HUD SECTION 221(d)(4)  LOANS

General Program Features:

· Purpose, to provide low market rate, rental housing for moderate income families

· New construction or substantial rehabilitation of existing apartment or co-op projects. Rehabilitation must encompass at least 15% of the project’s value after completion of the rehab, $6,500 per unit, or the replacement of a minimum of 2 major building components.

· No personal liability on either construction or permanent loan.(non-recourse)

· Higher loan-to-cost ratios (90% of total replacement cost for new construction).

· Lower, fixed interest rates for both construction and permanent loans. Permanent loan rates are fixed prior to the closing of the construction loan.

· Interest only for 36 months during the construction period.

· Longer loan terms of up to 40 years, structured on a fully amortized/level annuity payment basis.

· Permanent loans can be prepaid.

· Permanent loans are fully assumable.

· HUD mortgage insurance can be used as credit enhancement for taxable or tax-exempt bond issues. Bond proceeds can be used to fund both the construction and permanent loan.

· A certain amount of commercial space or commercial income is eligible for inclusion in the loan.

· No lease-up or occupancy requirement prior to conversion to the permanent loan.

Eligibility Features:

· Rental apartment housing, cooperative housing projects and rental housing for elderly (independent living) are eligible project types.

· The real estate must be held in Fee Simple or under a long term ground lease.

· Both for-profit and not-for-profit entities are eligible borrowers. To include individuals, corporations, general and limited partnerships, and limited liability corporations (LLC’s).

· Davis Bacon prevailing wage requirements and labor standards apply.

· Borrower must file annual project financial statements.

· Underwriting requires a minimum 1.11 debt service coverage, using current rents and operating expenses. Trending of rents is not permitted.

· Full year escrows for real estate taxes, property insurance and special assessments, if any, are required to be funded at the loan closing and maintained for the life of the loan in non-interest bearing escrow accounts.

· A reserve for replacement escrow is required for the life of the loan, with monthly contributions. Funds may be used by the borrower for ongoing replacement of depreciable items. This escrow account may be interest bearing to the benefit of the borrower.

· A working capital escrow (or letter of credit) equal to 2% of the loan amount is required during the construction period.

· An initial operating deficit escrow  is required to fund any operating losses until sustaining occupancy is achieved. Amount of escrow determined by an absorption analysis (part of the appraisal report).

· Phase I Environmental analysis required for all Section 221(d)(4) insured loans.

· Full narrative market feasibility study required for all Section 221(d)(4) insured loans.