BRIDGE Housing has closed on a $23.1 million 501(c)(3) bond transaction that allows the affordable housing organization to access tax-exempt debt without a 4% low-income housing tax credit award.
The nonprofit developer and owner will use the funds to refinance and renovate its 184-unit Coronado Springs tower property in Seattle.
The deal comes at a time when Washington and several other states have recently seen more demand for private-activity bonds than supply. After not receiving a bond allocation amid the tough competition, BRIDGE decided to pivot and come up with a new plan. KeyBank members introduced the team to Align Finance Partners, which structured the 501(c)(3) transaction.
“As more states hit their bond caps, 501(c)(3) bond transactions will play an increasingly important role in the development and preservation of affordable housing,” says Steven Fayne, a principal at Align. “This execution provides nonprofits access to high-leverage, tax-exempt debt, and the potential to obtain a property tax exemption even if they are unable to obtain 4% tax credits and a bond allocation.”
A 501(c)(3) bond execution differs from the more common private-activity bond transaction used for affordable housing in several ways. One key difference is that with a 501(c)(3) bond, a developer does not need to apply for 4% credits and a private bond volume allocation.
Also, there’s not a rehab requirement that a developer would find in a 4% credit deal. Borrowers must be a 501(c)(3) nonprofit, according to Align, which served as the lender on the recent deal.
“This structure does not work for every transaction as tax credits are not awarded in connection with the bonds,” Fayne says. “However, borrowers are not subject to the same income limitations, rehab requirements, and compliance periods as a 4% deal. This makes the structure well suited for acq/rehabs and refinances in which the borrower is seeking greater flexibility and creativity in its business plan for the asset.”
The interest-only financing will allow BRIDGE to rehab the nine-story Coronado Springs tower building, which serves households earning no more than 50% and 60% of the area median income, says Alison Lorig, senior vice president, Pacific Northwest, for BRIDGE.
The development has a 15-year regulatory agreement on the project that is part of the recent execution, with the team essentially rolling forward the income restrictions that have been on the property, she says.
Work on the property will include reroofing and redoing the ventilation system. The plan also calls for upgrading the units and making internal improvements over time.
The bonds were issued by the Washington State Housing Finance Commission. BRIDGE also worked with the Kantor Taylor law firm.