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BREAKING NEWS
The Force Behind N.Y.C.'s Renewed HDC
Bond Buyer
Ted Phillips
In just three years, the New York City Housing Development Corp. has gone from a scandal-ridden agency to a model of innovation and the nation's leading issuer of multifamily housing bonds, finishing its biggest year of financing in its 35-year history.
The woman behind the change is Emily Youssouf, who called upon 25 years of private sector experience, to run the affordable housing agency like a financial institution when she was appointed as HDC president in 2003. “They didn't need anybody political in this job; they needed someone who could run and create a mortgage bank. And that's what I've done since I've been here”, who started her career in housing as an analyst at Standard & Poor's and then as a banker at Merrill Lynch & Co. HDC was in trouble when she took over.
Her predecessor, Russell Harding, was sentenced in 2005 to five years in prison for embezzling $400,000 from the agency and possessing child pornography. The agency is now the linchpin of Mayor Michael Bloomberg's New Housing Marketplace plan to build or preserve 165,000 units of affordable housing in 10 years. “She has taken an agency that was plagued with problems and reenergized”, Bloomberg spokesman Stu Loeser said in an e-mail. “The mayor is proud to have Emily and her staff working on his team”
Like a mortgage bank, the agency now has a credit department and credit committee that signs off on projects before they get done. Youssouf also started a group that meets weekly to do early intervention when needed on projects that are becoming delinquent or not passing inspection.
“The mission I was given was to unlock HDC's abilities and use its leverage, and produce as much affordable housing as possible, so we use a lot of the techniques I've learned over the years”, Youssouf, who gave her age as early 50s.
The agency offers developers access to tax-exempt bonds and inexpensive second mortgages in return for reserving a portion of the housing as affordable. The second mortgage program, which began since Youssouf took over, taps into corporate reserves built up from fees collected by the agency. The affordable portion of the housing must be set aside for low- to moderate-income tenants for a period that generally lasts 30 years.
In addition to its 80/20 mixed-income program that provides inexpensive financing to developers who build a project with 20% of the apartments reserved for low-income tenants and 80% at market rate, HDC now has a 50/30/20 program that includes 30% of middle-income housing, cutting down the market rate portion to 50%.
The agency has received proposals for projects in 2007 seeking more than a billion dollars of financing, she said. The high volume of bonds they issue has meant that each year, the agency has to go to the Legislature to get its debt cap -- currently at $6.25 billion -- raised.
“Our biggest concern every year is how much in volume cap can we issue for affordable housing”, Youssouf said.
Earlier this month the agency announced it would end 2006 having provided $1.8 billion -- through loans and bond proceeds -- to finance the construction or preservation of more than 9,000 affordable apartments. The agency has this year issued $1.51 billion of bonds -- which is more than five times the $285.3 million of debt it sold in 2000, according Thomson Financial data. From 2004 to 2006, the agency has issued $4.18 billion of bonds compared to $2.13 billion in the previous three years, according to Thomson. Ninety-five, or nearly half, of the 200 HDC's bond issues in the past 10 years have been done in the past three years.
Youssouf didn't start out in finance. She earned her undergraduate degree at Wagner College in Staten Island in 1973 where she studied sociology and art history. Her first employer out of school didn't live up to expectation. “I got a job doing fundraising for the Boy Scouts of America, and I said 'oh my God, what am I doing?', she said.
She said the idea of going to law school or business school seemed like selling out, so she instead studied urban affairs and policy analysis at the New School for Social Research, earning a masters degree.
After a year of working at the state Assembly on the Ways and Means Committee, she began her career in housing as an analyst at Standard & Poor's in 1979. “The most important thing about being at Standard & Poor's is you learned a discipline on how to analyze transactions”, she said. At the rating agency, she learned how to read legal documents and understand cash flows, credit risk, and how to analyze local economies. “It's a great background as far as being able to assess risk and what can impact housing anywhere in the country”, she said.
While she was at Standard and Poor's, she caught the notice of Judd Levy, who was then the head of Merrill Lynch's housing finance department. “I was very impressed with her presence, which in the investment banking world is very important”, Levy said. He hired her in 1982. “When you're going to go from being an analyst at S&P to hit the road and try to bring in clients you need to have a strong presence ... that, combined with her knowledge of the material, I thought would be a powerful combination, and she was an extremely successful banker when she worked for me at Merrill Lynch.”
