- How the muni market can aid the shortfalls and needs
- Exploring workforce housing deals
- What is the federal government's role?
- Federal transit-oriented development financing: TIFIA and Railroad Rehabilitation and Improvement Financing loans for real estate developments near transit stations
Transcription:
Justin Cooper (00:09):
Mark and I were already on a panel this morning, by the way, where he was in the audience and asked a bunch of tough questions. So it's payback time.
Mark Price (00:17):
Yeah, I set myself up.
Justin Cooper (00:18):
Yep, you really did. So I'll start with a softball. How is your state New York using the capital markets to address the housing shortage?
Mark Price (00:29):
Thanks for the question. I really appreciate that. So New York State homes and community renewal, I fully understand flubbing the name I tell most people. I work for New York State Housing just to make it easier, but under the HCR umbrella we have HFA, so the Housing Finance Agency through which we fund and finance multifamily affordable housing projects across the state. And then under Sunny Mae, the state of New York Mortgage Agency, we finance single family transactions where we are purchasing mortgages from our corresponding lending banks who are making those mortgages to first time home buyers of certain income levels in target areas of the state. So through the capital markets, mainly through bond issuance for both of those agencies is how we are addressing what we call the entire housing spectrum. If you take a look at New York state and you go back maybe a decade, you had creation of around 2 million jobs in the state, but when you look at the housing production, the housing production was maybe a fifth of that, right?
(01:57):
So that's a big shortage. And so our mission at HCR is to build, preserve, protect affordable housing and increase home ownership across the state. So we do look at it as a spectrum. Obviously on the multifamily rental side, that's very important for low income individuals to have a roof over their heads. But in terms of moving on into home ownership on the single family side, we are about trying to put product out there that gets people into home ownership and all the wealth creation that comes with that. I'll stop there for now. I'm sure there are other questions,
Justin Cooper (02:39):
But there's a sort of missing piece there, and this is the way it was explained to me years ago. The idea was you kind of graduate through the low income area and then maybe you'd take advantage of some first time home buyer program. But at this point in a lot of states, certainly in our state, people that makes 80 a hundred, 120, 140% of AMI can't necessarily afford to buy a home. So we have this in the Bay Area, we think of it as the Tracy problem, people that live two hours away in Tracy and are commuting two hours a day to work in Silicon Valley or whatever. So let's hear from some others about how we're addressing that and I think the capital markets are a big part of that. Maybe Mitch, maybe you could talk about that. And also I think you have a slide about how many, just where the bond market is going.
Mitch Gallo (03:29):
Sure. No, happy to speak to that. And is the slide up or oops, it's not.
Justin Cooper (03:36):
It'll appear at some point.
Mitch Gallo (03:38):
I can speak through it. No, I mean you've hit on a couple very important things there. One of which is just housing volume. And then the other is reaching those who need affordable housing irrespective of that's capital A affordable or lowercase a affordable. So one of the things that we've seen in the muni market over the last few years is just a huge increase in housing volume. If you go back, say to 2017 or so, the housing bond market was about 16 and a half billion dollars last year it was about $42 billion.
Justin Cooper (04:14):
Is that publicly offered only?
Mitch Gallo (04:17):
I was just about to say that's publicly offered only. So the vast majority of single family bond deals out there do get sold into the public markets, but there is a large amount of multifamily issuance that did, candidly, we just don't see direct bank purchases and the like. I don't have a hard volume on that, but I can tell you just at RBC, we have a group down in Florida that works as placement agent on deals and they've done $3 billion worth of placement agent volume in the last three years. And that's just half a dozen folks.
Justin Cooper (04:51):
And there are over a hundred private placements done in California every year.
Mitch Gallo (04:55):
So you can see the order of magnitude build up there. So one of the things we've seen, obviously issuance is up. The need is there costs are increasing as the cost of a single family home increases as the construction cost of a new multifamily asset increases. That just continues to drive up par value of the related bond issuances discussing what we call the missing middle, if you will. We all know on the multifamily side, the Litech program is really tried and true, hugely successful program, but does have its limitations vis-a-vis at AMI and reaching that targeted cohort, 60% AMI or lower effectively, although in most places you have to go deeper to get the volume cap. Well, that doesn't really help folks who are 61% to 120 or 140% AMI. So certainly we at RBC, but I know the industry as a whole has spent a lot of time and work in the last, I'll call it five years or so, modeling up.
