Multifamily FHA Group-Up Construction Loans and Private Construction Loans

 FHA vs. PRIVATE FUNDING


FHA/HUD Construction Loans


ICS is a Multifamily FHA loan originator. We pre-underwrite loans which are assigned to FHA-approved mortgagee and MAP/LEAN lenders that underwrite, fund, and service FHA-insured mortgage loans for multifamily, seniors, assisted living, and skilled care properties nationwide.


PURPOSE

Provides mortgages for the new construction and substantial rehabilitation or apartment projects, including age-restricted projects for seniors (age 62 years and older with no services). This program provides for both construction and permanent financing.

  • ELIGIBLE BORROWERS

    Profit motivated single purpose entities (note: a non-profit can be the general partner of a profit motivated single purpose ownership entity).

  • ELIGIBLE ASSET TYPE

    Market rate, affordable, or rental assisted properties.

  • MAXIMUM LOAN

    For loans less than $75 million, the lesser of:

    1. 85%, 87%, or 90% of replacement cost for market rate, affordable, or rental assisted properties, respectively;
    2. The amount of debt that can be serviced by 85%, 87%, or 90% of net operating income for market rate, affordable or rental assisted properties, respectively;
    3. Statutory per unit limits;
    4. 100% of mortgageable transaction costs less the portion of grants, public loans and tax credits applied to mortgageable costs.
  • MAXIMUM TERM

    40 years plus a construction period.

  • OCCUPANCY

    Maximum underwritten physical occupancy of 93% for market rate or affordable properties that do not have a 10% discount to the market rate rent levels. Maximum underwriting physical occupancy of 95% for affordable properties with LIHTC units rents at a 10% discount to market. Maximum underwritten physical occupancy of 97% for rental assisted2 properties.

  • FUNDING

    Qualifies for Ginnie Mae guaranteed mortgage-backed securities, direct placement or may be used to credit enhance tax-exempt bonds.

  • INTEREST RATE

    Subject to market conditions. The construction and permanent financing interest rate is set at initial closing. Typically 10-year treasury + 100 to 125 basis points.

  • MORTGAGE INSURANCE PREMIUM

    The annual MIP is .65% of the outstanding loan amount for market rate transactions unless it qualifies for .25% through the Green/Energy Efficient Housing qualifications. 90% affordable or rental assisted qualify for the annual MIP of .25%. All other affordable are at .35% MIP.

  • PREPAYMENT

    Typically closed for 2 years then open to prepayment at 108% in year 3, declining 1% per year. Other variations are possible based on market conditions and borrower preferences.

  • APPLICATION

    Typically market rate applications are submitted under MAP two-stage processing (pre-application/firm application). With HUD permission, the pre-application stage can be skipped for projects in strong markets as long as there are no environmental concerns and the borrower has previous positive experience with FHA Multifamily financing. Affordable or rental assisted properties may utilize MAP one-stage processing.

  • TIMING

    Section 221(d)(4) processing usually takes about 5 to 7 months assuming a MAP one-stage application and about 8 to 10 months assuming a MAP two-stage application (subject to deal specifics).

  • FHA APPLICATION FEES

    0.30% of loan amount (non-refundable). 

  • FHA INSPECTION FEES
    • 0.50% of loan amount (new construction).
    • 0.50% of costs associated with construction (substantial rehabilitation).
  • REPLACEMENT RESERVES

    $250 per unit per annum or as determined by a 20 year capital needs analysis.

  • PERSONAL LIABILITY

    None. The FHA loan is non-recourse; however, identified principal(s) will be required to sign “Bad Boy” carve outs at closing.

  • ASSUMABLE

    Yes, subject to HUD and lender approval (0.05% of the original loan amount).

  • SECONDARY FINANCING

    Permitted in the form of a surplus cash note and only from a governmental source. The only exception to this is seller financed secondary debt. The seller financed secondary debt is allowed on market rate transactions that are less than 50% LTC and affordable transactions that are less than 80% LTC.

