Sims Mortgage Funding Closes Elderly Affordable Housing Loan
“The Sims team provided strong leadership and technical expertise in assisting Diakon with very complex re-financing of Frostburg Heights, an older property in our affordable housing portfolio. Despite numerous obstacles along the way, Sims was able to positively influence efforts of various stakeholders in the process in order to keep us moving forward. We were quite pleased to see the process reach a successful completion, which has positioned Frostburg to access much needed funding for capital improvements and provided for a modest equity cash-out to Diakon as sponsor.”
– Jarrod Leo, Senior VP Finance, Diakon Lutheran Social Ministries
Diakon Lutheran Social Ministries (DLSM), one of the largest Lutheran affiliated social service organizations in the U.S., owns and manages Frostburg Heights Apartments, a 110-unit elderly housing project with Section 8 rental subsidies. The Project was built in the early 1980s and needed an infusion of capital. DLSM, passing on conventional financing options, turned to Sims Mortgage Funding (“SMF”) to obtain HUD-insured financing.
SMF obtained a key waiver that enabled DLSM to bypass HUD’s layered real estate owned analysis, shortening the financing timeframe. By underwriting the loan based on market value instead of cost to refinance, SMF maximized the equity cash-out to DLSM. The Project also was approved for a 20-year renewal of its Section 8 contract, ensuring a stable revenue platform well into the future.
The $3,440,000 loan was insured under the Section 223(f) program and was underwritten at 80% of market value. The loan features a 35-year amortization commencing 2 months after closing and a fixed interest rate that was considerably below projections. The debt service coverage ratio is approximately 1.27. In addition to the cash-out, approximately $2 million in loan proceeds funded a repair escrow and an initial deposit to the reserve fund for replacements.
SMF successfully obtained financing for a recapitalization of an existing, affordable project at a competitive, fixed, long-term interest rate. The recapitalization enabled Diakon to make much-needed improvements that could not be financed from operations and existing reserves. SMF has closed 4 HUD-insured loans, all for affordable housing projects totaling approximately $15.2 million, for DLSM since 2011.
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