Vesta Corporation and its nonprofit partner, Lifelong Learning Corporation, are redeveloping Cleveland’s historical Henry W. Longfellow elementary school into 80 units of affordable senior housing. The Ohio Housing Finance Agency (OHFA) awarded the project both 4% and 9% low-income housing tax credits (LIHTC), and these credits were purchased by Key Community Development Corporation. While twinning tax credit projects with both credits has become a trend in affordable housing finance, what makes this project innovative is its single FHA mortgage.
In most twinning deals, the 4% and 9% credits are owned by two separate legal entities as the underlying investors usually have different ownership in each. This double ownership structure leads to separate mortgages. While having one investor, KCDC, purchase both the 4% and 9% credits made this transaction a bit simpler, the structure could be replicated for multiple investors too.
For Longfellow, the whole 221(d)4 loan is $3.6 million. Separating it into two loans would have been cost prohibitive and created a development gap. In order to make a permanent mortgage work, the solution was to split the parcel into 3 condominium units. One unit was the historical school building where 30 units of 9% LIHTC housing will be developed. The other two condominiums were a split in the new construction building. One condominium will be 28 units of 9% housing and the other 22 units of 4% housing. In order to properly segregate the basis for each tax credit allocation, the two 9% condominiums will share one building identification number (BIN) and the 4% condominium will have its own BIN. The FHA mortgage will encumber all 3 condominium units as well as the land.
It is creativity like this, that will help us build new affordable units and use all of our financial resources to their maximum potential.
For more information on the Longfellow structure or other unique structures, please contact Tony Love at tony.love@bwe.com.