In early December, we reported about a unique new pilot program that CommonBond Communities, a Twin Cities-based nonprofit, developed with the help of Freddie Mac that aims to preserve what it calls "naturally occurring" affordable rental housing.
The program matches nonprofit housing providers like CommonBond with socially conscious investors who are willing to accept slightly lower returns by investing in rental housing projects that are made affordable without public subsidies.
Freddie Mac's role is critical. The agency is able to streamline the underwriting process and give would-be investors and apartment sellers the confidence that these often-complex deals will eventually close.
CommonBond and Freddie Mac was able to test its pilot after receiving a commitment from Mercy, a Denver-based nonprofit, for a $2 million grant to be used to acquire two apartment buildings. Mercy said that CommonBond had to identify its prospects by February and close by the end of summer, or forfeit the grant.
Meanwhile, Jack and Marilyn Washburn, and their daughter, Rhonda Charboneau, had been thinking about selling two apartment buildings that they built and have owned since the 1980s. After reading about the pilot program, they called CommonBond and said they were interested in putting together a deal that would ensure that rents in the buildings would remain affordable.
After discussing the plan with their accounting firm, which also already had a relationship with CommonBond, the Washburns offered to sell Pine Point, a 68-unit apartment building in Coon Rapids, and Rainbow Plaza, a 108-unit building in Anoka, for less than market value by taking advantage of tax laws that enable them to take a charitable deduction. Deidre Schmidt, CEO of CommonBond, said fair market value for the buildings was $14.8 million; the organization paid $12.975 million for both.
"It is such a lovely story," Schmidt said. "The sale and the ability to retain these units as affordable offerings wouldn't have been possible if it wasn't for the forward thinking and generosity of the previous owners."
"We just feel it's the right thing to do," said Jack Washburn, who lives in Champlin. "The Twin Cities is in short supply of affordable places to live, so as we passed ownership on, it was a priority for us to work with an organization like CommonBond — making sure they didn't suddenly become high-end properties and displace current residents. This is our way to give back to the community and do the right thing for many years to come."
With financing support from Freddie Mac, Mercy Housing, NHT-Enterprise and NorthMarq Capital, CommonBond closed on the deal on July 6. Over the next two years CommonBond plans to update the common areas, management offices, laundry rooms and some of the apartments without significant rent increases.