Private Activity
Bond Financing - The Power To Build...
A
private activity bond financing (also referred to as a "PAB") typically
takes the form of a tax-exempt construction and 
permanent financing wherein an authorized issuer
(within the state where a commercial real estate development project is
located) provides the necessary access for the developer/sponsor for
construction phase and permanent mortgage financing. All private activity bonds are
authorized via a change in the Internal Revenue Service Code enacted by Congress as an
exception to taxation that a specific state may offer.
In
general, PABs are a federal entitlement where (in most cases) the amount
of PAB authority granted to each state is based on a per capita formula
for the purposes of making the entitlement fair and reasonable.
Once the PAB has been authorized, the corresponding state bond
commissions adopt rules pertaining to the application and approval of
projects and issuers. Once the rules are promulgated, you may seek
out an authorized issuer. The authorized issuer is the entity that
actual issues the bonds and receives the net financing proceeds that, in
turn, the issuer then lends to the developer/sponsor's project via a
loan agreement that is part of the bond indenture.
In
many cases, the provision of additional PAB authority is attached to a
specific area that is blighted or has suffered a major disaster.
In recent years, these additional PAB financing have been made available
for disaster relief for areas impacted by the 9/11 attacks (the
"Liberty Zone"), Hurricane Katrina, Hurricane Wilma and
Hurricane Rita disaster areas (collectively, the "GO
Zone"). Congress now uses the "GO Zone"
nomenclature to describe any area requiring federal assistance to
recover from a given natural or man-made calamity. Examples of
qualified project types that have been authorized in the past include:
