Freddie Mac Leads $61M Refinancing on The Domain Companies’ Eleven33
Government-sponsored corporations at the federal and local levels collaborating to finance affordable housing?
Freddie Mac worked out a deal with the New York City Housing Development Corporation to share risk and reward alike, teaming up on a $61.2 million refinancing for Eleven33, a multifamily complex in Brooklyn developed by The Domain Companies, Commercial Observer can exclusively report.
The new mortgage knocks out an original construction loan from JLL (JLL).
The building, at 1133 Manhattan Avenue in the borough’s Greenpoint section, sets aside 20 percent of its apartments at rates affordable to people who earn 50 percent of the area median income, and another third for those who earn less than 130 percent of the median. Its 210 one- and two-bedroom apartments are packaged with a cyber café, a fitness studio and a furnished rooftop deck overlooking the East River just south of Newton Creek.
Freddie Mac has been linked to the project since a few years before construction was completed in 2015, according to Shaun Smith, an affordable-housing executive at the government-sponsored entity. Freddie was eager to support the project with debt, but had to hold off until work was finished because it does not finance multifamily construction.
In the interim, the Housing Development Corporation had allocated tax-free bonds to support construction of the building’s affordable apartments in 2012. As Eleven33 leased up, Domain Companies was eager to pay off HDC’s bonds with the new financing Freddie Mac had promised, but HDC was reluctant to leave yield on the table by allowing the developer to wriggle out of its obligations early.
“One of our priorities is to preserve HDC’s existing investments,” said Jonah Lee, the agency’s director of preservation.
That scenario created the conditions for a unique collaboration: Freddie Mac would originate 90 percent of the refinancing under the aegis of its own tax-exempt debt program, while HDC stayed on board for the remainder.
In exchange for keeping on as the subordinate lender, the city public-benefit corporation will get a risk-adjusted return on its financing.
“It turned out to be a win-win for both of us,” Smith said. HDC was “able to earn yield on their money. They would therefore be able to put more money back into New York subsidized housing.”
HDC executives were similarly pleased with the result.
Domain Companies “could have paid off our subsidy, but we wouldn’t have wanted the project to refinance away from us,” said Anthony Richardson, the agency’s senior vice president for development. “This gives us a little more say-so with what happens with the property going forward.”
And the federal and local agencies agreed that the deal showcases the power a small incentive can yield.
Tax-exempt debt is “one of the most important subsidies available,” Smith averred. Such bonds typically trade at lower spreads than other debt because their holders don’t demand compensation for the taxes on the interest they earn. As a a result, affordable housing developers face lower interest expenses and can afford to charge lower rents.
Representatives from JLL and The Domain Companies were not immediately available for comment.