Transaction Includes Goal to Improve Energy Efficiency by 30% for Half of the Portfolio by participating in Louisville Gas and Electric Company and Kentucky Utilities Company’s Home Energy Analysis Program
Greystone announces the closing of a $64.4 million multifamily housing transaction in Kentucky. The 18 aged USDA Rural Development Section 515 properties, comprising 563 apartment homes serving low-income households in 14 counties across the state, are owned and operated by Winterwood, Inc.
In the statewide pooled transaction, Greystone’s affordable housing preservation group worked closely with USDA’s Rural Housing Service (RHS) National Office and Kentucky State Office as well as the Kentucky Housing Corporation (KHC) to coordinate and secure the financing needed to acquire and rehabilitate this at-risk and much-needed housing. In addition to the recapitalization, Greystone arranged for 253 units in the portfolio to utilize energy incentives and rebates with the Home Energy Analysis and Home Energy Rebates programs available through Louisville Gas and Electric Company and Kentucky Utilities Company. The project’s goal is to achieve an energy efficiency improvement of more than 30 percent by the conclusion of construction. Eligibility factors include the installation of ENERGY STAR certified appliances; HVAC split systems of 14.5 SEER; high-efficiency replacement windows; and air sealing.
All properties in the portfolio, ranging from 12 to 60 units, leveraged the Multifamily Preservation and Revitalization Program through USDA. The MPR Program is a loan restructuring tool that provided debt with favorable financing, contributing to an overall rent decrease of $22 per unit across the portfolio.
“Participating in this transaction became an important means for KHC to take an additional step forward in its efforts to provide quality, affordable housing for all Kentuckians. It was rewarding collaborating with the partners involved to find strategies and resources to make the deal a reality,” said J. Kathryn Peters, Executive Director of Kentucky Housing Corporation. “This transaction was unique in that several beneficial funding sources were made available for the first time. KHC tailored an Equity Bridge Loan providing $5 million to the deal. In addition, HOME Investment Partnerships Program funds allocated to KHC added an extra $500,000 in loan proceeds. Being able to leverage these programs added real value to the project.”
“This transaction provided a rare opportunity in the movement to preserve and improve affordable housing. By aggregating smaller properties into a single statewide portfolio, economies of scale were created and a deal with this level of complexity became possible,” said Tanya Eastwood, President of Greystone Affordable Housing Initiatives. Added Eastwood, “Winterwood recognized the importance of repositioning its assets and collaborated with Greystone to accomplish its goals. A group of dedicated organizations in both the private and public sectors coordinated their efforts to meet the challenges of this major undertaking with passionate focus and creativity. The work will undoubtedly transform lives and we are thankful to everyone involved.”
The financing plan combined both public and private funding and included:
• Tax-Exempt Bonds – Single issuance of $21.2 million in multifamily private activity tax-exempt bonds by Kentucky Housing Corporation. The short-term bonds received an A-1 rating from Standard & Poor’s.
• Low-Income Housing Tax Credits – Purchase of 4% Federal LIHTCs by CAHEC, generating $11.9 million in capital contributions.
• RHS 515 Debt - Assumption and subordination of $13 million of original USDA Section 515 debt. The Section 515 program is a direct loan program designed to provide subsidized loans to developers of affordable housing in rural markets. In addition, 68% of the 563 apartment units will continue to receive Section 521 Rental Assistance provided by RHS or Section 8 rental subsidy pursuant to a Housing Assistance Payments (HAP) Contract through the U.S. Department of Housing and Urban Development (HUD).
• Senior Debt of $16.7 million – Long-term debt comprised of a combination of $775,000 in USDA guaranteed 538 loans, provided by Greystone Servicing Corporation, Inc., and $15.9 million in newly-issued USDA 515 loans.
• HOME Investment Partnerships Program (HOME) Loan - Funds provided by HUD to KHC in the amount of $500,000. HOME is the largest Federal block grant provided to state and local governments to create affordable housing for low-income households.
• Other – Other funding sources included additional financial support of $1.2 million.
The rehabilitation plan includes a fast-paced construction process, estimated to be complete within 12 months, during which no residents will be permanently displaced. Substantial renovations, averaging $31,700 per unit, will include both interior and exterior improvements. Particular emphasis will be placed on bringing the properties, built between 1978 and 1999, up to modern standards, addressing accessibility, functional obsolescence and deterioration.
"Winterwood, Inc. is pleased to have worked alongside Greystone on this project. From the onset of this deal, they were a great partner, assisting us with a strategic and innovative plan to preserve a portion of our residential portfolio,” said Carol Worsham, president of Winterwood, Inc. “We are happy that this project will ensure the preservation of 563 affordable housing units throughout the Commonwealth of Kentucky. We are most excited about the benefits that our long-term residents will receive. Their quality of life will improve with the rehabilitation of their residences. This is truly a win-win for all involved."
“Kentucky offers an interesting case study in that the state housing finance agency’s leadership recognized the overwhelming need for preservation. KHC estimates that approximately 30,000 rural housing units are in need of preservation now or by 2020. During the previous five years, Kentucky attempted to address this issue through the 9% LIHTC program. However, the state’s credit ceiling only allows for the preservation or new construction of roughly 1,000 units annually,” said Lewis Diaz, partner at Dinsmore & Shohl LLP. “As valuable as the 9% LIHTC program is, it will not unilaterally address Kentucky’s need. Greystone’s portfolio model, coupled with a handful of KHC policy changes and a very hardworking USDA state office has placed Kentucky on a path to double the number of multifamily residents assisted annually while also increasing the number of construction starts and private equity invested in the Commonwealth.”