Webinar on Construction Financing that is Still Available for Multi-Housing Draws Huge Response

By Keat Foong, Executive Editor New York—A webinar sponsored by an architectural firm to help its clients “get your next multi-family project funded” received an overwhelming response. The one-hour webinar provided information about the type of construction/rehabilitation financing that is still available to developers of market-rate multi-housing. This is financing that is insured by the Federal Housing Administration (FHA) under the FHA 221(d)(4) program, which provides fixed-rate, up to 40-years amortizing, financing for both the construction and ownership of market-rate (non-rent-regulated) multifamily housing   “We were totally taken by the response. It is nothing like we’ve seen before,” said Mark Humphreys, president of Humphreys and Partners Architects LP, which sponsored the web-based teleconference for multifamily developers last week. Humphreys told MHN while he expected maybe about 50 attendees, 451 actually attended the webinar. Including the number of subsequent downloads of the webinar, 681 in total have registered for the event so far. “We have thousands of [developer] clients who cannot obtain financing,” said Humphreys. He said after telling many clients about the existence of this type of construction financing that remains available, he decided to organize the web seminar presented by a number of the biggest FHA-insured financing lenders. Speakers at the webinar providing attendees with basic and more detailed information about the program were FHA lending specialists Bruce Minchey, senior vice president of KeyBank Real Estate Capital; Chad Ricks first vice president—origination of Love Funding Corp.; and Ralph Lowen, Director, Prudential Huntoon Paige Associates. Moderating the session, Humphreys said developers today are interested in obtaining project financing and in low-equity requirements. “This program is really an answer to the lending situation,” he said at the introduction to the webinar. “This is where we’re seeing lending being available.” Humphreys said myths about FHA-insured financing include the conceptions that it is a low-income program, or a voucher program; that there are rent restrictions on projects that receive the funding; that the project has to be 200 units; and that no retail or student housing is allowed. Developers often obtain inaccurate advice from mortgage players that are not experienced in the program, he tells MHN.According to Love Funding’s Ricks, the 221(d)(4) program is available for the construction of new projects and for substantial rehabilitation. Substantial rehabs consist of the replacement of two major building components or cost up to 15 percent of the property’s estimated value. The financing funds both the construction loan and the permanent mortgage under one loan. The construction loan is up to two-years, and is interest-only during the construction period. After the construction period, the loan rolls over into a permanent loan. The maximum Loan to Cost is 90 percent of replacement cost value, and the minimum Debt Service Coverage is 1.1. The financing is up-to 40-year fully amortizing, and it is also assumable. Describing the application process, KeyBank’s Minchey said that the initial review takes two to three days; the third-party reports take an additional 35 days; and HUD screening takes five days with a guaranteed 45-day maximum review period for the loan. Lenders said the interest rate on a FHA-insured 221(d)(4) mortgage is currently 6.55 percent, not including the mortgage insurance premium (MIP). The MIP would add an additional 45 basis point to the interest cost. Projects receiving the FHA-insured funding, however, are required to pay Davis Bacon wages.Humphreys said the majority of FHA-insured projects that his firm is seeing are student and market-rate housing. Ricks said that student housing is allowed under the program, but the project cannot be restricted to only students if it is to receive the financing. There could also be restrictions on the loan value or number of units depending on the HUD office that is processing the loan. But according to Ricks, rarely is that a constraining factor for garden-style apartments. Regarding whether HUD will approve the application if there are already too many projects in the market, Minchey said HUD’s decision is not based on some absolute number of projects in the market, but on the strength of the market. There could be two to three projects in the same market and HUD will approve the loan if it feels the market is strong enough. Humphreys adds that he has had developers without experience who apply for the financing. Provided they are matched with an architect, mortgage lender and contractor who  are experienced in the program, they “can sail along,” he said. Click here to download the webinar.