrounding residential areas.

The city of Akron helped by designating the area a Neighborhood Redevelopment Area and providing grants to area homeowners interested in fixing up their properties. The city also pitched in more than $1.7 million in HOME funds, and another $2.8 million in Community Development Block Grants.

In all, the Edgewood redevelopment will feature 172 rental units (mostly twoand three-bedroom units) and 49 homeownership units. Twenty of the homeownership units will be subsidized with HOPE VI money to make them more affordable to public housing-eligible residents, and the remainder will be sold at market rates.

The total cost of development will be about $56.8 million, and the project will proceed in five phases. The first phase, pegged for completion by December, will feature 80 townhouse rental units among 35 buildings, and will cost $15.5 million. Forty-nine of the units will operate as public housing, and the remaining will target those earning up to 60 percent of the area median income. The project is slated for completion in September 2011.