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THE OPPORTUNITY

A City-Backed Development in a Supply-Constrained Affordable Housing Market

Duluth, Minnesota has a multifamily vacancy rate of 3.1 percent, well below the national average of 7.6 percent. New supply has been slow to arrive: only 141 units were delivered in the market in the 12 months prior to origination, representing just 1.7 percent of existing inventory. Rents in Duluth run more than 20 percent below the national average, and 3-star and below apartments dominate the inventory. The conditions pointed clearly to a market with genuine demand and limited ability to absorb new competition.

A Midwestern real estate development firm focused on Opportunity Zone investments, workforce housing, and public-private partnerships identified a vacant infill site in Duluth's Lincoln Park neighborhood as a compelling opportunity to deliver new affordable housing to an underserved market. The firm, which had completed or had under development 20 projects across Iowa, Wisconsin, and Minnesota through a combination of tax credits, grants, and development agreements, secured the site through a partnership with the Housing and Redevelopment Authority of Duluth for $1 plus the Housing Authority's transaction costs. The development carried a substantial package of public funding support, including a $784,240 economic development grant, a $1,785,000 Tax Increment Financing note that effectively reduces property taxes by 90 percent, and a $1,000,000 subordinate loan at zero interest from the Housing Authority. The property also sits within a Qualified Opportunity Zone, offering the sponsor meaningful tax deferral and potential exclusion benefits on long-term appreciation.

The project had stalled prior to RRA's involvement when an earlier lender was unable to close. The sponsor stepped in and funded construction costs out of pocket, bringing the building's core and shell to material completion using equity alone. With the structure standing and interior buildout remaining, the sponsor engaged RRA Capital to provide the capital needed to cross the finish line: completing construction and leasing up the 45-unit mixed-use building.

THE PROPERTY

45 Units of Affordable Housing with Ground-Floor Retail, Built New

Urbane 218 is a newly constructed five-story mixed-use building situated between US Route 53 and I-35 in Duluth's Lincoln Park neighborhood, less than a mile from the Duluth Port and surrounded by a commercial corridor of retailers, restaurants, and bars. The property offers 45 residential units and five ground-floor retail spaces, including a larger anchor space the sponsor planned to lease to a local restauranteur.

The unit mix consists of 18 studios, 21 one-bedroom units, and 6 two-bedroom units, with all residential units targeted to households earning at or below 80 percent of the area median income under the terms of the Development Agreement with the City of Duluth. Affordability is tiered across the rent roll, with 20 percent of units serving residents at 60 percent AMI, 60 percent at 70 percent AMI, and the remaining 20 percent at 80 percent AMI. The building includes 29 on-site parking spaces, bike storage, and a mail room.

The property's location puts it within a dense employer base. Duluth's top employers include Essentia Health, St. Luke's Hospital, the University of Minnesota Duluth, Minnesota Power, and Cirrus Aircraft. The University of Minnesota Duluth alone employs over 500 academic staff and enrolls nearly 10,000 students, approximately four miles northeast of the property. Workforce renters tied to the city's healthcare, education, and industrial sectors form the primary tenant base the project was designed to serve.

THE RRA SOLUTION

$6.5MM Construction Completion and Lease-Up Loan, Structured in Two Tranches

RRA provided a $6,500,000 first-position bridge loan structured to fund both the immediate needs at closing and the full remaining cost to complete and stabilize the building. The loan was organized in two components: $955,000 in initial funding at closing, which included a $400,000 interest reserve to carry the property through stabilization, and a $5,545,000 capital expenditure holdback to fund the remaining construction scope.

The CapEx holdback was sized against a detailed contractor Application and Certificate for Payment, covering all remaining work including mechanical and electrical packages, drywall, insulation, flooring, doors, residential appliances, elevator installation, fire protection, masonry, and final finishes. The total project cost across equity and debt was approximately $12.2 million, with RRA's loan representing 53 percent of total costs and 59 percent of the as-stabilized appraised value of $11,100,000.

The structure allowed the sponsor to draw funds in step with construction progress, tying disbursements directly to verified completed work. The loan carried a 24-month initial term with two 6-month extension options, providing sufficient runway for the construction timeline and the subsequent lease-up period. As the property was in a Qualified Opportunity Zone, the sponsor's long-term hold plan called for a HUD or agency takeout upon stabilization.

EXECUTION

Construction, Compliance, and Asset Management Through Completion

Completing a newly constructed mixed-use building in an active public-private development involves layers of coordination that go beyond a typical bridge loan. In addition to managing draw requests against the construction budget, RRA's asset management team worked through several items that arose during the loan term. A remediation matter identified during a site inspection required review and resolution, and the project's Development Agreement with the Housing and Redevelopment Authority introduced compliance requirements tied to the City's certificate of completion process that required ongoing coordination.

Construction and lease-up took longer than initially projected, and the loan extended past its original maturity. RRA issued a notice of default and a notice of acceleration as the loan moved into default status, consistent with its obligations under the loan documents. Throughout this period, RRA worked directly with the sponsor and the incoming permanent lender to manage the transition. When the refinancing process moved toward closing, RRA coordinated with the refinance lender and the title company to resolve any outstanding title matters and facilitate a clean payoff.

The sponsor remained fully engaged throughout the extended period. A first-time RRA borrower, they brought the depth of experience that comes from having executed similar projects across the Midwest under comparable public-private structures. That institutional knowledge, combined with the project's strong public funding stack and a supply-constrained market, kept the asset on a viable path even as the timeline stretched.

THE EXIT

Agency or Permanent Refinance, Fully Repaid July 2026

With construction substantially complete and the building in lease-up, the sponsor executed the planned takeout: an agency or permanent refinance. RRA was repaid in full on July 31, 2026, collecting principal, all accrued interest, and the contractual exit fee.

The resolution reflects what the deal was designed to be from the start: a bridge to permanent financing for a project with strong public backing, durable affordability demand, and a market that keeps its vacancy rate well below the national average. The additional time required to complete construction and stabilize the asset was navigated through close coordination between RRA, the sponsor, and the incoming lender, and the loan paid off in full.

New construction with a public-private capital stack presents a different set of asset management challenges than a value-add acquisition. When RRA provided the capital to complete this project, the thesis rested not just on a property but on a layered set of relationships: the sponsor's track record in government-supported development, the city's commitment through its TIF and grant programs, and a market where affordable supply is persistently short. Each of those elements held. That is what made full repayment possible.