(06:04):
It comes by many different names, workforce housing, essential housing, middle income housing to reach that 61 to 120% AMI band that typically comes it's outside the Litech program. Outside volume cap, you have much more flexibility with your affordability, but it's just a lot harder to make the deal work. You don't have that 4% Litech equity that you do in a 60% AMI deal filling, plugging up about 30% of your capital stack. So that execution is much more reliant upon just the property underwriting. Many of those deals are sold in the unrated or unenhanced market using senior substructures.
Justin Cooper (06:47):
Yeah, and that's something new in the last few years, having being able to get into the capital markets in that area. I mean for a long time there really wasn't any option, but above 60% AMI for multifamily rental, now we're seeing those. They are all being pretty much all done unrated except for some housing authority deals where the housing authorities put their credit behind it. Karen tell us how we can get those rated. And specifically I'm curious about construction risk. Is there, well, a couple of things. What is your agency's view on the middle income housing on a stabilized basis and what's also your view on construction risk?
Karen Fitzgerald (07:35):
Right, so for construction risk, it is possible to achieve investment grade rating even if there is construction risk. We have separate completion risk criteria, and under that criteria, which is under our global infrastructure group, they do an assessment of completion risk and the rating is a lower of the completion risk credit view or the operating risk credit view. So my group, which we cover the housing, the operating risk profile, we will come up with an assessment of operating risk, and that's based on the ability of the project to generate sufficient revenues to repay the debt. And so the rating will be ultimately the lower of either the completion risk or the operating profile. But for affordable housing and workforce housing, because the complexity of construction is fairly low, the completion risk in some instances can be waived. And so it's generally not as difficult to achieve investment grade rating as it would be say for CMBS, like a mixed use type of deal where you've got completion risk, but also much more are drawing on different criteria from different sectors and you've got lodging or office or retail space involved. So if it's pretty straightforward and the construction is pretty simple as we think it is for housing, for affordable housing, it is definitely achievable to get to investment grade.
Justin Cooper (09:34):
That's really interesting. I didn't realize it was different from the CMBS world, but that's good to know and probably in some cases easier than getting a construction loan from a bank.
Karen Fitzgerald (09:49):
And actually what we've seen, what we've, can you hear me? Yeah. What we've seen actually, we get questions about this at least on a weekly basis and what we've seen a lot is, well, one proposal is having a city or municipality pledge, it's geo to cover either the construction risk or construction period or for the life of the deal. Another option that we've seen is having either a letter of credit or a geo pledge from the city where the project is located in effect during the construction phase. And once construction is completed, then the security changes and is a pledge of the revenue from the project after construction.
Justin Cooper (10:39):
I have a loaded question, but I'm going to save it for later. Melanie. What do you see sitting at your agency as impeding the production of? I mean, I think we can all say that we are fairly well supplied at the low end, the 60% of AMI and below the tax credit market tax credit driven market largely takes care of that. It soaks up a lot of volume cap as we all know, but it's effective. It's finite, but it is effective. But when we move into this middle income band, what's preventing that from getting done and what is New Jersey doing to get beyond the borders of Litech in the lowercase a affordable multifamily space?
Melanie Walter (11:27):
So just to give a little bit of context to start out, HMFA does about 2 billion a year in single family, 2 billion a year in multifamily bonds. Then we have a large MBS portfolio, one in 10 renters and all income tiers in the state of New Jersey currently live in an HMFA finance property. So we see the gamut of housing production in our state right now. We know that there are about 95,000 households that are what we would consider homeownership ready renters. This is your workforce households that earn between 80 and 120% of AMI who have a solid credit rating and who have probably saved enough for a down payment 10 years ago but don't have it today. Our entire mortgage market around the state is about 120,000 homes in a steady state year. Right now we're closer to 80,000 because the market's been sluggish for home sales.
(12:19):
So what does that mean? I know that we have a workforce population that's an entire year of our home buying market who in theory should be able to move out of an apartment and into a single family home. There's nowhere for them to buy. And so they're clogging up our rental portfolio and we've to some extent seen an overbuilding of luxury in a lot of markets and a steady supply of downmarket affordable units. It's that center of the market where there's this massive log jam. You have a tremendous amount of demand and a lack of an exit pathway. So the rents keep climbing and that drives up everything from HUD rents to first time home purchases prices. So in the state of New Jersey, we worked with our legislature and received a $50 million startup fund to start funding directly units of workforce housing in our mixed income portfolio.
