Affordable housing financings represent one of the more intricate financial and programmatic endeavors an owner or operator can pursue. Financial structures tend to combine many programs and options to create appropriate solutions. The challenge, then, is to understand the available options and the decision drivers that will affect eligibility for financing programs and the long-term cost of borrowing. It is the combination of these options that can create the most efficient borrowing structure to facilitate preservation while keeping tenant rents low.

Background

Bristol Court Apartments is owned and managed by National Church Residences, one of the nation’s largest nonprofit affordable housing providers. The 82-unit facility is part of a continuum of care campus recognized nationwide as a model community. It identified several repairs and upgrades and budgeted for a renovation that would assure resident safety and comfort for the foreseeable future.

Sources of Funding

Bristol Court is combining several options to create an approximately $4.5 million acquisition/rehabilitation financing structure to accomplish these goals. The property chose to use the USDA Section 538 Guaranteed Rural Rental Housing Program for the majority of the financing.  The USDA loan is unique in that the USDA will “buy down” the interest rate on a portion of the loan to the long-term monthly Applicable Federal Rate (AFR). This feature allows Bristol Court to borrow at a more competitive interest rate, helping keep rents affordable for the residents.

Bristol Court’s interest credit reduced its long-term borrowing cost by 250 basis points on the first $1.5 million of the $2.39 million loan. This credit will save an estimated $30,000 annually in interest payments.

The remainder of Bristol Court’s financing consisted of several sources. Low-income housing tax credits make up the next-largest component of the financing, an attractive option because the borrower pays nothing for the cost of capital. The tax credits injected equity of nearly $1 million into the project. An additional $550,000 in subordinate financing is being provided by the Ohio Housing Development Assistance Program.

Outcome

Bristol Court will be able to replace siding and roof shingles, renovate common areas and replace carpeting as part of approximately $1.2 million in renovations. The financing also provides a deferred developer’s fee of $224,000 for National Church Residences.

The complexity of affordable housing financings can be intimidating. Working with a lender who understands how to combine various options can assure an affordable, creative borrowing structure that allows the property to upgrade while keeping rents low.

For more information, contact Nick Gesue at ngesue@lancasterpollard.com.

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