On Tuesday, Sen. Brian Schatz (D-HI) chaired a Senate Appropriations Committee hearing on transit-oriented homes.
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NewsTranscript
00:00:00Good morning. This hearing will come to order and I want to thank our witnesses
00:00:04for being here today. On our panel we have Dr. Morteza Farajan,
00:00:10Executive Director of the Build America Bureau of the Department of
00:00:13Transportation, Dr. Tracy Hadden-Lowe, a fellow at the Brookings Institution, Mr.
00:00:19Adi Nagraj, Chief Development Officer at McCormick Baron Salazar. Each of our
00:00:25witnesses bring incredible expertise in their respective fields and we're eager
00:00:30to hear your thoughts on how Congress can improve access to financing for
00:00:34transit-oriented development. Funding TOD is a no-brainer. When we
00:00:41invest in neighborhoods around public transit, we create jobs, cut traffic, and
00:00:45protect the environment. And it's even more relevant today as the country
00:00:49grapples with a national housing shortage and a post-pandemic reality of
00:00:53empty office buildings. Estimates put the national housing shortage somewhere
00:00:58between 5 and 7 million units. That leaves nearly 42 million American
00:01:04households cost burdened, meaning they're spending more than 30% of their income
00:01:09on housing. And in the state of Hawaii, 30% sounds pretty good to most people.
00:01:14It's usually closer to 40 or 50%. Skyrocketing housing costs are driving
00:01:20more and more people into poverty and homelessness, and a lot of the problem
00:01:23comes down to the simple and stubborn reality that we don't build enough
00:01:27housing in this country. Now a lot of work to fix that has to start with
00:01:31policy reforms at the state and local level, but what the federal government
00:01:35can and should do is incentivize national action and expand access to
00:01:39financing opportunities for development. We need to make it easier to build in
00:01:43any way that we can. Providing low-interest capital through TIFIA and
00:01:48RRIF is one means, but for it to work and spur the kind of development that we had
00:01:53planned for, it needs to be more easy to use. In 2015, the FAST Act expanded the
00:02:00TIFIA program to include housing projects near transit hubs. This
00:02:04direction from Congress was stalled by the previous administration, who
00:02:08neglected to address our housing crisis. But more recently, following guidance
00:02:12under the Biden administration, we're seeing real enthusiasm for it in states
00:02:16across the country. Project proposals are popping up in red states and blue
00:02:20states alike, Illinois, Florida, Utah, Texas, North Carolina, and the list goes
00:02:25on. But we've also heard from local government and developers that the
00:02:28credit rating requirements, fees, and lengthy review processes hinder them
00:02:33from accessing these funds for housing. And we've heard from DOT that limited
00:02:38funding for administration and oversight is preventing the program from reaching
00:02:42its full potential. These challenges need to be addressed by Congress. We need
00:02:47to simplify and streamline the credit review process, and we need to get DOT
00:02:51the resources it needs to make the programs as successful as they can be.
00:02:55The information we gather here today will help us to do that, and we look
00:02:59forward to hearing your perspectives and ideas on how we can strengthen the
00:03:02program and help to unlock its benefits for communities nationwide. And with that,
00:03:07I'll turn it over to the Vice Chair, Senator Hyde-Smith, for her opening
00:03:12statement. Thank you, Mr. Chairman, and welcome. Thank you all for being here and
00:03:18this important hearing that we're having today. While many of the issues that we
00:03:24address in THUD, the bills fall squarely within either the transportation or the
00:03:30housing spaces, the topic today clearly cuts across both. It's pretty interesting.
00:03:35And TOD is a concept that seeks to blend transportation and housing efforts
00:03:41through mixed-use development around access to frequent and reliable public
00:03:47transit. These types of projects may not be feasible for remote rural communities
00:03:53in Mississippi, like where I live, across the country, but they certainly have a
00:03:59promise and beneficial factors for populated urban areas. For example,
00:04:05Jackson, Mississippi, recently received a $1 million grant from Federal Transit
00:04:11Administration for TOD planning. This grant will support the one-line project,
00:04:17which aims to create new multimodal infrastructure and a bus rapid transit
00:04:23system along the five-mile corridor in our capital city. This corridor has the
00:04:30highest concentration of employers and educational institutions in the entire
00:04:34state, including Jackson State University and the University of Mississippi Medical
00:04:39Center and numerous city, county, and state government offices. And despite
00:04:45this density, however, only 1% of the residents living in that area use public
00:04:51transportation to commute to work, and only 2% want to work. 90% commute to work
00:04:59using their personal vehicles, and we know what that does. The city of Jackson
00:05:05will use the federal TOD funds to reverse this trend by improving
00:05:10accessibility and facilitating mixed-use development. In addition to the FDA
00:05:16programs, Congress has also supported TOD by authorizing the use of TIFIA funds
00:05:24for commercial and residential development and related infrastructure
00:05:28within a half mile of a transit facility. Since Congress provided this new
00:05:33authority, however, only one TIFIA loan has been awarded to a TOD project, which
00:05:39notably did not include any residential components. So I hope today's discussion
00:05:45will shed light on what is preventing more of these projects from moving
00:05:49forward, and I'm concerned that what we are seeing in another case of the
00:05:54government unable to get out of its own way. Layers upon layers of federal
00:05:58regulations and requirements discourage local leaders and private investors from
00:06:03pursuing the TOD projects that have the potential to transform so many
00:06:07communities. But I do look forward to hearing what Congress can do to improve
00:06:11the process while ensuring that housing is a focus of federally funded TOD
00:06:18projects. Thank you, Mr. Chairman. Thank you, Vice Chair. Are there any members
00:06:22wishing to make an opening statement? If not, we'll start with our witnesses, and
00:06:28you each have five minutes for your testimony, and then we'll get into our
00:06:30back-and-forth. Dr. Farajian, please proceed with your testimony. Thank you,
00:06:37Chair Schatz, Ranking Member Hyde-Smith, and members of subcommittee for the
00:06:41opportunity to discuss Build America Bureau's financing and transit-oriented
00:06:46development program. In my testimony today, I will highlight Bureau's TOD
00:06:51authority activities and remaining challenges. First, I will summarize what
00:06:56we do. The Build America Bureau advances investment in America's
00:07:00infrastructure by lending federal funds at below market rates under favorable
00:07:04terms to qualified borrowers while protecting taxpayers, clearing roadblocks
00:07:09for creditworthy projects, and encouraging use of best practices in
00:07:14project planning, financing, and delivery. The Bureau has 115 TIFIA and REF loans
00:07:19and loan trenches to 71 distinct borrowers from 23 states and the
00:07:24District of Columbia that are in construction or operations totaling just
00:07:28over 31 billion in credit extended. The Bureau also administers four grant
00:07:33programs to expand the public sector's capacity to finance and deliver
00:07:38infrastructure. The Regional Infrastructure Accelerator Program
00:07:41helps public entities develop priorities and financing strategies to accelerate
00:07:46projects eligible for TIFIA credit assistance. The Thriving Communities
00:07:51Program provides technical assistance, planning, and capacity building support
00:07:56to smaller and under-resourced communities through capacity builders,
00:08:00technical assistance providers that support groups of communities based on
00:08:04their common needs. The Bipartisan Infrastructure Law established the Rural
00:08:08and Tribal Assistance Pilot Program, which funds pre-construction and
00:08:12pre-development studies for rural and tribal communities, and the Innovative
00:08:16Finance and Asset Concession Program, which provides grants to public entities
00:08:20to facilitate and evaluate public-private partnerships. We also
00:08:24offer customized direct technical assistance for projects of all sizes and
00:08:28project sponsors with different experience levels. Finally, the Bureau
00:08:33administers private activity bonds allocated by U.S. DOT for qualified
00:08:38highway or surface freight transfer facilities. The FAST Act authorized the
00:08:42Bureau to offer DOD projects. DOD projects include public infrastructure
00:08:46economic development projects, including affordable housing and workforce housing
00:08:51and commercial development located near or physically or functionally related to
00:08:56transit, passenger rail, or multi-modal stations. DOD projects can transform
00:09:02underperforming and underutilized assets, increase transit and passenger rail
00:09:06ridership and revenue, facilitate office of residential conversion, and support
00:09:11affordable equitable multi-modal access to opportunities and services. I'm proud
00:09:15to say that in April 2024, the Bureau closed U.S. DOT's first DOD loan up to
00:09:20$26.8 million for the Mount Vernon Library Commons project, now under
00:09:26construction in Washington State. Our financing will save that
00:09:30community at least $3 million compared to other available options.