(13:10):
So now in a tax exempt deal and in New Jersey, we are more flexible I think in some ways with what we allow to go tax exempt, we'll allow portions of the project to use our tax exempt as long as they fall within basis and other requirements. We don't always cut it off. So we're able to issue tax exempt bonds and part of why we can do that, we're very lucky. We get 60 to 80% of the entire state's volume cap at my agency and never been told no when we needed extra. So we've been very, very lucky. So we put a tranche of 10 to 20% of units. We give each of those units up to $150,000 in direct cash subsidy to get a 45 year commitment, which is ultimately as effectively a 30 year commitment for affordable housing on the site. And that's all benchmarked at 80 to 120% of AMI and they agree to participate in the compliance program that we use for Litech. We have found that the affordable investors are generally happy to participate in that program specifically because they know that it comes with all of those constraints and the bond structure that they're used to. But we do typically condu the deals and the market portion is handled separately. This program has produced four projects that are completed now, and we have another 11 in the pipeline. It's only a 2-year-old project.
Justin Cooper (14:28):
So are the tax credits only received with respect to 60% and below units, but then yeah,
Melanie Walter (14:36):
They can income average up to 80,
Justin Cooper (14:37):
Income average up to 80, but the one 20 is
Melanie Walter (14:39):
Baseline, 60% affordability.
Justin Cooper (14:42):
Wow, that's really cool. It's been, what's the credit behind those? Are they pure project credits or is your agency or the state or is there any kind of backstop behind that?
Melanie Walter (14:52):
What we have, so we do have some state credits that are called Aspire credits that get tied in sometimes because they can be used broadly for any category of production including market and certain targeted urban municipalities. But for the most part we're just providing that soft second loan at that $150,000 a unit and buying down the affordability on those. And the rest is basically a conventional lie tech or market deal.
Justin Cooper (15:14):
And are any of those publicly offered or are they all publicly offered?
Melanie Walter (15:19):
We have seen a mix of people wanting to do private placement, working better with their lie tech pricing right now and going out to public market. So it can work either way.
Justin Cooper (15:28):
And Mitch, who's buying these bonds and how are you and your investment banking colleagues possibly at other firms, maybe not colleagues growing that market of investors, that investor base?
Mitch Gallo (15:44):
Sure. As issuance has increased, as I alluded to a moment ago, we need more and more buyers. So really distribution is the name of the game. We spend a lot of time on investor development. A lot of that has come through various structures over the proceeding, 10 to 15 years structures such as pass through bonds, which brought a number of traditional mortgage based CMO style buyers into the market. We've seen a fair degree of taxable issuance lately, mainly due to volume cap limitations, and that has brought in a new investor base. We spent a lot of time with the federal home loan bank system. We've seen them participate on single family deals. One of the things that is a nuance to the housing bond market is by and large, our deals almost always come at bonds serials in terms the reason being we have constant callability on a single family deal as those underlying mortgage pools and MBSS prepay.
(16:51):
So how do you necessarily price that to a premium when you don't know what your callability or optionality is going to be? So just by nature of constantly bringing 47 billion of par bonds to market, that precludes a lot of investor participation. There's some big names out there that obviously the industry is kind of coalesced around 5% premium bonds. So what we can do, and it has to work within the context of the issuer, their broader resolution and their financial plan is we can introduce some of that structure into housing bonds and it's a give and take. One thing we've been very successful with is taking the serial curve and putting a 5% coupon on those, locking them out from early redemption and issuing those bonds at premiums. And they look a lot like a plain vanilla muni deal that the general muni investing public is kind of used to outside the housing space. We traditionally see a lot of SMA participation in that structure because they need to have a known duration and any notion of callability can really roil their books.
Justin Cooper (17:59):
What happens if prepayments go nuts?
Mitch Gallo (18:03):
Trust me, we have to run that. The rating agencies make us run that. It's not a standalone deal. These are deals, big parody indentures. We might be bringing $150 million bond deal. That's part of a $2 billion open resolution with 50 different series outstanding. And many of the HFAs, certainly HCR, sunny Mae are very sophisticated with their redemption strategies and cross calling, calling one bond with a prepayment from another series. This is all permitted under the code. And really the way this kind of came about was in 2021, 2022 at the trough of the interest rate market, some of those serial bonds were coming at, there were par bonds and they had one handles on 'em. So realistically, we're sitting there going, no one's ever going to cross call into a one and a half coupon. In all likelihood, let's lock it out from prepayment. You're probably not giving up much vis-a-vis flexibility.
