Congress extends $8b Liberty Bonds program.

Liberty Bonds, which have provided cheaper financing for both big and small developments for the past three years, aren't going anywhere for a while--that is, except towards more development.

Issued by the US government to encourage economic recovery after the city was rocked by 9/ 11 and the subsequent recessionary economy, tax exempt Liberty Bonds, which have been instrumental in prompting a number of recent massive development projects, have been extended by Congress five years past their original December 2004 expiration.

$8 billion in Liberty Bonds were originally allocated three years ago, portioned into a $6.4 billion and $1.6 billion allotment for commercial and residential development respectively.

While the residential amount was quickly snatched up to feed a booming Manhattan housing market, about half of the commercial bonds remain unused.

The extension, which was widely supported by both government officials and developers, will give the bonds the necessary time to be allocated for up coming projects. "This extension was very important," said Matthew Mcguire, senior vice president at the New York City Economic Development Corporation, which has the authority to issue the triple tax-exempt bonds to a project.

"The projects that have been able to get moving so far have been critical to the city's recovery, and we know there's a lot more commercial development to come downtown.

"These bonds are a critical tool in accelerating private development."

The bonds are helping to finance some of the city's highest profile developments, including the Bank of America Tower at One Bryant Park, 7 World Trade Center, the Goldman Sachs Downtown headquarters, and the Atlantic Terminal Office Building in Brooklyn.

Many expect the $1.5 billion Freedom Tower, to be built by Larry Silverstein, will also utilize Liberty Bonds which can cut the cost of financing by a third.

Although the $6.4 billion allocation of commercial Liberty Bonds was a considerable sum, experts in the financial industry feel that the allotment's failure to be completely absorbed in three years was more a function of the economy than its size.

"If the economy isn't doing that well or is in a down cycle and there isn't a strong demand for office space, it doesn't matter how many incentives you provide, development of office buildings is going to slow down," said Robert Dailey, managing director in the public finance group at JP Morgan, which has served as a placement agent for Liberty Bonds on a number of developments.

But with an improving economy, still low interest rates, and a booming Manhattan real estate market, development is expected to continue if not pick up and the extension to 2009, more than enough to accommodate.