Feds boost NYC development

<span style="font-style: italic;">Stimulus funding for commercial projects comes in low, but still welcomed</span>

The Bloomberg Administration’s plan to kick-start commercial construction in New York City’s economically distressed areas was dealt a setback when federal financing for a new city program came in tens of millions of dollars lower than originally expected.

The city’s Economic Development Corporation is overseeing the Recovery Zone Facility Bond Program — part of the federal government’s stimulus plan — and is currently soliciting proposals from developers for a total of $121 million available in the form of triple-tax-exempt private-activity bonds for real estate development projects.

However, that figure is roughly $80 million less than what was unveiled when the program was announced in early June by EDC president Seth Pinsky.

The discrepancy, Pinsky said, is in part due to the original legislation, which was “opaque” on how the calculation for financing would be done.

“The fact that it came in at $120 million is disappointing,” he told The Real Deal during a phone interview last month. “But even $120 million is a very significant amount, especially in this environment.”

Regardless of the reduced sum, the program seems to be a welcome new mechanism for developers who have been struggling for nearly a year to drum up any financing to start commercial or industrial projects.

“Right now there is not a lot of financing around,” said Jay Neveloff, a partner at the firm Kramer Levin, who has consulted with a number of clients about the new bond program.

According to Neveloff, developers and their lawyers are still sifting through the fine print of the plan, weighing the transactional costs with the benefits of getting this type of financing.

“Any time you do a bond financing there are a certain amount of fixed costs and if [the financing] is big enough, it can justify the costs,” Neveloff said.

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Only commercial and industrial projects are eligible for the program, and they must be located in designated “recovery zones”— areas within the five boroughs experiencing acute economic distress. (The EDC took what it says was a “conservative” opinion of what constituted a recovery zone, making eligible vast swaths of Brooklyn, the Bronx and Queens, and, even portions of Manhattan.)

Projects must also be “shovel ready” and require bond financing between $20 and $100 million, meaning the program may cover only a small number of projects.

Around a dozen proposals have already been submitted to the EDC, the bulk of which are commercial projects, Pinsky said.

Final recommendations will be made in the fall, and all recommended projects will be subject to public hearings and then voted on by the city’s Industrial Development Agency board. Only then will the proposals be made public.

“Our goal is to encourage transformational projects that wouldn’t otherwise occur, which are spread across the city in the neighborhoods that are hurting the most,” Pinsky said.

The Recovery Zone Facility Bond Program is being likened by analysts to the Liberty Bonds program, which was prevalent in the rebuilding of Lower Manhattan after Sept. 11, 2001. But some have found that an unfortunate analogy.

Bettina Damiani of the watchdog group Good Jobs New York said the Liberty Bonds served only to escalate gentrification and line the pockets of larger financial firms, defeating the whole purpose of the program.

“I would hope that the Industrial Development Agency would have evolved, and recognized that the key is to use resources to diversify the economy and make efforts to create or expand industries that hire locally,” she said.

Jeremy Spector, a public finance attorney at Mintz Levin who has written about the program, expects projects that are more labor-intensive to have an advantage, as well as those that already have a portion of credit lined up.

“It is really beneficial to those companies that have access to credit, but if a company is struggling to get access to any credit at all, then the program is not going to be much help to them,” he said. “But I would think the line would be pretty long.”