Developers of a 164-unit mixed-income community in Rochester, Minn., have become the first to secure financing under a new Freddie Mac program.
Financing for the $19.7 million Technology Park Apartments includes a 10-year Freddie Mac Non-LIHTC Forward Commitment loan, where the interest rate was locked at the closing of the construction loan. Non-LIHTC (low-income housing tax credit) forwards are unfunded, forward commitments for affordable housing developed by nonprofits and subsidized, rent-restricted affordable housing by for-profit developers for new multifamily construction or substantial rehabilitation.
“We are very excited to be on the forefront of developing a modern workforce housing product that is not heavily reliant on government funding sources,” said Alexander Bisanz, director of acquisitions at Real Estate Equities, in a statement. “Partnering with the Greater Minnesota Housing Fund to provide low-cost, mission-driven equity—as well as structuring attractive financing with Merchants Capital—truly allowed us to get this project off the ground.”
Mortgage banking firm Merchants Capital secured the Freddie Mac commitment on behalf of Real Estate Equities.
“We were able to simplify the process with our ability to provide the construction financing through our parent company, Merchants Bank, and also offer the Freddie Mac Non-LIHTC Forward Commitment product for the long-term permanent financing,” said Michael R. Dury, president of Merchants Capital.
Freddie Mac’s Non-LIHTC Forward Commitment program officially rolled out in September. Specifically, Freddie underwrites and commits to making permanent mortgage loans on affordable rental housing projects prior to construction, offering developers a unique tool to manage the interest-rate exposure from construction lending, even for properties not funded with tax credits.
“Freddie Mac’s forward commitment is helping to provide affordable housing for valued members of the Rochester, Minn., community who struggle to find it,” said David Leopold, vice president of targeted affordable sales and investments at Freddie Mac Multifamily. “We created Non-LIHTC Forwards for this very purpose—to provide the flexibility and certainty mission-driven investors need to finance housing for low- and very low-income families.”
Forty percent of Technology Park Apartments will be priced affordably for individuals earning an annual income of $40,000, or 60% of the area median income (AMI). The Greater Minnesota Housing Fund contributed $3.4 million in capital for the development of these units, which will cost renters an estimated $1,150 a month for a two-bedroom apartment.
An additional 35% of the homes will be set aside for individuals earning about $55,000 a year, 20% below Rochester’s AMI. The remaining units will be priced slightly below the current market value, about $200 to $300 less than similar apartments in the area.
“In all of Greater Minnesota Housing Fund’s work to create and preserve unsubsidized affordable housing, we have struggled to crack the code on the production of new affordable units without reliance on public resources. Now, as an equity partner in Technology Park, we are furthering our mission and innovating ways to increase the funding pie with new financing solutions,” said Rachel Robinson, fund manager with Greater Minnesota Housing Fund. “Going forward, Tech Park, with 164 modestly priced apartments, 66 at reduced, affordable rents, will be a pilot for further innovation in this realm.”
Merchants Capital, formerly PR Mortgage & Investments (and RICHMAC Funding), is a multifamily, affordable, and health-care lender.
