A government program to help enterprises secure cheaper bond financing and stimulate the sluggish economy has so far been fruitless.
Eight projects in Richmond have sought financing through Recovery Zone bonds, which allow enterprises to raise funds through the sale of tax-exempt bonds, but none have been able to bring theirs to market. And not one of the proposed projects has started work.
In January, the federal government authorized the issuance of $15 billion in tax-exempt bonds to private enterprises to expand and make capital expenditures and to jump-start construction and new investments.
Companies lined up to take advantage of Richmond’s piece of the pie, and $35 million in bond issuing authority was granted to the city.
Now many of those entities have ditched their plans because of the slow economy, and the rest are scrambling to sell the bonds before the end-of-the-year deadline.
The bonds are supposed to be more attractive to investors because they do not have to pay taxes on the proceeds, which can mean a savings of 2 percent to 4 percent.
It’s a sweet deal, but getting the bonds to market has been a long process.
“None of the projects have closed,” said Betty-Anne Teter, program administrator with the city economic and community development office. “But we still have a little bit of time left.”
Until Dec. 31, to be exact, unless the program is extended by Congress.
Teter said the office is working with the applicants to help them sell their bonds in time. The fact that not one has done so is a sign of the economy, she said, but they remain hopeful that some will make it across the finish line.
One of those companies is MacFarlane Partners, which is seeking to sell $6 million in bonds to help fund the renovation of the P. Lorrilard Company Building at East Main and 23rd streets. McFarlane received initial approval in January.
Principal Charles MacFarlane said he still has a contract to buy the 58,000-square-foot building from Forest City Enterprises and convert into an office and retail complex.
MacFarlane said he has a high-profile anchor tenant ready to take 15,000 square feet and is talking to two other users. Once one of them commits, Macfarlane said, they will be ready to pull the trigger.
“We’ve got to tie down the second tenant and confirm the first and make the formal application back to the city. We are working hard to make that happen,” Macfarlane said.
They need to meet the pre-leasing requirement before they can secure traditional financing for the rest of the project. Without the Recovery Zone Bond program, he said, the project might not have been feasible.
“Without that financing, we might have had to have 70 percent preleased. With that financing, it makes it 50 to 55 percent,” Macfarlane said.
Another company pushing to meet the deadline is Roof Over My Head, which seeks to build out a manufacturing facility in Northside to produce emergency housing. In a recent BizSense story, principal Bob Rogers said they are working to secure the product orders they need to make the $4.8 million of bonds they have been approved to sell marketable.
Other groups originally given bond allocations have abandoned their plans.
The Virginia Biotechnology Park was granted $5 million in bond issuing authority to build out a laboratory for a specific tenant. But that company never committed, forcing them to abandon the plan.
“We had the bait, in terms of the attractiveness of the financing vehicle,” said Bob Skunda, president and CEO of the park.
The problem was that the prospective tenant didn’t get a contract it was pursuing, he said. The space has since been leased to an existing tenant who didn’t need a special build out.
Meanwhile, James Center owner JEMB Realty had previous plans to enter into a joint venture with the city to build a parking garage at 10th and Canal streets. It had been approved for a $4.5 million stimulus bond. But when the city pulled out, plans for the garage were nixed, according to Davis Drumheller, general manager of the office building.
Teeter also confirmed that the city was no longer working with an unnamed developer to renovate the rear section of Main Street Station, which would have used a $10 million recovery bond.
Other projects that have previously been approved for recovery bonds include $6 million for Cephas Industries to build a recycling center in Southside, $4.5 million for Crosland to build a parking garage at their proposed residential development on the south end of the Lee Bridge called Manchester on the James, and $2.75 million for CMB development to build a parking deck between the SunTrust and UPS buildings off Semmes Avenue.
In Chesterfield, the developers of SportsQuest are also trying to sell $30 million in recovery bonds to fund the construction of a massive recreation complex there.
While time is running out for these bond deals to close, a bill introduced by Sen. Max Baucus (D-Montana) would extend the recovery bond program for another year.
Doug Lamb, a public finance lawyer with McGuireWoods, said that the difficulty in bringing these bonds to market is not because of a lack of interested investors but rather the ability for the borrowers to get additional financing or meet other requirements.
“In a lot of cases, [borrowers] had really good projects, but the underlying fundamentals — whether it was permits or other financial or credit reasons — did not bear out. Some of those allocations got returned back,” Lamb said.
Another reason for the delay is the learning curve involved for all parties to understand the ins and outs of the program.
Lamb said none of his clients in Virginia have been able to bring their recovery bond allocation to market yet.
For viable projects that remain on the table, Lamb said they still have time to sell the bonds before the deadline.
“You still have to find a bank and a borrower that are willing to work with each other, you can imagine in a stressed economic situation everyone is scrutinizing a little more closely,” Lamb said.
Al Harris is a BizSense reporter. Please send news tips to [email protected].
A government program to help enterprises secure cheaper bond financing and stimulate the sluggish economy has so far been fruitless.
