EDITOR’S NOTE: It Is Still Possible to Obtain Construction Financing

By Keat Foong, Executive EditorUnlike other sectors of commercial real estate, the multi-housing sector is lucky in that we still have construction financing available to us. We are talking government-insured construction financing. And no, the financing does not require that the developer build low-income, or rent-restricted, housing in any way. Neither is it a “voucher program” etc. Get this right: this type of financing applies to market-rate apartments. The architecture firm Humphreys and Partners Architects LP recently sponsored a webinar on Federal Housing Administration-insured financing, in particular focusing on the FHA “221(d)(4)” program for new construction and substantial rehab (FHA also makes possible acquisition/rehab and refinancing under other programs). As an indication of the thirst for financing in the industry, the response to the webinar was overwhelming, with 681 registered by early this week that had attended or downloaded the web- and telephone-based conference with three mortgage bankers [click here to read the report in this issue of Multi-Housing Finance & Investment]. According to Mark Humphreys, president of Humphreys and Partners, he was only trying to be helpful in trying to educate his clients or potential clients about the program. “What’s amazing,” he acknowledges to MHN, is the number of multi-housing developers who still do not know about the program. He says when he takes informal surveys at trade shows, only maybe 6-8 out of an audience of 150 people would indicate they are aware of FHA-insured construction financing. The Department of Housing and Urban Development (HUD) tells MHN that $949 million in loans (78 loans covering 12,679 units), were approved for insurance in FY 2008. So far in FY  2009 through March 10,  $338.6 million in loans (25 loans for 4,146 units) have been approved. One of the downsides to the program for developers is that it requires payment of Davis Bacon wages. But some of the other disadvantages of using the “government” program, such as long lead times and “brain damage,” have been sharply reduced by measures taken this past decade by HUD. HUD has radically streamlined aspects of the program and application process, for example guaranteeing maximum application processing times. Depending on the field office processing the application, the whole application process can take two months. And some of the statutory restrictions on the volume of such financing the Federal government can insure has been drastically eased, thanks to legislative work in the past decade by housing associations such as the National Association of Home Builders.