In a market largely bereft of real estate deals, federal stimulus programs and funds are creating work for dirt lawyers—and tax and bond counsel, too.

Althea J.K. Broughton at Arnall Golden Gregory is one of those lawyers. Her team recently closed two multifamily affordable housing transactions, one in the City of Decatur, the other in Union City. Both deals involved a complex mix of funding sources and took more than a year to complete.

The $5.8 million Decatur project, called Allen Wilson Phase I, will be located in downtown Decatur at Robin Street, Electric Avenue and Commerce Drive. Broughton, along with Arnall lawyers Alison M. Drummond, James T. Rauschenberger and A. Rian Perry, represented the Decatur Housing Authority and two affiliates to negotiate financing for the city’s first mixed-finance transaction of this type. The housing authority’s general counsel, Alan E. Rauber of McCurdy & Candler, also was involved.

“I think this deal is somewhat unusual,” Broughton said. “Typically, first of all, there are not very many bond deals that are closing in this environment, so when I say unusual, I mean that. Also, this was not your typical bond deal with an issuer and an indenture and a trustee. This was a little bit different in that you had the housing authority issuing notes that were purchased by Fannie Mae as part of a tax-exempt execution.”

Broughton said she helped her client get various approvals from the Department of Housing and Urban Development, which requires them in mixed-finance transactions. She said the tax-exempt bonds required HUD approval because the Decatur Housing Authority was essentially borrowing against a future stream of funds from HUD, then using those rights as collateral on a tax-exempt loan from Fannie Mae. The lawyers also got HUD approval for the receipt of stimulus funds under the American Recovery and Reinvestment Act, or ARRA.

Caryl Greenberg Smith of Hunton & Williams, who served as bond counsel on both the Decatur and Union City deals, said that Fannie Mae is trying to promote affordable housing by purchasing notes directly rather than having the housing authority market the notes publicly. Such deals, she said, can offer a “huge, huge reduction in the interest rate compared to what you would have gotten in the market.”

The bond aspect of the Decatur deal also yielded 4 percent housing tax credits from the Georgia Department of Community Affairs, Broughton said, which were then sold to equity investor Peachtree Investment Solutions, LLC, represented by Aaron J. Kowan at Taylor English.

Kowan said his client invested about $2 million, but that the deal’s sophistication and complexity was on par with $30 million projects. “For the size of the deal, it was probably the most complicated deal I ever worked on. I wish I’d known that before I took the deal,” he said, and laughed. “I was working on a flat fee.”

Kowan, a tax lawyer who worked on the transaction with associate Brandon C. Hardy, said the deal was complex because it involved three to four levels of debt, each with unusual business and tax issues related to the public-private partnership, and unusual guaranty provisions related to HUD backing.

In the Union City deal, Broughton’s team represented Ambling Development Partners, which plans to build a 150-unit elderly housing complex known as Woodbridge at Parkway Village at the intersection of Southwood Road and Thompson Road.

Broughton said this deal, worth $16 million, included ARRA stimulus funds through HUD and bonds which were credit-enhanced by the Federal Housing Administration to make them more marketable. The bonds, which are tax-exempt and yield a 4 percent tax credit, were purchased by equity investor Community Affordable Housing Corporation, represented by Robert G. Coberly from Bryan Cave’s Washington office.

Broughton said stimulus funding was crucial to both deals, and is providing a boost to real estate work in general. “I really think the stimulus funds have actually helped save some deals or made some deals viable and have gotten them to closing,” she said. “Initially we all had to figure out how those funds would work, but I think they’ve promoted a lot of development activity.”

Hunton & Williams partners G. Roth Kehoe II and David R. Yates have spent so much time in Connecticut recently that they joke about being entitled to vote there.

The lawyers, who have spent about 18 months putting together a public-private concessions deal that will involve investment of about $178 million, may one day be able to enjoy the fruits of their labors in the form of a full tank of gas, a meatball marinara sandwich from SUBWAY or a cup of coffee and a chocolate glazed from Dunkin' Donuts when driving Connecticut's highways.

That's because the deal gives Hunton's client, Project Service LLC, the right to redevelop, operate and maintain 23 highway service areas across the state for a 35-year term in exchange for bankrolling all improvements and renovations. The transaction includes a revenue-sharing agreement with the state, and what Kehoe describes as other “minimum payments” from Project Service to the state throughout the life of the agreement.

Project Service is a joint venture comprised of private equity firm The Carlyle Group; Doctor's Associates Inc., the parent company of SUBWAY Restaurants; and SubCon Inc., the development company for SUBWAY in Connecticut and New York, which serves as franchisee for some 400 SUBWAY locations.

Kehoe said the state, which was represented by Connecticut law firm Halloran & Sage, issued requests for proposals for the project in July 2008. His client was chosen as the preferred bidder, and began negotiations with the state this spring. The parties struck a deal in mid-November.

Previously, Kehoe said, the state ran the service areas itself via contracts with ExxonMobil and McDonald's but wanted to upgrade its facilities, which were built in the 1940s and 1950s, and increase food and fuel offerings. The service areas that come under the agreement are spread along Interstate 95, which is the Connecticut Turnpike; I-395 and State Route 15, also known as the Wilbur Cross and Merritt Parkways.

“The state was very excited and creative in deciding that it wanted a single contractor to deliver the entire package,” Kehoe said, adding that while other states have entered similar public-private concessions agreements—including Florida and Massachusetts—Connecticut's is unique because of the large-scale redevelopment handled by a single provider.

Kehoe said the economy, which has taken a toll on many states' coffers as tax revenues have fallen, is influencing states to consider public-private partnerships instead of the bond deals they might otherwise do. “I think there are a lot of states that are giving careful thought to monetizing assets in ways that would ultimately improve service for their users,” he said.

For example, the Georgia Department of Transportation is slated to hold a forum today to give members of the transportation industry a comprehensive overview of the state's new Public Private Partnership program, known as P3, which is likely to focus on road construction and toll projects.

While Georgia has a statute governing public-private partnerships, Kehoe and Yates said Connecticut does not. “That actually makes things a little more challenging,” Kehoe said. “The [public-private partnership] statutes can be somewhat limiting, but they also give you a clear avenue in terms of how things should come together.”

In the absence of such a statute, he said, lawyers have to create their own structure for the deal, looking at procurement laws and hypothesizing about how various parts of the transaction should work under different scenarios.

Public-private partnership projects can be politically charged. Connecticut State Sen. Andrew McDonald has called for a financial analysis of the Project Service contract. A lease deal involving the Pennsylvania Turnpike that was supported by Gov. Ed Rendell died when the Legislature, which opposed the plan, failed to act on an outstanding bid.

But Yates said that as more public-private partnerships like this happen and succeed, “It's just going to become more and more comfortable … and there won't be as much resistance from a political standpoint.”

Also, he pointed out, there's a lot of benefit to be gleaned from public-private partnerships. For example, Connecticut's governor, M. Jodi Rell, has estimated that the benefit her state will gain over the life of the Project Service contract will be nearly $500 million.