Levy, who is now president and chief executive of the affordable housing financing firm Community Development Trust, said he was particularly impressed by one of Youssouf's deals in the early 1980s. At the time, Youssouf was the senior banker on a transaction for the Maine State Housing Authority. Shortly after they mailed the preliminary official statement she had told Levy she had made a contact at a bank in Minneapolis that would give a letter of credit to the authority allowing them to do a put bond that would save the agency a lot of money. Levy recalled telling her it was impossible given the time they had to close the transaction. Surely, he thought, it would take months to negotiate with the bank and the agency and come up with the new structure and complete all the legal work. “Youssouf pulled it off in about two weeks”, he said. “She made me look like a fool because there was no way anybody could get it done, and she got it done”, Levy said.
From municipal housing she moved into asset-backed securities before leaving Merrill Lynch in 1989 to work at Prudential Securities where she created the firm's first credit card securitization. After three years, she moved on to the Japanese banking firm Daiwa Securities America and then to Credit Suisse First Boston in 1994, where she worked as director of the principal transactions group overseeing a staff of 10. Before being headhunted to run HDC, she was president of Natlis Settlements LLC, a boutique financial firm that she said wasn't successful and that she left when it moved to Texas.
Although she was born in Brooklyn, she grew up in the shadow of New York City in Marlboro, N.J., as a first generation American. Her father had come to the United States from Cyprus in 1929, just in time for the Great Depression. He sold chestnuts and apples on a street corner before serving in the Navy in World War II. During the war, he met the woman who would become her mother, an Italian immigrant who grew up in the United States.
Her father's life was a Horatio Alger story: A man with no education who worked in diners until he could buy hot dog stand, which he later built into a restaurant and motel.
“I worked in that restaurant as a waitress; cleaning tables from the time I was 10 years old”. Youssouf said. ”I got the work ethic from the family, that's for sure. I learned quickly how hard it was to make a dollar.”
(c) 2006 The Bond Buyer and SourceMedia, Inc. All rights reserved.
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Friday, December 29, 2006
GO Zone, slow zone?
By Bill Bowden , Staff writer
Greater Baton Rouge Business Report
Posted: 11.21.06 - 04:12 PM
The Gulf Opportunity Zone Act was supposed to spur construction in Louisiana after the 2005 hurricanes, but so far few commercial buildings are coming out of the ground.
There are two reasons for that: construction costs have jumped at least 30% since Hurricane Katrina, and the financial incentive of the tax-exempt bonds isn't as good as initially thought, says Mark Madderra, a commissioner with the Louisiana Housing Finance Agency.
The bonds were touted as providing a savings of about 1.5% to 2% on overall financing. Madderra, who is also a New Orleans mortgage broker, says the savings is more like 75 basis points to 1.5%. Because of the upfront costs, a bond issue would have to be for at least $10 million to make the project economically feasible.
"A deal has to make sense economically first," Madderra says. "If a project doesn't make sense, the bonds won't make it work."
Madderra says most of the people who have applied for GO Zone bonds in Louisiana would have done those construction projects even if the bonds weren't available.
"The bonds just offset that higher cost," he says.
The numbers
As of Nov. 17, the state had received 63 requests for a total of $2.4 billion of the $7.8 billion GO Zone bond money that's available. Of that amount, 25 requests have been approved statewide amounting to $678 million in allocated bonds. Two requests have been approved for East Baton Rouge Parish, for a total of $35 million.
"That's a pretty good number," Whitman J. Kling, director of the State Bond Commission, says of the statewide stats. "The authorization is less than a year old."
But only $165 million of that amount has been issued in bonds, according to state records.
Stephanie Ferry, senior vice president of public finance at Morgan Keegan & Co., a leading underwriter of municipal bonds, says that's because the bonds have to be backed by private financial institutions, and many people don't have that backing lined out before applying for the bonds.
Applicants have to get a bank to write a letter of credit or get an underwriter to market the bonds. If the company wasn't successful before the hurricanes, has no collateral or can't get insurance, it could be difficult to get financial backing for a bond issue.
"In the end, [a bank] is on the hook for it," Ferry says. "It's no different than doing a deal with your bank, but instead of using your bank's internal pot of money, you're using the market."
"The biggest factor we have to understand is it's a loan, and it has to make good credit sense," says Brian Andrews, president of Andrews Commercial Mortgage of Baton Rouge. "This is not a government give-away program. There is not a big pool of money that can be doled out."
The federal government is just taking less of a percentage in taxes than it normally would, he says.
