While OneWall Communities closed a deal for the 178-unit Allentown Apartments for $23 million in October, its interest rate came from a much earlier time on the calendar.
The Stamford, Connecticut-based owner and operator of workforce apartments locked in the financing on the Allentown Apartments, which it is rebranding as Gateway Station, in late July when the 10-year treasury was at 2.77%. But the red tape of buying a low-income housing tax credit property, coupled with Prince George's County, Maryland, holding the right to buy a property sold in the jurisdiction, delayed closing until October.
Despite those delays, OneWall closed the deal with an interest rate below 5%. That allowed it to maintain its pricing and seamlessly raise equity from discretionary funds and 1031 investors, who swap out of one investment property for another to defer capital gains tax.
“We effectively locked our spread in before the last couple months of dramatic interest rate rises,” Nate Kline, chief investment officer and partner at OneWall, told Multifamily Dive. “We were able to finance the property in the mid-4% interest rate range, which is almost 150 basis points below market pricing today.”
Gateway Station, a Section 42 LIHTC program property, was built in 1963 and renovated in 2007. The property, which has income restrictions for the next 15 years, will be the first of its kind for OneWall.
“We've done all sorts of different municipal reporting regimes, but not specifically LIHTC,” Kline said. “We've had a lot of exposure to different reporting requirements, some particularly onerous and others less so. We also have folks on our staff with affordable housing experiences. So it's not an entirely new concept to anyone.”
Gateway Station, an 8-acre community, includes eight one- to three-story multifamily buildings. Its studio, one-, two- and three-bedroom units feature a balcony or patio, walk-in closet, dishwasher, garbage disposal and air conditioning. Community amenities include a swimming pool, three on-site laundry facilities, a playground and parking for 182 vehicles.
Kline said there is an opportunity to renovate the apartments and raise rents, even though the property is in the LIHTC program. “The asset was renovated on a recurring capital expenditure basis for a number of years, but there has not been a concerted effort by ownership to renovate units and seek out premiums that are within the allowable rents under the LIHTC program,” he said. “There is a nice cushion between the existing in-place rents and the allowable rents.”
OneWall adds the Gateway Station to a Washington D.C.-area portfolio that includes the 459-unit Heather Hills Apartments in Temple Hills, Maryland. The company now has 3,000 units of workforce housing.
“We have been attracted to the broader D.C. suburban markets for the employment stability and the growing diversity of employment activity,” Kline said. “It has been one of the most active job-creating regions within our footprint.”
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