The 628-unit Marshall Field Garden Apartments in Chicago will undergo extensive renovations this summer with the help of a bond credit enhancement program from Fannie Mae.
It is one of the financing tools behind the $175 million project that will redevelop the affordable housing community on the city’s South Side.
The historic property, which is being acquired by Related Cos. as part of a large portfolio, received $102 million in conduit bond financing from the Illinois Housing Development Authority (IHDA), which also allocated low-income housing tax credits that were purchased by Wells Fargo. Fannie Mae provided credit enhancements for the bonds via Wells Fargo as the Delegated Underwriting and Servicing lender.
The tax-exempt bonds will float based on the Securities Industry and Financial Markets Association Index plus a spread. The bond buyer has agreed to hold the bonds for the entire 10-year term, so there will be no remarketing or liquidity fee. According to Fannie Mae, this is a new structure it used to provide variable-rate bond credit enhancement for multifamily housing.
It’s among several new moves taking place at the government-sponsored enterprise, which recently reorganized to bring together its affordable housing debt, small loan, and green finance businesses, three areas that had natural crossover, according to Bob Simpson, vice president of the new group. A 15-year Fannie Mae veteran, he headed up the affordable housing team for several years.
“We’re really looking forward to doubling down on the affordable business, especially in the subsidized affordable housing space,” he says. “We think it’s very important. We love doing it, and it’s very good business for the company. We intend to be more aggressive and focused in doing more affordable transactions in the years to come.”
Fannie Mae provided $2.6 billion of affordable housing financing last year, the second highest year since 2007. In the first quarter of 2015, it was ahead of last year’s pace, according to Simpson.
“There’s a lot of activity in the market,” he says. “I think you’re seeing a lot of maturing deals in which the borrowers are interested in keeping rents affordable, and they’re complying with the regulatory agreements on those properties. It’s also a strong market all the way around. We see that in the conventional space. We see that in the affordable space.”
The company plans to introduce new products to be more competitive in the market. It recently came out with a mortgage-backed securities (MBS) pass-through product that allows Fannie Mae MBS to be used as collateral for tax-exempt bonds. Fannie has closed its first deal and is getting interest from other borrowers and lenders, according to Simpson.
The approach was recently used to finance the acquisition and rehabilitation of Fullerton Court Apartments, a 196-unit senior housing property in Chicago also sponsored by Related. RBC Capital Markets served as the manager of the offering, with $21.75 million in bonds issued by IHDA.
At the same time, proceeds from PNC Bank were deposited with a trustee to be used to buy the MBS certificate. The loan and other proceeds secure the bonds until the Fannie Mae MBS is delivered to the trustee.
Officials said the bond issue was structured as a single maturity pass-through, where monthly payments of principal and interest on the MBS certificate are passed through to bondholders on the business day following receipt by the trustee.