00:09:34Building and implementing the DOD authorities Congress gave us has been
00:09:39incremental and steady. We published DOD guidance and a policy statement on our
00:09:43website. We held five webinars in the past year for more than 500 participants.
00:09:48We also participated in webinars with the White House and with the U.S.
00:09:53Department of Housing and Urban Development and presentations at the U.S.
00:09:56Housing and Community Development Conference, National Housing and
00:10:00Rehabilitation Association, and Urban Land Institute. We hosted in-person
00:10:05technical workshops in Austin, Kansas City, Los Angeles, Chicago, and Jacksonville, as
00:10:10well as many other trips. To make our financing more accessible and attractive,
00:10:15U.S. DOT announced it would provide transit and DOD projects TIFIA financing
00:10:20for up to 49% of total project costs. The TIFIA statutory limit since 2012. U.S.
00:10:27DOT typically limits TIFIA loans to 33% of project costs by policy. Even with
00:10:33this progress, prospective borrowers have communicated and countering challenges
00:10:38in utilizing TIFIA or RRIF for DOD projects, the most significant of which
00:10:42are the following. TIFIA's legislation requires investment-grade rating. While
00:10:46this level of rating protects taxpayers from defaults, it can be unattainable for
00:10:50certain DOD projects. Typically, rating agencies do not rate real estate deals
00:10:56that have both construction and long-term financing elements, as these
00:11:00are not common practice in the market. The Bureau has consulted with rating
00:11:03agencies, several of whom are now developing rating approaches for DOD
00:11:07projects. Second, a range of federal requirements apply to TIFIA and RRIF
00:11:12borrowers, including compliance with NEPA, Buy America, Davis-Bagan wage rates, and
00:11:17others. Some prospective borrowers have told the Bureau they are not familiar
00:11:21with federal requirements and have a learning curve in both understanding how
00:11:26to comply and structuring compliant projects that are financially viable. To
00:11:31address this obstacle, the Bureau has had one-on-one meetings to educate
00:11:34potential borrowers on federal requirements and to assist project
00:11:38sponsors in developing complete and quality applications. Third, project
00:11:42sponsors are used to the timeline commercial banks use for short-term
00:11:46construction loans. TIFIA and RRIF loans typically have 40-year or longer
00:11:50maturities, meaning they have both short-term construction risk and
00:11:53long-term revenue risk. This combination complicates and lengthens the
00:11:58underwriting process. The Bureau has explored innovative approaches such as
00:12:02teaming with short-term lenders and collaboration with HUD and other federal
00:12:06agencies to develop effective products and to streamline the process. As our
00:12:11program matures and we close a few more loans, we should be able to
00:12:15standardize our process and procedures and develop template documents that
00:12:19could further streamline the process and reduce timelines. In early 2021, we had no
00:12:26TOD projects in Bureau's active pipeline, even though the authority had been in
00:12:30place since late 2015. Today, interest in the TOD pipeline is robust with over 40
00:12:37TOD projects actively engaging with the Bureau on utilizing its financing
00:12:42programs. We anticipate our TOD pipeline and portfolio will continue growing
00:12:46quickly and welcome any opportunity to improve our programs and deliver quality
00:12:51experiences that achieve the intended program outcomes. Thank you, Chairman
00:12:56Schatz, Ranking Member Hyde-Smith for this opportunity. I would be
00:13:02happy to answer any questions you might have for us. Thank you. Dr. Lowe, please
00:13:08proceed with your testimony. Good morning, members of the subcommittee, and thank
00:13:13you for the opportunity to offer testimony as you explore the potential
00:13:17of applying innovative public financing tools to produce desperately needed
00:13:21affordable housing in ideal locations near transit. My name is Tracy Hadden Lowe
00:13:28and I'm a fellow at the Brookings Institution where I study commercial
00:13:31real estate. I also represent the District of Columbia on the Washington
00:13:35Metropolitan Area Transit Authority Board. However, what I'm about to say is
00:13:40my own opinion and does not necessarily represent the opinions of the staff,
00:13:45officers, or trustees of Brookings or those of the WMATA Board or staff. With
00:13:49that out of the way, there are three reasons why the public would benefit
00:13:54from the real existence of a working tool for transit-oriented multifamily
00:13:59finance. First, I assume that everyone here is already aware that the U.S. is in
00:14:04a housing crisis where we do not have enough homes in needed locations and
00:14:09costs are at record highs. The question is what to do about it. As my colleagues
00:14:15at Brookings have recently noted, making apartments more affordable starts with
00:14:20understanding the costs of building them. The 20 to 30 percent of a typical
00:14:26project's soft costs related to permitting and financing are directly
00:14:31shaped by public policy and regulation, and affordable housing projects often
00:14:36have higher soft costs due to the complexity of financing. So any
00:14:40intervention that reduces the cost of financing for affordable housing
00:14:44projects can directly improve their feasibility and affordability. Second,
00:14:51recently new multifamily starts have collapsed due to higher interest rates
00:14:55and lower property values that are a factor of rising operating costs
00:15:00reducing net income. A major lesson that we learned from the Great Recession was
00:15:04that there are better economic outcomes during and after a downturn when
00:15:09government helps move capital countercyclically. While the Federal
00:15:13Housing Administration already does this through mortgage insurance, it is also
00:15:17hypothetically possible for the federal government to do this through direct
00:15:21finance. Third, the case of transit-oriented development is a unique
00:15:27use case for the federal role in multifamily finance that directly
00:15:32addresses the need to balance risk and reward in the public interest. There's a
00:15:38lot of federal money invested in transit systems and they create value in the
00:15:43locations they serve that is a reward to be captured and at reduced public risk.
00:15:50One study found that transit accessible multifamily properties are 58% less
00:15:56likely to default. The U.S. Department of Transportation has over 100 billion
00:16:01dollars ready for deployment at very low interest rates through the TIFIA and RIF
00:16:06programs. These programs have traditionally helped finance major
00:16:09transportation projects. However, as we just heard, the first real estate project
00:16:14to close on a TIFIA loan happened in April. This is a big milestone, but
00:16:18additional statutory and regulatory changes and clarifications are needed to
00:16:23make this financing more accessible. DOT's NEPA process is lengthy and
00:16:28incompatible with projects that also need to attract private equity capital
00:16:32in order to complete their capital stack. That kind of project succeeds or fails
00:16:36based on the time it takes for a project to go from conception to occupancy and
00:16:42stabilization. Other agencies like HUD, Agriculture, the EDA have NEPA processes
00:16:49that are more efficient. There is a need for either an interagency collaboration
00:16:53or a new process within the DOT. Similarly, Buy America requirements that
00:16:59are impactful and make sense for billion or trillion dollar infrastructure
00:17:03projects are unnecessary deal killers on smaller scale real estate projects. An
00:17:08administrative waiver or legislative action to speed up the more pressing
00:17:13policy priority of building housing near transit makes sense.
