The 224-unit hollywoodHub reasonably priced apartment project in Portland, Oregon, will likely be partly funded by municipal bonds.
BRIDGE Housing Corp.
BRIDGE Housing Corp. has created a recent financing source for non-for-profit housing providers as the primary to issue publicly offered tax-exempt bonds to finance construction of a recent development.
The milestone was achieved when KeyBanc Capital Markets priced $70.7 million in tax-exempt multifamily housing revenue bonds Oct. 31 for BRIDGE through conduit Oregon Housing Community Services Department.
The bonds will help fund the 224-unit Hollywood Hub reasonably priced housing apartment community within the Hollywood district of Portland, Oregon, being constructed on a half-acre site being leased for 99 years from the Tri-County Metropolitan Transportation District of Oregon.
“We’re always searching for progressive financing to spur sustainable growth and advance our urgent mission to offer reasonably priced housing,” BRIDGE Housing President and CEO Ken Lombard said in an announcement. “We’re grateful to KeyBank for leading this pathbreaking bond sale, to our investors, and to our partners on this very vital project.”
BRIDGE is developing hollywoodHUB in collaboration with the Portland Housing Bureau and TriMet, the region’s public transportation operator.
Two-thirds of units will likely be reasonably priced for households earning 60% of Area Median Income, and one-third will accommodate households earning as much as 30% of AMI.
The project guarantees reasonably priced housing in a high-demand neighborhood with retail, grocery stores, healthcare facilities, schools, a big park and quick access to downtown Portland by light rail.
The 12-story residential tower will likely be built on the positioning of the Hollywood Transit Center, a hub for TriMet light rail and bus lines.
The project is certainly one of the biggest reasonably priced housing developments within the Portland metropolitan area, in response to BRIDGE.
The bonds were 4 times oversubscribed, in response to the finance team.
“The strong demand for the development bonds — from a few of the biggest institutional investors — attests to the credibility BRIDGE Housing has earned from many years of monetary stewardship and delivering on its mission to strengthen communities,” Sam Adams, managing director of reasonably priced housing for KeyBanc Capital Markets, said in an announcement.
The bond structure effectively lowered BRIDGE Housing’s borrowing costs to a set rate roughly 100 basis points, or one percentage point, below the federal government’s benchmark Secured Overnight Financing Rate, he said.
The bonds, with a 2048 maturity, carry 4% initial fixed-rate coupons, priced to yield 3.62% to the optional call date of April 1, 2028, with the bonds subject to mandatory tender and conversion between then and Jan. 1, 2029, in response to the official statement.
Tax-exempts for reasonably priced housing have historically been issued by rated government entities resembling housing authorities.
This system also taps low income housing tax credits and features a 4% LIHTC Declaration of Land Use Restrictive covenants, in response to the bond documents. Along with the revenue bonds, funding for the $135.7 million project also included a $41.4 million Portland Housing Bureau loan and $12.5 million in investor equity.
BRIDGE first received a standalone issuer credit standing in 2020 and later that 12 months issued its first debt, $100 million of general obligation taxable sustainability bonds.
“Inside the last 20 years, that is the primary nonprofit to ensure municipal bonds using a credit standing,” Adams said.
BRIDGE’s 2020 GOs were sold as corporate, not municipal, bonds, Adams said. That issue was used for predevelopment funding and equity for acquisitions, he said.
Having predevelopment funding gives BRIDGE a leg up in working on projects involving local governments, because a variety of developers haven’t got access to predevelopment funding, he said.
“The overall strategy has been quick and versatile short-term capital, which allows them to maneuver quickly. Then once the property is acquired and the development plan is in place, they will obtain long-term financing. That combination has been very effective within the space,” Adams said.
“BRIDGE has helped open the door for peers or similar entities,” Adams said. “They’ve shown there’s a path to achievement.”
Not-for-profit housing developers have tapped munis before, but primarily through direct bank lending, not by tapping the general public markets, said Jim Mather, BRIDGE’s chief investment officer and certainly one of its executive vice presidents.
