Artscape Triangle Lofts Financing

The goal of the Artscape Triangle Lofts project was to create affordable live/work housing for artists, forever. This was a new prototype of building below-market housing without public subsidy and its innovative nature presented challenges when dealing with prospective lenders and buyers. In the end, a successful and replicable business model was developed as a result of adapting from other models, accessing knowledge from experts in the field, and a great deal of problem-solving.  The project also required extensive collaboration between Artscape, the City of Toronto, Urbancorp (the private developer) and Active 18 (representing the community).

Artscape’s key financial objectives were to:

  • Secure interim financing required for project development and purchase of the Artscape Triangle Lofts and long-term financing for the residual purchase costs
  • Minimize the cost of this financing
  • Maximize the amortization period
  • Maximize the term of the loan
  • Maximize flexibility with respect to prepayment provisions

In exchange for added height and density in accordance with Section 37 of the Planning ActUrbancorp was obliged to sell 56,000 square feet, or 70 units of its Westside Lofts condominium development to Artscape. All of these units were sold to Artscape for the cost of construction, and in turn Artscape was required to sell and rent these units to artists at below market rates. Two of the units became Artscape Triangle Gallery, leaving 68 residential units in total.

Artscape had three financing needs:

  1. A short term line of credit to fund pre-development costs, including sales, marketing, legal and project management, secured by a loan guarantee from the City of Toronto
  2. A bridge loan facility, secured by the property, to enable Artscape to purchase the property from Urbancorp upon closing, which would be paid down from receipts of sales once the Artscape condominium was registered and individual unit owners could close their purchases.
  3. A long-term mortgage secured and serviced by the retained rental units owned by Artscape.

It proved challenging to secure this financing with traditional financial institutions. Eventually, financing was secured from Alterna and Creative Arts Savings and Credit Union, who, although they still required the same level of security and due diligence of the major banks, showed a greater willingness to understand the objectives of the project and work in a constructive way to set up financing on terms that worked for the project.

A related financing challenge was one faced by the prospective buyers. Artscape required these buyers to be professional artists or non-profit arts professionals and that their household incomes fell within an income limit. The Artscape second mortgage was also an unusual and complex addition to a traditional personal mortgage, and some lenders did not take the time to understand the model. Artscape worked closely with Creative Arts Savings and Credit Union to offer these buyers a competitive mortgage with a lender who was specifically interested in having them as clients.

Mortgage Model
Qualified buyers interested in purchasing these units were required to make a deposit against a down payment of 5% of the purchase price and qualify for a first mortgage. Artscape holds a 25% mortgage on all units, which in effect gives buyers a 25% second mortgage which is interest and payment free for the life of the mortgage.

Long-term affordability is secured through the Artscape second mortgage and a shared appreciation program. When an owner wishes to sell their unit it must be sold through Artscape, to another qualified purchaser. Artscape manages this process, and covers its costs by charging a 3% brokerage fee. Depending on the performance of the real estate market, the owner can realize an appreciation on their investment of up to 5% per annum for the number of years they have owned the unit. If the market has appreciated more than that, the additional appreciation on the owner’s portion of the resale price (market value less 25%) will be shared with Artscape 50/50.

This shared appreciation plan will ensure that the unit remains affordable relative to the local real estate market when the property is re-sold to the next qualified purchaser.