00:17:19Congress should also consider increasing the maximum loan-to-cost threshold for
00:17:24TIFIA from 49 percent to match RIF, which already allows loans up to 75 percent
00:17:30loan-to-cost. This would reduce the burden on project sponsors to find gap
00:17:34financing. Finally, TIFIA borrowers are required to have an investment grade
00:17:39rating in order to receive a loan. The problem is that rating agencies don't
00:17:44typically even rate the debt of individual real estate projects. There are
00:17:48ways to work around this, but streamlining would be both appropriate
00:17:52and better. In terms of advice to the administration, the development of model
00:17:58documents, including a pro forma financial model for transit oriented
00:18:02development projects, could provide more clarity than any number of webinars,
00:18:06workshops, or pages of guidance, and this should be an immediate priority for the
00:18:10Build America Bureau. Transit oriented development is a logical and elegant
00:18:15solution to multiple problems. However, significant barriers to using TIFIA and
00:18:20RIF financing for real estate are real. Here are three reasons why it makes
00:18:24sense to debug this now. Any counter cyclical housing lending is helpful, and
00:18:29affordable housing near transit achieves many broadly shared policy
00:18:33goals. Two, some projects will never be strong candidates for conventional debt,
00:18:39but provide significant public benefits and merit a lender of last resort. This
00:18:44is relevant for rural areas. The first TIFIA real estate project in Mount
00:18:48Vernon, Washington, is next to an Amtrak station in the county seat of a rural
00:18:52county that also contains three Native American reservations. That's an example
00:18:57of how this program matters everywhere. Three, commercial real estate as a sector
00:19:02will likely see a medium-term lack of liquidity. However, the broader economic
00:19:07and social need for capital to flow in order to adapt the built environment to
00:19:11new economic and demographic realities is urgent. Available facilities should be
00:19:16deployed and not idled on the sidelines. This is a time where there's a broad
00:19:21need for government to do more with the same level of resources and deliver
00:19:25positive economic, social, and environmental returns. Transit oriented
00:19:30development is an opportunity to do so, which merits this committee's scrutiny.
00:19:34Thank you for the opportunity to inform your considerations on this topic. Thank
00:19:39you, Dr. Lowe. Mr. Nagaraj, please proceed with your testimony. Great, thank you.
00:19:44Good morning. Thanks for having me, and it's really, I see you all on TV all the
00:19:49time, so it's nice to see you in person, and it's been 25 years, Senator Reid, so
00:19:52good to see you again. It's been a while. My name is Adi Nagaraj, and I'm an attorney and
00:19:56the chief development officer at McCormick, Barron, Salazar. In this
00:19:59capacity, I oversee affordable housing and mixed-income real estate development
00:20:03projects around the country. Based in St. Louis, Missouri, MBS is one of the
00:20:07nation's leading developers, managers, and asset managers of economically
00:20:11integrated urban neighborhoods. Since 1973, MBS has been an innovator in
00:20:16community development and urban revitalization, including Antifia
00:20:19eligible transit-oriented neighborhoods. In all, we've built 22,000 high-quality
00:20:23affordable and mixed-income apartments for families, children, seniors, and
00:20:27veterans in 47 cities. Over the past several decades, MBS has worked closely
00:20:32with the U.S. Department of Housing and Urban Development, other federal agencies,
00:20:35senators, members of Congress, as well as state and local partners to finance our
00:20:40properties and keep rents affordable for our residents. The primary tool that we
00:20:44and most other developers use to finance affordable housing is a low-income
00:20:48housing tax credit administered by the IRS. Every individual project that MBS
00:20:53constructs is owned by a separate special-purpose entity that receives an
00:20:57allocation of credits that it sells to private investors who secure limited
00:21:01partnership interests in the projects. In exchange for receiving the tax credits
00:21:04and other benefits, the investor provides the equity that we need to
00:21:07build a housing. In addition to securing equity, MBS and other affordable housing
00:21:12developers often take out private loans from commercial banks or the FHA to
00:21:15finance construction. As interest rates rise, the amount of debt any project can
00:21:19leverage goes down, which is why this inflationary market with high interest
00:21:23rates, increasing construction costs, and a soaring insurance
00:21:28market has been particularly challenging for the affordable housing industry. For
00:21:32these reasons, we researched with enthusiasm the prospect of utilizing
00:21:36TIFIA or RIF loan products, essentially low-interest 35-year fully amortizing
00:21:40loans, to help close the gaps of our projects around the country. As a
00:21:44national leader in urban and field development, often at transit locations,
00:21:47MBS felt that our affordable housing developments in local communities would
00:21:51significantly benefit from this tool. However, legislative action is needed to
00:21:56effectively pair TIFIA with LIHTC. Below is a summary of technical challenges and
00:22:00potential solutions. One is the ratings of partnerships. So again, as has been
00:22:05spoken about, when developers build new buildings, we create special purpose
00:22:10entities, new limited partnerships, or LLCs, to prevent cross-collateralization
00:22:14across multiple properties. And so the investment grade requirement, when
00:22:19you set up a new entity, it has no borrowing history, and so that makes us
00:22:23ineligible to use the TIFIA product. The development community would need a
00:22:27legislative change to this rule in order to use TIFIA funding. One potential
00:22:32solution is to use the underwriting metrics from FHA or another HUD office
00:22:36familiar with assessing risk for affordable housing transactions, in lieu
00:22:40of securing a specific rating for a borrower. Two is timing. All funding
00:22:44sources have to be legally bound prior to or simultaneously to closing on a
00:22:48TIFIA or RIF loan. The challenge that many state housing finance agencies
00:22:53require developers secure written commitments for all funding prior to
00:22:57applying for tax credits and tax-exempt bonds. It creates a chicken-and-egg
00:23:01dynamic. We can't secure a TIFIA loan without securing tax credits, but we can't
00:23:05secure tax credits without securing TIFIA. One workaround would be for DOT to
00:23:09underwrite specific deals and issue conditional commitments to projects that
00:23:12would make closings condition upon meeting other obligations, including
00:23:16securing other financing. This would allow developers to use the TIFIA
00:23:20conditional commitment to secure credits and bonds, and then we can close on all
00:23:23financing simultaneously. Two other things I'll note in my remaining time.
00:23:29Both have been discussed a little bit. One is the role of inter-creditor
00:23:33agreements. So as was just mentioned, TIFIA finances up to 49% of your project
00:23:38costs. I would say in the affordable world with restricted rents and high
00:23:41operating expenses, we actually don't get that close to 49% because there are
00:23:45expensive projects that are near transit, and the NOI and debt that you can
00:23:49leverage is not close to 49%. Net operating income, sorry. In the market
00:23:55rate world that has higher rents, you do, the 49% does become a barrier. We then
00:24:01will have a gap in the financing. So we could have a TIFIA loan, project
00:24:06equity, and there's a gap. The gap could be filled by a commercial lender, but
00:24:10then we would have to negotiate inter-creditor agreements between a
00:24:13commercial bank and DOT in order to negotiate things like what happens upon
00:24:18foreclosure, refinancing, surplus cash flow, just all the risks of a commercial
00:24:24lender working with the federal government. So we would have to work
00:24:26through that challenge, and it would be great to have more certainty on rules
00:24:30around that. The last item has to do with re-syndications. At the end of a 15-year
00:24:35tax credit compliance period in the affordable world, owners such as MBS look
00:24:39to re-syndicate or rehabilitate the properties. That's where the investor
00:24:43exits the partnership. We can bring on a new investor, source new equity to
00:24:47rehabilitate the properties, and there's no guidance and regulations around TIFIA
00:24:51about what to do in year 15 when you want to re-syndicate and bring in a new
00:24:55investor. In conclusion, the TIFIA program could be a valuable tool to accelerate
00:24:59the production of affordable housing apartments across the country at
00:25:03transit stations, meeting DOT's GHG reduction goals. However, the challenges
00:25:08outlined above would need to be addressed before the affordable housing
00:25:11community could utilize the program and better incorporate it into the existing
00:25:14array of financing tools, especially in including the long-term housing tax
00:25:18credit. Thank you. I want to thank all of our testifiers. Really good input here,
00:25:25and I'm probably gonna do a second round, but I want to sort out of all the
00:25:29recommendations that you're making, what can be done administratively, and what
00:25:36can, even in that category, what would require a rule change rather than just a
00:25:41process change, and then what needs a statutory change. So Dr. Faragian, I think
00:25:46you're up to explain which ones of these recommendations need a legislative act
00:25:51and which ones are kind of on the administration. The investment grade
00:25:56rating requirement, that is statutory, am I right about that? Okay, so that's on us.
00:26:03It sounds like, although NEPA, Buy America, Davis-Bacon are clearly
00:26:09statutory, there's some administrative flexibility to at least make it work
00:26:13better. Am I getting that right? That is correct. Okay, and tell me about the
00:26:19amortization period under a TIFIA loan. Is it, we were talking earlier, it's 30
00:26:24years or it may be up to 40, or how does this work? It's typically 30 or 35 years
00:26:30in addition to the construction period that could add up to 40 years.
