St. Paul Preservation Project

Bellwether Communities

Project Components:

• 172 affordable, multifamily rental units scattered across 5 locations in St Paul, consolidated into one project

• Extensive rehabilitation work totaling $1,900,000

Partner Organizations:

• City Real Estate Advisors

• Saint Paul HRA

• Bridgewater Bank

• NorthMarq Capital

• Clinton Company Builders

• Metta Financial LLC

Funding Sources:

• Low Income Housing Tax Credits – 9% Award

• Federal Home Loan Mortgage Corporation (Freddie Mac) Immediate Fund

• Bridgewater Bank bridge loan to bridge Freddie construction costs holdback and tax credit equity until completion

In the spring of 2016, Phoenix Development Company began acquiring Class-C Naturally Occurring Affordable Housing (NOAH) apartment buildings in St. Paul, Minnesota which were in need of significant rehabilitation and tenant stabilization. Acquisitions continued through December 2017 when the portfolio reached a total of 172 units across five properties. Four of the purchases were from private parties and one was a Real Estate Owned by a securitized debt lender who had taken the property under foreclosure. The entire portfolio was obtained using bank lines of credit and equity from Metta Financial LLC, an investment group out of Minnesota.

Loren Brueggemann and his team at Phoenix Development Company began this process with the intent to stabilize the properties and eventually convert the units into Low Income Housing Tax Credit (LIHTC) units available to those earning 60% or less of the area median income (AMI). The idea was to use the allocated funds from the tax credit award to renovate and improve the units while maintaining affordable rents with minimal disruption to existing tenants. To facilitate this merger a new entity was created as an umbrella for the five properties: St. Paul Preservation Project, LLC. This would allow for the project to be considered one cohesive community with shared resources instead of five unrelated locations operating independently.

When all properties had reached stabilization, Phoenix applied to the City of St. Paul for an allocation of 9% tax credits under Section 42 of the revenue code. With a budget of $1.9 million, renovations ranged from bathroom and kitchen updates to installing solar panels at one of the properties. In August 2019 the project was selected by the City of St. Paul to receive an allocation of tax credits, while NorthMarq Capital provided the permanent debt through the Federal Home Loan Mortgage Corporation (Freddie Mac) and City Real Estate Advisors (CREA) purchased the tax credits.

Phoenix faced several challenges while orchestrating this transaction. One of the main complications to this process was that Freddie Mac was unable to fund the full $1.9M in repairs but would instead only provide a portion of the loan and hold the remainder until conversion. Furthermore, Freddie Mac does not allow secondary financing on their properties and CREA could also only promise a portion of the tax credit equity during construction. Another form of financing was needed to bridge the gap in funds and bring the project to closing. Bridgewater Bank provided the solution with a sophisticated bridge loan product that collateralized the holdback from Freddie Mac and the commitment of equity from CREA. Additional complications involved having the new entity assume all of the existing mortgages and then merge them into the new Freddie Mac first mortgage.

Upon closing, the construction period began in tandem with the rebranding process. Through a collaborative effort with Storied Creative the name Bellwether Communities was chosen. The meaning of Bellwether is “one that takes the lead or initiative” which speaks to uniqueness of this project and the impact it can make in setting an example for the preservation of affordable housing and neighborhoods. Construction is set to be completed Fall of 2020.