(19:04):
We can get some premium and depending on where you are along that serial curve, you can pick up maybe five bips at the very short end up to 20 or 25 bips at the longer end. It's a small needle mover in your overall TIC, maybe four to five basis points, but it's four to five basis points. It helps investor diversification and it generates additional premium for down payment assistance loans, general corporate issuance uses under the code and the like. Recently we've, that had always been a tax exempt model recently. We've had success doing that in the taxable market as well. Taxable housing Munis had almost always come at par and they're a couple of years behind, but now we're seeing those get done at premiums as well.
Justin Cooper (19:52):
Are you seeing any issues with concentration or certain investors just tapping out they've had enough?
Mitch Gallo (20:00):
Not so much sector wise, but there are a few names out there. I won't name them, but you can look at Munios and probably figure it out. The increased issuance coupled with, I mentioned a moment ago, our bonds are constantly callable from prepayments. No one's prepaying their 3.5% mortgage loans right now. Right? Go figure. So prepayment speeds are way down. So folks bought bonds in 2021, 22, they have them in their portfolios, they're not being called. And we have all this additional issuance coming to market as well. So there are a few HFAs out there. It's a little bit a victim of their own success, right? You bring a deal to market once a month and it's a couple hundred million dollars. Some names do start to fill up.
Justin Cooper (20:53):
Right. Let's move to some more challenging topics. I was chatting with somebody out at the break about the Los Angeles Department of Water and power dailies that are trading at 350 or something like that. How have natural disasters affected our market recently? Does anyone care to comment on that rationally or not? The commentary, have the natural disasters rationally or irrationally affected the market for housing bonds?
Melanie Walter (21:24):
Something that we've seen is it really is creating an increase in the operational risk of the portfolios of existing deals, and that's creating some skittishness with regard to new projects, in particular the insurance costs. We are regularly seeing that the per unit insurance cost is now more than a month of rent for every unit of the building. That is a very hard thing to sustain. Additionally, because of some of the, particularly after ida, although we experienced this with Sandy as well, some of the delays in accessing rehab resources subsidy was cut in certain units or properties because they couldn't house people because they weren't in horrendous condition. And so working to make sure that we could get subsidy reattached and get those units back online was incredibly important to demonstrating to the market that there was going to continue to be stable repayment and that these properties were operationally sound.
Mark Price (22:13):
Yeah, I think on the insurance point, one of the things that, I won't say it keeps me up at night, but I certainly think about it a lot when you have a huge event like the wildfires in California, what impact that has on P&C companies that maybe have holdings of eight to 10% of municipal bonds that are out there. And they're probably in a posture right now where they need to liquidate some of their positions. And so have we lost a little bit of a buyer set when we're going to market? So that's certainly something to think about just from a demand demand of the paper that we float perspective. Certainly from a development perspective, I often challenge our project underwriters on their assumptions. All we see are insurance costs going up. Governor Holle last month had her state of state address. She spoke about several different proposals that she would like to see a lot in housing. Those were under four pillars, those four pillars being home ownership development, investing in communities, and protecting affordability. And in that last pillar in terms of protecting affordability, there's a notion out there of expanding access to what's called captive insurance, which would be more of private insurance among certain developers. So really looking at that insurance question is really key in terms of cost.
Justin Cooper (24:00):
Well, I can tell you having insurance prices spike is one thing. Having an insurance availability crisis like we're having in the Western United States is another, I don't know how many people here are from the Western United States. And I don't know how many of us have received the non-renewal notice on our insurance, but it looks like that's two thirds of the respondents right there. It's a real problem. I mean, if you don't go onto a fair plan or something, you're in default on your mortgage. There's no point in building homes. People can't get mortgages because they can't get insurance. You can't build apartment buildings if people can't get insurance. So that's really what we're up against in the western US is just a potential complete collapse of the insurance market. It's really, frankly, pretty scary. I know that the California fair plan has, I dunno if people know what a fair plan is, the insurer of last resort that you call people from Florida or not, you call it when you can't get insurance, you call up this insurer of last resort from the state. Ours in California has, we think somewhere between three and $500 million of cash on hand, about four or 5 billion of reinsurance. Their deductible essentially is 900 million. And the potential exposure from the Palisades fire alone is between five and 9 billion. So it's not a good situation.
