MuniMae branches out, finances building of 2 complexes With help from partners, firm buys mortgage bonds

June 05, 1998|By William Patalon III | William Patalon III,SUN STAFF

A partnership with a Boston-based real estate investment company is helping Baltimore-based Municipal Mortgage and Equity LLC to broaden its business.

Municipal Mortgage, better-known as MuniMae, buys tax-free bonds that were used to finance apartment complexes. Typically, those apartment complexes have been built and are about 95 percent occupied.

With the New England investment company Boston Financial, MuniMae is helping finance construction of two senior-citizen housing projects in San Jose, Calif., said Mark K. Joseph, chairman and chief executive officer of MuniMae.

"This is the first of what we hope will be a new product line for us," Joseph said in a recent interview.

In two transactions in April, MuniMae bought $16.05 million worth of tax-exempt mortgage revenue bonds that will be secured by the senior-citizen housing complexes. The bonds, along with low-interest financing from the city of San Jose and tax credits, will finance the construction of two communities for retirees.

The first, Coleman Senior Apartments, is planned as a 141-unit development about five miles south of central San Jose. The $8.05 million bond financing the project will pay 8 percent during construction and 7.25 percent when construction is complete.

The second project, Italian Garden Senior Apartments, is a 140-unit community about a mile south of the downtown. The $8 million bond pays 7.8 percent during construction and 7.25 percent thereafter.

Boston Financial, which has about $4.5 billion in assets under management, provides real estate services that include structuring the financing of real estate deals -- including securing tax credits -- development and property management. The Massachusetts company has worked with the Shelter Group, Joseph's privately held property management and development company, on more than a dozen projects during the past eight or nine years, Joseph said.

Joseph said he felt that for MuniMae, a public company, to expand its business, it had to go beyond investing in tax-exempt bonds backed by existing apartment complexes -- it needed to branch out into new construction.

MuniMae buys, services and bundles and sells municipal bonds backed by multifamily housing. That's almost like a real estate investment trust (REIT) except that REITs invest in the real estate: apartment complexes, office buildings and shopping centers.

Like a REIT, MuniMae is exempt from taxes at the corporate level. And, because the company is investing in tax-exempt bonds whose interest payments are free of taxes, the dividends passed through to investors also are largely tax-free.

Last year, about 85 percent of the dividends paid out by MuniMae were tax-free. It had other income that was taxable.

Linking MuniMae with Boston Financial gives qualified developers a "one-stop opportunity" to get tax-credit-equity and tax-exempt-bond financing for construction or rehabilitation projects, Joseph said.

Pub Date: 6/05/98

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