SILVER SPRING, MD. The Argent stood as a ninestory reminder of the troubled economy.
Built as a condominium development in 2009, the property sat empty when no buyers emerged for the luxury units.
Today, the development is filled with working families after an innovative deal transformed the Argent into 96 affordable apartments.
Pallas Properties, LLC, and its affiliate, Blair Mill Affordable Associates, purchased the development last year using tax-exempt municipal bonds, low-income housing tax credit equity, and a soft subordinate county loan.
"It's an unusual deal," says Richard Y. Nelson Jr., director of the Montgomery County Department of Housing and Community Development, which provided a $5 million soft loan to the project.
The area has seen condo properties convert from homeownership to market-rate rentals, but rarely has one made the change to an affordable property, he says.
Under the move, the Argent became home to residents earning no more than 50 percent and 60 percent of the area median income. Monthly rents range from about $842 for the smallest units to $1,272 for the largest.
Originally developed by Perseus Realty, the condos would have likely fetched from the high $300,000s to the high $400,000s at a different time. But when the project was completed, the for-sale market had disappeared.
Corus Bank, which had financed the development, was also taken over by the Federal Deposit Insurance Corp.
(FDIC). Ultimately, a partnership was formed between the FDIC and a consortium led by Starwood Capital Group, which facilitated the $24.8 million sale.
To finance the deal, a “step-in-the-shoes structure” was used, meaning the team essentially stepped in for the developer, says Stan Herskovitz, who orchestrated the complex deal. He's a principal at Paradigm Financial Consulting, a Pallas affiliate.
The structure was important because it allowed Herskovitz to receive tax credits for the basis that the owner had in the real estate, allowing for a larger LIHTC award. About $14 million in LIHTC equity was provided by Bank of America Merrill Lynch.
The deal also used $12.9 million from the sale of bonds, including about $8 million from the Treasury Department's New Issue Bond Program, which provides temporary financing for state housing finance agencies to issue new housing bonds. Under the program, the Treasury purchased securities of Fannie Mae and Freddie Mac backed by these new bonds.
The Housing Opportunities Commission of Montgomery County issued the bonds, which were credit-enhanced by Freddie Mac. CWCapital was the Freddie Mac servicer.
“A whole lot of folks had to sign off on the structure, but people wanted to be involved,” says Herskovitz. “Once we got traction, it moved along quickly."
The building was largely completed when Pallas took over. Still, the new team had to make some changes, including building a leasing office and adding laundry rooms to each floor. More efficient lighting was installed outside.
Inside, the apartments have condo quality amenities, including gourmet island kitchens with granite countertops, wood cabinets, and stainless steel appliances in most units.
The property is located about a block and a half from a rail and metro station and near downtown Silver Spring, making it a desirable location for working families.
It is no longer empty. With little advertising, the property quickly filled.
After opening in mid-September, the Argent was about half full by the month's end. There were only two vacancies in November, and it was full by December.