Bank Financing
Agency Financing
Island Terrace Apartments image courtesy of POAH.
CHICAGO, Ill. (Feb. 26, 2024)—The Chicago office of leading financial services provider Merchants Capital today announced that it provided more than $54 million of debt and $49 million in Low-Income Housing Tax Credit (LIHTC) equity financing for the rehabilitation of Island Terrace, a 21-story affordable apartment complex located across from the Obama Presidential Center in Chicago’s Woodlawn neighborhood. Preservation of Affordable Housing, Inc. (POAH), a national non-profit affordable housing developer and owner of Island Terrace, closed the complex financing structure on December 20, 2023.
Merchants Capital maximized LIHTC equity via a structure called “twinning,” which leveraged both 4% and 9% tax credits issued by the Illinois Housing Development Authority (IHDA) and the City of Chicago. Island Terrace is one of the first HUD-insured housing properties to use this unique type of financing. The 4% and 9% equity syndication generated $31.8 million and $17.3 million, respectively, matched by two corresponding HUD-insured permanent loans totaling more than $22 million and two equity bridge loans totaling more than $32 million. Merchants Bank provided $26.5 million for the property acquisition in 2021.
“It was exciting to draw on the many capabilities we have at Merchants to put this complex transaction together,” said Emmett Donovan, Senior Vice President of Originations at Merchants Capital. “From the initial acquisition funding to the equity, HUD-insured construction / permanent loan and the equity bridge loan, Merchants’ ability to originate all components of the capital structure is truly unique in the market. These debt and equity sources will allow POAH to modernize the Island Terrace property and preserve this important affordable housing asset for the Woodlawn community for generations.”
“From the initial acquisition funding to the equity, HUD-insured construction / permanent loan and the equity bridge loan, Merchants’ ability to originate all components of the capital structure is truly unique in the market.”
The planned Island Terrace renovations are extensive and will include replacement of the roof, windows, plumbing and electrical systems; a redesigned first floor with community room and laundry facilities; and updated kitchens and bathrooms throughout the 240 apartments. Prior to the recapitalization, only 88 of the project’s 240 units carried affordable restrictions, which could have been canceled at any time, while the balance of the units was unrestricted. The new financing structure enabled POAH to expand the affordability restrictions to include nearly all units while extending the restrictions for at least 30 more years.
“Island Terrace is a critical source of affordable housing in this part of Chicago, and we are delighted to invest in its future,” said POAH Vice President for Development Molly Ekerdt in a recent announcement. “With the investments of public and private partners and the involvement of residents, this property will serve low- and moderate-income families for many years to come.”
Additional funding sources for the project include a combined $24 million of secondary loans from the IHDA and the City of Chicago. The AFL-CIO Housing Investment Trust also contributed funds to the transaction through its purchase of the securitized HUD Loans.
“The preservation of Island Terrace means there will be more housing that’s affordable to families in Chicago,” said Chang Suh, CEO of the AFL-CIO Housing Investment Trust. “Together we’re getting a lot done, and more needs to be done. That’s what makes this kind of successful, collaborative project so important.”
To learn more about Merchants Capital and its services, visit www.merchantscapital.com or find Merchants Capital on Facebook, X, LinkedIn and Instagram.
