Affordable Housing Community in Minnesota
CARMEL, IN (Dec. 27, 2018) – Mortgage banking firm Merchants Capital has secured financing for the development of a $19.7 million mixed-income workforce housing community in Rochester, Minnesota. Merchants Capital secured the loan through the first-ever Freddie Mac Non-LIHTC Forward Commitment on behalf of Real Estate Equities. Dubbed Technology Park Apartments, the 164-unit affordable housing complex will help to ease the city’s affordable housing crisis, as Rochester was recently ranked one of the lowest metropolitan statistical areas (MSAs) nationally for housing affordability by Nationwide Economics. The project closed on Sept. 5, 2018. “We appreciate the opportunity to assist in the development of this housing community and the chance to help close Rochester’s affordable housing gap,” said Michael R. Dury, president of Merchants Capital. “We were able to simplify the process with our ability to provide the construction financing through our parent company, Merchants Bank, and also offer the Freddie Mac Non-LIHTC Forward Commitment product for the long term permanent financing.” The apartments were financed through a 10-year Freddie Mac Non-LIHTC Forward Commitment loan where the interest rate was locked at the closing of the construction loan. Non-LIHTC forwards are unfunded, forward commitments for affordable housing developed by nonprofits and subsidized, rent-restricted affordable housing that for-profit developers can use for their new multifamily construction or substantial rehabilitation projects. “We are very excited to be on the forefront of developing a modern workforce housing product that is not heavily reliant on government funding sources,” said Alexander Bisanz, director of acquisitions at Real Estate Equities. “Partnering with the Greater Minnesota Housing Fund to provide low-cost, mission-driven equity – as well as structuring attractive financing with Merchants Capital – truly allowed us to get this project off the ground.” Forty percent of Technology Park Apartments will be priced affordably for individuals earning an annual income of $40,000, or 60 percent of the area’s annual median income (AMI). The Greater Minnesota Housing Fund contributed a total of $3.4 million in capital for the development of these units, which will cost renters an estimated $1,150 a month for a two-bedroom apartment. An additional 35 percent of units will be set aside for individuals earning about $55,000 a year, 20 percent below Rochester’s AMI. The remaining units will be priced slightly below the current market value, about $200-300 less than similar apartments in the area. “In all of Greater Minnesota Housing Fund’s work to create and preserve unsubsidized affordable housing, we have struggled to crack the code on the production of new affordable units without reliance on public resources. Now, as an equity partner in Technology Park, we are furthering our mission and innovating ways to increase the funding pie with new financing solutions,” said Rachel Robinson, fund manager with Greater Minnesota Housing Fund. “Going forward, Tech Park, with 164 modestly priced apartments, 66 at reduced, affordable rents, will be a pilot for further innovation in this realm.” Technology Park’s cost-efficient, smart building design achieves sufficient economies of scale to charge modest rents, meeting the needs of a range of household incomes. Today’s market financing tools are working best for luxury apartment construction, and at the other end of the spectrum, affordable apartment developments financed with federal tax credits are limited in supply. Developers have struggled to find ways to finance new construction homes that are in between: achieving modest rents for residents without government subsidy. Freddie Mac’s new Non-LIHTC Forward Commitment achieves this. “Freddie Mac’s forward commitment is helping to provide affordable housing for valued members of the Rochester, Minnesota, community who struggle to find it,” said David Leopold, vice president of targeted affordable sales & investments at Freddie Mac Multifamily. “We created Non-LIHTC Forwards for this very purpose – to provide the flexibility and certainty mission-driven investors need to finance housing for low- and very-low income families.” Technology Park Apartments will be located in Rochester, Minnesota, on the north side of Technology Drive Northwest between Valleyhigh Drive and West Circle Drive. Neighboring Benchmark Electronics to the east, Costco to the south and Crooked Pint to the west, the complex is positioned in close proximity to grocery stores and other nearby amenities.
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Merchants Capital Secures First-Ever Freddie Mac Non-LIHTC Forward Commitment Financing for $19.7M Affordable Housing Community in Minnesota
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Although national homeownership increased for the first time in 13 years, investors are still expecting inflated demand for apartment living due to a shift in demographic trends boosting the multifamily housing market. Many would assume millennials are driving the preference for renting – and while there are generational differences in who is buying versus renting – members of every generation are looking at renting as a lifestyle choice due to its inherent flexibility. The long-term outlook for multifamily construction is positive, showing that the preferences of aging baby boomers and millennials alike are causing an associated shift in demand from single-family to multifamily housing living options. By the end of the decade, multifamily construction is expected to peak nearly two-thirds higher than its highest annual level during the 1990s and 2000s. For both ends of the age spectrum, the demand for flexibility, amenities and a close connection to the city are driving a real estate race among developers for the next generation apartment living. Selling – or never buying – the white picket fence Baby boomers’ housing preferences are disrupting multifamily, as this generation is selling their big suburban homes and instead turning key on maintenance-free living, according to CNBC reporting. The American population over age 65 will increase to 21 percent from 13.7 percent by 2050 and are the fast-growing group of renters, especially in the senior and healthcare living spaces. Developers should recognize the key influence of this generation on multifamily housing trends, compared to millennials who prefer renting for a variety of reasons, including personal preference and economic disadvantage. The homeownership rate for millennials, the largest generation in U.S. history, is lower than that of their parents and grandparents due to high levels of student loan debt. In fact, for every 10 percent in student loan debt a person holds, their chance of home ownership drops 1 to 2 percent during their first five years after school, according a study by the Federal Reserve. These factors compound and should matter to developers, as every one percent drop in the home ownership rate creates a need for one million new rental units. Upgrading with amenities According to reporting by the Chicago Tribune, baby boomers are opting to sell their sprawling suburban homes when they become empty nesters and live in rental buildings with full amenities to avoid tasks like lawn mowing, shoveling, mortgages and property taxes. The latest data in the “amenities war” shows a demand for health and wellness amenities (including anything serving seniors) and the latest in smart home technology (a feature often wanted by young renters), according to the 2017 Multifamily Design+Construction Amenities Study. Popular examples of this new class of amenities include dog walking trails, art parks, outdoor fitness areas, coworking spaces, free building-wide WiFi and a community fitness, pilates and yoga studio. Connecting to the city “Live, work, play” has become a mantra for urban living and multifamily development. Renters at both ends of the age spectrum are being compelled to select the lifestyle- and leisure-oriented amenities available in cities. For baby boomers, connected cities with a variety of amenities also satisfy a desire for sociability, whether they’ve lost a spouse, just have an empty nest or have family living far away. Increasingly, millennials are highly educated workers with college degrees who work in computer science, information technology, media, finance, design, healthcare and a host of other industries who spend more of their lives without children due to delayed marriage. Those same young people tend to disproportionately locate and rent in central cities that have cosmopolitan, urban amenities. For seniors and young people alike, access to multiple forms of transit is another in-demand amenity often exclusively available in connected cities. Providing tenants and condo owners with the means to achieve greater mobility, such as bicycle storage and mass transit access, should be a top priority for developers in urban areas, according to the same Multifamily Design+Construction Amenities Study. The changing face of the American population, due in part to the preferences and generational differences between millennials and baby boomers, is driving a new class of multifamily housing. Are you ready to finance a project in this new multifamily landscape? Contact a Merchants Capital originator at originations@merchantscapital.com today.
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How a Shift in Demographic Trends Has Boosted the Multifamily Housing Market