HUD Section 232 Construction and Substantial Rehab Loans for Assisted Living and Skilled Nursing Facilities
- Combination of 2 year interest only construction loan with a 40 year fully amortizing permanent HUD loan
- $3 Million to no maximum loan amount
- Non-recourse
- 75% fixed for the full 42 years
- High LTV: (1) For profit assisted living 75% LTV & 1.45x DSCR; (2) for profit Skilled Nursing: 80% LTV & 1.45 DSCR; (3) non-profit assisted living: 80% LTV & 1.45 DSCR; (4) non-profit skilled nursing: 85% LTV & 1.45 DSCR
- Low fees
- Fully assumable
- Step-down prepayment penalty
- Fast Track Program takes 6 to 8 months to close;
| Eligible Properties | Section 232 provides construction loans for licensed nursing homes, assisted living facilities, skilled nursing, intermediate & memory care properties and board and care faciliites meeting the following requirements: · Must provide continuous care. · Must offer three meals per day. · Facility must be state licensed · Non-resident day care not to exceed 20% of gross area and 20% of gross income. · May include up to 25% non-licensed independent living units. · 20 bed minimum. |
| Medicaid Rule | Medicaid rates, regardless of the composition of the project’s actual or proposed occupancy, will be used to establish the income estimate of 67% of skilled nursing facility/intermediate care beds. Medicare rates will be used for no more than 3% of the beds. This rule does not apply to board and care or assisted living facilities. |
| Commercial Space | Commercial space is limited to 10% of gross floor area and commercial income is limited to 15% of gross income. |
| Prevailing Wage Standards | Contractors for new construction and substantial rehabilitation projects must comply with prevailing wage standards under the Davis-Bacon Act. |
| Maximum Construction Loan Amount (LTV) | Maximum loan amount will be the lesser of:1. 90% of the HUD eligible Replacement Cost of the facility (hard costs, soft costs and land value); 2. 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); 3. Minimum Debt Service Coverage of 1.45x.4. $3 Million to no maximum loan amount |
| Substantial Renovation | Loan amount is determined in the same manner as new construction, 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. Cost of improvements must exceed 15% of the “as rehabbed” appraised value. A property can also qualify if two or more major building components are replaced, regardless of cost. |
| Eligible Locations | 43 States |
| Fixed Rate Term | Actual construction period plus 40 years (fully amortizing with interest only payable during construction period). |
| Minimum DSCR | 1.45. |
| Maximum ProcessingOccupancy | Underwritten to a maximum of 95% occupancy. |
| Prepayment Penalty | Negotiable – typically a two-year lock out followed by a step down premium (e.g. 8,7,6,5,4,3,2,1). |
| Guarantee | Non-recourse for most loans subject to standard carve-outs. |
| Assumable | Yes, subject to lender approval. |
| Escrows | 1. Replacement reserves required in accordance with HUD guidelines; 2. Taxes and Insurance escrowed monthly (post construction); 3. Working Capital Reserve equal to 2% of loan amount (post in cash or LOC); 4. Typically equal to 12-18 months of debt service and released upon property maintaining 1.45x debt service coverage for 3 consecutive months;5. 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). |
| Mortgage Insurance Premium | Payable at closing in an amount equal to 0.77% of the loan amount for each year of construction. |
| Fees and Expenses | 1. HUD Fees – Application Fee and Inspection Fee; 2. FHA Mortgage Insurance Premium due at closing; 3. Lender Financing and Placement fee up to 3.5% payable at closing; 4. Actual cost of Third Party Reports. |
| Third Party Reports | Appraisal, Market Study, Phase I Construction Cost Review, and Plans and Specs Review are required. |
| Sponsor Requirements | · Experienced owner operators. · Minimum credit and financial capacity requirements. · HUD experienced development team highly recommended. · No upfront fees |
