Atlanta CFO Balla on housing bonds, sustainable infrastructure

Transcription:

Thomas Nocera (00:03):
Welcome to another episode of The Bond Buyer podcast. I’m Thomas Nocera, regional reporter for the Bond buyer, and I’m here with Mohamed Balla, the Chief Financial Officer for the City of Atlanta, who’s here to discuss an upcoming housing bond sale as well as the recently concluded 34th annual financial services conference hosted by the National Association of Security Professionals in which you participated, CFO Balla. But if it’s okay, I’d like to start at the housing bonds. The first question I’d like to ask is maybe if you could just explain a little bit about what factors are driving the need for that housing bond issuance and what advantage Atlanta sees going to the market for that capital. 

Mohamed Balla (00:43):
Yeah, absolutely. So the city of Atlanta has a goal, and Mayor Dickens specifically has a goal to reach 20,000 affordable units by 2029. So the housing bond plays a critical role in unlocking some of the initiatives, primarily focusing on multifamily complexes as well as leveraging resources to unlock value in underutilized public land. So as you know, the city received a $200 million in private and philanthropic funding from the Community Foundation, and so it was the will of the city to also issue a $100 million dollar housing opportunity bond to create an arsenal of roughly $300 million in affordable housing funding. This bond will help us, again, leverage existing public land resources, help us execute faster on some the non-tax credit projects, as well as funding through our Invest Atlanta and Atlanta housing authority projects. 

Thomas Nocera (02:09):
Will this be one of several housing bond issuances? Is this something that’s going to be revisited going forward, and if so, will the structure with private backing plus the public financing be something we’ll see again? 

Mohamed Balla (02:25):
Yeah, absolutely. Hopefully that will be something that we’ll continue to leverage as an additional tool for us. So this isn’t the city’s first housing opportunity bond. We did one in 2021 and now we’re doing one now in 2023, and we structured this one as a drawdown bond structure, and so it’s a floating rate structure will be taxable based on a sulfur index. And the intent of the city is once these funds have been drawn down, we will be refinancing and taking them long at a later date. 

Thomas Nocera (03:09):
We spoke previously, I believe it was in May, and we spoke about some of the economic conditions surrounding expected issuances for the city then. So right now, several months later, towards the tail end of summer, from your perspective and from the perspective of your office, given the economic developments outside, has anything changed in terms of the environment you’re issuing into and is the muni market facing different conditions, modified conditions from even earlier this year? 

Mohamed Balla (03:39):
Yeah, markets have been relatively the same since we spoke. However, what we’re seeing now is a lot of projects that are eligible for these fundings do continue to have gaps in their funding structure. So I think we entered the market at a very opportune time, especially for developers who are interested in locking some of the state tax credits. And so usually they’ll need some sort of public funding to help ’em unlock that value as well. And so with the tightening of credit markets overall, I mean a lot of developers, their capital stack has been impacted, so having the ability to work with entities like Invest Atlanta, Atlanta Housing Authority to unlock some of these projects and keep ’em on schedule has been critical for us. 

Thomas Nocera (04:37):
Now, the housing crisis we could call it isn’t a localized issue. I’m guessing this is something that’s being seen across the country and there’s also methods coming being brought to bear to address it. Can you speak to maybe what’s driving this issue nationwide, and if you know of any clever ways that other cities or states have approached it, the financing behind them addressing it? 

Mohamed Balla (05:07):
Yeah, so it is definitely an issue that many municipalities and jurisdictions are facing nationwide. It’s continuing to be at the forefront for many people. One of the things that we are doing here in Atlanta, and I think others are starting to think about critically is how do you incentivize public land development? So whether it’s through land that’s owned by local jurisdictions or some of our other peers, there is a lot of public land, whether it’s owned by transit authorities or school boards or other types of entities that can be leveraged for affordable housing for density to create an additional opportunity for municipalities to think creatively because the land’s already an asset that they have. It’s sitting there many cases, bare and underutilized. So thinking about transit oriented development, for example, in a large parking structure next to a MARTA station, for example, here in the city of Atlanta, how does a city and an entity like MARTA work together to unlock that value and allow for deep affordability is something that the city is consistently thinking on creatively. There’s other opportunities that different cities are looking at as well. That makes sense for them. 

Thomas Nocera (06:41):
We’ll be right back after this important message. And we’re back talking with Mohamed Balla, chief Financial Officer for the City of Atlanta. Can you tell us now a little bit about the National Association of Security Professionals conference that recently concluded in Philadelphia and the focus of that conference? 