00:26:35So the loan period starts when the construction is complete? Yes, so
00:26:42we don't count the construction years. If you count five years of construction, 35
00:26:45years of the loan payment period, 40 years total amortization. And Dr. Lowe,
00:26:51you were saying that's a problem? It's only attractive to some kinds of
00:26:56developers. I, you know, I would say for some developers, being able to
00:27:01amortize over a longer time period is really attractive. So for example, for the
00:27:05public sector, who's probably going to get involved in a lot of these kinds of
00:27:09projects anyway, in order to credit enhance them and meet that requirement.
00:27:14But in conventional commercial real estate, typically projects refinance at
00:27:21the end of the construction period, and then they were looking for a 10-year
00:27:25loan. And the, I'm just picturing a capital stack that includes like a 30 to
00:27:3135 year amortization period, and then the remaining, say 51%, that's at a 10
00:27:37year amortization period. Can that even function? Can you sort of refinance the
00:27:43TIFIA loan and like and consolidate after the project is built? Does this
00:27:48work? Yeah, I think TIFIA loans can be refinanced anytime. They can be
00:27:52refinanced without any penalty. So that's one of the flexibilities we
00:27:55provide. And also we are flexible in terms of the term. Some borrowers
00:27:59want a 10-year loan or 15-year loan. We actually have no limitations on the
00:28:04limits. Okay, not a problem for us to solve. Template documents sound very
00:28:08smart. Can you please report back to the committee about that? The loan to cost
00:28:17threshold, is that also statutory? Yes, that's statutory. And I think that, you
00:28:25know, what I'm proposing here is just to synchronize TIFIA and RIF. You know, why
00:28:30favor projects that happen to be near a railroad station as opposed to a light
00:28:35rail station? I think in a normal person's mind, they think that these are
00:28:40rail stations. I'm the TH chair and I'm not sure I could describe the
00:28:44difference between the two of those things. Can we go back to sort of how
00:28:51difficult the investment grade rating requirement is to Mr. Nagraj? Just talk
00:28:56to me about how that basically doesn't work in the marketplace. It
00:29:00doesn't work. So, you know, if we're looking to develop 100 units of
00:29:04affordable housing or mixed-income housing somewhere in the city, we would
00:29:07set up a new limited partnership. We would source debt and equity, hire the
00:29:12architects, do the environmental testing, all the work that we need to do. That
00:29:16entity has no, you know, 10, 20-year borrowing history. It's a new special
00:29:21purpose entity that was set up just to own and operate one building. So it
00:29:25becomes a non-starter. And we do that purposefully because we don't want to
00:29:29cross-collateralize 100 units here with 100 units in Baltimore and then all of
00:29:33a sudden the two can make each other at risk. So we very purposefully set up
00:29:39special purpose entities to individually own. When we do that, of course, there's
00:29:43this inability to have any kind of investment grade. So basically the only
00:29:46way you can do this is if you're big enough to already be investment grade
00:29:50and you're doing a number of projects or you're a county. That's right. And I
00:29:54again think about the FHA model of when we propose a project to FHA, they say,
00:30:00hey, what are your costs? What are your stream of rents? Are your rents
00:30:03supportable? Is your debt supportable? You know, kind of prove to us that this
00:30:07project can operate successfully long-term. They don't look at the
00:30:10borrowing history of the borrower. They look at the validity and the viability
00:30:15of the actual project. And that's to say nothing about the sort of administrative
00:30:18burden, time, and money it takes to actually get your credit assessed, even
00:30:23if you could. Because this requirement, which sort of exists for counties,
00:30:28you know, by the way, on the tribal side, this is also a problem. Because some
00:30:34tribes, you know, go to Wall Street and make their pitch and get their, you know,
00:30:38A- or B- plus credit rating or A credit rating. But a lot of them are too
00:30:44small to go in and do that kind of analysis and demonstrate that kind of
00:30:49creditworthiness. So that's, this is like in multiple ways not working. Dr. Lower,
00:30:54you were gonna say something? Yeah, I mean this is about protecting the public from
00:30:57risk, which as a taxpayer I'm in favor of. But, you know, the question is how much
00:31:02risk? If a trillion dollar infrastructure project defaulted, that does feel like
00:31:07that would be kind of bad. But these real estate projects are much smaller. And
00:31:12requiring an investment grade rating is like crushing an ant with a boulder in
00:31:17terms of, like, congratulations, the ant is dead, the public is protected from
00:31:21risk. But you could have gotten it with something much smaller and more
00:31:26practical. Which is like normal underwriting? Correct. Okay, and that's the point I
00:31:30think here. Yeah, I'm not proposing do not vet these projects and do not protect the
00:31:35public from risk. Instead, underwrite the way that all other real estate is
00:31:41underwritten. Right, which is you look at the project and see whether it makes
00:31:45any sense. What about this requirement that the, that the TIFIA money be
00:31:50sort of the last dollar in? Dr. Farajian, is that something we can, is that
00:31:56something you can fix? Or do you, is this all gonna end up being on us to pass a
00:32:00new bill that includes all these technical fixes? But I'm trying to sort
00:32:03out which of these things you think the department could fix without our
00:32:08intervention. The requirement, the requirement that we have is to make
00:32:12sure that at the time that we close a loan, project is fully funded so there
00:32:16are no more gaps in the project. Because there has been cases in the past that
00:32:20we would underwrite a loan, we will approve the loan, the project would
00:32:23start construction, but there's a silly gap and the project cannot be completed.
00:32:27But that doesn't mean that we would like to be the last dollar spent on the
00:32:31project. We can be the first dollar spent on the project. By the time that we close
00:32:34a loan, we would like to see project fully funded. Right, but if those requirements
00:32:39exist for other parts of the capital stack, then aren't we actually stuck? We
00:32:44can actually work with them to close simultaneously. In some cases, we have
00:32:47closed this loan simultaneously. So we work with other lenders to close at the
00:32:51same time, to make sure that they know that our loan is being closed and we
00:32:55know that their loan is being closed. Vice Chair Hyde-Smith. Thank you, Mr.
00:33:02Chairman. As I noted in my opening remarks, the TOD has not gained nearly as
00:33:07much traction in rural areas, but has seen growth in larger, more urban
00:33:12population centers as means of creating connected communities. But my first
00:33:18question for all three of you, the panel, is kind of twofold. What unique
00:33:25challenges do less densely populated areas face when considering a TOD
00:33:31project, and how can the federal government assist small or mid-sized
00:33:35communities in ensuring that the benefits of TOD are not just constrained
00:33:41to urban areas? And I'll start with whomever. Thank you for the questions.
00:33:49Those are real challenges. On the first question around unique
00:33:54challenges to less densely populated areas, infrastructure costs are
00:34:01significant. So when we're building in more remote locations around the country,
00:34:05you know, just the trenching, the power, the water, all the costs that
00:34:11are not going to yield an immediate return on your investment, because you've
00:34:15got to do a high amount of infrastructure before you can go
00:34:18vertical. So essentially finding a subsidy or finding some source to pay
00:34:23for that infrastructure cost, because essentially, as we build around the
00:34:26country in Huntsville, Alabama, or Winston-Salem, North Carolina, we are
00:34:31creating new roads and streets and utilities that didn't exist anymore. So
00:34:35finding a source to help finance that would be critical, because only once
00:34:40we do that can we go vertical. So I think that would be a critical piece. I just
00:34:47like to jump in and add that, you know, what rural communities want is to be
00:34:52connected, you know, connected to their larger regional economies and to the
00:34:56national economy. They don't want to have to leave and go somewhere else in order
00:35:00to be connected. And part of maintaining, for example, you know, rail service at
00:35:07smaller stations in more rural areas is to do this kind of placemaking, real
00:35:15estate, land development around the station in order to make sure that the
00:35:20station has demand and remains a vibrant anchor that can justify the
00:35:26rail service that preserves connections between communities that have
00:35:30historically been connected. Thank you, very logical. Thank you for that question,
00:35:36Senator. A couple of issues that I hear from rural communities I can quickly
00:35:41summarize for you. One is we do have a program called Rural Project Initiative
00:35:46under which we cut the interest rate from treasury rate, which is a regular
00:35:50rate that we charge, to half of treasury rate. That's very popular with a lot of
00:35:54rural communities. We have financed many projects since 2019 that we rolled out
00:36:00that initiative. We do have 10 projects right now in our pipeline, four of them
00:36:05being TOD. The biggest challenge that I'm hearing from them is a legislative
00:36:09requirement that those projects to receive half treasury rate, they need to
00:36:13be less than $100 million. $100 million years ago would have been a
00:36:18substantial amount of money for a lot of these projects. Today a lot of these
00:36:21projects are hitting that threshold. That's a big challenge for them.
