WASHINGTON, DC–New York City-based Pembrook Capital Management manages two of the growing number of private equity funds that invest in affordable housing. It is a small enough universe that a fund doesn't have to specialize or focus on a particular aspect of affordable housing — there is, in theory at least, plenty of low-hanging fruit for everyone.
But Fund III, for which Pembrook is still capital raising, is looking at only one piece of this market: bridge financing on deals that are working to get re-syndicated. It is a piece — bridge financing is money in, money out — in an otherwise risky transaction as syndication specifically, and affordable housing finance in general, is a complex affair and there is no guarantee a deal will come together.
The fund just announced the closing of a $15.25-million first mortgage bridge loan for the acquisition of Mass Place in Washington, DC. The 160-unit affordable apartment building is located at 1111 Massachusetts Ave.
The financing is part of a larger plan to implement renovations via a tax-exempt bond issuance and re-syndicate the property under the Low-Income Housing Tax Credit program. The sponsor is National Housing Trust – Enterprise Preservation Corp., a not-for-profit affordable housing preservation owner and developer based in Washington, DC.
GlobeSt.com spoke with Terry Baydala, managing director of Originations at Pembrook, to find out the drivers were behind this deal and why Pembrook likes affordable housing as an investment — especially now.
Tell me a little more about Pembrook and this fund.
We are a private equity group and we have three existing funds. We are investing out of two funds right now. Fund III is specifically, but not exclusively, geared towards affordable housing. We had our first close about a year ago. Mass Place is the fifth deal we have done with this fund.
The Low Income Housing Tax Credit Market is rife with uncertainty now, because of the prospect of tax reform. Is that helping or hurting you as you go looking for investment opportunities?
A little of both I would say. The uncertainty in the market has caused some of the more traditional lenders like banks to hesitate to finance the type of deals we are doing, which is bridge financing for transactions that are to be re-syndicated. The bad part is that there is uncertainty and we are dealing with it too. Where tax reform is going and how it will, if it ever even gets done, is going to affect the LIHTC market in some way.
How are you finding the deal market now? You are coming at it from a different perspective than a non-profit, are you finding good opportunities?
Good deals have become harder to find ever since the presidential election when it became clear Congress would try to push through tax reform. That said, we are pleased with the amount of production we have been able to do.
Why did you like Mass Place?
The sponsorship was excellent and for this type of business a quality sponsorship is essential. It is imperative that the team has a track record and the complete understanding to pull off these syndications. We are relying on them to consummate these deals. Secondly, we felt that the specific location of this affordable housing project was extremely above average. It is located on the corner of Massachusetts Avenue and 11th street and gave us a greater motivation to do the transaction. We want to be able to preserve affordable housing in Downtown locations. The third reason is that it is nearly fully occupied with cash flow.
There are other private equity funds out there that focus on affordable housing but to me it seems like an oxymoron of sorts. Can you give me your reason for investing in affordable housing?
Much of it has to do with our team and its own background. Our CEO Stuart Boesky was involved with [Related Cos.' financial services affiliate] CharterMac. I have my own background in affordable housing. One reason we do invest in affordable housing is for the social good but also because it is smart business. This type of investment requires a special skill set and not a lot of people have it.
WASHINGTON, DC–New York City-based Pembrook Capital Management manages two of the growing number of private equity funds that invest in affordable housing. It is a small enough universe that a fund doesn't have to specialize or focus on a particular aspect of affordable housing — there is, in theory at least, plenty of low-hanging fruit for everyone.
But Fund III, for which Pembrook is still capital raising, is looking at only one piece of this market: bridge financing on deals that are working to get re-syndicated. It is a piece — bridge financing is money in, money out — in an otherwise risky transaction as syndication specifically, and affordable housing finance in general, is a complex affair and there is no guarantee a deal will come together.
The fund just announced the closing of a $15.25-million first mortgage bridge loan for the acquisition of Mass Place in Washington, DC. The 160-unit affordable apartment building is located at 1111
The financing is part of a larger plan to implement renovations via a tax-exempt bond issuance and re-syndicate the property under the Low-Income Housing Tax Credit program. The sponsor is National Housing Trust – Enterprise Preservation Corp., a not-for-profit affordable housing preservation owner and developer based in Washington, DC.
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Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
