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Mercy Housing and Common Bond Communities Announce New Financing Model to Preserve Unsubsidized Affordable Housing

Impact Gap Financing Will Help Drive Investment to Naturally Occurring Affordable Housing


Today, Mercy Housing and CommonBond Communities announced their demonstration of a new financing execution with Freddie Mac that encourages the preservation of unsubsidized affordable housing, known as naturally occurring affordable housing (NOAH). This new “Impact Gap Financing” execution, offered by Freddie Mac, will give mission-driven nonprofits and socially-motivated impact investors an important financing tool to acquire and invest in NOAH properties and ensure they remain affordable for low-income and working families over the long-term.

NOAH properties are a particularly vulnerable category of affordable housing. Due to their unsubsidized nature, these properties are often acquired, renovated, and converted to market rate rentals by owners motivated to maximize income and rents. Localities and mission-driven nonprofits often have trouble competing to purchase these properties—and preserve their affordability—because they face difficulties raising the necessary funds.

With the generous grant support of the JP Morgan Chase Co., Mercy Housing has been a thought leader and an active owner-operator seeking to acquire or finance multi-family properties that are near good jobs and schools.   Mercy Housing established a Work-Force Housing Equity Fund (WHE Fund) which since its inception has funded 1,292 units of multi-family housing across the nation in eight buildings. The WHE fund is dedicated to acquiring existing workforce rental housing, without the use of government funding.  The WHE fund targets buildings that are located close to major job centers such as shopping malls, airports, and major employers such as hospital systems, ensuring that teachers, fireman, and policeman can live affordably and contribute to communities.

The WHE Fund raised social impact capital from religious and private foundations and institutions and was able to utilize its concessionary rates of return to leverage traditional capital – while keeping rents affordable.

The WHE Fund’s most recent investment demonstrated for the first time an innovative new financing product, developed in conjunction with Common Bond Communities and Freddie Mac. Acting as an impact investor with the WHE Fund, Mercy Housing was able to purchase a $2 million-dollar “Impact Gap” note to unlock two NOAH Acquisitions by CommonBond Communities.

Freddie Mac and NorthMarq Capital, LLC, a Freddie Mac mortgage lender, closed on this execution for the first time in July, helping Mercy’s WHE Fund and Minnesota-based nonprofit CommonBond Communities (CommonBond) purchase a NOAH property in the Minneapolis-St. Paul metropolitan area and preserved it as an affordable housing option for residents.

CommonBond Communities, whose housing and services touch over 11,000 people in Minnesota, Wisconsin, and Iowa, took ownership of Rainbow Plaza, a 108-unit building at 820 W. Main St., in Anoka, Minn., as part of the nonprofit’s creative approach to preserving “Naturally Occurring Affordable Housing” (NOAH) – securing affordable housing without using any government subsidies.

The execution works by pairing Freddie Mac’s flexible Targeted Affordable Housing (TAH) NOAH Preservation Loan with a Freddie Mac-facilitated Impact Gap loan. The Impact Gap loan is made on specifically created, predefined Freddie Mac loan documents. Moreover, Freddie Mac provides confirmatory due diligence on the Impact Gap loan. By purchasing the Impact Gap loan, the impact investor benefits from these model documents and services, making it easier to support NOAH properties. In addition, borrowers are afforded a more efficient process that delivers the strength and technical expertise only Freddie Mac can bring. It also creates certainty of execution and ensures these properties will continue to protect moderate-income residents.

Freddie Mac’s mortgage lenders make both the NOAH Preservation Loan and the Impact Gap loan simultaneously, providing a one-stop-shop for comprehensive debt financing with a loan-to-cost ratio of up to 97 percent and a minimum 3 percent borrower equity contribution. The lender then sells the NOAH Preservation Loan to Freddie Mac and the Impact Gap loan to the impact investor, the latter at concessionary rates, designed to support lower rents.

“Solving the affordable housing crisis requires a comprehensive approach, and preserving naturally occurring affordable housing is a difficult but important part of that effort,” said David D. Leopold, Vice President, Targeted Affordable Sales & Investments at Freddie Mac Multifamily. “NOAH properties face significant risk of being lost to deterioration, abandonment and gentrification. Our new execution seeks to combat that by building the infrastructure necessary to match impact investors with mission-focused borrowers to ensure these properties are acquired, preserved and remain affordable.”

Leopold added, “The execution enables impact investors to invest directly in affordable housing preservation efforts in their communities and across the country, provides them with a single point of contact for their housing investment interests, and utilizes Freddie Mac Multifamily’s underwriting and lending expertise to promote sustainable communities over time.”

“We’re thrilled to demonstrate this new model for how socially motivated investors can participate in NOAH preservation. The benefit to us is that it delivers capital that supports what we are trying to accomplish for the health of local housing markets and the stability of working families. The benefit for investors is that they don’t have to originate their own loans; they simply buy notes in the transaction,” says Deidre Schmidt, CEO of CommonBond Communities.

Jane Graf, Mercy Housing’s President, and CEO, called on the nonprofit community to seek to aggregate social impact capital by establishing their own local “WHE” Funds and to utilize this creative product to preserve work-force housing for working families in their own communities across the country. “Impact Gap Financing will help nonprofits like Mercy Housing and CommonBond better serve working families,” said Graf. “By preserving NOAH, we’ll be able to help these families stay in their communities—close to their jobs, schools, and neighbors. Along with other affordable housing leaders, I applaud these innovative steps taken by Freddie Mac and the support that JP Morgan Chase provided through its grantmaking to bring it about.”

Freddie Mac is actively seeking additional investors to help non-profits preserve NOAH by purchasing Impact Gap loans.  

About Freddie Mac Multifamily

Freddie Mac Multifamily is the nation’s multifamily housing finance leader. The vast majority of the rental homes we fund are affordable to families with low-to-moderate incomes. Learn more at