00:36:25The other challenge is we can waive their advisor fees and pay for those
00:36:30advisor fees out of our TIFIA subsidy budget that we receive, but as long as
00:36:35they're less than $75 million. That's another challenge that a lot of
00:36:38these communities, they have an upfront advisor fees that unfortunately we
00:36:41cannot pay for those fees, even though we do have budget to pay for it
00:36:45because of that limitation. The third challenge is having capacity at local
00:36:50level to comply with federal requirements, understand how to go
00:36:54through NEPA process, understand how to go through underwriting process. We do
00:36:57have a couple of technical assistance programs that we are helping those
00:37:00projects. Innovative Finance and Asset Concession Program, I mentioned earlier,
00:37:05Thriving Communities, Regional Infrastructure Accelerator Program. The
00:37:11experience has been very good. We are working with a lot of rural communities,
00:37:13but of course there is more need out there than what we have so far met, so
00:37:18we'll be happy to expand those programs and work with more communities to build
00:37:23more capacity at local level. Very, very helpful. Excuse me? My next question is
00:37:29that, oh I'm sorry. Can I make one more? Sorry to interrupt you. Just one
00:37:34more point on this that I'm reflecting back on some projects we're looking at
00:37:39in Missouri and other kind of lower dense communities, and that is, I think
00:37:44it's worth revisiting the transit requirements, and specifically what
00:37:50we're seeing is this, the term intercity bus and some of the requirements
00:37:55that we have. They have kind of curious definitions, and I know this is a
00:37:58little bit in the weeds, but it's super important, and I think it prevents
00:38:01projects from either qualifying or not. The definition around intercity bus
00:38:05includes bus routes where 50% or more of the passengers do not make a same-day
00:38:10return trip, which is a curious, you know, if we're trying to promote TOD and
00:38:15greenhouse gas reduction, the fact that we're trying to incentivize people not
00:38:19making a return trip is, I think, too restrictive, and when we look at
00:38:27the definition of bus rapid transit, fixed route bus systems that operate at
00:38:33least 50% of the service on a fixed guideway, so requiring a fixed guideway
00:38:39or a separated lane, where when I think about a lot of rural communities, it's
00:38:43just intercity buses. I think if we eased up on those definitions, it would open up
00:38:47the door for a lot more eligible projects. Thank you, Mr. Chairman.
00:38:54Senator Reed. Well, thank you very much for your excellent testimony, and Dr. Faraj-Een,
00:39:01thank you for coming up to Rhode Island and meeting with state leaders and
00:39:04talking about how we can really get moving on this project, and I have to
00:39:08commend Dr. Lowe and Mr. Narage for the wisdom of going to Brown University.
00:39:14It's eminently been demonstrated here today. You're well educated. It strikes me,
00:39:20Dr. Faraj-Een, that HUD has been in the business of housing and affordable
00:39:27housing for a long time, the FHA. Are we trying to coordinate and essentially
00:39:36make your regulations look a lot like their regulations? I know there's some
00:39:41exceptions, but is that an ongoing project? Thanks for that question, Senator.
00:39:45Yes, we have been talking to HUD, working with HUD, trying to learn from them. As
00:39:50you said, they have a lot of experience in this field. It's new for us. We're
00:39:55trying to learn as much as we can. There are some differences in terms of
00:39:58legislations we have, in terms of regulations we have, and some of our
00:40:01policies and regulations were not developed, drafted for TOD, and we need to
00:40:06go back and revise them. So we are going through that process now. Yeah, it seems
00:40:09that we have a responsibility as a general sort of macro view of we're
00:40:15talking about housing here. We're not really talking about developing
00:40:19transportation facilities. They have to be there. So this should be about
00:40:24housing. And if we simplify it to make it look just like or as close as we can, FHA
00:40:31policy, etc., I think we'll be in a much better position. Is that fair? Yes, I
00:40:38agree with you on that, and we're doing our best to the extent possible to be as
00:40:42close as the process and procedures. And we have to do our best, too. Dr. Lowe, your
00:40:47comments, and then Mr. Nagaraj, do you have any comments? Yeah, I mean, I'm
00:40:56certainly in agreement that I think that HUD does have a ton of experience at
00:41:00protecting the public interest while at the same time helping these projects to
00:41:04actually happen. Thank you. Yeah, I was gonna say that FHA has a lot of
00:41:09sophisticated staff. We're used to underwriting these projects. FHA also
00:41:12works with servicers, kind of third-party companies that, so as opposed to FHA
00:41:18staff working with a hundred or more, hundreds of developers and developments
00:41:22around the country, they contract with individual companies, and then the
00:41:25contracts, contractors contract with us. So it reduces the administrative burden.
00:41:30Right, and there's an outreach program, essentially, so that some developers
00:41:35might not be aware of that because there's a transit facility nearby. They
00:41:39could participate in this, but without outreach, they would. One other issue, I
00:41:44think, Mr., excuse me. That's right, happens all the time.
00:41:50Can I call you Aki? Aki. The reason we know each other from 25 years is he was in
00:41:56city year in Providence, Rhode Island, so we're all, we're pals. Should we put
00:42:02some emphasis or incentives for affordable housing? Right now, there's
00:42:06nothing in there, so essentially someone could come in to you and say, I want to
00:42:10build luxury apartments, 1.5 million dollars, until you get to the top floors,
00:42:15and you'd say, okay, well, let's go. That's, should we have some affordable housing
00:42:20emphasis, either incentives or rules? I certainly think so. I think so. According
00:42:26to the National Low-Income Housing Coalition, we have a shortage of over
00:42:30seven million homes for low-income people. Low-income housing impacts job
00:42:34retention, academic performance, mental health, physical health, so I think we
00:42:38have to have those kind of incentives. There have been studies in California
00:42:41with all the TODs around there, that low-income people near transit use, have
00:42:46higher transit usage than wealthy people, market-rate people, and it's because
00:42:51market-rate people have a lot more options between private cars and Uber
00:42:54and Lyft than do low-income people, so I think we can enhance our GHG reduction
00:42:58goals by including some affordability requirement on these developments. And your
00:43:02comments, I would, this is a presumption, I don't know, but in rural areas, you
00:43:07would more likely not find luxury, I mean, rural areas, luxury apartments. That's
00:43:14the place where you probably have a real demand for affordable housing. Is that
00:43:18accurate? That's right. We work in a lot of communities where there is need for
00:43:23housing, but the incomes just haven't caught up with the need, and so those are
00:43:26communities especially where we need to support the middle-class jobs, the
00:43:30lower-class jobs, and people who do need to commute a long way to their employers,
00:43:35so I think it's critically important there. Very good. Yeah, again. Can I add just a
00:43:40little bit? Yes ma'am, please. So what I would encourage the subcommittee to
00:43:44consider is just given that this program has had trouble achieving escape
00:43:49velocity in producing any housing, that just be careful about making it more
00:43:54complicated, to making the projects that would use the source of financing more
00:43:59complex. That said, I do think there clearly is a special case for more
00:44:04generous terms for projects that include affordable housing, but we've, I've heard
00:44:08a lot of creative ideas about how the Build America Bureau is thinking about
00:44:12being more generous, you know, like for example, reducing the rate below the
00:44:17Treasury rate for certain kinds of projects. If the subcommittee will
00:44:22consider increasing the loan-to-cost ratio for TIFIA, perhaps that could be a
00:44:28tie to increase affordability. No, I concur. A simplification, that's why I'm
00:44:32suggesting we look at what HUD does. It's been in the field a long time, and we try
00:44:36to be just like that, so it's simpler for the developer, and also the Buy American
00:44:41versions the chairman met, probably, and you commented, it's probably not
00:44:45necessary given the type of construction we're doing, and the costs we have to
00:44:50maintain, so keep it simple, stupid, is my rule. Thank you. And Senator, if I may
00:44:57add, I would just like to continue on that thought that the Rural Project
00:45:03Initiative that I mentioned earlier, half Treasury rate, that has been very
00:45:06successful. It's for a policy that Congress deemed necessary, and we have a
00:45:11lot of interest in it. A similar model can be used for other type of policies
00:45:16that Congress wants to promote. Thank you very much. Thank you. Thank you, Mr.
