Alternative Equity
Through expert guidance we designed a method to use our Capital Fund to offset the equity gap from low appraisals. No additional debt to the developer, in five years the capital is returned, and then cycled into the next community development.
Jerry Langley, retired University of Notre Dame professor and NDFCU Board Member who helped design the details of the program, meets with CDFI Friendly Director Sam Centellas.
Appraisal Gap
When the appraisal is lower than the investment required to rehab a property. This is often in formerly red-lined neighborhoods and limits the ability for residents to invest.
We connected Cinnaire, a housing focused CDFI, with local developers who received development lines of credit to purchase and rehab real estate into affordable housing. The initial investment was crucial, but we ran into the appraisal gap issue. Through creativity and partnerships with the City of South Bend, the Notre Dame Federal Credit Union and local funders we create a method to provide “Alternative Equity” to close permanent financing for these properties.
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Independent real estate appraisals are assessments of a property's value and conducted on all funded developments.
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These costs vary per project and include the purchase price and all costs associated with turning the real estate into a safe and affordable rental.
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Loans are typically done at 75% of the appraisal which on these loans is done after the renovations are completed.
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If the developer using $190k for the development, and the appraisal is too low, but their debt service coverage ratio (DSCR) is high enough we use our “Alternative Equity” to get the deal done.
Through advocacy and focus on community needs we have brought stakeholders together to create change in our region. This innovative program is an example of how we can create and fund products to meet needs.
