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If you are seeking to develop a rental senior housing community, then
HUD-insured senior housing construction loans may be the ticket you are looking
for because the program provides loan insurance to approved HUD mortgagees so
that the end loan will be non-recourse to the borrower.
But is the HUD-insured senior housing construction loan going to work for
you? Here are the key issues:
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If the project involves an entry fee or community fee then HUD will not
underwrite the loan insurance and the proposal will be dropped by HUD.
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In some markets, the HUD underwriting process means the application
will take years to complete with the most likely result being a loss
of market opportunity for the borrower. You must be prepared to
provide additional working capital to cover the project carrying costs which
may not be part of the HUD computed loan basis. This means you will
likely experience reverse financial investment leverage as the process
unfolds.
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The
HUD-insured loan requires that a member of the borrowing group have direct
experience in the operations of senior housing projects. This means
the property manager must be an equity participant in the transaction and
you should pick your property manager accordingly.
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You
need a single-purpose entity to qualify for HUD underwriting. This
means that syndications via the condominium
real estate investment plan method and fractional
tenants-in-common real estate ownership syndications cannot be used to
raise the equity you need.
What
do you get for putting up with all of this nonsense?
The
FHA/HUD
Section 232 Loan Insurance Program provides 40-year amortized non-recourse
construction financing for projects licensed at the assisted living level or the
skilled nursing level. The FHA/HUD
Section 221 (d)(4) Loan Insurance Program provides the same terms for
age-restricted senior housing apartments (independent living facilities - "ILFs")
for for-profit developers while the FHA/HUD Section 221 (d)(3) program is the
title that non-profit organizations use to apply for loan insurance.
Over
the past 15 years, the HUD title has become the province of non-profit companies
because only a not-for-profit company can justify the extended application
window that is required in almost every marketing area HUD will serve.
This leaves many for-profit companies in the position of being locked out of the
HUD program due to no fault of their own, but due to a lack of accountability on
the part of the HUD Multifamily Processing staff in the various HUD service
centers throughout the country.
There
has to be an alternative way for acquiring non-recourse construction loan
financing for senior housing and Rainmaker Marketing Corporation is on the scene
and ready to undertake the tough assignments. We understand that a lack of
non-recourse construction financing will likely crimp the senior housing market
to a point where senior housing developers will exit the market and seek other
asset classes to develop where there is an opportunity to acquire the necessary
capital funding to allow them to successfully complete development programs.
Continued
on following page.
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