Saving Debt Service, Funding Capital Expenditures and Generating Cash in Affordable Housing Communities
Sims Mortgage Funding (SMF) ended 2011 and started 2012 on high notes by closing in slightly over one week $12,089,000 of FHA-insured loans for affordable housing projects in New York and Florida.
Marien-Heim
Marien-Hein is an existing, Section 8-based, elderly project located in the Sunset Park section of Brooklyn, NY. The project consists of three buildings containing 169 apartments, and had a 6.875% interest rate on its Section 202 Direct Loan. Marien-Heim was in need of capital improvements to benefit the residents and community at large that use its facilities, and it also wanted to take advantage of the low interest rates currently available for FHA-insured loans.
SMF underwrote a new $8,313,000 loan under the Section 223(f)/202 program that addressed the capital needs of the property and generated debt service savings. Proceeds from the new loan prepaid the existing Section 202 loan and provided approximately $2.7 million for repairs and improvements to be completed over the next 12 months. Approximately $600,000 was deposited to a reserve fund for replacement. Given the extensive scope work associated with the capital improvements and the relative inexperience of the owner in orchestrating such work, SMF recommended – and HUD approved- the inclusion of a supervisory architect to coordinate the process on behalf of the owner. With the new loan in place, Marien-Heim expects to save approximately $141,000 annually in debt service, providing its owner with a financial cushion in the years ahead.
Brookside Square
Brookside Square Apartments, located in St. Petersburg, FL, is an existing 142-unit, multifamily rental property containing 14 “garden-style” two-story buildings. Brookside is fully covered with a Section 8 contract and is open to families as well as elderly. SMF originated a new $3,776,000 loan insured under Section 223 (f) that enabled the owner to prepay its existing FHA-insured loan that was originated by SMF in 1995, establish a new $600,000 reserve fund for replacement, and “cash-out” approximately $1.5 million in equity before an additional $450,000 representing existing reserves are returned. Under the Section 223(f) program, if the loan based on 80% of the appraised value of the property is greater than the cost to refinance, then the excess proceeds can be used to compensate the owner. Because the property did not require any non-critical repairs, 100% of the cash proceeds were distributed at closing. Brookside historically has been well-maintained and has been operating at full capacity for a number of years; its success is largely attributed to the stability and experience of ownership and management, which developed the property in the early 1970s and has been involved ever since.
The Marien-Heim and Brookside Square loans were underwritten under the Multifamily Accelerated Processing (MAP) program and have a 35-year terms and amortizations, the maximum permitted by HUD under Section 223(f).