Loans finance city's apartment development boom.

I recently arranged two major high-rise residential financing transactions that illustrate both the robust nature of high-rise housing development in New York City and the positive impact of Liberty Bond and 80/20 incentive programs on new housing supply.

The first transaction was a $178.9 million condominium construction and mezzanine loan for 325 Fifth Avenue, a 250-unit, 397,000-square-foot residential condominium project to be built on Fifth Avenue between 32nd and 33rd Streets.

In arranging the financing on behalf of the developers, Continental Properties and Douglaston Development, the keen competition among lenders for the right to provide condominium construction financing for the project attested to the vitality of the condominium market in New York City and the developers' vision for the project and the community.

Over 50 lenders expressed interest in considering this financing.

The second transaction was a $120 million Liberty Bond construction leasehold financing for 88 Leonard Street in TriBeCa, a 386,000-square-foot property which will contain 352 apartments--one of the city's largest residential developments. The developers, Boymelgreen Developers, Inc., and Africa Israel Investments Ltd., hailed the Liberty Bond program as their primary incentive in going forward with the project.

According to published reports, 2004 saw substantial development and construction of rental and condominium apartment buildings in Manhattan.

It appears clear that soaring condominium prices fueled by a shortage of such units, as well as the post-9/11 Liberty Bond program administered by New York City and the State of New York, and the long-standing federal 80/20 incentive program, played a key role in this residential development boom.

The development of residential housing accelerated in 2003 and 2004, and its momentum will continue this year and into 2006. Apartment development is taking place throughout Manhattan.

It has revitalized the Financial District, a market that few experts expected to rebound so quickly after September 11, and is bringing high quality housing to neighborhoods where none existed before, such as Fifth Avenue in the mid-30s.

Having personally arranged substantial levels of financing for many high profile projects--more than $2.2 billion in loans for residential, commercial and retail properties within the last 24 months including bridge loans, construction loans and permanent loans--the importance of Liberty Bonds and 80/20 transactions as a stimulus for new development is clear.

Construction lending for condominium projects has also contributed to the boom in new residential projects.

The stimulus in this case is skyrocketing land prices and sales prices.

Developers who would otherwise have developed rental housing have instead moved forward with condominiums to achieve a more attractive return on their land investment. We have been very active in providing this condominium financing.

The 80/20 and Liberty Bond programs impose additional complexities on the lending process since the programs require that the developer deal with both a bond issuer, The New York City Housing Development Corporation (HDC) or The New York State Housing Finance Agency (HFA) and a credit enhancer, rather than one lender as is typically the case with conventional financing. However, this is mitigated by the fact that both HFA and HDC are extremely professional and helpful in working with developers and their advisors.

Financing an 80/20 or Liberty Bond project is highly labor intensive and takes specialized knowledge in many areas, including the HFA or HDC requirements, the bond issuance process, the sourcing, underwriting, and processing of required credit enhancement by lending institutions, as well as the various federal tax requirements in connection with tax-exempt bond financing and the issuance of low income housing tax credits.

My firm, The Singer & Bassuk Organization, has recently arranged Liberty Bond financing of $120 million for 88 Leonard Street, a 386,000-square-foot property which will contain 352 apartments; $82 million in Liberty Bond financing for 90 Washington Street, a 396-unit office tower conversion to rental apartments; and a $145 million Liberty Bond financing for the office-to-residential conversion of 63 Wall Street.

We are presently working with developers on similar residential transactions having a value in excess of $200 million, as well as on substantial mixed-use commercial Liberty Bond transactions in which one of the project components is condominium units.

80/20 bond financing, available only for rental projects in which the developer sets aside 20% of the new units for afford able housing, continues to be in demand. 80/20 projects are generally developed by the premier owner/ developers in New York and are usually of substantial size. Recent examples of 80/20 loans arranged by SBO during the past 24 months included $135 million for 900 Eighth Avenue (260 W. 54th Street, a Moinian Group development), a 393-unit tower; and $104 million for 800 Avenue of the Americas, a 269-unit building. We have in our pipeline 80/ 20 projects having a value in excess of $400 million.

The ownership of Manhattan's new apartment properties, both rental and condominium, is concentrated in the hands of prominent local developers and investors. Because of the financial incentives described above, 80/20 and Liberty Bond projects provide developers proceeding under the Programs with substantial benefits and increased project values in both up and down markets.

In down markets, financial risk is reduced as a result of reduced break-even rent levels attributable to both the reduced financing costs and the 421-a real estate tax exemption.

We expect the trends described above to continue in 2005 and 2006.