Overview of the Program:
This program provides non-recourse, assumable construction and permanent financing to build new or substantially rehabilitate Assisted Living, Memory Care, and Intermediate or Skilled Nursing Facilities.
HUD Section 232
Healthcare New Construction or Substantial Rehabilitation Loan
New construction or substantial rehabilitation of Assisted Living, Memory Care, and Intermediate or Skilled Nursing Facilities.
- Maximum processing occupancy of 95%
- Commercial space cannot exceed 10% of gross floor area or 15% of gross income
- Independent living units cannot exceed 25% of total units in the project (up to 30% with a waiver)
For new construction, the lesser of:
- 90% of the HUD eligible Replacement Cost of the facility (hard costs, soft costs and land value);
- 80% of the market value for Skilled Nursing Facilities (up to 85% of market value for qualified Non-Profit borrowers) and 75% of market value for Assisted Living and Memory Care facilities (up to 80% of market value for qualified Non-Profit borrowers);
- Minimum Debt Service Coverage of 1.45x.
For substantial rehabilitation, loan amount is determined in the same fashion unless the mortgagor already owns the property. If the mortgagor owns the property, the cost criterion equals the redevelopment cost plus the lesser of the existing indebtedness before rehabilitation or 90% of the estimated value of the project before rehabilitation. For a property to qualify for substantial rehabilitation, the cost of repairs, replacements and/or improvements to the existing property must exceed 15% of the project’s value after completion (not including costs of an addition). Additionally, a property can qualify if two or more major building components are being substantially replaced (at least 50%), regardless of cost.
40-year (fully amortizing) plus construction period, or 75% of remaining useful life.
FHA Loan is non-recourse.
Yes, subject to FHA approval.
FEES AND EXPENSES
0.30% application fee due at submission of application. Financing and permanent placement fees of up to 3.5% are based on final loan amount, due upon commitment and payable at closing. HUD inspection fee for new construction is 0.5% of mortgage amount.
MORTGAGE INSURANCE PREMIUM
0.57% of loan amount due at initial loan closing for each 12 months of construction term, or part thereof; 0.57% of outstanding principal balance thereafter.
OTHER FHA REQUIREMENTS
- Working capital deposit equal to 2% of the mortgage is escrowed at closing, subject to release one year after substantial completion.
- Initial Operating Deficit Escrow will be required and can be posted in cash or letter of credit. Typically equal to 12-18 months of debt service and released upon property maintaining 1.45x debt service coverage for 3 consecutive months.
- Debt service reserve is required and ranges from 6-12 months of principal, interest and MIP payments; will be held until an average debt service coverage of 1.45x is met for 12 consecutive months (no month can be below 1.25x).
- Any “off site” construction costs or demolition costs require separate funding by the mortgagor.
- The general contractor must pay Davis-Bacon prevailing wage rates as required by the Department of Labor.
- The mortgagor must retain a qualified arms-length supervisory architect during construction.
- A cost certification by the general contractor and owner will be required after construction completion.
- The general contractor must execute a guaranteed maximum price contract, provide a 100% performance and payment bond (or cash or letter of credit acceptable to FHA), and have liquid net worth equal to at least 5% of the project construction contract plus all other uncompleted construction work.
- The client must pay for all third party reports, which include a market study, a phase I environmental assessment, a full appraisal, an architectural/engineering review and a cost analysis. Funds must be remitted to Century and these contractors are engaged and paid by Century directly.
- Escrows for property taxes, insurance, MIP and replacement reserves required.