Capitalization for The Edge at Langham Creek, a 115-unit multifamily property, is now in place.
HOUSTON—Although multifamily builders will continue to scale back deliveries this year to move supply and demand closer to equilibrium, one development bucks that trend and the final investment moves the project forward. The final piece of the $18 million capitalization for the Edge at Langham Creek, a 115-unit multifamily property, is now in place. MidHudson was the equity provider.
Berkadia arranged $1.75 million in preferred equity for the final construction financing. Associate director H. Mark Crosswell and analyst Eric Kline of Berkadia's Houston office arranged the preferred equity financing on behalf of HS Development.
“We had originally sought a traditional equity partner to finance the cumbersome reserves for HUD financed housing developments, but through the Berkadia network, we were able to identify a new provider, MidHudson Capital, that had a product specifically for this type of funding requirement,” said Crosswell. “Their knowledge of HUD's 221(d)(4) senior financing program made them easy to work with and allowed us to meet a tight deadline.”
Berkadia's equity platform in Houston has arranged joint venture and preferred equity on a variety of transactions for numerous clients in both heavy value-add situations and ground-up construction. Berkadia's Houston office has arranged equity transactions as low as this placement and more than $20 million.
“HUD employs a rigorous underwriting and approval process for their multifamily loan programs,” Kline tells GlobeSt.com. “One conservative practice they use under the 221(d)(4) construction program is requiring developers to escrow or obtain letters of credit for working capital and operating deficits that may occur during the construction and lease-up period. These are not always required from traditional lenders, and can have a substantial negative effect on a developer's returns if they must procure additional funds, diluting their equity, to meet HUD's requirements. To mitigate this negative effect in the Edge at Langham Creek, Berkadia arranged a preferred equity solution to satisfy HUD's requirements without diluting HS Development's ownership.”
Located at the southwest corner of Yorktown Crossing Parkway and Homma Drive, the property is situated one block from Highway 6, providing access from the Bear Creek area to the rest of the metropolitan area. Interstate 10 and the Energy Corridor are located 10 minutes to the south, and the Texas Medical Center West Campus, employing almost 4,000 medical professionals, is 20 minutes away on Interstate 10.
“The Edge at Langham Creek is well-positioned to benefit from pent-up demand in this developed area,” adds Crosswell. “Most of the multifamily development in the Bear Creek/Katy submarket is focused in the Energy Corridor along Interstate 10. New supply has been limited further north in the developed area surrounding the subject site.”
Construction is scheduled to complete on 5,560 units by year-end, down a third from deliveries in 2018, according to a report by Berkadia. Deliveries may remain subdued in the near term as multifamily permits were filed for 12,300 units in 2018, down more than 20% from the preceding five-year average issuance. Apartment additions will remain concentrated in the Inner Loop with nearly half of all deliveries this year, where single-family housing starts and apartment deliveries continue to lag new household formation.
Employment growth continues to drive demand. Total nonfarm employment is forecast to expand 2.6%, or by 81,100 jobs this year.
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Lisa Brown
Lisa Brown is an editor for the south and west regions of GlobeSt.com. She has 25-plus years of real estate experience, with a regional PR role at Grubb & Ellis and a national communications position at MMI. Brown also spent 10 years as executive director at NAIOP San Francisco Bay Area chapter, where she led the organization to achieving its first national award honors and recognition on Capitol Hill. She has written extensively on commercial real estate topics and edited numerous pieces on the subject.
