An affordable housing owner is rehabbing a development in La Porte, Texas, with the help of two other properties in its portfolio.
Built in 1983, the 51-unit Happy Harbor Apartments is owned by Methodist Retirement Communities (MRC). The property was refinanced in 2006 using the Federal Housing Administration (FHA) Sec. 223(f) program that prepaid an original Sec. 202 loan.
However, since then, the building’s foundation shifted substantially, and the plumbing needed to be replaced. That led MRC to pursue a new refinancing with Lancaster Pollard, which was involved in the 2006 transaction.
In an unusual move, Lancaster Pollard underwrote the new deal, borrowing funds from two other MRC communities to help finance the Happy Harbor rehabilitation.
To make the deal work, the team needed to obtain critical waivers from the Department of Housing and Urban Development (HUD), says Scott Blount, vice president at Lancaster Pollard, an investment and mortgage banking firm. The waivers enabled the transaction to be processed as a refinancing under the Sec. 223(f) program even though scope and cost of the repairs were more extensive than typically done under the program.
Substantial rehabs normally utilize Sec. 221(d)(4), but the underwriting wouldn’t have provided adequate funds repairs under that program, according to Blount.
MRC owns several affordable senior housing developments that are in strong physical and financial shape in Bryan, Texas. The team decided to borrow a portion of the replacement reserves at two of the facilities to fill the funding gap in the underwriting.
“HUD approved us to loan about $500,000 to Happy Harbor,” says Joy Keels, executive director of MRC affordable housing.
The financing package at Happy Harbor also included a $500,000 affordable housing preservation grant from the Federal Home Loan Bank of Dallas. The final piece was a $2.2 million loan insured by the Sec. 223(f) program. The transaction will allow MRC to complete foundation, plumbing, and other repairs to create a comfortable and safe environment for the senior residents.
To mitigate any adverse effects at the two Bryan properties, Lancaster Pollard processed interest rate reductions (loan/note modifications via HUD) at both sites to increase cash flow and reserve deposits, says Blount.
The team credits HUD officials in the Fort Worth, Texas, office for helping making the structure possible. Without HUD officials’ support, the facility may have had to shut down due to safety concerns, says Blount. He also praises MRC for its persistence.
“If Joy and her team had not been so passionate about the deal, it’s one of those that could have easily fallen by the wayside,” he says.