CARMEL, IN – Mortgage banking firm Merchants Capital has secured $16 million in construction and permanent financing through a Merchants Bank of Indiana construction loan and a Fannie Mae Mortgage-Backed Security (MBS) as Tax-Exempt Bond (M.TEB) Forward loan. The M.TEB loan, the first ever with Hennepin County Housing and Redevelopment Authority as bond issuer, had the lowest permanent rate to date for the M.TEB program.
Fannie Mae’s MBS as M.TEB is considered a “one-size-fits-all” bond solution. By combining the ease of the MBS execution with all the benefits of tax-exempt bonds, borrowers get a lower interest rate and significant savings over the life of the loan. This execution can be used to finance the new construction and rehabilitation of Multifamily Affordable Housing (MAH) properties.
Dubbed The Redwell, the affordable mixed-use multifamily development was closed through a partnership with Fannie Mae and Stifel, Nicolaus & Co., Inc. As part of the funding, Merchants Capital also arranged a $1.7 million construction loan with 10-year permanent financing and a $7.9 million Low-Income Housing Tax Credit (LIHTC) Equity Bridge loan for the project on behalf of Schafer Richardson and WNC.
The total development cost of the entire project is more than $31 million, with an estimated LIHTC credit equity of $9.1 million and $22.7 million in permanent financing and other funds.
“Merchants Capital is thankful to all of the partners involved in this transaction for their efforts in this complex deal,” said Marsha Goff, executive vice president of Merchants Capital. “The unique structure of this loan was an enjoyable challenge for us, and the ability to close within a tight timeframe to meet bond requirements and also bifurcate the commercial component to meet the LIHTC investor requirements allowed the Schafer Richardson team to break ground on this much-needed affordable housing project.”
By leveraging Merchants Capital’s bank, Merchants Bank of Indiana, Merchants Capital was able to structure the funding to provide a small construction loan and accommodate the LIHTC requirements which allowed the commercial component to remain within the development. Additionally, Tax Increment Financing (TIF) provided by the City of Minneapolis is being monetized to support the proposed permanent loan amount. Hennepin County Housing and Redevelopment Authority acted as the bond issuer.
“We are excited to see construction commence after over four years of planning and structuring the deal,” said Amanda Janzen, project manger of Schafer Richardson. “The Redwell was originally planned as an office building, then switched direction to new construction market rate housing, and then affordable housing. The Redwell will be an asset to the neighborhood and provide much-needed affordable housing in the desirable North Loop.”
The Redwell is a 109-unit, six-story multifamily complex with commercial space on the first floor. Twenty-six of the units will be studio apartments, along with 68 one-bedroom and 15 two-bedroom units. The Minneapolis Public Housing Authority (MPHA) will provide 22 Section 8 vouchers whereby households would pay 30% of their income toward rent, with the balance paid by federal rental subsidies administered by MPHA. The remaining units will be priced at 110% fair-market rate at 60% of the area median income (AMI).
“We would like to congratulate Schafer Richardson and all the partners who have worked tiressly to add to the North Loop Neighborhood. WNC is proud to be participating in our second investment with Schafer Richardson in Minneapolis” noted Michael Byrd of WNC & Associates. “These developments are time consuming and difficult to put together. Schafer Richardson did a great job of getting all of the financing and approvals necessary to get the property closed and under construction.”
In addition to providing mixed-use, mixed-income and affordable housing in the North Loop District of downtown Minneapolis, the new development is located near mass transit stations and has nearby access to the interstate and intersects several trails and parks along the Mississippi River.