Apartment developers are changing the way they do business, adjusting to life after the new tax law by opting for taxable bond financing instead of tax-exempt funding and tapping pension funds for development money, according to a survey by mortgage banker Lomas & Nettleton.
”In apartment markets that still look attractive, some new projects are being developed with taxable bonds. And some are developed with an assist from pension funds that receive a piece of the action,” said Charles Wingo, executive vice president of the Dallas-based firm.
”Those are this year`s special ploys in apartment financing, successors to the tax shelter syndications and tax exempt bonds that were so big in the 1983-to-1986 boom,” he said. ”But only strong developers and prime projects are eligible.”
In a taxable bond deal, developers sell private mortgage bonds to cover a project`s cost using the ”credit enhancement” of a major lending institution or insurance company. The credit enhancement is usually a guarantee of the bonds by the institution that makes the bonds saleable.
Developers are also courting pension funds, which can supply substantial front-end investment money at below market interest rates to make new apartments feasible.
