Housing Services:
City Lights Bond Program

City Lights Bonds

Purpose

The purpose of the City Lights Housing Program is to stimulate production of new housing units that are not currently being built due to market financial constraints. Its function is to demonstrate the viability of new forms of housing development in areas of the city which have been under-served by current development, and/or to produce housing which contributes to public purposes such as commercial revitalization and transit-oriented development.

Types of projects developed with the Program include middle and moderate income housing which is a gap in current housing development in the city, mixed-use development that is difficult to finance because few comparable projects exist, and housing development in parts of the city where it has been slow to occur. Benefits of the Program include generating revenue from projects to fund affordable housing citywide, and creating a new bonding tool outside of the state private activity bond volume cap.

Product Description

The City Lights Housing Program is a source of low interest rate borrowing to finance the production or acquisition of multi-family housing to be owned by the City of Portland acting by and through the Portland Development Commission. The program allows issuance of tax-exempt debt secured by the City's General Fund, with the proceeds of such borrowings used to invest in housing developments that achieve a public purpose identified in the Purpose section above. The Program is a debt leveraging tool allowing the cash position on projects to be minimized.

PDC contracts with developers to manage the construction of a project for a fee. Developers with a site may apply to PDC to use the Program to build housing on that site. In cases where PDC owns land and elects to use the Program to build housing on it, PDC may issue an RFQ for developers to manage the construction of the project for a fee. In all cases, PDC must own the improvements on the land but may own or lease the land on which the project is sited.

Projects financed through this program maximize debt by using the low interest rate from tax-exempt bonds and generally require additional equity from PDC to be paid back from project revenues overtime. Project financials are structured such that this PDC equity is minimized. The objective of the program is to produce housing using the tax-exempt interest rate from the bonds and minimizing the impact on other PDC resources. Also, considered in the structuring of the project is the amount of time it takes the projects to pay back that equity (a maximum period of time is listed below). Projects developed through this program are primarily targeted to Tax Increment Financing districts but the program may be used outside of TIF districts on a case by case basis.

  Interest Rate: Market rate for tax-exempt AA municipal securities

  Term of Bonds: Maximum of 30 years

  Debt Coverage Ratio (DCR): 1.10:1.00 minimum

Bond issues with a DCR below 1.20:1.00 will typically be divided into two series (A and B Series Bonds) with the A Series Bonds having a minimum1.20:1.00 DCR.

The B Series Bonds would have a minimum combined DCR with the A Series Bonds of 1.10:1.00. Additionally, the B Series Bonds would typically have a maximum 20-year term and amortization and would be structured so that project cash flow after debt service is used to accelerate their repayment. Typically, B Series Bonds would be paid off within 5 to 8 years.

  Loan to Value (LTV): 100%
  or
  Loan to Cost (LTC): 100%
  (whichever is less of LTV and LTC)

  Construction Term: Up to 2 years

  Terms of Additional PDC Equity Financing:

  PDC Equity Repayment Term: All potential deals with this program will be evaluated for their pay back structure of any PDC equity contribution. Any PDC equity contributed to a project is expected to be paid back to PDC from project revenues in a maximum of 10 years.

Minimum Qualifications

1. Project must be located in the City of Portland.
   
2. Project must be rental housing (the project may be mixed-use however proceeds from the bonds can only be used to finance the housing portion of a mixed-use project).
   
3. The City of Portland must own the housing structure developed through this program but may own or lease the land on which the project is sited.
   

Project Specific Guidelines

Eligible Developers: Eligible developers must demonstrate the capacity to successfully develop a rental housing project.

Eligible Projects: Projects must be consistent with the purpose of the program stated in the Purpose section above and include rental housing. Specifically, projects must achieve the public purpose of creating moderate and middle income housing and/or creating housing not being built by the market due to financial constraints. Such housing may include mixed-use projects that are valuable models but are not able to get private lender financing because comparable projects do not exist. This program can only be used to finance rental units (not ownership). An appraisal or market study must provide guidance with respect to the appropriate rent levels and absorption rates of the units. Projects will need to be of a size that maximizes the use of the tax-exempt interest rate on the bonds while minimizing the need for PDC equity. In selecting projects, PDC will consider the cost of PDC overhead to complete the project and this will bias PDC toward projects with larger unit numbers. However, smaller projects, if submitted, will be considered. The costs of issuance should not exceed 2.5% of the total development costs of a project for larger projects that trigger a bond sale (bond size of $5 million or more).

Property Management: PDC will contract with a professional for-profit or non-profit property management company to manage the properties developed through this program. Contracts with property management companies shall follow IRS qualified management contract rules for tax-exempt financed projects.

Construction Labor Practices: All projects are required to comply with PDC's contracting requirements. These requirements include Diversity in Contracting, Equal Employment Opportunity, and Workforce Training and Hiring. In addition, Oregon Bureau of Labor and Industry prevailing wages apply to projects developed with this program.

Developer Fee: The developer fee is constrained by PDC maximums but may be less depending on the apportionment of risk between PDC and the developer.

How to Access the Program

Projects developed with this program are typically initiated through the following means:

1. Request for Qualifications (RFQs): In situations where PDC owns a site and identifies it for housing under this program, PDC will issue an RFQ to solicit developers to construct the housing. Selected developers will enter into a Development Services Agreement and manage the construction process according to the PDC guidelines. PDC will contract with developers to construct projects for a fee. PDC will retain ownership of improvements throughout and after construction. PDC may own or lease the land through this program.
   
   
2. Developer Initiated Projects: For situations where a developer makes land available to PDC for housing development under this program, applicants will be required to submit a letter to PDC identifying the location of the site, price for the land, the scope of their involvement in the project development and what services they intend to provide to PDC for a fee. Applicants must provide proof of availability of ALTA insurance. PDC staff will prepare a project description and funding analysis to be submitted to the PDC Loan Review Committee for review.

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