MCLEAN, VA–Freddie Mac has priced a new $550 million offering of K Certificates backed by floating-rate multifamily mortgage bonds with a ten-year term. The K Certificates, called K-SKY Certificates for this transaction, are backed by Sky Apartments in New York, NY, the largest residential tower in the US.
The transaction collateral is part of Freddie Mac's single-asset, single borrower execution but this particular structure is notable because it is the largest-ever single-asset tax-exempt financing completed by Freddie Mac. Essentially the deal was structured as a private placement that included a direct purchase of tax-exempt and taxable variable rate bonds issued by the New York State Housing Finance Agency with plans to securitize those bonds.
“K-SKY marks a new endeavor for Freddie Mac Multifamily and latest innovation in our flagship K-Deal program,” said Robert Koontz, Vice President of Capital Markets at Freddie Mac Multifamily in a prepared statement.
Aaron Dunn, Director of Investor Relations for Multifamily, explains how the transaction worked.
The New York State housing administration issued bonds that supported the affordable units at the development — these were tax exempt and these were the bonds that Freddie Mac committed to purchase, he tells GlobeSt.com. The state agency also issued bonds to support the market-rate units, and these were not tax exempt.
Freddie Mac placed the tax-exempt bonds into a grantor trust — that is, a vehicle that facilitates the securitization. It now can sell those bonds to the market fully guaranteed. Another point to note, Dunn says, is that this is a very low leverage loan “making this a low-risk transaction for Freddie.”
The structure provided certainty of execution and delivered pricing far below a standard bond credit enhancement, Koontz added.
K-SKY is expected to settle on or about September 20, 2017.
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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.