(25:28):
I dunno if anybody, Karen, have you been watching this? Do you have any thoughts on the insurance mess?
Karen Fitzgerald (25:34):
Yeah, I mean obviously, well, our concern from a credit perspective is more on the rating side with multifamily projects as well as single family borrowers who can't afford to, can't get a loan because they can't afford the insurance. And then in the military side, military housing and multifamily side, there's definitely been some pressure on operating expenses due to rising insurance costs and also rising losses from natural disasters is having a big impact, which is obviously leading to higher premiums on their insurance.
Justin Cooper (26:19):
Have you started to look at HFAs, for example, and say, I don't know if this homeownership program looks so good because of the, have you started to look not just at the individual borrowers but programmatically and wonder about issuers or at that level?
Karen Fitzgerald (26:39):
I mean, no, it hasn't really been that much of an issue yet, but there are some HFAs that are trying to address it by offering. I think there's some states that offer their own insurance property casualty insurance to the borrowers, so that helps.
Justin Cooper (26:58):
Great. Another upbeat topic. Oh yeah, go ahead.
Melanie Walter (27:05):
Just wanted to note to follow up on that, a couple of states have also started requiring insurance reserves to give some level of comfort. So you self-insure up to the first million or 5 million and that you have to maintain that as an escrow with the HFA. And although it doesn't solve the big picture problem, that at least gives some comfort that the deductibles covered a few times if something goes wrong.
Mitch Gallo (27:25):
And I would just chip in. Also with regard to muni holdings among the big property and casualty insurers, obviously they're huge muni buyers, but some of the larger ones actually don't participate all that much in the housing market. So the housing investor base, we might dodge a little bit of a bullet on this one. It could clearly impact the broader muni industry, but some of the bigger names out there just aren't big mortgage revenue bond buyers.
Justin Cooper (27:55):
Is that because they want the 5% premium bonds or just you can't take,
Mark Price (27:59):
A risk of asset liability management?
Mitch Gallo (28:00):
Yeah, it's a combination of things.
Justin Cooper (28:02):
Combination of things. So onto another upbeat happy topic. Several of the panelists wanted to talk about essentially what we will do with if we lose tax exemption. So take it away.
Mark Price (28:24):
Yeah, somehow I think I said I wanted to talk about it, but I'm also thinking about game theory a little bit. So here we are, the loss of or elimination of tax exemption on the table, and I could say we will muddle through, we have vast resources both on our single family and multifamily side in large part due to the parody resolutions that we've built up for both of those agencies. So there's a good amount of wealth in those indentures. So there are resources that we can use to help address that problem. I think we can structure around certain things. I think our in-house ability is good and certainly we have a great set of advisors and banker partners who can help us get through that. So I could say all of that, but then from I think a game theory perspective, are we putting ourselves in a bad negotiating position by saying, Hey, we can figure this out.
(29:48):
And so there is an aspect to this about negotiating this thing that most of us in this room, if not all of us in this room think is not a good thing. There is a lot of value to tax exemption and there's a huge benefit to the constituencies that we serve. And so I am of two minds about it. I think I want to have a bit of a cooler head, which is, let's see how things play out. We had John Drake today make the statement around there's a difference between what is said and what is done, and so let's see what actually gets done. That being said, I talked about these four pillars of proposals that the governor has talked about with respect to housing, and there are a lot of good things in there that will really help us carry out our mission. We talk about the credit markets, but we can also talk about the credits markets.
(31:05):
So New York State, we have a state low income housing credit. One of the proposals is to expand the availability of that credit, actually double the availability of that credit. There's another proposal to decouple federal and state historic tax credits, heater four via state law. You have to couple those credits. And so there's a proposal on the table to decouple those credits that allows us to isolate those credits in different transactions. And there are other things abound. We're looking at doing an infrastructure fund. So going back to the topic of middle income housing or workforce housing, A lot of communities that were reticent about subjecting themselves to a certain amount of housing development, and I'm not talking about affordable housing development, but just housing development writ large. They complained about, well, there's a lot of infrastructure that would need to be funded in order to do that. And we don't have that. The governor is now talking about doing an infrastructure fund to help address that and help with development there. And then we're also looking at a middle income revolving fund. And so helping to provide incentives to middle income projects there. So there are a number of tools at the state's disposal in order to keep carrying out the mission. But I will be very sober about the fact that the elimination of tax exemption would be a very big deal and issue to wrestle with. But let's see what happens.
