Berkadia, Berkshire Hathaway’s joint venture with Jefferies Financial Group, has announced that Berkadia Commercial Mortgage, Jefferies and Riverside Capital have facilitated the financing of Fairwood Apartments, a garden-style multifamily property in Carmichael, California (Sacramento County).
The deal consists of a $12.6 million Tax Exempt Fannie Mae Mortgage Backed (M-TEBS) bond transaction with four percent low-income housing tax credits (LIHTC), which funded approximately $6.4 million in equity. As part of the deal, the project will have a new 20-year HUD rental assistance contract, meaning that none of the 86 households will have to pay more than 30 percent of their income towards rent. The closing of this financing preserves Fairwood Apartments as an affordable housing asset for the long-term.
The financing is the first such transaction involving all three affiliated firms, each playing a critical role in their respective specialty areas. The bonds were issued through the California Housing Finance Agency (CalHFA) for affordable housing developer Orbach Affordable Housing Solutions, LLC (OAHS). A single-purpose corporation controlled by OAHS, called OAHS Fairwood LP, is the owner. The deal closed on November 29.
Berkadia’s Senior Director Gemma Geldmacher and Managing Director Richard Price originated the financing, teaming up with Managing Director Lloyd Griffin, Senior Director Frank Brown and Senior Underwriter Mark Field to underwrite the Fannie Mae M-TEBS DUS loan. Alan Jaffe and Robert Foggio were the lead investment bankers for Jefferies, and Riverside Capital’s team syndicated the tax credits.
The combination of debt and equity raised by the Berkadia-led team will provide sufficient funds to acquire the project and allow for approximately $3.4 million in rehabilitation – including updates to residential units and system upgrades.
“The Fairwood financing was an ‘all hands-on deck’ deal,” said Price. “The team worked hand-in-glove with CalHFA, which demonstrated unwavering support in further fulfilling its preservation of the affordable housing mission. HUD also played a key role in approving the long-term subsidy contract and assigning it to the project.”
“In California, homeowners spend the highest amount of their annual income on housing and continually struggle to pay their rent,” said Jay Reinhard, President of OAHS. “This is why we are committed to improving the housing market so that Americans can live without the fear of losing their homes. We are honored to be involved in this great project.”
The pass-thru fixed rate on the bonds was 3.75 percent with a loan term of 15 years underwritten and a 35-year amortization. Fannie Mae yield maintenance premium from closing is through May 31, 2033. Thereafter, a one percent prepayment penalty will apply through August 31, 2033. After this, no prepayment premium will apply. The loan was debt service constrained at 1.15 times the debt service coverage ratio.
Located in the Fair Oaks neighborhood of Carmichael, the project was originally developed in 1981 and has a mixture of one-, two- and three-bedroom units. Carmichael is less than ten miles away from downtown Sacramento in an area that has seen tremendous growth in the past decade.
Founded in 2009 as a 50/50 joint venture between Berkshire Hathaway and Leucadia National Corporation (now known as Jefferies Financial Group), Berkadia is a third-party commercial mortgage servicer, as well as an approved lender for Fannie Mae, Freddie Mac, and HUD/FHA.
The company is among the top Freddie Mac and Fannie Mae multifamily lenders.
Berkadia owes its origins to GMAC Commercial Mortgage Corporation, which was acquired in 2009 by Kohlberg Kravis Roberts & Co., Five Mile Capital Partners LLC, and Goldman Sachs Capital Partners. Christened Capmark Financial, the company had $10 billion of originations in 2008 and a servicing portfolio of more than $360 billion before running into bankruptcy in October 2009.
In a deal approved by the bankruptcy court, Capmark sold its mortgage loan and servicing to the newly formed Berkadia in a deal worth $515 million.
The deal brought Berkshire into the heart of the commercial loan serving business, and the company has one of the largest commercial real estate servicing portfolios.
© 2018 David Mazor
Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.