Kling says more than $165 million may have been issued. Lawyers for the financial institutions are supposed to notify the state when the bonds are issued, and they may be dragging their feet.
"If they haven't lined up a letter of credit or an underwriter by the time they come to us, they've made a huge mistake," Kling says.
That's because applicants have only four months to market the bonds after getting approval from the bond commission. Kling says they should do that before applying for the GO Zone bonds, but Ferry says that's just not happening. "A lot of it is that they just weren't credit-worthy projects to begin with."
Other snags
Ferry says there are other snags in the GO Zone legislation.
- The bond issue must be for at least $3 million to make it economically feasible (Kling says $5 million, and Madderra says $10 million). It costs about $40,000 to issue tax-exempt debt.
- GO Zone bonds have to be used for an active, existing business, not a shell corporation.
- GO Zone bonds can't be used for investment property unless the investor is a real estate professional.
- People believe it's more complicated than getting a regular bank loan. Even with larger projects, developers sometimes get "sticker shock" when they see upfront costs of a bond issue.
"The devil's in the details," Ferry says. "We saw a flurry of activity in the beginning, but I think that was because those projects were already on the drawing board."
Ferry says some of those projects already on the drawing board may have been "marginal," but the GO Zone bonds provided extra financial incentive to get them under way.
But some developers don't believe the GO Zone bonds work even for larger projects in the $10 million to $15 million range.
"We have not found that it offered a real incentive to go do any of the things that we're working on," says Camm Morton, president and CEO of Commercial Properties Development Corp. in Baton Rouge. "Particularly when you're doing development, we haven't found that it works for us. The bankers tell us it works."
Morton says the GO Zone route may work better for $100 million projects.
"There's a lot of upfront costs in selling bonds, doing legal work and that sort of stuff."
GO Zone
The GO Zone Act was passed by Congress and signed by the president in December 2005. It authorized Louisiana to issue about $7.8 billion in tax-exempt private activity bonds in 37 parishes designated as the GO Zone. The bond money could be used to finance the acquisition, construction and renovation or rehabilitation of commercial property, qualified low-income residential rental housing and public utility property.
GO Zone bonds are exempt from both federal and state income taxes and also exempt from inclusion in the federal Alternative Minimum Tax.
Ferry says GO Zone legislation doesn't really help small businesses that need loans less than $3 million.
"Mom and pop who had a $200,000 or $300,000 can't really use it," Ferry says. "It's a shame."
That's why the state adopted Act 41 of the 2006 First Extraordinary Session, which provides $70 million to help small business owners in the state, but so far, that legislation hasn't been funded, Kling says. Act 41 would provide loan guarantees or credit enhancements to qualified small businesses for up to 50% of the loan amount made under the GO Zone Act.
Some financial institutions have put together pooled loan programs that allow borrowers to share the costs of a bond issue with other borrowers.
The GO Zone Act also allows businesses to take a 50% bonus depreciation in the first year for buildings and new equipment.
But if a business owner does that, they can't do the bond issue. It's one or the other, according to the law.
Ferry says, most of the time, the bond issue is the better deal.
But a developer can do conventional financing for a project and still take the GO Zone bonus depreciation.
All bonds must be recommended by the Louisiana Department of Economic Development and approved by the governor and the State Bond Commission, and issued by Jan. 1, 2011.
$165 million in GO Zone bonds issued so far.
Urban Redevelopment Continues to Define Itself
The urban redevelopment and “new urbanism” movements are changing the look and character of many western towns and cities, incorporating ideas of bygone days with modern and innovative techniques — and surprising many as the genre continues to define itself.
A story from yesterday’s Denver Post reports that many of the Front Range’s smaller towns, and even a few of the nearby mountain towns, are incorporating big-city ideas into downtown planning. A walkable downtown with a mix of commercial and residential buildings isn’t just the trend in Denver, but in Boulder, Golden, Fort Collins, Loveland, and Buena Vista as well.
Planners and developers attribute the shift to a change in demographics as well as a new acceptance of such urban models.
And the trend isn’t just found in cities and towns that want a makeover, but in former industrial sites as well. Brownfields aren’t new, and have been transforming former polluted industrial sites within cities for years, but recently, the idea has extended to sites outside of town, that could be incorporated into an area’s growth management plan.
The Salt Lake Tribune reports today about a former Superfund site that is being remade into another walkable, mixed-use, “new urbanism” community, with condos, offices and retail space. The 446-acre Midvale slag site in south-central Salt Lake Valley poisoned a nearby community with arsenic several decades ago and reduced property values to, in some cases, $1. But now, the site offers a new idea and renewed interest in the area.