Justin Cooper (33:09):
Yeah, I'm personally keeping my head cool by bearing it in the sand, but I don't think every state is quite as well equipped as New York is another point. You guys have done a great job over the years of building up a lot of wealth and a lot of programs. I'm interested in the tax credit point. Mitch, given RBCs activity in that area, maybe you'd be the right person to comment on this. I'm curious what the state is lowercase s what the state is of the tax equity markets. What I have heard is that tax credit syndicators are very important, certainly in the multifamily area, have spent so much of the last few decades being fat and happy that we have a whole generation of zoo fed bears who don't actually know how to go out and develop a new investor base and they just compete on service. How do you respond to that?
Mitch Gallo (34:10):
Provocative.
Justin Cooper (34:11):
Positive? It's late in the day. We might as well spice it up.
Mitch Gallo (34:14):
Sure. No, and I should caveat this as you pointed out, Justin, I'm just a simple bond person. I'm not on the equity side of our shop, but I know enough to be modestly dangerous here. If the corporate tax rate goes down to 15%, that almost has to have an impact on pricing, right? The rule of thumb just loosely, I think for every 1% of corporate tax rate decrease, maybe that's a penny in your litech pricing, plus or minus, it's a lot of it is going to be to be determined. So many folks are just kind of sitting it out right now to see what happens. There's some names that have been in the market for years that they might not necessarily be out of the market at present, but their pricing, they're not afraid to lose the deal. They've kind of put their themselves on pause a little bit. Now with regard to the state tax credits like here in New York, those can certainly be very valuable.
(35:27):
Whether you can match that state credit with a federal credit can impact pricing on each piece. And if you have the same investor in both the federal Litech piece and the state piece, they could be managing to a blended yield. So that's one of the things that they could look at. Also, and I think you correct me if I'm wrong here. I think in New York, the state credit is the money comes in at certification at 8609, so it's the last money in the later those equity dollars go in. That helps your pricing. So that's a little bit of a structural advantage there. Just that folks in your seat are probably seeing in New York around the state tracks, right?
(36:11):
Oh, sorry.
Mark Price (36:12):
I was just going to say we've actually now have had deals where there were no federal credits or no litech, just the slick, just the state credit. And so we now have,
Justin Cooper (36:27):
Crisis coverage, just the state credit and debt,
Mark Price (36:28):
Just Yes, that's right. Or so typically it'll be more the state credit and other state subsidy, and there could be debt, but the debt would be conventional. It wouldn't be debt that HFA is putting on. But the point I was going to make is now that we have seen some transactions with the state credit in isolation, we're getting price discovery on the state credit because to your point, typically they're coupled with the litech, and so we weren't quite sure what the value was. Right.
Mitch Gallo (37:00):
It's a little opaque, right?
Mark Price (37:01):
Yeah, exactly.
Mitch Gallo (37:02):
And then I was remiss in not addressing the second part of your question, Justin. I mean, I think the investor development isn't all that dissimilar to what we do on the bond side. It's getting out there and finding folks with tax liability or ACRA need. We spend a lot of time working with regional banks trying to get them up the learning curve, sell them on the value of a federal credit or state credit as the case may be. Certainly if there's ACRA aspect to a credit that should impact pricing quite a bit. Investors can go in at a much lower IRR than if they're just buying the tax credit for tax credit purposes.
Melanie Walter (37:43):
Just to circle back to the concept of the previous question, we know what this looks like. So it's what it looked like before 1986. You get a little bit of limited dividend, you get sixes and sevens buildings, you get a handful of state subsidy programs, maybe some state tax credits. So anything that we would do now is probably going to replicate some of that and then try to modernize. There's a much more attention and interest in affordable housing now, so you're going to be more likely to get appropriations, you're going to be more likely to have state credits generated, but that's the infrastructure that we tend to revert to in the absence of an active private investment market. And so I think that's the worst case we see. We certainly hope that we don't head there.
Justin Cooper (38:27):
Mark, you mentioned other subsidies. There was a day last week where all of us, certainly in the housing industry woke up and saw an executive order that said, we're not going to fund anything more if it has whatever ADEI program in it or something like that. So how have the various nasty grams from the current administration affected housing and community development?
