Real Estate Deal of the Year | Best Financial - Martin Building Co.
Creative financing took on a deeper meaning for Martin Building Co. when it tried to build two housing projects in San Francisco following the credit crisis.
Patrick McNerney, the founder and president of Martin Building Co., broke new ground when he cobbled together unusual financing for Potrero Launch, an $80.4 million, 196-apartment project at 2235 Third St., and Arc Light Co., a $41 million, 94-unit rental project at 178 Townsend St. that had a historic preservation component. Both include ground-floor restaurant space.
McNerney started working on Arc Light in 2005 and on Potrero in 2002. He says sometimes he still pinches himself because he can’t believe the process he lived with for so many years and all the challenges he faced with funding are over.
“Especially with Potrero, had I known it would take so long I doubt I would have hung in there,” he said. “I’m an optimist, but as nine years go by and there’s no financing, it gets really hard.” It also gets expensive. The delay in getting HUD funding for Arc Light cost Martin Building at least an extra $2 million. Eventually, it got a $32.5 million construction loan for Arc Light through CBRE HMF, insured by HUD as well as money from the stimulus act, state Prop. 1C, state money for site cleanup and low-income tax credits. The HUD loan for multi-family housing was the first of its kind to close in San Francisco.
The Arc Light Co. project was complicated, said Ted Chandler, the COO at AFL-CIO Housing Investment Trust, who worked on both projects.
“There was mixed income as well as mixed use and a day care program and retail space, and then using tax-exempt bonds and historic tax credits and an infill infrastructure grant and a FHA (Federal Housing Administration) loan,” Chandler said. “We were blazing new ground in putting the pieces together this way.”
It was worth all the time and effort to make those pieces fit and create union construction jobs, especially in San Francisco where the building trades have been hit hard by the recession, Chandler said.
“At a time when unemployment in some of building trades is over 30 percent it’s incumbent on us to do our part to help put people back to work,” Chandler said. “This is exactly the type of project we should be rolling up our sleeves on.”
Financing for Potrero Launch was similarly complicated to pull off.
It was definitely an accomplishment, said Mike Hemmens, the director of Citi Community Capital, who put together financing for the Potrero Launch.
“Any real estate deal in San Francisco is complex,” he said. “And with a project of this magnitude and the fact that it was down by the port and involved new issue bonds and grant money and 20 percent of the units were affordable housing — that added to the complexity.”
Hemmens said he trusted Martin Building Co. because of its reputation.
“They certainly have a local presence and have done very complex deals in the city before,” he said. Pulling off the tricky process of finishing the two projects with the shaky economy makes McNerney proud.
“Nobody else is closing loans,” he said. “I look at either one of these deals in this climate, and I think, ‘Wow, good for us.’ I look at both of them and I think, ‘Wow, great for us.’”
Construction on Potrero Launch started in November 2010, and is scheduled to finish in July 2012. Arc Light started in August 2010 and is scheduled to finish in February 2012.