Barings has committed to an $11.5 million financing that allowed a planned affordable housing development in Brooklyn’s East New York submarket to move ahead.
The financing was originated on behalf of sponsors Lantern Organization and Mega Contracting Group, which obtained a rate lock over the summer that allowed the deal to move ahead despite rising interest rates.
It highlights a critical question for developers: is it better for developers to wait and see what happens with interest rates in the near future or go ahead and secure an early rate lock as soon as they are able for their projects in spite the challenges they face to structure their deals?
Daron Tubian, a managing director and head of affordable housing at Barings, said the Charlotte-based manager is having this conversation every day with its clients. “Getting a project financed today is very different than it was four or five months ago,” he said. “At that time, we committed to a rate lock and were able to help the sponsor manage their interest rate exposure early on and help them close on their project.”
To make it ‘pencil out’
The firm provided a 30-year, fixed-rate loan for the project, which has a $62 million total development cost. “The capital structure of the product is very intense, with a number of different capital providers that all have to work together to make the project pencil out,” Tubian said.
The planned eight-story building will comprise 135 housing units geared toward tenants at or below 60 percent average median income, with 81 set aside for formerly homeless individuals, and comes as the city is working to increase its housing production, Tubian said.