00:45:20Armstrong.
00:45:27Senator Hyde-Smith. I just have one more that I'm going to do it the same way.
00:45:33The TOD projects are primarily driven by the local entities due to the need for
00:45:40land, zoning, and things like that, but the success of combining TOD and
00:45:45affordable housing is dependent on these local relationships, and how can transit
00:45:51agencies better partner with housing authorities, developers, and other
00:45:56stakeholders at the local level to increase the supply of affordable
00:46:01housing? How can we improve that? I can go first. Well, thanks for that question,
00:46:09Senator, and thanks to all the good work that members of this subcommittee and
00:46:13committee put into passing bipartisan infrastructure law. We got a couple of
00:46:18very effective tools that I mentioned in my testimony, one of them being
00:46:23innovative finance and asset concession grant program, which right now we are
00:46:29evaluating the applications that we have received. It allows us to provide funding
00:46:34to transit agencies or other public project owners, project sponsors, like
00:46:39municipalities, like DOTs, that own assets that are underutilized, but they
00:46:44have potential for better utilization. The goal is to scan those assets, screen
00:46:49them. The ones that have potential for further development, we want to
00:46:54create a database of those assets and share them with
00:46:58private companies that could then create partnership with public entities and
00:47:03develop them. Most of those assets, by default, are going to be located around
00:47:08transit stations, because those assets that need to be scanned under that
00:47:11program need to be eligible for TIFIA financing. We saw a lot of interest.
00:47:18I'm very optimist about the program. Of course, it's new. We are just
00:47:21establishing it. We are rolling it out, but we saw significant interest. In
00:47:25discussions that we have had with many transit agencies, they have highlighted
00:47:28to me that they do have assets. Many of them, they don't know where those assets
00:47:32are and what is the true value of those assets, what can be done. Hopefully
00:47:35through this program, we will be able to unlock value from some of those assets.
00:47:38Thank you. I'll just pile on there and say that transit agencies systematically
00:47:44are underfunded to achieve their core mission of delivering transit service.
00:47:50It is really difficult for them to think even bigger than that core
00:47:56mission and get at this integration between land use and transportation, even
00:48:00though common sense indicates, man, these transit agencies have all
00:48:05these really valuable assets, why don't they just develop them? This is a
00:48:09capacity issue regarding achieving their core mission. Any way to uniquely
00:48:15support additional capacity, especially bringing expertise and capacity from the
00:48:20private sector, which does the vast majority of real estate in the United
00:48:24States, to these kinds of public assets is the solution that we need right now.
00:48:30Otherwise, I think that the challenge of transit-oriented
00:48:34development is that costs are systematically higher. The infrastructure
00:48:39costs are higher because a lot of this land is needed to continue serving a
00:48:45transit purpose, even as it also makes sense for it to serve a housing purpose,
00:48:50and so that systematically makes the projects more expensive. There's pressure
00:48:54on these projects to include significant affordability because we know that's who
00:48:59needs to live near transit the most, but once again, all that does is increase the
00:49:04gap between feasibility and the project's cost. So anything that the
00:49:12federal government can do in order to provide both the capacity and the
00:49:16resources to close that gap, I believe that the public will be more than paid
00:49:21back in the broad public benefits that will come from better integrating land
00:49:27use and transportation in terms of changes to travel behavior and
00:49:31strengthening housing markets. If I could just add one more thing, just a concrete
00:49:36example. In the Bay Area, the Bay Area Rapid Transit BART system secured a large
00:49:41planning grant to look at all their stations and look to see what are
00:49:45financially feasible TODs that they could have at their individual stations
00:49:50and what should affordability requirements be. Frankly, a really
00:49:53difficult thing is what to do with the parking lots, because people do get
00:49:56upset if they lose their parking, and how to finance replacement parking, and
00:50:00so they secured a large planning grant, and that it was transit and planners
00:50:05working together, because I agree, a lot of these transportation organizations
00:50:10keeping their transit systems alive, especially right now, is their primary
00:50:14challenge, and it's a daunting 25-hour task. So that partnership worked, but
00:50:18as we work around the country, I mean, you talked about partnership
00:50:22with agencies, and right here, or close to here in Baltimore, at
00:50:26Perkins Homes, in Atlanta, in Syracuse, all these are communities where housing
00:50:31authorities and cities are working together to plan communities to
00:50:35accommodate sometimes the divergent needs of a community, because no
00:50:40community is a monolith, but they're able to spend time on the
00:50:46planning and the outreach in order to make sure that the agencies and the
00:50:50people are on board, so that we can build up. And because of the
00:50:54challenges that Dr. Lowe just talked about, that's where I feel like if we
00:50:57could unlock the TIFIA financing scheme, it could help overcome a lot of these
00:51:02challenges on TOD that we don't face in projects that are not near
00:51:07transit. Thank you all. Thank you, Mr. Chairman. Senator Van Hollen. Thank you,
00:51:13Chairman Schatz, Ranking Member Hyde-Smith, thank all of you for your
00:51:17testimony. I've been trying to keep one ear on your testimony on C-SPAN before I
00:51:21got here, but I apologize if I sort of retread territory you've already
00:51:26covered. But in my state of Maryland, the Maryland Department of Transportation
00:51:31has a growing interest in pursuing TOD projects, generally, and it's reviewing
00:51:36opportunities for TOD at current and future stations along existing and
00:51:41future transit corridors, including the future West Baltimore Red Line station.
00:51:47In Maryland, we're trying to revive the Red Line in Baltimore, and that recently
00:51:54received a TOD planning grant. So, Dr. Faragian, as Maryland and
00:52:03Maryland DOT specifically evaluates these TOD opportunities, what should we
00:52:09be factoring into the decision process when considering whether it's a good
00:52:14TIFIA candidate or not? And what is the benefit to Maryland for using the TIFIA
00:52:20program for financing these projects versus the private market or other
00:52:24existing state financing options? Thank you for that question, Senator. Maryland
00:52:30is not unfamiliar with our programs. We have closed a couple of loans in
00:52:35Maryland before. I believe on Purple Line, we have two loans right now, the initial
00:52:40loan and the subsequent loan we provided, as well as a couple of other projects.
00:52:44We have worked with Maryland DOT closely. We are actually in discussions with
00:52:49them on various issues. We'll be more than happy to work with them. My
00:52:53recommendation to them is to come to us and talk to us about those projects as
00:52:57early as possible. I have experts that will be able to walk them through some
00:53:02of the requirements and make sure that they don't do anything on those projects
00:53:06that would preclude them from being eligible for our TOD loans. I mentioned
00:53:13earlier, we have a couple of grant programs that I'm not sure if Maryland
00:53:17has applied to the Innovative Finance and Asset Concession grant program that
00:53:20we are evaluating now. But the new round, of course, is going to go out as soon as
00:53:23we get fiscal year 25 budget approved. I would definitely suggest them, if they
00:53:30haven't applied, to apply for that. And I also know that at county level, we do
00:53:35work with many counties, including Montgomery County. We just gave them a
00:53:40grant to establish what we call a regional infrastructure accelerator in
00:53:45Montgomery County. We will be more than happy to work with them because, as you
00:53:49mentioned, there are a lot of opportunities in Maryland, a lot of good
00:53:52projects. And my staff and I will be happy to meet with anyone that you think
00:53:58would like to discuss any of these opportunities in more detail.
