A San Francisco redevelopment agency is borrowing $60 million in the municipal bond market this week to help finance affordable housing in a city that has some of the highest rents in the nation and is suffering from an exodus of people.
(Bloomberg) — A San Francisco redevelopment agency is borrowing $60 million in the municipal bond market this week to help finance affordable housing in a city that has some of the highest rents in the nation and is suffering from an exodus of people.
The Office of Community Investment and Infrastructure, an agency governed by the city and county of San Francisco, is selling $24.5 million of taxable bonds and $35.7 million of tax-exempt bonds to launch another phase of the Transbay Program, a roughly two-decade old transportation and housing project intended to transform an “underdeveloped” neighborhood.
Proceeds from the sales will go toward the construction of more than 500 affordable housing units and a new park in San Francisco’s South of Market neighborhood, an area that now houses downtown skyscrapers, luxury hotels and offices for Salesforce Inc., LinkedIn and BlackRock Inc.
The bonds will be offered via negotiated sale on Wednesday and are being underwritten by Stifel Financial Corp. Assured Guaranty is expected to guarantee certain principal and interest payments on the debt. The insured bonds are rated AA by S&P Global Ratings, while the underlying credit carries an A rating. The bonds are backed by special taxes levied in the district around the Salesforce Transit Center, a regional bus and train hub.
The sale comes as San Francisco continues its efforts to turn underutilized commercial areas into bustling mixed-use neighborhoods. The Bay Area city is grappling with an affordable housing crisis and an office exodus that was exacerbated by a hiring slowdown in the tech industry and a broad shift to remote work during the pandemic.
San Francisco was in a strong financial position prior to the pandemic, but since then, the city has experienced sizable revenue loss partially due to a rise in commercial office space vacancies and a decline in downtown foot traffic.
“This is a very large and mature project area and it can withstand a lot of stress and still generate revenues to service the debt,” said Terry Goode, a senior portfolio manager at Allspring Global Investments. He said he expects the deal to be well received by investors given an uptick in absolute yields have made issues more attractive.
When plans for the Transbay Program were adopted, “the project area was largely underdeveloped,” said Joshua Switzky, acting director of citywide planning in San Francisco. “It was sort of a backwater, kind of low intensity commercial area adjacent to downtown, and there were a very small number of residential units in the area.”
San Francisco’s housing shortage is among the worst in the country. The city needs to build about 82,000 new units between 2023 and 2030 to meet the housing needs of its projected population, according to a state mandated assessment. This would require building more than 10,000 units per year – almost triple the city’s current pace.
The redevelopment agency anticipates financing a total of $495 million of affordable housing units by 2030 in the Transbay project area, according to bond documents.
The Transbay Program has experienced some recent setbacks. The Salesforce Transit Center terminal was temporarily closed in 2019, a month after it opened, because crews found cracks in two structural steel beams. And, in March, plans to build a second rail crossing between San Francisco and the East Bay were scaled back because the city said it would not generate as much ridership as was originally planned.
Salesforce announced in a January regulatory filing that it was subleasing the last 104,000 square feet of offices it holds at a 30-story office tower located roughly a block away from its eponymous transit center, adding to a troubling vacancy issue plaguing downtown San Francisco.
“The transit center — for the moment — is underutilized,” Switzky said. “I don’t think anyone thinks that the station won’t be used to its fullest capacity over the next hundred years, but we’re in a down moment now.”
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