W&D’s creative green financing strategy powers Gladstone Apartments success

The Gladstone Apartments Phase II in West Jordan, Utah includes 159 units spread across multiple two- and three-story apartment buildings. It includes highly desirable amenities, such as a swimming pool, whirlpool spa, putting greens, and playgrounds.

This project was developed by Garbett Homes, a company with a legacy of over 35 years in building innovative homes in Utah. Treo Rentals & Sales, a management agent with extensive experience in HUD properties, manages the property.

The property is located in a rapidly growing area in the Salt Lake County region, benefiting from strong employment growth and a robust rental market. The overall market is considered balanced, with a low vacancy rate of around 5 percent.

Garbett Homes had just completed the second of this two-phased Project and needed to pay off the construction loan with long-term fixed-rate financing. This would enable the property to operate successfully and predictably for the long term while the owners enjoy cash flow from the property.  As a family-owned business, Garbett Homes typically builds and holds its Projects for the long term, allowing them to fully benefit from the fruits of their investments.

To achieve their goal of long-term growth and stability, we suggested a program offered by HUD that provides the longest fixed-rate mortgage in the marketplace. This program is available to market rate and affordable developers, and offers a 35-year fixed rate mortgage is insured by the Federal Housing Administration (FHA). Most of the other options in the market offer a fixed rate for just 5-15 years.

The HUD program recommended has two components for debt service – a principal and interest payment and a mortgage insurance premium (MIP). FHA/HUD offers a significant incentive, in the form of a deeply discounted MIP rate, if the property operates as a sustainable, energy-efficient project and achieves one of four (4) nationally recognized “Green” certifications. The Green Mortgage Insurance discount is a voluntary program that encourages developers and owners to prioritize green design/construction and/or invest in energy efficient fixtures and landscaping that will reduce the property’s carbon footprint.

The challenge

Garbett Homes is a developer that prides itself on energy-efficient, sustainable design and construction elements. In fact, Phase 1 of the Project had achieved one of the four (4) national Green certifications recognized by HUD and Phase 2 had similar design/construction components. Thus, Phase 2 was a strong candidate to achieve certification. However, when certifying an existing property, the national certification agencies typically require that a property maintain 80% occupancy for at least twelve (months).  As a brand-new property, Gladstone Place Phase 2 did not meet that threshold. And, because the construction loan used to build the Phase 2 was set to mature, the team was not able to delay the refinance until that threshold was met. Thus, the goal of achieving the lower financing costs associated with the Green MIP rate while required a creative solution from the Walker & Dunlop team and our energy consultant, Dominion Due Diligence Group (D3G).

Here’s how the W&D team leveraged our experience in green financing to achieve the lowest MIP available under the HUD program for our client within the necessary timeframe.

Our solution

Walker & Dunlop and D3G solved the problem by including Phase 1 in the certification process. By including Phase 1 and Phase 2 the requirement for 80% occupancy for twelve (12) consecutive months was met. And, because both phases were built to very high efficiency standards, the combined Project achieved one of the four (4) recognized certifications relatively easily.

The results

Gladstone Phase 1 and Phase 2 together achieved earned the Greenpoint Rated – Existing Home Multifamily Silver designation and earned the ENERGY STAR Existing Building certification, an energy efficient standard that resulted in a lower MIP rate and lower overall debt service for Walker & Dunlop’s HUD loan on Phase 2. The property’s 100 Energy Star score was well above the minimum requirement (properties must have a score of at least 75 to qualify). The underwriting process was conservative, with careful attention to expenses, occupancy rates, and rents. The project was underwritten assuming a 25 bps MIP based on the reduced MIP for Green projects.

Our client gained a favorable loan that allowed them to contribute quality housing options to a growing population.

Achieving Green MIP financing was a collaborative effort between Walker & Dunlop’s HUD team, W&D’s Capital Markets team and our energy consultant D3G. Our internal synergy allows us to secure the best financing solutions for our clients.

Integral to this project were:

• Jeff Kearns, W&D Managing Director
• Adam Cornelius, W&D Capital Markets team
• Laura Woltanski, W&D Affordable Production team
• Phylicia Jones, W&D Underwriting team
• Matt Stanley, W&D SVP and Chief Underwriter
• Jennifer Larkin, W&D VP and Deputy Chief Underwriter
• Bryson C. Garbett, President and CEO of Garbett Homes
• Todd Erickson, CFO Garbett Homes
• Damian Mora, Garbett Homes
• Stephen Evanko, Dominion Due Diligence
• DeNae, President of Treo Management

Final takeaways

Our successful and creative financing of Gladstone Apartments serves as a powerful reminder that W&D has an abundance of tools available to help our clients qualify for favorable loan terms. It is our job and our passion to look beyond the details and data submitted to us and dive beneath the surface to find the best solutions.

Reach out to our team of experts to discuss your next project.