Eight projects in Richmond have sought financing through Recovery Zone bonds, which allow enterprises to raise funds through the sale of tax-exempt bonds, but none have been able to bring theirs to market. And not one of the proposed projects has started work.
In January, the federal government authorized the issuance of $15 billion in tax-exempt bonds to private enterprises to expand and make capital expenditures and to jump-start construction and new investments.
Companies lined up to take advantage of Richmond’s piece of the pie, and $35 million in bond issuing authority was granted to the city.
Now many of those entities have ditched their plans because of the slow economy, and the rest are scrambling to sell the bonds before the end-of-the-year deadline.
The bonds are supposed to be more attractive to investors because they do not have to pay taxes on the proceeds, which can mean a savings of 2 percent to 4 percent.
It’s a sweet deal, but getting the bonds to market has been a long process.
“None of the projects have closed,” said Betty-Anne Teter, program administrator with the city economic and community development office. “But we still have a little bit of time left.”
Until Dec. 31, to be exact, unless the program is extended by Congress.
Teter said the office is working with the applicants to help them sell their bonds in time. The fact that not one has done so is a sign of the economy, she said, but they remain hopeful that some will make it across the finish line.
One of those companies is MacFarlane Partners, which is seeking to sell $6 million in bonds to help fund the renovation of the P. Lorrilard Company Building at East Main and 23rd streets. McFarlane received initial approval in January.
Principal Charles MacFarlane said he still has a contract to buy the 58,000-square-foot building from Forest City Enterprises and convert into an office and retail complex.
MacFarlane said he has a high-profile anchor tenant ready to take 15,000 square feet and is talking to two other users. Once one of them commits, Macfarlane said, they will be ready to pull the trigger.
“We’ve got to tie down the second tenant and confirm the first and make the formal application back to the city. We are working hard to make that happen,” Macfarlane said.
They need to meet the pre-leasing requirement before they can secure traditional financing for the rest of the project. Without the Recovery Zone Bond program, he said, the project might not have been feasible.
“Without that financing, we might have had to have 70 percent preleased. With that financing, it makes it 50 to 55 percent,” Macfarlane said.
Another company pushing to meet the deadline is Roof Over My Head, which seeks to build out a manufacturing facility in Northside to produce emergency housing. In a recent BizSense story, principal Bob Rogers said they are working to secure the product orders they need to make the $4.8 million of bonds they have been approved to sell marketable.
Other groups originally given bond allocations have abandoned their plans.
The Virginia Biotechnology Park was granted $5 million in bond issuing authority to build out a laboratory for a specific tenant. But that company never committed, forcing them to abandon the plan.
“We had the bait, in terms of the attractiveness of the financing vehicle,” said Bob Skunda, president and CEO of the park.
The problem was that the prospective tenant didn’t get a contract it was pursuing, he said. The space has since been leased to an existing tenant who didn’t need a special build out.
Meanwhile, James Center owner JEMB Realty had previous plans to enter into a joint venture with the city to build a parking garage at 10th and Canal streets. It had been approved for a $4.5 million stimulus bond. But when the city pulled out, plans for the garage were nixed, according to Davis Drumheller, general manager of the office building.
Teeter also confirmed that the city was no longer working with an unnamed developer to renovate the rear section of Main Street Station, which would have used a $10 million recovery bond.
Other projects that have previously been approved for recovery bonds include $6 million for Cephas Industries to build a recycling center in Southside, $4.5 million for Crosland to build a parking garage at their proposed residential development on the south end of the Lee Bridge called Manchester on the James, and $2.75 million for CMB development to build a parking deck between the SunTrust and UPS buildings off Semmes Avenue.
In Chesterfield, the developers of SportsQuest are also trying to sell $30 million in recovery bonds to fund the construction of a massive recreation complex there.
While time is running out for these bond deals to close, a bill introduced by Sen. Max Baucus (D-Montana) would extend the recovery bond program for another year.
Doug Lamb, a public finance lawyer with McGuireWoods, said that the difficulty in bringing these bonds to market is not because of a lack of interested investors but rather the ability for the borrowers to get additional financing or meet other requirements.
“In a lot of cases, [borrowers] had really good projects, but the underlying fundamentals — whether it was permits or other financial or credit reasons — did not bear out. Some of those allocations got returned back,” Lamb said.
Another reason for the delay is the learning curve involved for all parties to understand the ins and outs of the program.
Lamb said none of his clients in Virginia have been able to bring their recovery bond allocation to market yet.
For viable projects that remain on the table, Lamb said they still have time to sell the bonds before the deadline.
“You still have to find a bank and a borrower that are willing to work with each other, you can imagine in a stressed economic situation everyone is scrutinizing a little more closely,” Lamb said.
Al Harris is a BizSense reporter. Please send news tips to [email protected].
Good article. Same thing is true in Fredericksburg with Kalahari Resorts:
http://blogs.fredericksburg.com/businessbrowser/2010/09/22/kalahari-resorts-not-only-project-unable-to-close-on-recovery-bonds/