“Most private activity bonds have been private placements — and most used a credit standing to go direct,” Mather said.
“We were the primary nonprofit developer to get a rating and to do it to issue a general obligation bonds in 2020,” Mather said. “We like pushing the industry forward. We’ve got been doing it for 20 years.”
A rendering of a typical area within the hollywoodHUB apartments, the primary wherein a developer supplied the credit for publicly offered tax-exempt debt.
BRIDGE Housing Corp.
Mather added that certainly one of his goals has been to get public housing developers into the capital markets.
BRIDGE created the model working with KeyBanc that is predicated off how large housing authorities tap the muni markets, Mather said.
“There are some nuances,” Mather said. “We’re cutting out the middleman. BRIDGE is the guarantor to muni investors.”
Investors are comfortable with BRIDGE, because they consider the investment-grade corporation a secure bet and so they are willing to offer access to a low price of capital since it has the dimensions and resources many nonprofit housing developers lack.
“It amounts to a considerably lower rate of interest,” Mather said.
The AA-minus S&P rating was based on BRIDGE because the guarantor to muni investors, Adams said.
Typically, rating agencies assign a rating on the low end of investment grade to anything involving construction risk, but since the evaluation was based on BRIDGE’s creditworthiness, it was capable of obtain the next investment grade rating, Adams said.
The savings from the low rate of interest debt “really helped make the project feasible,” Mather said. “The pricing on low interest tax credits has decreased, so the pricing wasn’t really were we thought it might be.”
The rate of interest savings was 200 basis points lower than what tapping conventional debt would have been, Mather said.
Other advantages to the structure beyond savings are that the bond proceeds get invested until the housing developer needs to attract on them, Mather said.
“We do not need the $71 million unexpectedly, so we’re capable of reinvest it and get a positive return,” he said.
The market in late October was also favorable, because tax-exempt ratios were low, Adams said.
Mather said the structure is something BRIDGE considers on a case-by-case basis.
“It isn’t like we’re going to run out and do a deal this fashion each time,” Mather said.
“Sometimes it’s just easier to do it the standard way, however the industry needs more tools in its toolbox,” Mather said, to cut back the reasonably priced housing shortage.
After BRIDGE issued its corporate GO in 2020, Mather said other nonprofits took notice, and started calling.
When rates of interest began going up, issuing muni debt wasn’t as attractive, but as they begin to say no, Mather believes more nonprofits will likely be excited by using the financial model.
“I feel we are going to see more nonprofits reach out, because there are a variety of deals getting toward closing which have gaps and want to shut them,” Adams said.
“Numerous the interest has to do with change within the rate of interest environment,” Mather said.
“Before, the juice wasn’t well worth the squeeze, but now it’s a reasonably meaningful advantage,” he said.
“One thing that helped is KeyBanc was a low interest tax credit investor within the project,” Mather said. “I do not know if it might have been as easy if there have been a special LITC investor. There was an alignment of interest.”
KeyBank Community Development Lending and Investment is providing nearly $62 million in Low Income Housing Tax Credit equity for hollywoodHUB and arranged everlasting financing with an $18.5 million private placement loan.
Adams added there’s a firewall between LITC investor segment of the bank and its investment bank, but KeyBank has done a structure where the tax credit investor and housing are different.
“As certainly one of the nation’s leading reasonably priced housing capital providers, KeyBank is delighted to support BRIDGE Housing by facilitating access to novel funding for hollywoodHUB,” Adams said.
The estimated project cost is $149.9 million, in response to the official statement for the bonds.
Caine Mitter & Associates Inc. was financial advisor. Orrick, Herrington & Sutcliffe was bond counsel and Kantor Taylor was borrower’s counsel. Underwriter’s counsel was Norris George & Ostrow PLLC.
BRIDGE Housing was founded in 1983. It has grown right into a current portfolio of greater than 14,000 apartments which might be home to greater than 30,000 residents in California, Oregon and Washington, with greater than 10,000 additional units in the event and acquisition pipelines. The organization says it now has $4 billion in assets within the three states.