Millennia Housing Development has closed the first deal through Freddie Mac’s new Direct Purchase of Tax-Exempt Loans initiative.

Photo: Matthew Solomon/Millennia Housing Development
Photo: Matthew Solomon/Millennia Housing Development

The firm’s $14.3 million acquisition-rehab loan is for The Lakewoods, a 417-unit affordable seniors housing property in Dayton, Ohio. Approximately 95 percent of the apartments will receive subsidies under a federal Senior Preservation Rental Assistance Contract (SPRAC). The property is also restricted under the low-income housing tax credit (LIHTC) program.

Under the new initiative, a Freddie Mac Targeted Affordable Housing servicer originates a direct tax-exempt loan, also called a funding loan, to a government entity such as city, county, or state housing agency that can issue tax-exempt multifamily housing bonds. Simultaneously, using the proceeds of the funding loan, the issuer makes another loan, the project loan, to the borrower to finance a specific housing project. Freddie Mac buys the funding loan from the servicer and holds it on its balance sheet before aggregating it with other tax-exempt loans. The pool of loans is then securitized into a series called M–Deals and sold to third-party investors.

Freddie Mac officials say the program is particularly attractive for projects developed with 4 percent LIHTCs. They estimate it will provide about a 40 percent reduction in closing costs due to private-purchase efficiencies when compared to a publicly offered credit-enhanced bond.

Walker & Dunlop originated and structured the first loan with a 16-year fixed-rate and 35-year amortization.

The Direct Purchase of Tax-Exempt Loans initiative was introduced after The Lakewoods had been initially underwritten. Frank Baldasare, senior vice president at Walker & Dunlop, recognized that the new program would benefit Millennia.

“Freddie Mac's new execution eliminates many of the costs that would normally be associated with bond issuance, making it ideal for projects like The Lakewoods, developed with 4 percent LIHTCs,” said Baldasare in a statement.

The deal not only involved the new loan program but one of only 12 SPRAC awards in the country, said Christine Robertson, vice president of Millennia Housing Development.