Akerman Senterfitt Lawyer Steven Polivy: $700M in Nonprofit Projects to Hit Pipeline Starting This December

Through most of the 1990s and 2000s, nonprofits could count on low-cost financing issued through the state’s industrial development agencies to develop buildings, facilities and other infrastructure and construction projects. The bonds didn’t expose the state to any credit risk; rather the vehicle allowed lenders to avoid being taxed on the proceeds in the investment, which in turn incentivized them to accept lower interest rates on the debt. But in 2007, the State Legislature failed to renew the vehicle, cutting off NFPs from an important pipeline of funds. Now, in December, the city’s Economic Development Corporation is planning to roll out a new financing vehicle that will allow lenders to issue low-interest rate tax-free debt to NFPs. The city estimates that at least $700 million worth of projects that had been backlogged could now have access to funds. The Commercial Observer spoke with Steven Polivy, an attorney with law firm Akerman Senterfitt LLP about the upcoming vehicle as well as the impasse that has prevented the IDAs from providing tax free financing in recent years. Mr. Polivy specializes in arranging real estate financing and development transactions that utilize government incentive and financing programs.
polivy steven Akerman Senterfitt Lawyer Steven Polivy: $700M in Nonprofit Projects to Hit Pipeline Starting This DecemberThe Commercial Observer: So what is the background on the state’s issuance of tax exempt bonds not-for-profits? 

Mr. Polivy: In the general municipal law starting in 1995 I think, the state authorized tax exempt financing that would permit the industrial development agencies in the state to engage in projects that were defined as civic facilities. It could be educational, cultural, a social service facility, you name it, it was broadly defined. But the legislation had automatic susets built into it and every two years or so there would be a flurry of activity, usually right before it was set to expire, or even up to six months afterward when it the legislation would be renewed.

The legislation stalled in 2007. Why didn’t it get renewed?

The only issue I’m aware of was in 2007, the labor unions said we would like to link the extension of the financing capabilities of the IDAs to a living wage bill so that all IDA projects wold be subject to a living wage standard. The bill would have requred prevailing wage rates for the workers who build the project and also for the people who work in whatever is built. And that issue has held it up in the State Legislature ever since.

So have all projects tied to a nonprofit developer’s ability to tap low cost financing been on hold for the past few years?

There have been workarounds. The Dormitory Authority has picked up some of the larger transactions that previously would have been done by the IDA. There are a bunch of hospital financings that it did. NYU Medical Center used the Dormitory Authority to finance a building it constructed. There have been a couple of private school deals, that have been done. I did one with the Dormitory Authority in 2009 for St. Mary’s hospital for children in Bay Shore, Long Island in which a new 10-story building was financed that will house children that need skilled nursing care. There is another alternative. There are issuers from outside New York–one is in Wisconsin; there is a Phoenix IDA–that has the ability to finance projects on a national level. We’re closing a deal now, a $17 million refinancing for the City and Country School for a series of seven brownstones they have converted into use as a school.  The financing will refinance the costs of acquiring and renovating various portions of those facilities, which on 13th Street. The Phoenix IDA is doing that deal.

What about this new city vehicle?

Well the city is now sponosring an entitiy that will have the authority to issue tax exempt bonds for not-for-profits in the city. By the way, there was an attempt to do this back in 2007 and it was stymied first under Comptroller Bill Thompson and then John Liu but the administration has apparently made its peace with Liu on the issue.

What will the city facility accomplish?

The city will be able to now compete with these out of state issuers. The city vehicle will be more streamlined for not-for-profits because when you go to the out of state issuers you still need city approval under the tax code and there needs to be a public hearing and approval by the highest official in the jurisdiction. In the pheonix deal I’m doing, we have to get Mayor Bloomberg’s signature to complete the transaction, which he has been supportive of.

What do you think this new facility will accomplish?

Anything that will help economic development activity is a positive for us and there is no doubt that by having another financing vehicle it will permit more capital investment in the NFP sector, which is one of the most vibrant sectors in the city. The result will be that additional development takes place quicker.

So is the city’s new NFP financing vehicle going to totally supplant the IDA’s prior role in this type of financing?

There is an advantage to getting the state vehicle back up and running. Any state entity can issue bonds that are completely tax free. The city’s vehicle is exempt from capital gains taxes but the borrowers are subject to state and city mortgage recording taxes whereas the state IDAs are exempt from mortgage recording taxes.