Thursday, April 19, 2012

HUD/FHA Section 221 (d)4 Program Highlights

Through the FHA Section 221 (d) 4 Mortgage Insurance Program, Leelanau Capital is actively financing long term, fixed rate, non recourse mortgage loans for the new construction and substantial rehabilitation of market rate multifamily rental housing nationwide.
Purpose: New construction and/or substantial rehabilitation and financing of multifamily housing for private mortgagors.  In order to qualify as a substantial rehabilitation project, rehabilitation work must at a minimum include one or more of the following to qualify:

·    Replacement of at least two major building components (i.e. roof, HVAC system, new windows, making it GREEN) ; or
·    The rehabilitation must meet or exceed 15% of HUD’s estimated value of the project after the work is in place; or
·    The rehabilitation work must exceed $6,500 per unit times HUD’s high cost factor for the area

Program Advantages:
  • ·    Two stage, streamlined processing under HUD’s Multifamily Accelerated Processing Program (MAP)
  • ·    Non‐Recourse construction financing
  • ·    Provides both new construction or significant rehabilitation AND permanent financing of apartment properties
  • ·    When there is an identity of interest between the developer and builder, the sponsor is entitled to a Builder, Sponsor, Profit Risk Allowance (BSPRA). This amount is 10% of all costs, exclusive of land and contingencies, and be can be used to offset cash/equity requirements.
Program Requirements:
  • ·   New construction or substantial rehabilitation of five or more units
  • ·   Assurance of completion; G.C. must post bond or Letter of Credit
  • ·   Working Capital escrow: 4.0% of loan amount (cash or letter of credit)
  • ·   Operating Deficit Escrow: based on projection for absorption/lease up (cash or letter of credit)
  •     Adherence to Davis‐Bacon prevailing wage laws is required
  •     Commercial space limited to 10% gross sq ft and 15% gross income
    Loan Calculation ‐ New Construction and Rehabilitation Projects:

  • ·   Amount equal to the lesser of:
  • ·   Statutory unit mortgage limits adjusted by cost and site not attributable to dwelling use; or
  • ·   83.3% of the HUD estimated replacement cost; or
  • ·   1.20x debt service coverage.

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