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Multifamily
HUD 221(d)(4)
New Construction or Substantial Rehabilitation
Program Overview
Provides a construction loan that converts to a fully amortizing permanent loan upon construction completion.
Typical Terms
- Borrower Type
- For-Profit or Non-Profit single asset borrower entity
- Recourse / Guaranty
- Non-recourse
- Loan Term / Amortization
- Interest Only during construction, followed by 40-year, fully-amortizing loan term
- Interest Rate
- Determined by market conditions and fixed for the full term of the loan
- Commercial Space
- Limited to 25% of Net Rentable Area & 15% of Effective Gross Income (30% of Effective Gross Income for Section 220 projects in qualified urban renewal areas)
- Prepayment
- Negotiable. Typically, 10-year call protection with a combination of lockout and/or step-down pre-payment penalty
- Assumption
- Loans are fully assumable, subject to HUD approval.
- HUD Application Fee
- 0.3% of the loan amount (0.15% due at Pre-Application and 0.15% due at Firm Application)
- HUD Inspection Fee
- 0.5% of loan amount for New Construction; 0.50% of Total Improvements for Substantial Rehab
- HUD MIP
- 0.25% per year for the construction period due at closing, and 0.25% annually thereafter
- 3rd Party Reports
- Appraisal, Market Study, Phase I Environmental, and Architectural and Cost Analysis
- Reserves
- Typical Tax and Insurance escrows (including MIP) and Replacement Reserves (minimum annual deposit of $250/unit)
- Escrows
- Initial Operating Deficit: Greater of (1) Amount determined by Appraisal or Underwriting; (2) 3% of the Loan Amount; or (3) 4 months of debt service payments for garden-style projects or 6 months of debt service payments for elevator projects. Working Capital: 4% for new construction projects; 2% for substantial rehab projects. Escrows may be funded via Cash or Letter of Credit.
- Construction Wages
- Davis-Bacon wage rates are required
Loan Parameters
| Property Type | Loan Amounts Under $130M | Loan Amounts Over $130M | ||
|---|---|---|---|---|
| LTV | Min DSCR | LTV | Min DSCR | |
| Market Rate | 87% | 1.15x | 75% | 1.30x |
| Subsidized¹ | 90% | 1.11x | 87% | 1.15x |
| Affordable² | 90% | 1.11x | 80% | 1.25x |
| Middle Income³ | 90% | 1.11x | 75% | 1.30x |
- ¹ At least 90% of the units must be encumbered by a project-based rental assistance contract
- ² Requires Regulatory Agreement in place for at least 15-years following closing with minimum LIHTC restrictions of 40% of units at 60% AMI or 20% of units at 50% AMI, with a rent advantage to market
- ³ 50% of units must be targeted to tenants up to 120% AMI with a minimum use restriction for 10 years monitored by a state or local government entity
Eligible Property Types
- Market Rate Multifamily
- Affordable Multifamily
- Section 8 HAP Multifamily
- Middle Income Multifamily