Wanted: housing developers

Multifamily bonds

Tax-exempt bonds can be excellent investment tools for developers. Similar to other government bonds, they are attractive to investors because of their relative safety as compared to stocks and because they are exempt from some income taxes.

The Housing Commission's Multifamily Bond program provides below-market financing (based on tax exemption of bond interest) for developers willing to set aside a portion of rental units as affordable housing. The issuer of the bonds is the San Diego Housing Authority. The Housing Commission's role in bond financing is to make recommendations to the Housing Authority regarding projects that should be financed and to work with the project's financing team to facilitate the bond issuance process.

As of December 2004, nearly $545 million in bond financing has been allocated, providing permanent financing for 9,200 multifamily rental units in the City of San Diego - of which 4,316 are restricted at various levels of affordability.

Issuance of bonds requires a minimum "A" rating, which is often achieved by obtaining a "credit enhancement" offered by participating financial institutions that underwrite the project loans and guarantee the repayment of bonds.

Bond financing in San Diego is comprised of the following four steps:

• Bond Inducement (establishes "official intent")
• Public "TEFRA" hearing and initial approval (held by the Housing Authority)
• Bond allocation (application filed with California Debt Limit Allocation Committee)
• Final bond financing approval (final Housing Authority resolution authorizing bonds)

The California Debt Limit Allocation Committee (CDLAC) generally accepts applications for bond financing two to three times each year ("funding rounds") and typically receives more applications than funding available.

For further information regarding the Multifamily Bond Program, call Peter Armstrong, 619.578.7556.