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SMF Uses Note Modification to Refinance Again an Affordable Elderly Housing Community in Brooklyn

Sims Mortgage Funding (SMF) recently served as Financial Advisor in connection with a $7,035,000 HUD-insured loan that closed in June for Marien-Heim of Sunset Park, a 169-unit, Section 8 elderly housing project sponsored by a local, not-for-profit community development organization.

This was our second successful transaction for Marien-Heim.  In 2012 we originated an $8,313,000 FHA-insured Section 223(f) loan that refinanced its Section 202 Direct Loan, funded capital reserves and repairs, earned the Sponsor a development fee and generated annual debt service savings.

Interest rates had declined since the original refinancing, providing Marien-Heim with the opportunity to generate additional debt service savings. We advised them of this positive development in the market and suggested a refinancing structured under HUD’s Mortgage Note Modification/Interest Rate Reduction (IRR) protocol.

Acting as Financial Advisor, we developed the initial financial modeling of the transaction and coordinated the development of the formal IRR proposal with the existing loan servicer, whom we brought into the 2012 refinancing. HUD approved the IRR proposal in about 75 days and the loan closed 29 days later.

The IRR reduced Marien-Heim’s interest rate by 28% and will generate annual debt service savings of approximately $48,000 through the remaining term of the loan. The net present value of debt service savings exceeded the transaction costs by 7.5 times and was 12.1% of the unpaid principal balance of the existing loan. Debt service savings will be used to increase deposits to the existing reserve fund for replacements, ensuring that future capital needs will be adequately met.

The Marien-Heim IRR, completed 9 years after our initial refinancing, is another example of SMF maintaining long term relationships with our clients and delivering to them ongoing value.

Curious about the difference between an IRR and a new refinancing loan? Contact us and we will be glad to elaborate!