Times Square building receives Liberty Bonds.

In the first use of a federally authorized program to support commercial development in Manhattan following 9/ 11, the New York City Industrial Development Agency has sold $650 million of tax-exempt Liberty Bonds to help finance a $1.2 billion Bank of America office tower in midtown Manhattan.

The 51-story Bank of America building, to be known as One Bryant Park, is currently under construction on 42nd Street, between Broadway and Sixth Avenue. When completed in 2007, it will serve as the New York base of operations for the Bank. The 945-foot tower is being developed by Bank of America, along with the Durst Organzation. Bank of America will occupy one-half of the building.

Under the $8 billion Liberty Bond program established after 9/11, up to $2 billion can be earmarked for commercial projects outside the ground zero area of lower Manhattan, known as the Liberty Zone. This week's sale represents the first issuance of Liberty Bonds for that purpose.

The tax-exempt financing was structured with an unusual feature that will permit future non-tax exempt financings of up to $250 million as the building is leased up. Typically, in real estate construction financing, additional loans are not secured by the same property that the bonds financed. The bonds were also enhanced by an "accreting" letter of credit, one that would grow to the full $650 million amount over time, another unusual feature for this type of transaction.

"This was a unique construction financing, from the perspective of structure and the participation of such a large public finance component," said Morrison & Foerster partner Mark Edelstein, who chairs the firm's real estate finance practice. "It will be interesting to see if the novel features of this financing will trickle into other bond deals, in particular on the residential side."

Real estate attorneys working on the deal include partners Mark Edelstein and John McCarthy, senior counsel Gunilla Haac, as well as associates Christopher Delson, Christine Sommella, K. Scott Kohanowski and Guy McPherson and legal assistant Alethea Jones.

The firm's commercial real estate group has been involved in the development of a number of major office buildings in Times Square.