Such transformations don’t happen by themselves. They take vigilant planning by city and county officials, but also a community of entrepreneurs willing to take a chance on a growing trend. In Headwaters New, columnist Daniel Kemmis writes about the need for such entrepreneurs, as well as the other players and factors necessary for these kinds of urban redevelopment projects to happen and be successful.
By Headwaters News, 8-28-06
Housing That Means Freedom
David S. Broder
Washington Post
August 6, 2006
CHICAGO -- What I saw here on a recent summer weekend was a sight I never imagined. I am not referring to two-year-old Millennium Park, the stunning mixture of greenery and architecture that has been built over the old railroad yards east of Michigan Avenue. I am talking about another of Mayor Richard M. Daley's legacies, the mixed-income townhouse and apartment developments south and west of the Loop that have replaced those 16-story monuments to drugs, despair and degradation that were the landmarks of Chicago's public housing for 50 years.
Those projects -- with notorious names such as Cabrini-Green and Ida B. Wells -- constituted a wall of separation in the city, a barrier that blocked the black ghetto from the Lake Michigan shoreline, where affluent whites lived.
The windows of those gray concrete towers were often shattered by gunfire, and the elevators reeked of urine and drugs. Women with babies feared the gangs that "owned" the buildings.
Now, except for a handful of relics awaiting demolition, those emblems of the misguided urban planning of the 1950s are gone. In their place you have two-story apartment buildings, air-conditioned, brightly painted, with units fully carpeted, modern kitchens, and washing machines and dryers.
More remarkable, any given building will likely contain identical units -- some public housing, some subsidized, affordable rentals, and some market-rate rentals or owner-occupied. And you can't tell which is which.
On a recent weekend, I visited three of the new neighborhoods with Terry Peterson, the chief executive of the Chicago Housing Authority. Peterson, a former alderman who is built like a linebacker and has a linebacker mentality when it comes to bulldozing the bureaucracy, had described the change to me when he was in Washington, testifying to Congress. But I would not have believed it if I hadn't seen the new homes and neighborhoods myself -- and talked with some of the people whose lives have been remade by the change in their living conditions.
At Oakwood Shores, one of the new developments, residents Sandra Young and Bernard Lloyd told me that they and other longtime public housing residents had guided the developers on what they wanted in their new buildings -- and they helped recruit other families.
In Oakwood and in several other developments, the residents themselves demanded drug tests for all families.
Clean buildings are one thing, but what makes a neighborhood are the amenities -- parks, schools, recreation facilities, police and fire protection. All of them have been supplied by Daley as part of the 1999 agreement that gave him control of the housing agency, so troubled in the past it had been taken over by the feds. Daley cut the deal directly with Bill Clinton, who overrode the objections of Housing and Urban Development Secretary Andrew Cuomo.
Daley told me that his father, the longtime mayor, was opposed to the high-rise construction from the start, but the design was imposed on the city. Be that as it may, the son is justly proud of having created a much more humane design. He and Peterson are convinced -- along with many scholars of the culture of poverty -- that people learn by example. Living among people who go to work every day and seek to improve their families' lives rubs off on welfare recipients.
Already, 174 families that were living in subsidized or public housing units have saved enough to make down payments to purchase their own units. As of last month, the completed mixed-income projects included almost 2,000 units of public housing, almost 1,500 market-rate and 725 affordable housing units. Occupancy rates for all three are at a peak, and no wonder, when one sees the Montessori preschool the city has opened in one neighborhood, the University of Chicago-run charter school in another and the brand-new recreation center -- with an indoor pool and an outdoor water park, a huge gym and day-care center -- in a third.
Daley and Peterson say that HUD has been cheering them on since George W. Bush became president. But Bush has let the HOPE VI housing program, which provided much of the outside capital for Daley's initiative, lapse, and he has been trying to get rid of the Community Development Block Grant program, which also has been vital to Chicago's success.
One measure of that success is that the city's investment of $242 million in mixed-income housing has triggered more than $1 billion of private and outside public financing.
For me, a more important measure came when Bernard Lloyd said that people in the projects "used to feel completely cut off from the rest of Chicago. Now you have the freedom to go where you want to go. I go jogging on Promontory Point" -- a landmark on the Lake Michigan waterfront. "I never even thought of doing that before."