A new financing vehicle that was unveiled last year by the city’s Economic Development Corporation will provide $26 million to Manhattan College to refinance debt it incurred building new facilities on its Bronx campus.
The loan facility, called Build NYC, which was created and is administered by the city’s EDC, allows non-profit groups to source capital from private sources through a tax exempt bond issuance.
The city doesn’t actually provide the funds that are offered through the facility. Rather, buyers of the bonds, which are either private individuals or financial institutions, put in the money. Because the proceeds on the investment are exempt from local, state and federal income taxes, those investors will generally accept a lower rate of return, which allows the vehicle in turn to offer the non-profit groups it services below market interest rates.
Manhattan College originally financed its construction project, in which it built dormitories, a research and education facility and a library, in 2000 via a tax exempt bond offering sourced through the state Dormitory Authority.
A spokesman for the EDC said that that the college was refinancing with Build NYC to take advantage of the current low interest rate environment.
“Their current rate is 5.5 percent and the Build NYC facility will allow them to refinance for rates between 2.5 percent and 2.9 percent,” the spokesman told The Commercial Observer.
The facility is the first time the city has been able to issue tax exempt financing since 2008, when a dispute in the State Legislature over whether the financing should be attached to prevailing wage requirements prevented its extension beyond a prearranged sunset period that year.
“After more than four years in which New York City non-profits faced significant barriers to obtaining low-cost financing today’s approval represents a critical step forward for this important sector,” Seth Pinsky, head of the EDC and Build NYC’s chairman, said in a statement. “We are pleased to provide assistance to this worthy project, and expect this to be the first of many projects assisted by Build NYC in the coming months.”
To tap lower cost funds in recent years, non-profit groups did deals with other state entities that could still arrange tax exempt financing such as the Dormitory Authority and also out of state providers such as the city of Phoenix, Arizona, which offers tax exempt financing nationally. But those facilities were either of limited scale or came with other costly approvals that ate into their savings.
“I wouldn’t say that Build NYC is better than the Dormitory [Authority financing],” Steve Polivy, an attorney Akerman Senterfitt who specializes in helping arrange development deals that utilize public incentives and financing, wrote in an email. “If the project is for a smaller institution, that does not have a public rating, or which is not being issued with the credit enhancement of a letter of credit or a bond insurance policy, the new Build NYC was set up to assist those entities with projects in NYC. Build NYC provides a less structured and less costly alternative for smaller transactions.”
In November when the Build NYC was first rolled out, Jonathan Gouveia, a senior vice president at the EDC and an official who has been involved in the creation of the new vehicle, said that the facility could help unclog $700 million of not-for-profit developments projects that stalled during the downturn.
“We have kept a tally here at the EDC of projects that were in search of these kinds of funds and it amounts to $700 million,” Mr. Gouveia said at the time. “And because this is only available now, we haven’t even been actively marketing it until recently. I have met with a number of institutions and banks and not-for-profit groups and many of them laugh at the $700 million. They say that’s the tip of the iceberg.”
The EDC spokesman said the Manhattan College financing deal would “be the first of many.”