Mark Price (38:50):
We slipped through it. I mean, I am not trying to be too flippant about it, but it was short-lived. And again, the hope is that some of these things that are said end up not being done. And while there might've been sort of a moment in time scare, nothing really materialized. Our pipeline is still going, payments are still flowing, but we will block and tackle and deal with these things as they come. And the point that you made, we are somewhat in a good position that we have lots of resources and willingness. We have not only an executive branch in the state, but both the Assembly and the Senate and both chambers are very big on affordable housing and housing in particular. So we are going to rely upon the will, our resources and innovation as it necessitates.
Justin Cooper (40:14):
Karen, did you have anything to add on that one?
Karen Fitzgerald (40:19):
Sure. So although there are some positive proposals coming out of the new administration to expand the country's housing supply, we think that a lot of the new policies with regard to tariffs and immigration policies could more than offset any of the positive impacts of some of Trump's proposals. For example, he has proposed to use federal lands to add to the housing stock by building, making federal lands available, also loosening some of the regulations and offering tax incentives. But on the other hand, especially with this executive order that was rescinded and then not rescinded or we don't really know, but if that did go into place or if there were any cuts to the federal budget for housing and community development, that certainly would have an impact on housing issuers in the housing sector. Affordable housing sector, although not right away. I think as you said, the sector issuers are very resilient. They're good at adapting and they've been around for decades and been through multiple economic cycles and have been able to adapt. But over time, there could potentially be negative credit implications from just not being able to fulfill their mission of issuing bonds to fund affordable housing loans and projects.
Justin Cooper (42:04):
Well, and the immigration point is important. I mean, I don't even know how many homes are gone in the Los Angeles area and there's an Olympics coming in three years, like the flex labor force. There is undocumented immigrants who's going to build all this stuff, right? I mean, it's a real problem.
Karen Fitzgerald (42:21):
And the tariffs and the trade policies and the immigration policies are going to raise prices on construction materials as well as contribute to making the labor supply worse, especially in the construction sector where it's already very tight.
Justin Cooper (42:42):
I think we're almost at time. One last question. I've been, I don't know how many conferences where we've talked about the magic of the TIA TOD program. We recently did a webinar on the magic of the TIA TOD program, but is it real? Is anything happening? If not, why not?
Karen Fitzgerald (43:02):
Well not.
Justin Cooper (43:04):
Do people know about this now? Can use TIFIA to build vertical improvements including housing within half a mile of a transit station, but nothing's really happening.
Karen Fitzgerald (43:16):
Yeah, no, it's been very slow. I think as of October of last year, there was only one project approved for transit oriented development. And that was, I think, not even for housing. It was like a library or something. And under the Transit oriented Development program, which actually goes back to 2012, but it was expanded in 2015. And then again under the IIJA Infrastructure Investment Jobs Act of 21, they expanded the lending capacity for TIFIA and the RRIF programs, which are under the US Department of Transportation to allow them to lend up to, I think, a hundred billion over four years to pay for transit. Well, not just TOD, but transportation infrastructure. And the idea behind TOD was to create these compact, walkable communities that were centered around transit and economic hubs so that people could live closer to where they work and take transit and just reduce their commuting time.
(44:28):
But what probably one of the issues has been not just bureaucratic delays, but also the requirements of the program, which are really geared more towards transportation infrastructure. And there's also a requirement to then you need to have two investment grade ratings for projects above $150 million, which is hard to obtain, may not have been as hard to obtain, or is not as hard to obtain for transportation infrastructure because usually those are public agencies that have investment grade ratings. But for private housing developers, that's been a big barrier, is trying to get two investment grade rings, nevermind. One, because of the construction risk and the complexity of these projects. So we know DOT and HUD and other officials trying to work out some, making the requirements, like loosening them up a bit, maybe changing the investment grade rating requirement, reducing the fees. The fees are very high. We've heard up to $800,000. And that's for a small developer,
Justin Cooper (45:49):
Just for the application, right?
Karen Fitzgerald (45:51):
Yeah, exactly. Yeah. And for a small developer, that's just cost prohibitive.
Justin Cooper (45:57):
Yeah, I think the credit rating problem, everyone knows it's hard because of the credit analysis and getting a project credit rated. The other thing is it's just not something that housing developers do every transit agency knows about. They have a buddy at a rating agency that they can call. That's just not the case with housing developers. They're not in that world. Alright, we are at the end. I don't know if we have time for questions or not. If anyone has a question and anyone wants to listen, stay and listen to that question, feel free to do so. If people want to head to the bar, you are released. And thank you all very much for the.