Freddie Mac program preserves unsubsidized affordable housing
Nonprofit agencies looking to purchase unsubsidized affordable housing properties can use a new impact gap financing program from Freddie Mac to fund the acquisition.
These properties, also known as naturally occurring affordable housing, are targets for developers looking to acquire, renovate and then convert them to market rate rentals.
To counter that, the program allows nonprofits to compete against those developers so they can purchase and maintain the properties as affordable housing.
It works by pairing Freddie Mac's Targeted Affordable Housing NOAH Preservation Loan with a Freddie Mac-facilitated impact gap loan. The impact gap loan is made on specifically created, predefined Freddie Mac loan documents.
Lenders make both of these loans simultaneously. The borrower needs to make a minimum 3% equity contribution to the deal.
The NOAH loan is sold to Freddie Mac, while the impact gap loan is sold to the property's investor.
In the first instance of this form of financing, Freddie Mac and NorthMarq Capital financed the purchase of Rainbow Plaza, a 108-unit apartment building in Anoka, Minn., by CommonBond Communities, a St. Paul, Minn.-based nonprofit.
Mercy Housing, a nonprofit organization based in Denver, along with its affiliated Work-Force Housing Equity Fund, provided equity financing through the purchase of a $2 million impact gap note.
"NOAH properties face significant risk of being lost to deterioration, abandonment and gentrification," said David Leopold, vice president, targeted affordable sales and investments at Freddie Mac, in a press release. "Our new execution seeks to combat that by building the infrastructure necessary to match impact investors with mission-focused borrowers to ensure these properties are acquired, preserved and remain affordable."
"The execution enables impact investors to invest directly in affordable housing preservation efforts in their communities and across the country, provides them with a single point of contact for their housing investment interests, and utilizes Freddie Mac Multifamily's underwriting and lending expertise to promote sustainable communities over time."