Back to the Future: Old Funding Tool Is Just the Ticket for Baltimore Project
By Caitlin Jones
3 min read
Tax Credit Advisor, May 2009: Annapolis, MD developer Nancy Rase reached back and dusted off an old funding tool to get a new Baltimore housing project to pencil out.
The tool is the Community Investment Program (CIP), a debt resource offered by the 12 Federal Home Loan Banks (FHLBanks) that can be used to finance development of affordable rental housing. Under CIP, financial institutions that belong to the Federal Home Loan Bank System can borrow money on favorable terms from a FHLBank and re-lend it to a developer for a rental project.
Rase, president of Homes for America (HFA), a nonprofit housing developer, noted the greater difficulty finding debt on attractive terms prompted HFA to revisit the CIP program as a possible funding source for its new deal. “We sort of went back to our roots,” she said. “Eight, ten years ago we used [CIP] very frequently, when interest rates in the market were so high, because they tended to be below market. We drifted away from that when capital became so plentiful and rates were good and you could shop around and get good deals…. Now that times are tight, we’re looking back to resources that we had kind of abandoned, to use them again.”
HFA used the CIP program to help fund a low-income housing tax credit project that closed in mid-November 2008 called Weinberg Manor East. The $19.6 million development involves the acquisition and rehabilitation à with tenants in place à of an affordable apartment property built in 1976 that was originally financed by tax-exempt bonds and a Section 236 mortgage insured and subsidized by the U.S. Department of Housing and Urban Development (HUD). Redevelopment of the 186-unit property, restricted to seniors and persons with disabilities, is expected to be completed in December. HFA’s partner in the joint venture is a Baltimore nonprofit, Comprehensive Housing Assistance, Inc.
Rase said Sun Trust Bank obtained a cash advance under the CIP program, from the FHLBank of Atlanta, and used the funds to make two loans for the Baltimore project: a construction/permanent first mortgage of $3.675 million, and a second mortgage of $1.757 million.
The first mortgage (20-year term, 30-year amortization) has a floating interest rate during construction (30-day LIBOR rate + 200 basis points), and will have a fixed rate of 7.06% during the permanent phase. The second mortgage, with an eight-year term, is fixed at 6.56%.
Rase said one significant advantage of using the CIP program was that the fees for the debt were “a lot less” compared to what the fees would have been for a loan insured by the Federal Housing Administration (FHA). All-in fees, including a first mortgage rate-lock fee, totaled a “touch under 2%” of the amount borrowed, compared to 3.5%-4% for an FHA loan, she said.
Other funding sources for Weinberg Manor East include $9.6 million in tax credit equity from syndicator Enterprise Community Investment, $2 million in developer equity funded from a grant, city and state loans, and a deferred developer fee.
