Related Cos. Gets New Bond Backer for Paramount

SAN FRANCISCO-The Related Cos. of New York has closed a $129-million, 30-year variable rate bond credit transaction for the Paramount, its high-rise luxury apartment property in the city’s South of Market district.The 43-story, 486-unit property is being financed via a mixture of taxable and tax-exempt bonds. Of the total, $100 million is tax-exempt and the balance of the transaction ($28.8 million) is comprised of taxable bonds. It is projected that the tax-exempt bonds will be auction-rate, and the taxable bonds portion variable rate. The bonds were initially issued by the Redevelopment Agency of the City and County of San Francisco in 1999.Redevelopment Agency finance department official Mario Menchini says the transaction essentially swaps one guarantor for another, Fannie Mae. “The old letter of credit was expiring,” says Menchini. “They had to find another entity to guarantee payment.” The loan was funded by the New York office of American Property Financial, which has done several transactions with Related. In trade for the bond financing, Related must reserve 20% of the units in the development for persons earning less than the median income. Fannie Mae says the transaction, along with one other APF recently completed for the Westport in New York, is a significant milestone in debt financing because it represents the first time Fannie Mae has provided credit enhancement of auction rate bonds. As well, Fannie Mae says it further diversifies the financing available for multifamily affordable housing.Auction rate securities have grown rapidly in popularity primarily because they provide a variable rate execution without the need for liquidity support, says Fannie Mae. Auction rate bonds are used routinely in public finance for purposes other than housing, and work best for projects in excess of $20 million. The two APF transactions utilized two different investment banking firms, UBS and Goldman Sachs respectively, as broker-dealers.