00:54:02I appreciate that, and they may well be listening. We will look forward to
00:54:05putting you two in touch. As you say, Maryland has used TIFIA loans before the
00:54:11purple line you mentioned. I don't believe MDOT has used a TIFIA loan in
00:54:17connection with the TOD before. This is a more innovative, new approach, and
00:54:23that's why we look forward to meeting to get a better sense. And I guess partly
00:54:28because this is a newer idea, it's an undersubscribed program, which means
00:54:36there's a lot of opportunity, I hear, for those who are sort of paying attention.
00:54:41But what can Congress do to better help community states and Montgomery County,
00:54:49other counties in Maryland, other places around the country, learn more about and
00:54:54access the TIFIA program at the Build America Bureau? So how can we make this
00:55:02more attractive to transit agencies?
00:55:06There are a couple of factors that we can propose. Some of those factors
00:55:11require legislative change, especially related to TOD projects. I believe the
00:55:19number one factor that everyone here agrees is the rating requirement that is
00:55:26preventing a lot of projects to be eligible for TOD loans. That's a
00:55:31legislative requirement. For smaller projects, sometimes the size limit of the
00:55:39project can make them not feasible because some of the fees are fixed fees.
00:55:44For example, conducting a NEPA study, whether a project is a $50 million
00:55:48project or a $500 million project, for some of those projects, providing more
00:55:52incentives and initiatives to Congress, that would be helpful for them, being
00:55:57able to waive, for example, their fees or being able to provide a lower interest
00:56:02rate to some of those projects. We do provide a lot of technical assistance
00:56:06that has been very successful at the Bureau. Our TOD program has grown
00:56:10significantly. The overall pipeline for our Bureau has grown significantly from
00:56:15almost $4 billion back in 2019. Now we are at about $40 billion today, but we'll
00:56:19continue that outreach. We'll continue capacity building at local level. The
00:56:25other thing that I can tell you, which is basically what we are doing now at
00:56:28DOT, is to make sure that we streamline our process, procedures, and everything
00:56:33that we can do internally to make sure that this new program, TOD, can fit
00:56:38within the broader programs that we have that were initially developed for
00:56:41highway, transit, or rail projects, not necessarily vertical development. That's
00:56:45an ongoing battle, ongoing process, so we need to go back and change some of the
00:56:49regulations and policies that have been in place for quite a long time to make
00:56:53sure that they're not putting additional burden on some of these TOD projects.
00:56:58Well, thank you for that, and I think we can sort of break these barriers and
00:57:03impediments into sort of two categories. Well, maybe three. One is just getting
00:57:08more information out about these. Two is streamlining the process internally, but
00:57:13then you mentioned some of the legislative barriers that require the
00:57:18new laws, for example, with the rating systems. So if I could just ask
00:57:24our other two witnesses to comment on some of those suggestions for
00:57:30streamlining and improving this program, and whether you have any additional
00:57:36thoughts as we move forward. Thank you, Senator. You know, I think this is the
00:57:41right question to ask, that requirements that make sense for billion and trillion
00:57:46dollar infrastructure projects and should apply to those do not necessarily
00:57:53translate to real estate projects that are much smaller, but are a critical
00:57:58piece of those billion and trillion dollar infrastructure projects being
00:58:01successful, right? The purple line doesn't work if it's a purple line to nowhere.
00:58:05Right. We want every station to be somewhere, and it's always possible, of
00:58:14course, technically possible to comply with federal requirements, but if that
00:58:21results in projects where the percent of the project costs, that is lawyers
00:58:26getting paid, is as big as the percent of project costs that is low-income
00:58:33households having somewhere to live that also has great transportation, that
00:58:38while great for lawyers, is unfortunate for the public. And so right-sizing the
00:58:45the federal administrative requirements on these projects is something that I
00:58:50think ultimately does serve the public interest and does not expose the public
00:58:55to more risk. And so Buy America is a great example of that in the context of
00:59:00real estate. We want these, we want this to be great housing, right, really good
00:59:05quality, built to contemporary building standards, but the kinds of heating and
00:59:13cooling systems that are used in the best quality LEED buildings now are only
00:59:19manufactured abroad. There is no, we aren't at the point where we've
00:59:24created a market for that in the United States. When we're ready and that
00:59:29can happen, that will be that will be great, but trying to force it to happen,
00:59:34trying to move the market one individual transit-oriented development project at
00:59:39a time, that doesn't work and it doesn't scale the same way
00:59:43that it does work when you put those kinds of market-moving policies into a
00:59:48trillion-dollar infrastructure project. Thank you. I don't, Mr. Chairman, I have to
00:59:54ask you if you can keep it really short. Sure, I'll keep it really short. Thank you.
00:59:58McCormick Baron Salazar is working at Perkins Homes and just next to downtown
01:00:03Baltimore, Fells Point, 800 units of mixed-income housing with the city and
01:00:08the Housing Authority and the state, and so we're in the middle of redeveloping
01:00:12the public housing. And what we're seeing with this densification is area median
01:00:18incomes are rising. It's kind of what we want in redeveloping a very distressed
01:00:22low-income community, and the need for mobility is increasing. So we're seeing
01:00:27as we're kind of creating a new little mini-city in this otherwise
01:00:31disinvested neighborhood, the needs of the residents are growing, they need to
01:00:34be more mobile, and I would like to see that it is, I hope it's, people
01:00:39see it as a false choice between transit and housing. The more housing we build at
01:00:43transit stations, the more it is going to increase ridership and the more fair
01:00:48revenue is going to increase from the transit stations. So we do feel like this
01:00:51is synchronous. We talked earlier about the rider, the transit usage of
01:00:55low-income folks is higher than those with with means, because low-income folks
01:01:00don't have a ton of options, unlike folks who own cars and lift an Uber
01:01:04everywhere. So we think that that synergy is really important and are hopeful that
01:01:10we can work this out, because that spread on loans is massive
01:01:15between a TIFIA loan and a conventional loan. It can yield millions of dollars of
01:01:19savings, and that savings, while we don't want it to go to the lawyers, no offense
01:01:23to the lawyers, could be, could expedite the acceleration of new housing being
01:01:28built. Well thank you, thank you for mentioning Perkins Homes. I'm glad you're
01:01:31working on that project, and really thank all of you. It's been very
01:01:35informative. Thank you. Thank you. Thank you, Senator Van Hollen. To close, you
01:01:41know, I think over the next year or so, we're going to need to be, I think the
01:01:48economy is doing fine. I think the real estate economy is not doing fine, because
01:01:52of the interest rate environment, and I think this is the exact right time to
01:01:57start deploying these TIFIA loans for housing, because they're
01:02:01counter-cyclical, because the spread between a commercially available loan
01:02:05and a TIFIA loan is massive at this point, and so our timing, although it's
01:02:11arguably nine years delayed, some of this you could be subject to criticism. Some
01:02:16of this was the previous administration sandbagging the federal law, but it's
01:02:21just worth pointing out that it's sort of go time. So along those lines, HUD has
01:02:29standard underwriting procedures. Dr. Farajian, why wouldn't we just sort of
01:02:35borrow those, as opposed to reinventing the wheel here? Thanks for that question,
01:02:42Senator. You're absolutely right. They do have underwriting procedures. We have
01:02:47been talking to them. There are some administrative challenges in terms of
01:02:51borrowing everything that they have, or even having access to everything that
01:02:54they have. We are working through some of those challenges to different agencies,
01:02:57different process and procedures. We are working with them, as I mentioned
01:03:02earlier. We are collaborating with them, but we've got to be mindful of some of
01:03:06those challenges that has slowed us down. I'm not sure what you're talking about.
