Fortress Fumble on Las Vegas Rail Bond Sale Boosts Housing
California Gives $600 Million of Fortress Train Bonds to Housing
(Bloomberg) -- California on Wednesday reallocated $600 million of private activity bonds formerly awarded to Fortress Investment Group’s Las Vegas tourist train to affordable housing needs, a win for developers trying to ease the state’s severe shortage of homes.
The company’s Brightline West venture earlier this year had received its entire request of the limited resource, as well as bonds from Nevada, and offered as much as $3.2 billion of debt leveraged from the allocations. But it failed to get enough investors on board, letting California reclaim the bonds.
State officials had considered giving some of the debt to projects other than housing even though such construction was being stalled because of lack of bonds. Moving the entire allotment to housing is enough to fund about a third of projects that didn’t receive any bond awards this year, according to an analysis by the nonprofit California Housing Partnership.
“It’s a great outcome,” said Matt Schwartz, president and chief executive officer of the partnership, adding that housing is the “state’s number one priority.”
“This decision will result in 2,600 additional affordable homes and boost economic activity at a time when the state needs both desperately,” he said.
California has five of the country’s 10 most expensive residential markets, an estimated shortfall of 1.3 million affordable units, and several cities with sky-high homelessness rates.
The Debt Limit Allocation Committee, which controls the allotment of bonds, voted to allocate all to affordable housing projects, first prioritizing those that serve extremely low income residents, said committee chair and Treasurer Fiona Ma Wednesday after the meeting. “They are the most vulnerable populations,” she said.
Ma had earlier said the state had important priorities other than housing and suggested some of the Brightline bonds could go to non-housing uses such as waste facilities. But on Wednesday she said there were no such projects ready to go.
The move followed Tuesday’s report from California Auditor Elaine Howle that said the committee wasted $2.7 billion of bonds that could have gone toward affordable housing. Howle’s report, which didn’t mention the rail project, noted that the agency over the years made “questionable” decisions “that contradicted its legislative priorities.” It recommended the termination of the committee and giving its functions to another agency that controls tax credits.
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