New York state quietly stopped funding a key affordable housing program

UPDATED, Aug. 23, 5:03 p.m.: New York state quietly stopped funding housing projects under the 421a and Affordable New York programs with tax-exempt bonds, The Real Deal has learned, a decision that could make it harder for the city to meet its affordable housing goals.

A source close to the New York State Homes and Community Renewal agency, which oversees the issuance of tax-exempt bonds through the Housing Finance Agency, says it will not fund any more so-called “80/20 projects” (where a minority of the units are designated affordable) through the program until at least the end of 2018.

NYSHCR commissioner RuthAnne Visnauskas confirmed the change in direction. In a statement, she said that “since the launch of the governor’s unprecedented five-year 100,000 affordable unit housing plan, HFA has experienced increasing demand for tax-exempt bond financing. The state is allocated a limited amount of volume cap each year which it deploys in support of these projects.”

“HFA has decided at this time to allocate the vast majority of its volume cap to 100% affordable housing developments,” Visnauskas added. Mixed-income developments will remain eligible for taxable HFA bonds, she said.

Sources said the state has been preparing for the shift for several months and stopped funding 80/20 buildings around early July.

It wasn’t immediately clear whether the directive to no longer fund 80/20 projects through the tax-exempt program came directly from Gov. Cuomo. But it does appear to benefit his $20 billion affordable housing plan, unveiled in January, which calls for funding of 100-percent affordable housing (along with mixed-income housing) and aims to build or preserve 100,000 affordable apartments statewide over the next five years.  And it is likely to hurt the city’s 10-year plan to create or preserve 200,000 affordable housing units, which relies heavily on the type of mixed-income projects that are no longer eligible for tax-exempt financing.

A City Hall spokesperson denied that the change will have a negative impact. “This is an area where the City and State have collaborated closely,” she said. “We don’t foresee any adverse impact, and anticipate this will enable the City and State to stretch affordable housing resources further by ensuring projects are not being over-subsidized.”

Cuomo and Mayor Bill de Blasio have a notoriously toxic relationship, and the two have clashed publicly over the renewal of the 421a program.

HFA’s 80/20 program has pumped billions of dollars annually into New York City developments, according to industry sources. Since 2014, only the portion of a bond issuance that funds a project’s affordable units is tax-exempt. In other words: if a project where 20 percent of units are affordable issues $100 million in bonds, only around $20 million of those bonds are tax-exempt.

Recent developments that raised money through the program before it was put on hold include RFR Realty’s 810 Fulton Street, which secured $125 million in bonds in March, and GID Development and Henley Holding’s Waterline Square, where HFA bonds were a crucial part of a $2.3 billion financing package.

One top real estate finance source, speaking on condition of anonymity, said the change caught the industry by surprise and constitutes a “pretty significant economic hit” to mixed-income developments, not least because it comes a time when private construction financing is increasingly difficult to find.

“While frustrating, NYSHCR’s position reflects the fact that the demand for affordable housing far outstrips the supply of HFA bonds,” John Banks, president of the Real Estate Board of New York, said in a statement. “Tough decisions needed to be made. We are hoping over time that such bonds can be made available to support a wider array of affordable-housing developments.”

Alan Wiener, head of multifamily lending at Wells Fargo, said he met with Visnauskas, Banks and REBNY’s Jim Whelan in July to discuss the changes. He was more sanguine about the changes, arguing that the extended tax-abatement period under Affordable New York more than makes up for the loss of tax-exempt financing.

“I think it would be nice to have the bonds for the 20 percent,” he said. “But I think given the new 421a, that’s probably more important.”