Oak Grove Capital Closes First Freddie Mac Bridge-to-Resyndication Loan
Oak Grove Capital, St. Paul, Minn., closed the first Freddie Mac bridge-to-resyndication loan for The Parks at Fig Garden, a 366-unit affordable housing property in Fresno, Calif.
The borrower acquired the property using a bridge loan. Simultaneously with closing, Oak Grove Capital executed an 18-month forward interest rate lock on a Freddie Mac tax-exempt loan.
The $14.45 million bridge loan equaled 85 percent of property purchase price. The 18-month interest-only loan closed at 2.49 percent, or 2.30 percent over 30-day LIBOR. The tax-exempt loan interest rate lock will not exceed $18.54 million with a 4.42 percent all-in rate. Upon closing, the tax-exempt loan will have a 16-year term with the first 24 months interest-only and a 35-year amortization period.
In addition, the tax-exempt loan interest rate lock offered the flexibility of a 15 percent downward resizing without penalty should certain loan-sizing assumptions change between initial closing and final closing. Oak Grove said the financing allows borrowers to quickly and competitively acquire existing Low-Income Housing Tax Credit properties at or near the end of their LIHTC compliance periods and lets them position the properties for recapitalization using LIHTCs and long-term fixed-rate tax-exempt financing.
Without a bridge-to-resyndication loan product coupled with an extended interest rate lock for an eventual long-term fixed interest rate loan, many existing LIHTC assets will ultimately be converted to market-rate multifamily properties and be lost as affordable housing. But by combining the high-leverage bridge loan with an extended interest rate lock for a tax-exempt loan, borrowers can compete with conventional buyers by purchasing a property quickly while at the same time locking the interest rate on the ultimate resyndication loan.
Oak Grove Capital Managing Director of Affordable Housing Tim Leonhard helped Freddie Mac develop, document and implement the concept. “This product went from an idea born during a short conversation to a real product and an actual closing in 90 days, which is extraordinary,” he said.
In this case, the unique structure of a bridge loan coupled with permanent interest rate lock protection benefited sponsor Community Housing Works, San Diego, by increasing cash flow during the period prior to resyndication. And the forward interest rate lock on the tax-exempt loan provided a competitive interest rate, eliminated the borrower’s interest rate risk and included significantly lower transaction costs compared to a traditional credit-enhanced tax-exempt bond execution.