Mohamed Balla (07:03):
Yes, the NASP Conference, as you are very well aware of and was good to see you there, was an incredible conference. It allows securities professionals, underrepresented securities professionals throughout the country to come in and talk and share ideas about the current landscape, share some innovative thoughts regarding things that they’re coordinating and working on, anything from ESG initiatives down to deal flow, a lot of conversations about private equity and as well as money manager discussion. So it just is a great opportunity for that synergy to exist amongst a peer group that is kind of working in the same industry and facing some of the same challenges for us in the city of Atlanta. It’s near and dear to our heart, as it was one of the founders of NASP is our first African-American mayor, the late great Maynard Jackson. And so that lens that he’s put on a conference over the years continues to be a guiding light for many individuals and underrepresented in the securities profession. 

Thomas Nocera (08:26):
The focus of this particular conference was diversity and inclusion, I believe. Can you speak to maybe why that’s important, that focus and maybe why it’s timely, especially now? 

Mohamed Balla (08:41):
Yeah, I mean, so our lens really is, and for some people when you think about diversity inclusion, I think some people view that as it is a static form to look at it as well. If we’re enhancing diversity inclusion, it’s coming at the expense of others. I mean, for most of us in the profession, we know in our heart that diversity inclusion only enhances the professional overall, and it creates, for lack of a better word, it creates a bigger pie for everybody to benefit from. I mean, diversity and inclusion at its core is bringing in new ways, innovative ways, different ways to think and solve problems that enhance and benefit entire communities. So if you’re bringing in new ideas, you’re bringing in different ways of thoughts, you’re bringing in creative ways to tackle problems, we then start seeing efficiency. We start seeing growth, we start seeing things that impact the profession and ends up benefiting everybody that’s involved in the profession, whether you’re underrepresented or not. 

Thomas Nocera (09:58):
Now, the conference had several municipal themed events and discussions. One of which you participated on was the sustainable infrastructures perpetual benefits. I was hoping maybe you could explain a little bit about that discussion and what plays it played in this conference. 

Mohamed Balla (10:20):
Yeah, I think it played a critical role in the conference. So we continue to talk about E S G and the role that it’s playing in our line of work. The city of Atlanta, for example, issued our first social designated bond late last year, and just yesterday, we priced revenue bonds for Hartsfield-Jackson International Airport. $500 million of the $700 million that we priced was deemed as green bonds. So for us, that lens of sustainability, the lens of making sure that the things that we’re doing have triple benefits, that they not only make financial and fiscal sense for our constituents, but they also make environmental and social sense as well too, because at the end of the day, we have to start thinking about innovative ways to tackle these problems, and it’s continuing to be a focus, particularly just given the risk on the environmental side, we are seeing considerable amount of risks that need to be addressed. We have rating agencies that can continue to monitor the risk that the environmental risks on all our projects. For some states that environmental risk is substantially greater than here in Georgia. So I think it’s something that investors continue to worry about that the rating agencies continue to worry about, and that us as issuers need to continue thinking about deeply and structuring mechanisms to protect against that potential risk that is being identified, being quantified, being assessed and analyzed by all parties involved. 

Thomas Nocera (12:21):
Now, one of the issues addressed in that panel was the politicization of ESG, and I just want to know what’s driving that polarization nationwide and what concerns you and the other panelists that were there particularly about that? 

Mohamed Balla (12:39):
To be honest, I don’t know exactly what’s driving that other than the fact that we have become very polar in our politics as a country. So it seems that whatever the issue that it may be that we’re looking at it from purely political lenses now and not from data-driven perspectives. So whether it’s an environmental issue, whether it’s anything that could be a different issue, we tend to look at things from these polar extremes, and I think it’s creating a lot of disservice in many ways. So for us, what we try to do is just allow the data to drive our decision-making. The concern with politics or politicizing this line of work is that regardless of how important and how much data you have to support something, the opposition will continue to look at it from a perspective of what other information can I provide to negate that initiative? So it becomes difficult, but you have to learn how to tune out a lot of that noise and make sure that you’re bringing the right information, that you have a critical lens on it, and that you are moving in a direction that is based on science, based on data, based on facts, and hope to kind of mute any political noise around it. 

