New York City – Taking advantage of a red-hot rental market, developer Artimus Construction put together an unusual financing structure that enabled it to provide luxury amenities to residents from a broad income range.
Triangle Court III, completed in September 2005 and 100% leased at press time, was structured to give equity investors ownership of only the low-income units in three separate buildings, while Artimus retained full ownership of the remaining units. This method – known as “condominiumizing” a building’s ownership – is done regularly in single-building mixed-use developments, but Artimus and the equity partner believed this was the first time it had been used this way in the city.
Total development cost was $21 million. Because 20 of the project’s 98 units were reserved for residents earning no more than 60% of the area median income, the New York Housing Development Corp. (HDC) issued $11 million in tax-exempt bonds, which it pooled and sold to multiple buyers. The bond provided the funds for HDC’s construction loan, which had an 18-month term and an interest rate of 5.1%. HDC also provided a $2.7 million second mortgage, according to Yoav Haron, Artimus’ chief financial officer. The second mortgage had a 30-year term and a low 1% interest rate. Equity for about $1.75 million in 4% low-income housing tax credits, allocated by the New York Department of Housing Preservation and Development, was provided by National Equity Fund (NEF); additional equity came from the developer.
The equity investors needed to become comfortable with the risk that came from “owning 20% of the development but still having some risk involved with the rest of it because there’s only one set of mortgages that’s secured by the entire development,” said Peter Brodie, NEF acquisitions manager. The “very hot Manhattan neighborhood” in which the project is located convinced the investors that the 78 market-rate units wouldn’t endanger their investment, despite their lack of ownership interest in those units, said Brodie.
Rents range from $1,250 for a studio to $2,400 for a three-bedroom unit. Rents for the affordable units range from $400 for a studio to $655 for a two-bedroom unit, the largest affordable unit. Amenities include a doorman service, marble baths, cherry wood floors, and stainless steel appliances.
Artimus wanted to have a mix of incomes that would prevent the displacement of Harlem residents, so it made the bulk of the units affordable to middle-income residents. “We wanted to serve that [Harlem] market,” said Haron. “Our model of growth is to have a mixture of units – not only within a building; we also build condominiums [with] rentals.”
Haron said Artimus will use the condominium-ownership structure on future deals.