Chicago is facing an apartment supply crunch, with rents climbing as new construction slows to a trickle.  

While much of CRE’s focus centers on reviving a dried-up development pipeline to beef up supply, one lender helping to preserve the city’s older apartment stock sees its role as critical to maintaining housing affordability in Chicago. Community Investment Corp., a Chicago-based lender for affordable rental housing, aims to fill the financing gap for smaller borrowers looking to acquire and rehabilitate older housing stock.

“Our financing meets the need of the smaller operators getting financing in some of the areas which are underserved from the banking community,” CIC Managing Director of Lending Phillip Moore said. 

CIC has rehabbed nearly 70,000 units through roughly 2,800 loans totaling $1.8B since 1984. In December, it announced a new $322M loan pool from 37 investor banks to support thousands of additional affordable units over the next five years. 

Preservation is significantly more cost-effective than new affordable construction. In Chicago, rehabilitation costs an estimated 80% less than new construction, according to the National Multifamily Housing Council. An NMHC tool that estimates how long current levels of subsidized affordable housing production would take to close the housing affordability gap found it would take Chicago more than a century to do so. 

“CIC illustrates that preservation capital can effectively stabilize small buildings that are too granular for GSE underwriting and too small for most institutional capital vehicles,” NMHC authors wrote in the group’s housing affordability tool kit. 

Borrowers looking to acquire and potentially rehabilitate five-to-50-unit buildings are CIC’s “bread-and-butter play,” Moore said. The company has adapted its underwriting process in the wake of increasing expense volatility over the past few years. 

CIC is extending construction timelines and requiring larger reserves to cover them. Borrowers also now need to submit actual property tax figures from the Cook County Assessor’s and Treasurer's offices upfront, along with insurance and contractors’ quotes, rather than providing that documentation later in the deal.

“We're starting that on the front end of the process because we want to make sure those properties or these projects actually move through during that time period,” Moore said. 

Usually, CIC will lend up to 80% of the property's value after it is rehabilitated and requires borrowers to contribute 20% in cash equity. CIC offers three- and five-year adjustable-rate loans with a 10-year term, a 25-year amortization schedule and a loan process that takes roughly 45 to 60 days. 

Moore said the organization does a lot of training for its new borrowers, and roughly a third of its business finances mom-and-pop-type operations that often acquire six-unit buildings. To evaluate potential lending opportunities for fit, CIC has an in-house construction team that inspects properties it lends on, and the organization conducts interviews with borrowers to get a feel for their skill sets. 

CIC requires inexperienced small-building borrowers to complete its property management course, covering multiple city ordinances. The training involves nearly 1,000 owner-operators citywide annually, in addition to CIC’s direct clients.  

Deferred maintenance is common on many of the properties CIC lends on, and common replacements are boiler systems, roof overhauls, tuck-pointing and electrical upgrades, Moore said. Financing has also gone toward main plumbing line replacements and water pump installations.

“A lot of properties on the South and West sides of the city would not have financing available to them if it wasn't for a CIC,” Moore said.