The New York Metropolitan Transportation Authority is set to offer its first bonds backed by its real estate transfer tax.
The tax, also known as the "mansion tax," applies to high-value real estate transactions in New York City. It's a more volatile revenue stream than most of the MTA's debt, and investors will have a chance at $1.3 billion of it this week.
The negotiated deal will be issued through the Triborough Bridge and Tunnel Authority, with expected maturity dates from 2025 through 2059 and a ten-year par call.
Siebert Williams Shank and Co. is the deal's lead bookrunner and Goldman Sachs is co-bookrunner, with twelve co-managers. The Public Resources Advisory Group and Backstrom McCarley Berry & Co. are co-municipal advisors. Nixon Peabody and D. Seaton and Associates are co-counsels.
The bonds are rated A1 by Moody's Ratings, A-plus by S&P Global Ratings and AA by Kroll Bond Rating Agency. The ratings are lower than the MTA's other tax-backed bonds. S&P rates the TBTA's sales tax bonds and payroll mobility tax bonds AA-plus.
The MTA has collected the mansion tax since 2019. The tax applies to real estate transactions above $2 million — usually around 6,800 transactions a year. It generated more than $320 million in 2024. Proceeds from the tax, and the upcoming bonds, will fund the MTA's 2020-2024 capital plan.
The MTA capped annual debt service on the real estate transfer tax bonds at $150 million, Marcia Tannian, the agency's director of finance and investor relations, said in the deal's online investor presentation. That means the agency only plans to issue $2.5 billion of bonds from this credit.
The cap "effectively creates a closed lien once capacity is reached," Tannian said, "and, we believe, mitigates concerns about potential revenue volatility."
The volatility is significantly higher than the MTA's other tax revenues, and notably higher than the payroll mobility tax, its largest source of revenue, according to Moody's analyst Baye Larsen.
In the last five years, the tax has generated an average of $347 million, according to the roadshow. The lowest year, 2020, saw $186 million in collections. In its highest year, 2022, the tax pulled in $536 million.
The variance reflects the volatility of the New York City real estate market, and of high value real estate transactions in particular, Larsen said. The tax applies to a narrow, eclectic set of buyers and their demand is influenced by a huge range of factors.
S&P considers New York's real estate market more resilient than other cities', said Thomas Zemetis, director of S&P's U.S. states and transportation team. The city's market attracts a broad swath of domestic and international investors, which helps it recover more quickly in economic downturns.
"In our view, high volatility of transaction-based RETT revenues have historically exhibited more sensitivity to economic and interest rate cycles," Zemetis said. "Although we believe this is counterbalanced by the city's very strong economic fundamentals and its highly active housing construction and diverse residential and non-residential real estate market."
The MTA's debt service cap of $150 million per year more than accounts for the volatility, according to Tannian; most years, the tax generated more than double that amount. Collections also reached $150 million well in advance of Dec. 1, when the principal and interest payments will be due.
Additionally, the MTA created a debt service reserve fund for the credit, funded at maximum annual debt service. Tannian said this was "unique for MTA and TBTA credits."
Five years is a short track record, especially for a volatile revenue stream. The MTA hired real estate appraisal firm Miller Samuel to estimate what the tax would have collected if it had been in effect since 2003.
The tax would have generated more than $150 million every year from 2005 to the present, except for 2009.
"The $150 million [debt service reserve fund] would have covered all the years in which there was a pro forma shortfall and would have been fully replenished before being exhausted," the roadshow said.
The mansion tax was created in 2019 to fund the MTA's 2020-2024 capital plan, along with an internet sales tax and
Revenue from these taxes goes directly into a "lockbox" separate from the rest of the agency's finances. Lockbox funds can only be used to fund bonds or capital projects.
The MTA has regularly issued bonds from the sales and payroll taxes, but until now, it has only used the mansion tax for "pay-as-you-go" spending.
"They have waited several years to gather some trend information and allow administrative collection procedures to smooth out, which gives bondholders more [data] to assess the credit quality of the revenue stream," Larsen said.
The MTA approved securitizing the mansion tax in August, shortly after Gov. Kathy Hochul put congestion pricing on
The agency is facing out-year
Zemetis said the MTA is not the only issuer to bond against real estate transfer tax revenues.
The agency has plans to issue another $1.2 billion of mansion tax-backed bonds either later this year or in early 2026, Zemetis said.
After it issues that $2.5 billion, the MTA projects its debt service will remain at the $150 million cap until 2059.
