The Troubled Housing Behind a Muni Bond

After federal subsidies are cut off, investors see a big loss.

HUD said the Warren and Tulane apartments deteriorated under its owners.
Photographer: Andrea Morales/Bloomberg

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By Martin Z Braun

March 24, 2016 at 4:17 PM UTC

This article is for subscribers only.

This article is part of the March 28, 2016 issue of businessweek.

At the Warren and Tulane apartments in Memphis, inspections have found roach infestations, broken windows, buckling ceilings, and missing or damaged appliances. “It’s appalling,” says Jessica Johnson-Peterson, who’s lived at the Warren apartments with her husband and children since 2009. “We have to jump through extreme hoops to even get anyone’s attention.”

Such conditions led the U.S. Department of Housing and Urban Development in February to cut off rent subsidies for more than 1,000 residents. Those federal dollars were to be used to repay $12 million of bonds sold by the apartments’ owner, Global Ministries Foundation. Without that money, the bonds went into technical default, pushing their price to as little as 21¢ per dollar of their face value.