  • BUILDER/DEVELOPER’S PROFIT

    A Builder’s and Sponsor’s Profit and Risk Allowance (BSPRA) equal to 10% of all costs other than land can be utilized for sponsors with an identity of interest general contractor. For affordable1 and rental assisted2 transactions a mortgageable developer fee in lieu of BSPRA is permitted.

  • TERRITORY

    Nationwide.

  • THE PROGRAM HAS THE FOLLOWING ADDITIONAL PARAMETERS
    • All transactions must participate in a concept meeting with HUD prior to application submittal.
    • Streamlined processing is available for loans involving Low Income Housing Tax Credits which is often used with properties that involve Section 202, Section 236 and Section 8 funding.
    • Davis-Bacon prevailing wage requirements apply.
    • A property generally qualifies as substantial rehabilitation when the “Aggregate Cost” of repairs/improvements $19,293 per unit adjusted by the HUD high cost factor for the geographic region.
    • Properties must be able to demonstrate an ability to achieve stabilized occupancy within 18 months of construction completion (special exception may be given to high rise buildings).
    • An initial operating deficit escrow (cash or letter of credit) may be required to cover projected operating shortfalls incurred prior to project stabilization. Typically greater of (i) appraisal or underwriting conclusions, (ii) 4 months of debt service for garden apartments or 6 months of debt service for elevator buildings subject to single Certificate of Occupancy issuance; or (iii) 3% of the mortgage amount. Loans in excess of $25 million have higher IOD requirements. For in place rehab projects the IOD may not be required.
    • A working capital deposit (cash or letter of credit) equivalent to 4% of the loan amount is required by HUD on all new construction projects to cover various costs; 2% of which will be a construction contingency for cost overruns and approved change orders. The working capital for substantial rehabilitation projects is only 2% of the loan amount as the development budget will have a separate construction contingency amount.
    • Allowable commercial space is limited given the residential nature of the program.
    • A Project Capital Needs Assessment (PCNA) will be required every 10 years.
    • Loans in excess of $125 million have slightly lower loan to cost limits and slightly higher debt service coverage requirements.

PRIVATE CONSTRUCTION LOANS


ICS originates Multifamily ground-up construction loans which are assigned to private lenders for projects that don't meet institutional grade financing requirements or sponsors looking for faster closing time frames than the stand 5 to 10-month FHA lender closing period.


PURPOSE

Provides mortgages for the new construction and substantial rehabilitation or apartment projects, including age-restricted projects for seniors (age 62 years and older with no services). This program provides for both construction and permanent financing.

  • ELIGIBLE BORROWERS

    Profit motivated single purpose entities (note: a non-profit can be the general partner of a profit motivated single purpose ownership entity).

  • ELIGIBLE ASSET TYPE

    Market rate (private)

  • MAXIMUM LOAN

    For loans less than $5 million to $300 million

    1. 75% LTC
    2. The amount of debt that can be serviced by 85%, 87%, or 90% of net operating income for market rate, affordable or rental assisted properties, respectively;
    3. Statutory per unit limits;
    4. 100% of mortgageable transaction costs less the portion of grants, public loans and tax credits applied to mortgageable costs.
  • MAXIMUM TERM

    36-months (extensions available)

  • OCCUPANCY

    Maximum underwritten physical occupancy of 93% for market rate or affordable properties that do not have a 10% discount to the market rate rent levels. Maximum underwriting physical occupancy of 95% for affordable properties with LIHTC units rents at a 10% discount to market. Maximum underwritten physical occupancy of 97% for rental assisted2 properties.

  • FUNDING

    Qualifies for Ginnie Mae guaranteed mortgage-backed securities, direct placement or may be used to credit enhance tax-exempt bonds.

  • INTEREST RATE

    Subject to market conditions. SOFR + 650 basis points

  • PREPAYMENT

    Negotiable

  • TIMING

    5 to 6-weeks

  • FHA APPLICATION FEES

    Varies (0 to .10%)

  • PERSONAL LIABILITY

    Recourse and non-recourse available.