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NEW YORK CITY-A recent financial agreement between the US Department of Housing and Urban Development and Puerto Rico will facilitate the creation and rehabilitation of more than 4,100 public housing units in the commonwealth. The $600-million-plus deal allows the Puerto Rico Public Housing Administration to qualify for $235 million in low-income housing tax credits, and is believed to be the largest single equity investment in the 22-year history of the tax credit program.

The latest transaction is a refinancing of a $693-million bond deal the PRPHA struck with HUD in 2003, consisting of about $663 million par value plus a $30-million premium, according to a HUD official who spoke with GlobeSt.com. That deal was the largest bond financing in the history of HUD’s Capital Fund Financing Program. Combining the bond financing with the tax credit financing stretches the capital available for public housing projects, says the official. When a housing authority’s capital improvement needs exceed its available resources, it can bridge the funding gap with equity obtained from investors through the 4% or 9% LIHTC program. To date, six housing authorities have utilized Mixed Finance Modernization in conjunction with CFFP, accounting for nearly $457 million in CFP/CFFP proceeds and $420 million in additional funding.

In this case, says the official, the original issuance was in governmental bonds, so the funds could only be used for governmental purposes. Because tax credit transactions are required to be done with for-profit entities, the agency had to refinance those bonds with private activity bonds. The refinancing is being used toward the prepayment of part of the 2003 bonds, the new bond issuance of approximately $380 million and allows for a $235 million tax-credit equity investment. Among the bond underwriters are JPMorgan Securities, Banc of America Securities and Citigroup Global Markets.

A total of 32 public housing communities will be substantially rehabilitated, while another 84-unit project will be developed. Improvements include replacing plumbing and electrical systems and making the units more accessible. There are about 56,000 public housing units throughout Puerto Rico and were built in the 1940s and 1950s.

The program is critical to the people of Puerto Rico, says Roy A. Bernardi, deputy secretary at HUD. "The cities are challenged by the need for more affordable housing and strain to keep up with a growing need to provide affordable options for those who make them run and function: teachers, nurses, firemen and all of those who are the human infrastructure of our urban and rural communities," he says. "A community must remain economically integrated, home to people of all incomes, not economically divided between the rich who live in the city and the poor who must commute in from great distances, but who are indispensable to the city’s well-being and public services."

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