01:03:09It sounds like you're getting resistance, but I can't tell whether it's sort of
01:03:13interagency cultural resistance or like an actual problem. It's just when
01:03:20two agencies are trying to make two different programs that are different
01:03:24and separate from each other work, and get together and make things work. There
01:03:28is a need to have an interagency agreement. There is a need to get the
01:03:32lawyers involved and make sure that the information that is being shared is all
01:03:35being shared in the right way, in the formal way. There are steps that we
01:03:40need to go through. We're not talking about private information. We're
01:03:44talking about a sort of template for analyzing whether something is a viable
01:03:49project. I have a hard time believing, since you are in the federal
01:03:53government and so is the other agency, that I get that you need to work it out,
01:03:57but I'll follow up through staff and directly with both
01:04:02secretaries. I just don't want us to get stuck. I know how hard some of
01:04:09this stuff is, but not for good reasons. There may be good reasons that some of
01:04:13this stuff doesn't work. HUD stuff doesn't work at DOT. Fine, but
01:04:17underwriting procedures, you don't make them up. They're not
01:04:21like boutique-y little things where you say, well this is how I do it,
01:04:25from the transportation perspective. Evaluating the viability of a project is
01:04:29a thing that people do and mostly those things ought to rhyme. My understanding
01:04:36is a bunch of these projects potentially have an FHA portion of their capital
01:04:44stack and potentially a TIFIA portion of their capital stack. I'm getting nods,
01:04:48correct? Okay, so if that's true and something comes in through FHA and
01:04:55Ginnie Mae, hasn't the federal government established its
01:04:59creditworthiness, the creditworthiness of the project, and do we need DOT to do
01:05:05its own analysis and require somebody to go to S&P or Moody's or whomever, or can
01:05:12the fact that something has moved through this other federal process and
01:05:17we've decided that's basically investment grade, that's some of the
01:05:20lowest risk stuff around, why wouldn't that suffice in terms of meeting the
01:05:25statutory requirement? Well, the statute is very clear on requiring the rating
01:05:30agencies to rate the TIFIA loan, so that's why we have to require it. Do you
01:05:35agree with that, Mr. Nagaraj? I agree that the statute says it. I do, as
01:05:41you're talking, as a practitioner, I feel like there's kind of a small
01:05:44idea and then a big idea, maybe the solution is somewhere in the middle. The
01:05:48small idea is kind of coordination with a different department using, as you said,
01:05:52same set of regs and documents and pro formas and one set of lawyers. The big
01:05:58idea that I brainstormed was, you know, if there's a joint, you know, a TOD office
01:06:03and there were folks from HUD, FHA, and DOT that are all kind of, not to create a
01:06:09different bureaucracy, but I think it's, it would kind of accelerate and create a
01:06:14super agency that could, that could be the coordinating entity that developers
01:06:20and developments around the country work with. That, for me, is a bigger idea. It's
01:06:24a bit of consolidation or kind of a super agency, but somewhere, whether it's
01:06:27kind of mere coordination or the creation of a joint TOD office, I think
01:06:32there's, there has to be one set of docs, one set of regs, so that we're not
01:06:36getting underwritten several times by different public agencies. I'm 100% sure I can't
01:06:40pass a super agency in this Congress, so let's go for a working group and
01:06:44all seriousness, I think we don't, we don't need a new statute and a new
01:06:48architecture and a new law. We could just start working together better and
01:06:53certainly both secretaries could say, you guys are going to work together and
01:06:57here's the team. It can be informal, it can be a task force by memorandum,
01:07:02whatever, but I like the idea and I'm not quite satisfied, Dr. Faragian, that, that
01:07:09we couldn't meet the requirements if another executive agency is evaluating
01:07:15this and determining its credit worthiness, so I'm just gonna, I'm not a
01:07:19lawyer, but I think we should try to put our heads together and figure out if
01:07:23there is a workaround here, especially in the, in the short run. Senator, I'll take
01:07:28that back and have the lawyers look at that. Okay, and if they have a bad answer,
01:07:33don't give it back to me and certainly don't put it in writing. I'm just
01:07:37kidding. The, but I, look, I think thinking about legislative intent, right, we're
01:07:43saying the Congress said, oh and make sure this stuff is creditworthy. I'm not
01:07:49sure we're opining about the particular mechanisms. Now sometimes the plain
01:07:53language of the statute doesn't give us a lot of room to maneuver, but sometimes
01:07:56it does, and so I just think we need to press on this, especially even if we were
01:08:01able to make some of these changes, we still got to work them up and go through
01:08:04the legislative process. It could be optimistically five months, it could be,
01:08:08you know, pessimistically way more than that, so we've got to work on parallel
01:08:12tracks to fix some of this stuff administratively, you know, hope for the
01:08:17best and plan for the worst. The final question I have is just on the, on the
01:08:21pipeline. You said there are, I guess, 20, 23 projects in the current pipeline, is
01:08:27that correct? It's changing every day and it depends on the definition of pipeline.
01:08:31We have received 48 letters of interest. Okay, so that's actually what I was going
01:08:36to ask, because like, you know, I deal with the great people at the Hawaii
01:08:40Housing Finance Development Corporation, and sometimes they have a spreadsheet
01:08:44that's like, look, 28,000 units, right, and then you kind of go like, well what's, you
01:08:51know, where are they? Do they have their entitlements? Do they have their
01:08:53commercial loan? Do they have, you know, site control? Do they, you know, all the
01:08:57rest of it, and so what you're saying is the pipeline could be very early, hey,
01:09:03we'd like to learn about this, or it could be relatively far along, is that
01:09:07the way I should understand this? The 48 projects that have submitted letter of
01:09:11interest, which is the first step to start our process, they're a little bit
01:09:14more developed than some of the other projects that have just talked to us and
01:09:19say that we have an idea, so we have many more projects that have talked to us,
01:09:23they said we have an idea, but they have not submitted anything in writing yet.
01:09:26How many are close to being consummated? 24 out of those 48 we have assigned
01:09:37what we call project development leads. These are individuals within Build
01:09:41America Bureau, single point of contact, is working with them very closely. So they're
01:09:45case-managed, sort of one by one? Yes, one by one, to help them, as I mentioned
01:09:49earlier, to maneuver through some of those challenges that we know for those
01:09:52projects exist. So let's just talk about throughput, so it's 48 or it's 20
01:09:57something or whatever, by the end of the year what's an optimistic number of
01:10:02projects that will have gone through this pipeline and all the way to getting
01:10:07a loan? So we just closed one deal, we have two other projects in credit
01:10:10worthiness right now that they're actively underwriting loans for them.
01:10:14It's hard to say whether they close a loan or not, because the ball is
01:10:18sometimes in their court and making sure that they can get things done on their
01:10:22side. But I believe one of them, which is a housing project, has a very, very high
01:10:27chance of closing this fall. So I guess my question is sort of, I'm
01:10:32asking you for your intuition, and if I were you I'd be a little nervous about
01:10:36supposing what might happen, but I'm gonna press you a little bit. It seems to
01:10:42me that you're optimistic that this thing has been delayed pretty much
01:10:47intentionally in the previous administration, and then you have your
01:10:50normal kind of like federal government getting the wheels turning, and now
01:10:54we're at a point where this thing may be nonlinear in its growth. Is that what
01:11:00you're anticipating? Like if we come back six or eight or twelve months from now,
01:11:05you think you're gonna have some more success to report? Yes, Senator. I think
01:11:10the first few deals will be very difficult to close, because we have a lot
01:11:14of challenges that we need to work through them. But once we have a few of
01:11:17those deals going through the process, once we have answered a lot of questions
01:11:22that we are already working on them, I think the process is going to become
01:11:25much simpler next year for a lot of these deals to go through the process.
01:11:28Okay, and we're gonna continue to track this, but I would like you to convey both
01:11:32to your department, and also we'll convey it to HUD and to the White House, that
01:11:36this is something we're watching, and that, you know, sometimes you pass
01:11:39a law and it just sort of self-executes, right? Sometimes you have to do the do,
01:11:44and you have a lot of work to accomplish. If there's a place for this committee to
01:11:51nudge the bureaucracy along, if there are things that we can do to provide top
01:11:58cover or momentum, we want to do that. I mean, this is a highly technical space,
01:12:03and yet we had pretty good participation in this hearing, and usually if it's
01:12:09something that requires a deep level of technical expertise, members find another
01:12:14place to be, but we are really interested in this, and so I want you to know we're
01:12:19gonna be tracking this, and we're available for small favors that are in
01:12:24the four corners of the statute. So I want to thank all of the testifiers for
01:12:31being here. Sorry, I'm going to my closing script. I'm gonna make it up. The record
01:12:38will remain open for the next two weeks, so that any member can submit questions
01:12:44for the record. Thank you for your time and testimony. This hearing is adjourned.
01:12:48Thank you.