HUD Delivers!

Last week, HUD issued a major policy revision to the 223(f) refinancing program's multifamily eligibility requirements. Prior to 3/2/2020, HUD's Three Year Rule look-back prohibited property owners from taking advantage of the 223(f) refinance program if a property was built or substantially rehabilitated within three years of application for HUD refinancing.  With the elimination of the Three Year Rule, property owners can now take advantage of the 223(f) program after receiving the final certificate of occupancy.

Who Benefits?

• Property owners with recently built or substantially rehabilitated projects, who are seeking to refinance into long term, self-amortizing, non-recourse debt at a low interest rate and end construction loan guarantees.  Owners are encouraged to evaluate their entire portfolio and take advantage of this opportunity
• Purchasers seeking to acquire recently built or substantially rehabilitated projects
• Lenders with construction or substantial rehabilitation loans on their books looking for an exit for their borrowers

The New Rules

Projects submitted to HUD within three years of final certificate of occupancy issuance must meet or provide the following:

• A minimum DSCR of 1.11 for Broadly Affordable projects and 1.176 for all other projects for a period of three consecutive months prior to loan endorsement
• DSCR to be calculated based on actual revenue collected less normalized expenses
• An income and expense statement from initial occupancy to application submission, and 12-month projection of income and expenses
• Current rent roll supporting underwritten rents
• Leasing history from initial occupancy to application submission, including history rent concessions, other discounts and short term leases (less than 12 months)
• Cash out permitted with 50% holdback until certain conditions are satisfied