HFA, Citi create $45M revolving loan fund to build affordable housing

Written by  //  March 1, 2012  //  Government  //  No comments

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Gov. Fortuño unveils details of the newly created housing financing fund, accompanied by Citi executives and cabinet members. (Credit: La Fortaleza)

The Puerto Rico Housing Finance Authority in partnership with Citi Community Capital, a department of Citigroup’s Municipal Securities Division, has created a $45 million revolving loan fund that will provide capital for the construction of for-sale single- and multifamily-homes for low and moderate income residents of Puerto Rico, government officials announced Thursday.

The Puerto Rico Community Development Fund, a subsidiary of the PRHFA, will utilize its 2009 New Markets Tax Credit allocation for the transaction.

The initial phase of the $45 million fund will finance the construction of close to 800 units of affordable and social-interest for-sale housing.

Assuming an average construction period of between 18 and 24 months, the revolving loan fund has the ability to be recycled more to four times, possibly leveraging the $45 million to provide more than $180 million in financing and up $225 million in total investment for the construction of over 3,000 for-sale housing units. That will have a catalytic effect on job creation and supply of affordable homes for low-income families.

The first housing developments to be financed will be located in San Juan, Bayamón, Juncos, Naguabo, and Santa Isabel.

Gov. Luis Fortuño and Citi North America CEO, Bill Mills announced the creation of the Puerto Rico Community Development Fund during a meeting held at La Fortaleza.

“As a result of this transaction, hundreds of Puerto Rican families will be able to realize their dream of owning their own home,” Fortuño said. “This is another example of the kind of constructive public-private partnership that has been a hallmark of our administration, and that can serve as a model for other jurisdictions throughout the nation.”

The fund's creation fills a void created by the lack of existing traditional financing sources in Puerto Rico's construction lending market. (Credit: © Mauricio Pascual)

Fortuño and Mills explained that this highly structured fund is the first financial structure of its kind created to meet the demand of Puerto Rico’s residents by supplying the capital to develop sustainable communities.

“We must invest more resources in the development of housing for low and moderate income families,” Fortuño said. “We have a great opportunity to build a future by investing in our people. By helping these low-income families, we are allowing them to focus on keeping a steady income to provide for their children.”

The PRHFA and Citi’s participation in the transaction has been arranged through a direct leveraged investment structure, with Citi serving as the tax credit equity investor and the Fund’s sole owner and the PRHFA serving as the Fund’s controlling entity and senior leverage lender.

Three-year process
“The PRHFA team has worked on this transaction for three long years,” said PRHFA Executive Director George Joyner. “To the best of our knowledge, the use of NMTC to create a revolving construction loan fund is unique for this program.”

PRHFA Executive Director George Joyner (Credit: © Mauricio Pascual)

“We hope this transaction serves as an example for other NMTC recipients, so they too will use their NMTC creatively and not accept the dictum ‘it has never been done’ as the final word on any challenge they may face,” he said.

The creation of the fund fills a void created by the lack of existing traditional financing sources in the construction lending market in Puerto Rico, they said.

This void has created a considerable pent up demand of approximately 10,000 for-sale units annually to low-income individuals, according to a study by Estudios Técnicos, an economic, marketing strategies and planning consulting firm

The fund’s activity will be targeted to disadvantaged communities of higher economic distress, namely those with poverty rates in excess of 30 percent and unemployment rates at least 1.5 times the national average.

CBO Financial acted as financial advisor to the PRHFA in securing the NMTC allocation, placing the equity, and structuring the fund.

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