Yo forum--have any of you guys used HUD financing for a construction loan? Trying to understand whether I can get it to work for an o-zone development deal I have. It's a long term hold so I am not concerned about the prepay penalties, but more so about documentation process, prevailing wage requirements, etc. Any info appreciated. Thanks.
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Have you asked a DUS lender?
I just did one for a deal that was tight and the terms are awesome. Really painful process though; it took us somewhere around 20 months from engaging a broker to closing. Make sure you have a really good broker (preferably with connections in the HUD office) to guide you through the process if you've never done it before.
In regards to wage scale - we saw little to no premium but it depends on your market. Talk to some GCs. If you're going over 4 stories you will trigger a different wage scale and it will be a huge premium.
It's a lot of work but the payoff is awesome. 85% LTC, no recourse, 40-year fixed rate money.
awesome, thanks for this intel. Wow, I was told it usually takes about 12 months. Anything in particular on your deal drag it out for longer? I have to start construction (it's a funded O-Zone deal) to get equity out on time no later than 13-14 months from now...trying to figure out if worth it or if the critical path is too tight.
Mostly it was driven by the design process (you have to have a third party review all the plans for HUD, which makes coordination a bit tricker since every little plan change needs to be shipped off, your architect and their MEP guys all need to track their changes, etc.), then it took us a while to pull the permit and the government shut down right before we were supposed to close so there were some non-typical variables there.
I would think you could get it done in 14 months if you pushed. I would have the broker map out the timeline for you and you can sit down and discuss each phase and determine whether it feels reasonable (particularly with the architect).
How does that timeline correspond to the point at which you execute a GMP? And how many months before that can or should you engage a broker and how many months after that could you close on the loan and start construction?
Did you use a MAP lender? I presume that would cut down on the timeline.
Finally, is there any way to get your money out of the deal other than waiting for the end of the lockout period and, if you don’t want to pay it, waiting for the prepayment penalty period to end? I know you can’t do a cash out refi but do they let you take out the equity that you invested in any way? If not, it’s hard to scale these projects up. You need to keep tapping new equity sources rather than having the same ones roll their money into a new deal.
We executed a GMP maybe a month or two before closing. I would hire a broker before you select a contractor - it's recommended you have the full team in place with you send your application in to HUD, but you can use a placeholder and swap them out.
We used a MAP lender, yes. I can't imagine not using one. Timing aside, it's just an indication that they're not a seasoned FHA lender.
There's no way to take equity out of the deal besides a refi, and to your point you would be eating the pre-pay penalty in that case. The loan is assumable if you wanted to sell the asset and the purchaser wanted to take over the debt. If you're concerned about having to find new equity sources, I guess the silver lining is the fact that it takes half the equity of a normal construction loan to begin with.
Try Red Capital Group my understanding is HUD gaurantees doesn't originate the loan for the lender, that's what I see when working with Red. This sponsor took down the loan back in 2014 so not sure if closing has become more protracted
I work at a one of the top 3 FHA lenders on the UW team as an analyst. I typically size 223(f) loans, but I usually work on the 221(d)4s after the sizing phase and once it's signed up. Feel free to PM me, and I can see if someone from my cohort who does d4's will size it for you.
Anyone have insight on what happens if a project is delayed after you close your HUD loan, and say construction costs rise 20% versus budget. Can you go back through to agency for an increase based on the LTV or is it a tough conversation with your equity? in a scenario where project cost is not insignificant, say originally $60M increased to $72M. 221-d-4 HUD was 85%, so a ~10M slug
If your loan is closed HUD's not going to resize it because costs are up. Your costs should have been certified before you closed though. PM me if you want I have 221d4 investors that might be interested in filling that gap.
Investors that look specifically for projects financed by HUD 221(d)4 loans? Is that for the high, inexpensive leverage? What is the motivation?
Thank you sir. Not my project, but have been following one in the market where it looks like that had to have happened, and was curious if HUD would resize or the gap needs to be funded by existing equity and if anyone had anecdotes or first hand experience. More interest than anything if this happens in today's cost environment
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