Presented By: JPMorgan Chase
JPMorgan Chase’s Creative Funding Approach Can Be a Model for Projects Nationwide
Future Of Affordable Housing brought to you by JPMorgan Chase
When real estate developer Olive Tree Affordable Housing sought to execute an $85 million redevelopment for The Life at Grand Oaks, a 556-unit affordable rental community in Houston’s Greater Inwood neighborhood, the financing gap between private investment and government subsidy required a creative funding solution.
Olive Tree turned to JPMorgan Chase (JPM), which took an innovative approach: providing $56 million in construction financing and originating a more than $45 million Fannie Mae Multifamily Tax-Exempt Bond (MTEB) permanent loan, all using tax-exempt bonds which thereby allowed the project to qualify for significant Low-Income Housing Tax Credit (LIHTC) equity and benefit from a lower interest rate on the long-term debt.
“As with any deal we review, we look at all the financing options available to determine which will best serve the client’s interests,” said Ken Overshiner, executive director of community development for real estate at JPMorgan Chase. “During that process, we determined that the Fannie Mae MTEB execution combined with our construction loan would offer the client a lower permanent interest rate and more net proceeds than what we would be able to offer with our balance sheet permanent loan product. We presented the client with that analysis, answered their questions, and with their agreement, proceeded.”
Matt Bissonette, executive director of affordable agency lending at JPMorgan Chase, said that the project is a great illustration of the creative funding approach the firm can offer clients.
“JPMorgan Chase was able to use its balance sheet for the large construction loan and agency platform for the permanent loan,” Bissonette said. “In addition, we had existing business banking and equity investments with members of the development team. The particular product used for this transaction — the Fannie Mae MTEB program — allows for additional loan proceeds for eligible project costs and reimbursement for the cost of bond issuance. In addition, this borrower will be providing supportive services to residents of the property, and Fannie Mae has been very supportive of such projects. In this case, with the Fannie Mae MTEB financing, JPMorgan Chase was able to secure a notable pricing reduction for the borrower through Fannie Mae’s Healthy Housing Rewards program.”
“An additional benefit using this structure was that the project’s permanent loan was loan-to-value constrained, but there was room in the debt service coverage to sell the bonds at a premium to generate additional proceeds for the project,” Overshiner said.
JPMorgan Chase believes that this deal could be a model for similar transactions nationwide, helping bridge the gap between government and private funding.
“We have a national footprint with significant loan goals for affordable housing,” said Greg Rice, executive director of affordable agency lending at JPMorgan Chase. “This particular model is best suited for properties that are funded with bonds and tax credits. One of the biggest challenges for affordable housing development is cobbling together sufficient sources and funding components. JPMorgan Chase seeks to serve our affordable housing clients by providing many, if not all, of those funding sources.”
The property’s substantial rehabilitation began last September, including a comprehensive retrofit of all plumbing, electric and HVAC systems. The work being done here is bringing much-needed improvements to provide safe and decent housing for more than 1,000 residents.
This is Olive Tree’s second substantial redevelopment project in the area. Last May, Olive Tree closed a refinance of The Life at Park View, a Housing and Urban Development-insured substantial rehabilitation in Pasadena, Texas. In total, 2021 saw Olive Tree rehabilitate over 1,100 affordable units in the general Houston-metro area at $184 million in development costs.
“We are very proud to have a strong partnership with JPMorgan Chase that spans the full liquidity spectrum for affordable housing,” said Ian Bel, Olive Tree’s managing principal and CEO. “JPMorgan Chase’s deeply experienced and mission-driven leadership team leverages its unique position as a national affordable housing leader to provide optimal and creative financing structures that literally make the difference between whether a transaction does or does not materialize, and whether affordable housing is ultimately created and preserved.”
“The JPMorgan Chase partnership extends well beyond the investment-structuring elements of the transaction, and their consistent support and activist engagement from conception to completion makes them an ideal partner for us and other affordable housing developers across the U.S.,” said Corey Grab, vice president at Olive Tree.
The collaboration between Olive Tree and JPMorgan Chase, especially given its size and scope, illustrates how challenging the financing gap has become for developers, although it’s far from the only challenge facing developers and lenders seeking to move projects forward.
“Filling the gap is one of the biggest challenges in affordable housing development today,” Overshiner said. “While we have seen increased federal and state resources to help, it remains a challenge given the ever-increasing demand for affordable housing. Without that gap being filled, affordable housing projects can’t and don’t get built. But in addition, the continued increase in materials and labor costs have made deals difficult to do. Many state agencies have granted additional credits to help offset some of the costs. The recent rise in interest rates is exacerbating the situation, adding additional interest expense during construction and lowering the amount of the permanent debt a project can support. JPMorgan Chase can provide interest rate products to help manage this volatility.”
To ensure it’s meeting these challenges, JPMorgan Chase maintains close coordination and communication with government-sponsored enterprises.
“We have continuous interaction with Fannie Mae’s customer account managers. They provide periodic training on their current programs, such as their green rewards program,” Bissonette said. “Many of the deals we see have either a green build component or — in the case of rehabs — an energy-saving component. Accordingly, one of the first steps we take in evaluating a deal is to review the green components and look for ways to get the client any available pricing reductions or other benefits offered through Fannie Mae’s green rewards program.”
Looking at the ingenuity involved in the financing of The Life at Grand Oaks, it becomes clear that resourceful, out-of-the-box thinking can be a crucial tool toward the preservation and modernization of affordable housing nationwide.
“This project is a great example of the preservation and expansion of affordable housing units,” Overshiner said. “While the previous owner held some of the units as affordable due to restrictions on some city funds they had previously used, Olive Tree came in and chose to make all of the units affordable at 60 percent of area median income, and to put long-term rent restrictions on the units under the LIHTC program, thereby ensuring that the additional units will remain affordable.”
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