Maple Street Lofts is a $6.25 million preferred equity investment that is the newest addition to the Origin IncomePlus Fund. We closed on this deal on July 17, 2020 and it is the IncomePlus Fund’s first investment since the COVID-19 pandemic began.
The Maple Street Lofts property is adjacent to the Metra train station in Mount Prospect, Illinois, a suburb located approximately 19 miles northwest of downtown Chicago. The project’s sponsor spent three years assembling 6.5 acres of real estate to create a large, transit-oriented development (TOD) that will feature 14,000 square feet of retail, restaurant and entertainment space, plus 257 luxury apartments and 56 single-family attached rowhomes.
Origin’s preferred equity investment will finance the development of Phase I, which includes a six-story, 192-unit Class A luxury apartment building with 3,000 square feet of amenities and a 15,000 square foot commercial space that will be occupied by a local grocer. We were motivated to participate in Maple Street Lofts due to the significant equity protection in a well-located TOD project that’s accompanied by a seasoned developer in the area. Additionally, the project generates a strong, total return of 15% for the Origin IncomePlus Fund.
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Significant Equity Protection
Our preferred equity occupies between 67% and 81% of the capital structure. It sits behind $39.2 million of senior bank debt and ahead of $13 million in common equity. Not including the developer’s expected profit, this means that the project can lose $12.8 million before our equity is at risk. However, developers build to make a profit and the developer’s margin, in this case, adds $5.6 million in value to the project once complete. From a loan-to-cost perspective, our first dollar of risk is at 81%, but from a loan-to-value perspective, our first dollar of risk is at 75%, meaning the project’s value could decline by 25% before the investment is at risk.
Well-Located TOD Project
Chicago’s TOD policy was created in 2013 to foster pedestrian-friendly neighborhoods by enabling developers to build more dense, multifamily projects near train stations and substantially reduce, or in some cases, remove one of the major obstacles to building – costly parking. Chicago and its surrounding suburbs are significant rail hubs with daily ridership on its Metra Train network averaging more than 300,000 people on weekdays. The popularity of these rail lines by suburban commuters makes TOD projects like Maple Street Lofts desirable as the project is a four-minute walk to the Mount Prospect Metra Station. In fact, the project is closer to the train station than the Metra line’s public parking lot.
Local, Seasoned Development Partner
Our partner on this project is Wingspan Development Group, a vertically integrated development firm based in Mount Prospect, Illinois with headquarters located 2.2 miles from the project. The company focuses on residential, mixed-use and student housing developments in the Midwest, Colorado and Florida. The company has a strong track record of execution and recently completed a 70-unit, TOD project currently in lease-up, located a quarter mile from Maple Street Lofts.
Investment Summary
Construction on Maple Street Lofts began in January 2020 and is expected to be finished by August 2021. With 25% of the project complete, earning a 15% total return on a Class A TOD project that offers significant equity protection provides a compelling risk/reward profile in today’s market environment.
