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Ten Years Later, SMF Tallies A Transactional Triple-Play for Affordable Elderly Housing Communities in Pennsylvania

Triple-plays are a rarity in major league baseball:  since 1876, there have only been 723, for an average of about 5 per season. 

Sims Mortgage Funding (SMF) recently made a triple-play, albeit not on the baseball diamond, when we served as Financial Advisor for Diakon Lutheran Social Ministries in connection with three HUD-insured loans totaling $9,948,000 that closed at the end of June.  The loans covered three of Diakon’s affordable senior housing communities – UP Heilman House, Luther Meadows and Lutherwood Apartments – in Topton and Scranton, PA. 

This was our second recapitalization of these communities.  In 2011 we originated three FHA-insured Section 223(f) loans totaling $11,837,000 that refinanced each property’s Section 202 Direct Loan, funded capital reserves and repairs, earned Diakon a development fee and generated annual debt service savings. 

Interest rates have declined since the original refinancings, providing Diakon with the opportunity to generate additional debt service savings.  We advised them of this positive development in the market and suggested refinancings structured under HUD’s Mortgage Note Modification/Interest Rate Reduction (IRR) protocol.  This is a streamlined option to refinance HUD-insured debt that requires minimal underwriting, no third-party reports and limited application exhibits. 

Acting as Financial Advisor, we developed the initial financial modeling of the transactions and coordinated the development of the formal IRR proposals with the servicer of the existing loans, whom we brought into the 2011 refinancings.  HUD approved the IRR proposals in about 65 days and the loans closed 28 days later. 

The triple-play was also a home run:  the IRRs reduced the portfolio’s interest rate by an average of 40% and will generate combined debt service savings of approximately $101,500 through the remaining term of the loans.  The combined net present value of debt service savings was approximately 17% of the unpaid principal balance of the existing loans.  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 Diakon IRRs, completed 10 years after our initial refinancings, are another example of SMF maintaining long-term relationships with our clients and delivering to them ongoing value.

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