Our New Financing Helps Keep Housing Affordable
November 28, 2017
We’ve created innovative ways to finance and preserve unsubsidized affordable housing—and using these new tools, we’ve closed our first deals to help Minneapolis families stay in their homes.
With our NOAH Preservation Loan, we continue to invest in new tools to facilitate the preservation, improvement and long-term affordability of naturally occurring affordable housing (NOAH). This loan can be paired with our just launched Impact Gap Financing, which matches impact investors with mission-focused Borrowers.
The result? Working together with our partners, we’re keeping properties like Rainbow Plaza and Pine point affordable long-term for moderate-income families.
To make it happen in Minneapolis, Freddie Mac and the lender NorthMarq Capital, LLC, worked with CommonBond Communities, a Twin Cities housing nonprofit which bought the two properties. For Rainbow Plaza, an impact investor Mercy Housing, Inc., leveraged grant funds from private foundations to buy the Impact Gap Loan. Impact investors look to make a measurable social or environmental impact alongside a financial return.
Communities like Rainbow Plaza and Pine Point are especially vulnerable to being acquired by investors, and then renovated and converted to market rate rentals—forcing families from their homes.
Across the nation, affordable housing is scarce—and getting even harder to find. A quarter of all renters are “severely rent burdened”, spending more than half their income on rent, according to Harvard’s Joint Center for Housing Studies.
“NOAH properties are easily lost to deterioration, abandonment and gentrification,” said David Leopold, Freddie Mac Multifamily vice president of Targeted Affordable Sales & Investments. “We provide the tools needed to ensure these properties are acquired, preserved and stay affordable.”
A critical aspect of these deals? Nonprofit borrowers now have access to the comprehensive capital they need to compete with market rate developers.
Here’s how it works: We provide a flexible NOAH Preservation Loan which can be paired with a subordinate Impact Gap loan. Our lender makes both loans to the borrower at the same time, providing a one-stop shop for comprehensive debt financing (with a minimum 3 percent Borrower equity contribution). The lender then sells the NOAH Preservation Loan to Freddie Mac and the Impact Gap loan to an impact investor.
We provide certainty of execution to make a complex deal happen and to keep rents within reach.
“The deal made it possible to keep these units affordable for residents at or below 60 percent of area median income,” said Deidre Schmidt, CEO of CommonBond Communities. “Freddie Mac supported the transaction by facilitating and structuring the participation of impact investors and providing funding we could afford.”
“We applaud the great work Common Bond is doing to provide quality workforce housing,” said Leopold.
The NOAH Preservation Loan offers nonprofit Borrowers important underwriting flexibility, fee reductions and rehab allowances that give them the competitive advantage to acquire a property. It also helps them leverage their status and local programs to keep properties affordable long-term. Furthermore, our special loan documents for Impact Gap Financing, together with our confirmatory due diligence and underwriting, make it easier for impact investors to support NOAH properties and their affordability.
“Impact Gap Financing will help nonprofits like Mercy Housing and CommonBond better serve working families,” said Jane Graf, Mercy Housing president and CEO. “By preserving NOAH, we’ll be able to help these families stay in their communities—close to their jobs, schools, and neighbors. Along with other affordable housing leaders, I applaud these innovative steps taken by Freddie Mac and the support that JP Morgan Chase provided through its grantmaking to bring it about.”
“NorthMarq Capital is thankful for our partnership with Freddie Mac in developing these new initiatives for nonprofits focused on preserving NOAH. We were pleased to deliver the first execution to CommonBond with aggressive loan terms and substantial flexibility from Freddie Mac to meet their needs,” said Paul Cairns, NorthMarq’s Capital Services senior vice president/managing director.
Freddie Mac is actively seeking NOAH properties to support and additional investors to help nonprofits preserve NOAH through Impact Gap loans.