SACRAMENTO, CALIF.—California officials and representatives of Citi have come up with an innovative plan to help jump-start construction lending for affordable housing projects in the state.
Under a $350 million program, Citi will be given an option to purchase general obligation bonds directly from the state, which would then provide proceeds to fund Department of Housing and Community Development (HCD) loans.
The move comes after many construction lenders have been unwilling to make loans based on an HCD loan commitment because of fears that the state money may not be a reliable source at the time of takeout.
The Citi deal provides a layer of assurance for construction lenders that funds will be available when projects are ready to receive permanent financing, says Steven Fayne, managing director at Citi Community Capital.
The option plan has never been done before, according to Fayne, who describes it as a creative solution to help affordable housing deals get moving. For Citi, the benefit is the “ability to do lending in the affordable space,” he says.
HCD administers a variety of housing programs, including the popular Multifamily Housing Program, that have been supported by Proposition 1, a $2.85 billion housing bond passed by voters in 2006. Prior to that, voters approved Proposition 46, a $2.1 billion housing bond, in 2002.
The state loans are often funded at the time a project has completed construction and converts to permanent financing. Construction lenders have historically been willing to make loans based on the state funds being in a project.
However, a weak bond market and state fiscal crisis have meant that California has largely been out of the bond business in the last few years. At the end of 2008, the state Department of Finance directed agencies to cease making any new contracts or obligations for projects that were funded from bonds, including Propositions 1C and 46.
Lenders became reluctant to provide construction loans to projects that had state commitments. This froze many new construction projects in the state, says Fayne.
It left the affordable housing industry in California looking for solutions.
Citi Community Capital is within the municipal securities group of the bank, so there is a lot of interaction with the public finance bankers, which helped in developing the bond option plan, according to Fayne.
The state Treasurer's Office and HCD then worked with the bank to craft the program.
Separately, the state Department of Finance issued a budget letter at the end of April that lifts a state bond freeze that had been in effect since December 2008.
The new letter allows HCD and other agencies to begin moving forward on new Notices for Funding Availability and commitments for projects that are funded by bonds, says Chris Westlake, deputy director at HCD. He notes that recent bond sales have been successful, and funding will now flow to previously awarded projects.
State officials say their intent is to have funds on hand to cover the HCD loans so the Citi option may never have to be exercised. The state may just go to the market to sell the bonds.
However, if that doesn't happen, Citi will be there as a standby.
Colorado awards LIHTCs
In other news, the Colorado Housing and Finance Authority (CHFA) reserved about $4.7 million in low-income housing tax credits to five projects in May. CHFA's Tax Credit Committee reviewed 15 applications requesting more than $15 million in credits in the recent first round.
Reservations were made to:
- Point of the Pines Gardens, an 89-unit assisted-living project being developed in Colorado Springs by MEJansen Development Co., LLC;
- Bluff Lake, a 92-unit project by Mercy Housing in the Stapleton masterplanned community in Denver;
- Dahlia Square, an 88-unit project by McDermott Properties in Denver's Park Hill neighborhood;
- Glenwood Family, a 56-unit project in Glenwood Springs by Archdiocesan Housing, Inc.; and
- Pikes Peak Senior, a 70-unit project in Colorado Springs by Hendricks Communities.