NEW YORK CITY—A major deal has been struck to bring much needed capital to rehab 20,139 units in 21 public housing developments in New York City.
The effort also provides ongoing federal operating subsidies for 11,743 of the units.
The complex deal, which uses public and private funds, is likely one of the nation’s largest affordable housing transactions.
The Department of Housing and Urban Development (HUD) on Monday gave the go-ahead for the New York City Housing Authority (NYCHA) to use $108 million that it had received from HUD through the American Recovery and Reinvestment Act of 2009. HUD awarded 3,400 public housing authorities nearly $3 billion in recovery funds to make capital improvements to their public housing. New York received $423 million of this funding.
In February, HUD approved a plan for NYCHA to enter into two mixed-finance transactions that call for the New York Housing Development Corp. to issue bonds on the private market to raise capital that will be combined with the federal funding to rehab the apartments.
Under the plan, Citigroup will provide $576 million by buying $366 million in tax-exempt bonds and spending about $210 million to purchase low-income housing tax credits (LIHTCs), according to reports.
“This is a unique, highly structured transaction designed to take advantage of an opportunity presented by the American Reinvestment and Recovery Act,” said Richard Gerwitz, managing director at Citi. “Public housing units are being transferred to a newly created special purpose entity where Citi is the sole investor and primary lender, $366 million in privately purchased bonds and $210 million in LIHTC equity. Because all of the private-activity bonds couldn't be allocated in one year, we entered into forward purchase contracts to acquire bonds in 2010 and 2011, in addition to the $150 million we bought today. Those contracts have specific purchase prices and spreads, locking in the projects’ cost of acquisition and rehabilitation funding.”
The result provides substantial benefits to NYCHA and the residents of these projects—$300 million of needed rehabilitation work and $60 million a year in additional operating subsidy from HUD for at least 20 years, Gerwitz added.
The apartments were built between 1949 and 1978, using city and state obligation bonds. For almost a decade, these units were owned, managed, and maintained by the housing authority without operating funds from the city or the state. In 1995, HUD allowed NYCHA to bring the 21 developments into its public housing portfolio, which allowed the local agency to use federal subsidies to maintain the housing. However, the arrangement was draining resources that are allocated to maintain the city’s original public housing units.
In 2008, HUD approved a request to convert 8,400 of the 20,139 former state units from public housing to the housing choice voucher program or for non-dwelling use. Under the arrangement, beginning in 2011, the approximately 11,700 remaining units will be eligible to receive HUD operating subsidies. HUD estimates that the housing authority will receive between $65 million and $75 million more in operating subsidies to maintain these apartments. NYCHA received about $991 million in operating funding in 2009.