Barings has agreed to fund a $70.1 million forward commitment for a permanent loan on a planned 353-unit mixed-income luxury apartment in Charlotte. The transaction highlights both the need for housing of this kind in the city’s Central Business District and the ability of the sponsors to execute on a project that is just getting out of the ground.
It is rare for balance sheet lenders to agree to forward commit to a project of this size given the market rate component of it. But the project – Trella Uptown – with a 70 percent market-rate and 30 percent affordable mix – benefited from experienced sponsorship and strong demand, said Daron Tubian, managing director and head of affordable housing investments at Barings.
“First and foremost, you have to be confident with the sponsor, their vision and their ability to execute and deliver,” Tubian said. “You’re taking significant interest-rate risk on making sure they’re going to be able to get to that point and complete the project since the size of the project and exposure is not the kind any sponsor can undertake.”
The sponsors, Washington, DC-based Urban Atlantic and Charlotte-based INLIVIAN, formerly the Charlotte Housing Development Authority, are planning a $120 million development for the project at 426 N Tryon.
The capital structure is a combined market-rate and affordable $67 million construction loan from Chase; a $16 million LIHTC equity commitment from CVS Health’s Aetna via Red Stone Equity Partners; a $3.2 million Housing Trust Fund from the City of Charlotte; a $7.8 million subordinate loan from INLIVIAN’S development subsidy, HPD; a $6 million grant from Mecklenburg County; and developer cash equity.
As a Charlotte-based company, Barings saw the need for the project from a supply-demand perspective as well as the ability to have a positive impact on its hometown. Trella Uptown, close to a light rail station, will comprise 247 market-rate units that make up about 70 percent of the complex and another 106 affordable units.
The financing package provided by Chase included $83.95 million of construction debt, public grant and tax credit financing that was bifurcated to reflect the mix of tenants. Chase provided a $50.6 million loan for the market-rate units and another $16.3 million for the affordable units.
Similar to the construction loan, Barings’ commitment is bifurcated into an affordable and market rate collateral structure. This structure stems in part from different ground leases for the affordable and market-rate components of the deal, Tubian added.
“The capital stack is more involved and intricate than your traditional affordable housing project because we needed to put together a bifurcated loan structure collateralized separately between the affordable and the market,” Tubian said. “In concept, it sounds easy but to put that on paper, factoring in all the variables but keeping it digestible for all parties involved, is more complicated.”
First for Charlotte
While the property is a first for North Carolina, it is similar to two other projects Urban Atlantic has completed in Washington, DC, said Caroline Kenney, a managing director at Urban Atlantic. Those mixed-income transactions allowed the company to understand how to work through the complexity of having one building with two ownership structures and how to bring them together into one integrated building.
“I think that when there is a really visionary public policy goal like INLIVIAN had for Charlotte, you can have a Class A apartment in one of the best markets for jobs, transportation and amenities and that kind of housing should be made available for everyone,” Kenney said. “There was the thinking that ‘There is this vision, there is this land, and we want to leverage it to create a building that is 70 percent market rate and 30 percent truly affordable.”
There is an additional twist: the participation of Aetna in the capital stack. “I think it is an expression of the fact that health and community health has to be looked at comprehensively. Medical health is a piece of that, but housing security is another enormous piece,” said Kelli Brooks, a managing director at Urban Atlantic. It is significant to have a participant from the healthcare sector investing in mixed-income housing.
The transaction took more than two years of negotiations, with Brooks underscoring that it is important for all parties to understand goals. “You do have to do things slightly differently than you would in more traditional standalone affordable project or standalone market-rate project,” she said.