Thomas Nocera (14:23):
Now, one of the things also discussed was trying to reduce the cost associated with issuances and with ESG issuances, I should say. Can you explain how that might happen, how those costs might be reduced, which I guess would make these securities more appealing to investors? 

Mohamed Balla (14:46):
One of the natural things about those cost reducing is as collectively, we work to enhance the landscape. So the more firms that are working in this industry that are supporting this space, the more price competition enters into the market about who’s assessing these ESG offerings. Can we start to leverage existing work that’s already in place? I’ll give a good example. The city of Atlanta where we did our environmental impact bond back in 2018, it was the first time for many people working on that deal. So it was the first time the lawyers touched it, first times our FAs touched it. First time the city touched it, and it was a big learning curve. I think the more opportunities you have at these types of initiatives, you naturally start to reduce the cost by just enhancing the learning curve. So you end up having, for example, bond documents that are done for multiple deals that would be in place for people to edit and tweak rather than create from scratch, you’ll have FAs who have worked on these types of structures over and over again, so they build some additional competency and some additional creative ways to be able to execute efficiently and faster. 

(16:19)
I mean, I think all of that eventually reduces the cost of issuing these deals. It’s new, so there’s a big learning curve, and anytime there’s a big learning curve, it will require additional rigor, which could result in additional costs. So for us, I think it’s being committed to the space and also seeing what the benefits for those issuance costs might be in the long run. I mean, I think there’s a benefit in risk reduction, especially in things that are environmentally sustainable down the line, and that needs to be kind of factored into it as well 

Thomas Nocera (17:03):
Now as well as being environmentally sustainable. I know part of the discussion and the idea was to tailor infrastructure to the community level. What type of efficiency in terms of cost savings or in terms of just the efficiency of operations of whatever the infrastructure is, what type of benefit is there to tailoring it to the local level to going smaller? 

Mohamed Balla (17:29):
Yeah, I think first and foremost is making sure that you are tailoring projects that have an immediate community benefit. So you’re not necessarily trying to fit something that worked in a different part of the country into your local community. That can be vastly different. I mean, the infrastructure that Atlanta’s dealing with a lot different than the infrastructure, than New York’s dealing with is a lot different than the infrastructure that LA is working with. So making sure that you are focused on your community’s needs first so that you’re creating projects that are beneficial to the community, that enhance the movement within the community, that make it easier for people to live and interact within the community becomes just natural. You just think about, it just becomes naturally more beneficial. And in the long term, what that ends up doing is you end up thinking about community development in a sense that makes the absolute best sense for the constituents and all the stakeholders of your jurisdiction, and that ultimately by design drives down costs and drives down the burden of these infrastructure initiatives on localized communities. 

(18:58)
One of the things that I wanted to add is I think we also have the benefit of hindsight. So if you think about decisions that were made 50 years ago, a hundred years ago, when some of those decisions were made disproportionately impacted certain neighborhoods, certain communities, because there wasn’t that kind of expansive lens of how is this going to impact the entire city, the entire region, when you look at it from that perspective, we know now some initiatives that were made in projects that were initiated 50, 40 years ago have certain limitations on jurisdictions. Put the plant on the wrong side of town 50 years ago probably made sense, but now they would’ve wished that that decision would’ve been made different. If you started thinking about what the growth could have been or what types of other considerations could have been made, you would’ve probably made a whole different decision. And we’re kind of now learning from mistakes that were made by previous officials that were in our seats 50 years ago, a hundred years ago. 

Thomas Nocera (20:18):
So I guess my final question for you would be in the next few years, do you see sustainable infrastructure development becoming more difficult or easier to pursue given the political environment, things like this, the financing environment? 

Mohamed Balla (20:34):
I mean, it’s hard to say, but I really do feel like cities are going to lead the way in this space. I think the political environment at state level and national level is just so much more cumbersome and difficult to deal with that we’re finding mayors and city councils taking the initiative of thinking innovatively around this work. And so that’s really, I see that being kind of the opportunity over the upcoming years where we’ll continue to see this work be highlighted and continue to advance the communities that are most needed. 

Thomas Nocera (21:23):
That’s interesting. Thank you very much for being here with us today, CFO Balla, and thank you to the listeners of the Bond Buyer podcast. Special thanks to Kevin Parise who did the audio production for this episode, and don’t forget to rate us, review us and subscribe at www.bond buyer.com/subscribe. For the Bond Buyer, I’m Thomas Nocera and thanks for listening.