When construction and LIHTC financing for a complex project fell through for long-time customer NeighborWorks New Horizons (NWNH), NC stepped in with a $7.99 million, dual-note construction loan for NWNH’s 86-apartment two-phase Spruce Meadows/Spruce Ridge project in Stonington, CT – one of our largest loans ever. This was our 10th loan to NWNH, and our experience with them allowed us to close on this financing to keep the project moving forward.
NWNH has invested more than seven years in Spruce Meadows/Spruce Ridge, the largest in their 27-year history. The first phase, Spruce Meadows, was completed in early 2017, but when the LIHTC market had some hiccups that year, their investor and construction lender for phase 2, Spruce Ridge, backed out, leaving the whole development in peril.
When that happened, NWNH knew they could call us.
“NC really saved this project,” said Seila Mosquera-Bruno, NWNH Executive Director.
The $24 million, two-phase project had an unusual financing structure: Spruce Meadows (first phase) was built using loans and grants from the State of Connecticut ($8.0 Million), and a local bank ($2.5M). Spruce Ridge (second phase) would be built using a construction loan ($5.5M), LIHTC equity ($1.5M), and more grants and loans from the state ($6.5M). But to get the best possible LIHTC price, NWNH needed a large construction loan from NC.
NC approved a $5.5M construction loan in late 2017 but delays in closing the LIHTC equity and state of Connecticut loans pushed the closing into early 2018. Then the Spruce Meadows construction lender wanted out of the project, as they did not understand LIHTC or how to work with investors.
That’s when NWNH asked us to increase our construction loan to $7.99 million, so we could replace the Spruce Meadows construction lender. Our assessment was that the whole project would be in jeopardy because of the first lender’s lack of understanding, and that the risk was manageable. NC increased its loan commitment and refinanced the Spruce Meadows construction note (to not disrupt the existing loans from the State of CT) and all the financing closed in the first quarter of 2018.
The combined Spruce Meadows and Spruce Ridge will have 66 apartments affordable from 25% of AMI ($22,000) to 50% AMI ($44,000), and 20 market-rate apartments. Construction of Spruce Ridge is about 50% complete and will be finished in the 1st quarter of 2019 with tenants moving in the spring. Spruce Meadows is 100% occupied.
This is our 10th loan to NWNH, but the first time they approached us for construction and bridge financing.
“It was complicated because we were in the middle of the project. At the end of the day, NC was more flexible and willing to provide the creative solution we needed. Their team moved quickly and got the deal done. They were really instrumental in moving the project along,” Mosquera-Bruno said.
Time was critical due to the tax credit awards for the two phases.
“They did the due diligence, and were able to approve the financing quickly enough to help us continue the project. Not many lenders do that. For us, NC’s flexibility and speed with the underwriting and ability to cut time, were critical for us,” said Mosquera-Bruno.
Spruce Meadows and Spruce Ridge are creating much-needed additional affordable homes in a community heavily dependent on a resort and summer tourism economy, where low-wage service-sector jobs predominate. There is significant demand for affordable homes in the area, with fewer than 100 rent-restricted apartments, nearly all subject to wait lists.
“NWNH is very experienced in using LIHTC and has a strong track record, with deep experience in affordable homes in the region,” said our Chief Lending Officer Stephen Peelor. “They have a wealth of experience, and, having built Spruce Meadows in Stonington recently, understands the city’s processes to allow an accelerated construction pace. They can handle the strong management of the construction process required to close on time.”
NC has been involved in the development of Spruce Meadows/Spruce Ridge since 2013. We provided a predevelopment loan of $200,000 and a $1.1 million land acquisition loan for Spruce Ridge in 2014. NC also funded predevelopment and construction costs for Spruce Meadows ($599,000) and predevelopment costs for Spruce Ridge ($225,000).
NWNH has been a NeighborWorks America member since its founding in 1992. Since then, they have developed 19 projects throughout the state of Connecticut.
“Connecticut has very strict guidelines for funding – most of the time you have to own the property, and with the initial investment there is usually risk involved. NC has partnered with us for many years, helping us get where we are today,” Mosquera-Bruno said.
NWNH is dedicated to providing affordable home opportunities to help build strong communities and revitalize neighborhoods. Its mission is to develop, own and operate affordable quality homes that build strong, healthy and vibrant communities through active resident and community participation and leadership. NWNH’s service area encompasses New Haven and New London Counties and focuses on revitalization projects within the City of New Haven and the Naugatuck Valley, as well as the provision of affordable home choices in the affluent shoreline communities. Founded in 1992, NWNH completed its first development in 1996 and has developed more than 500 affordable homes, including multifamily rehabs and new and rehabbed single-family properties.