A record-breaking Rural Housing Service (RHS) Sec. 538 loan has been secured for Cypress Creek Apartment Homes in Royce City, Texas.

Developed by Bonner Carrington, Cypress Creek Apartment Homes brings 220 housing units to Royce City, Texas.
Developed by Bonner Carrington, Cypress Creek Apartment Homes brings 220 housing units to Royce City, Texas.

Bellwether Enterprise Real Estate Capital said the $19.6 million transaction is the largest Sec. 538 Guaranteed Rural Rental Housing Program deal ever closed. The average Sec. 538 loan size is in the $1.2 million neighborhood, according to firm representatives.

The Cypress Creek deal is considerably larger because the recently completed development is a sizable community, especially for a RHS property, with 220 apartment homes. The loan to total development cost, not including project reserves, is about 56%.

The senior permanent loan was arranged by Kevin Bowen, senior vice president of Bellwether Enterprise in the Dallas office, and Bob Morton, director of Rural Housing Services Programs and senior vice president of Bellwether Enterprise in the Indiana office, for Cypress Creek Parker Creek North LP. The 220-community was recently developed and constructed by Bonner Carrington.

“We also did a forward execution on this loan instead of an immediate construction-to-perm,” says Bowen.

Featuring a 24-month forward-rate lock, 40-year term, and 40-year amortization at a low fixed-interest rate, the non-recourse loan was used to complete the property acquisition and construction of the project.

A program of the U.S. Department of Agriculture Rural Development, the Sec. 538 program provides federal government guarantees for loans made by commercial lenders to developers of multifamily rental housing for low- and moderate-income tenants in rural areas. In the case of Cypress Creek, Bellwether Enterprise, a subsidiary of Enterprise Community Investment, was the lender.

As a mixed-income affordable housing property, Cypress Creek operates under the rent and income restrictions of the Sec. 538 program and 9% low-income housing tax credit programs. As such, 14 units are rent and income restricted to 30% of the area median income (AMI), 56 units at 50% of the AMI, and 70 units at 60% of the AMI. The remaining 80 units are rented at a market rate still below Sec. 538 requirements, which include rent restrictions at 115% of the AMI upon initial occupancy and rent plus tenant-paid utilities restricted to 30% of 115% of the AMI.

“It has long-term restrictions across the board,” says Bowen, noting that the development, which is close to the Dallas-Fort Worth market, will help protect Royce City residents as the region expands.

A high percentage of Sec. 538 deals are done in conjunction with LIHTCs. While the housing credits usually provide the bulk of a project’s funding, the Sec. 538 loan is important in filling key funding gaps, according to Morton.

Cypress Creek features one-, two-, three,- and four-bedroom apartments with amenities that include 9-foot ceilings, garden tubs, full-size washer/dryer connections, ceiling fans throughout, generous closet space, large pantries, ample linen storage, and a balcony or a patio.

Additional support for this project was provided by:

· Bellwether Enterprise Real Estate Capitalo Karl Edmonson and Virginia Rowan

· Bellwether Enterprise closing counsel: Morris Manning and Martino James Peck and Pearce Shae

· Borrower: RBC Capital Markets (LIHTC equity partner)o Dan Kierce, Rob Ellinger, Adrian Colosimo, Rachel Goetz (counsel), and Andrea Yerkovich (counsel)

· Borrower closing counsel(s): Coats Roseo Sara Scott, William Walter, and Barry Palmer

· Lender: Department of Agriculture Rural Developmento Edd Hargett (RD Texas), Jonathan Bell (RD Texas), Allen Lambright (RD Texas), Carolyn Turner (RD Texas), Michael Steininger (RD national office), and Tammy Daniels (RD national office)

· Project ownerso Franklin Development Co.
§ Aubra Franklin, Ryan Wilson, and Edgar Sandoval
o Sampley Family Holdings
§ Donald and Gayle Sampley
o Witt & Witt
§ Linda Witt

· Project developer: Bonner Carringtono Stuart Shaw and Casey Bump

· Project architect: Kelly Grossman Architects

· Management company: Bonner Carrington Property Management

· Title company: Heritage Title Company of Austin

· City of Royse City

· Texas Department of Housing and Community Affairs