- The New York City Metropolitan Transportation Authority raised $1.06 billion Wednesday by selling its first-ever real estate-backed bonds, according to Bloomberg.
- The agency will use payments it receives from leasing land to the 26-acre Hudson Yards development to repay the debt. The MTA valued the leased property between $3.2 billion and $3.7 billion.
- Most of the bond sale proceeds will go toward repayment of previous capital project debt. The MTA has also agreed to pay bond interest for seven years in case any Hudson Yards tenants default on their lease payments.
U.S. cities and states are taking advantage of historically low interest rates and financing their infrastructure projects through municipal bonds, according to an August Bloomberg report. Barclays Plc predicted that municipal bond issues might reach $400 billion this year as more public agencies are launching new projects rather than refinancing old debt. Included in this year's bond issues are those for the $4 billion terminal expansion now underway at LaGuardia Airport in New York City.
The MTA bonds will likely be attractive to investors given that they are typically drawn to new players in the market, especially those with different, interesting backgrounds. Aside from the revenue opportunity provided to the MTA through the Hudson Yards bond sale, The Real Deal reported that the development will generate $1.78 billion for the MTA during construction via ground lease payments and air rights, with $89 million a year headed to the agency after the project is complete.
The Hudson Yards project has not only benefited the MTA but New York City in general. A June Appleseed report found that Hudson Yards will provide $18.9 billion in economic benefit for the city by the time the entire project is complete. The study also found that Hudson Yards will make up 2.5% of New York City's gross domestic product and net the city $500 million in annual taxes.
Certainly, other public agencies are looking to this latest move by the MTA as an example of how to leverage their own similar situations into financing for critical infrastructure projects. State and federal funding is slim, and, according to the American Society of Civil Engineers, there is an upcoming $1.44 trillion infrastructure funding shortfall. If the country doesn't find some way to finance this work, the ASCE predicts that the shortage will result in a 2.5-million job loss and a hit to gross domestic product of $4 trillion over the next 10 years.