DC Enterprise Zone Bond Program
Facilities Financing with EZ Bonds
Olivia-Shay Byrne, Esq.
Reed Smith, LLP
(Philip J. Fick and Jennifer Livingston contributed to the article)
A crowded room full of real estate professionals at a recent seminar in Washington, D.C. learned about Facilities Financing with Enterprise Zone Bonds. The audience was given an update on the Program's use thus far in the District, and they were walked through the process by someone with first-hand experience, an Enterprise Zone borrower. The panel of speakers included a program manager from the D.C. Revenue Bond Program, a borrower who has successfully navigated the Enterprise Zone bond financing process, Maria Day-Marshall a financial advisor, attorneys Olivia Shay-Byrne and Darrin Glymph, and banker Norman Coker who has served in different capacities on these type transactions.
The District of Columbia Enterprise Zone was established pursuant to the Taxpayer Relief Act of 1997. Since 1999, there have been eleven projects financed with Enterprise Zone Bonds in amounts ranging from $2,800,000 to the upper limit amount of $15,000,000. The total amount of District of Columbia Enterprise Zone bonds that have been issued is $98,425,000 with $40,000,000 worth of financing in District of Columbia Enterprise Zone bonds currently pending. The completed deals include:
• $4,800,000 for the renovation and upgrade of an older apartment building across from the Navy Yard which is now an office building for defense contractors;
• $11,250,000 and $9,000,000 to finance portions of two office buildings owned by law firms;
• a $10,480,000 for a nonprofit social service agency's new headquarters and two community service centers, all located within D.C. Enterprise Zone census tracts;
• $4,480,000 for a D.C.-based trade association's national offices;
• $15,000,000 for a Museum project;
• $13,055,000 to finance the construction and equipping of an energy services company facility;
• $9,360,000 for the construction of a warehouse and offices of a liquor distributing company; $2,800,000 for the construction of commercial space in Columbia Heights that is currently being leased to a CVS drug store and a charter school; and $3,200,000 for the acquisition and renovation of commercial space on 7th Street, NW. Stu Hodgson, who owns a very successful defense contracting business (DTI Associates) spoke eloquently about his experience in establishing a major new office building across from the Navy Yard's historic Old Gate entrance. DTI works closely with the Navy and when the federal government announced its decision to move some 10,000 personnel from Crystal City in Virginia to the Navy Yard in Southeast DC., Hodgson moved to be near his client. The Enterprise Zone bond program made this move financially feasible. As a result, the District received a business from Virginia.
A boarded up 3-story building outside the Navy Yard met Hodgson's needs in terms of size and location, but it would require substantial renovation work. After meeting with his bond attorney Olivia Shay-Byrne, he was able to successfully navigate through the issues involved in EZ bond financing and decided to proceed forward with the project. The result has been the acquisition of a strategically located office building with extra space being leased to other defense contractors, and a restaurant planned for the first floor of the building. He was able to secure a very low borrowing rate, and to obtain a valuable piece of property in a section of the city that is now in red hot demand. The total financing was for $4,800,000.
While the entire process of finding a suitable building, securing the tax-exempt bond financing, completing the renovations, and opening up the building for operation took 18 months, the actual bond financing portion of the project took less then 70 days from the date the bond application was submitted until the day of closing on the financing. The bond process for him took less than 90 days since he had a very experienced team.
Hodgson was quick to praise the D.C. Revenue Bond Program officials and their director, Michael Hodge, for streamlining the process and being supportive and cooperative every step of the way. In Hodgson' words, "this is not your father's city government." He also noted that the process was not the most inexpensive route in terms of upfront costs, but the savings over the term of the financing would far outweigh those initial expenditures. Hodgson was pleased with the process and his representation. In answer to the question "Would he do it again?," Hodgson gave an unqualified "Yes!"
While the current D.C. Enterprise Zone program is slated to expire at the end of this year, a group of concerned civic and business leaders is lobbying members of Congress to extend and expand the program, lead by Congresswoman Eleanor Holmes Norton. While it is too early to say for sure, based on the success of the program so far, the program is expected to extended, if not enlarged in the District.
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