The Iowa Finance Authority (IFA) and Federal Home Loan Bank of Des Moines have formed a unique partnership that will provide up to $50 million in variable-rate index bonds for multifamily developments throughout the state. The partnership is believed to be the first of its kind involving a housing finance agency.
Two projects with a total of 352 units have received about $11 million in funding as of late November, and other projects are being reviewed.
IFA officials estimate that 10 to 12 developments will receive funding through the bond program.
“We had been looking for better ways to finance some of the multifamily projects that come in for funding,” said Eric Chatman, CFO at the IFA.
IFA worked with the bank to develop a program that provides variable-rate bonds for low-interest permanent financing.
It’s a long-term funding source without the risks associated with traditional variable-rate demand obligations because the costs are lower and there are no liquidity or remarketing counterparties involved. Moody’s Investor Service has rated the program Aa3.
One of the big benefits is that the bonds can be issued for up to 30 years, which aligns with the financing terms of many affordable multifamily projects, said Chatman. Index bonds in other municipal sectors typically have maturities of three to five years.
The costs of working with the FHLBank will also be lower than other bond issuers, according to Chatman.
The bank is also willing to do the bonds on a taxable or tax-exempt basis. The program can be combined with 4 percent low-income housing tax credits.
For more information about IFA, visit www.iowafinanceauthority.gov.