Healthcare Loan Programs

Overview of the Program:

This loan provides non-recourse construction and permanent financing to construct or substantially rehabilitate assisted living, board and care, and intermediate or skilled nursing care facilities.

Loan amount for new construction is the lesser of:

(a) 90% of the market value of the completed, stabilized property or 90% of replacement cost (including major movable equipment): or
(b) DSC of 1.11 (90% of NOI) with respect to estimated net income after deducting an allowance for proprietary income. Qualified non-profit mortgagors can obtain 95% financing.

Loan amount for substantial rehabilitation 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.

Program Highlights:

• Loan term: fully amortizing to 40 years.
• Debt service coverage of 1.11.
• Maximum processing occupancy: 90% - 95%.
• Underwritten on current market rents and expenses.
• Commercial space cannot exceed 10% of physical area.
• No occupancy requirements for permanent loan.
• HUD requires a very specific market study.
• Independent living units cannot exceed 25% of total units in the project.
• For skilled nursing projects, the underwriting will assume not less than 67% of beds at Medicaid pay rates, not more than 3% of beds at Medicare pay rates, and not more than 30% beds at private pay rate.
• Escrows for property taxes, insurance, MIP and replacement reserves for realty and equipment.

Requirements During Construction:

• Working capital deposit equal to 2% of the mortgage is escrowed at closing, subject to release one year after substantial completion.
• An operating deficit escrow will likely be required and can be posted in cash or letter of credit.
• Any "off site" construction costs or demolition costs require separate funding by the mortgagor.
• An "Initial Endorsement" will commence the construction phase.
• The general contractor must pay Davis Bacon minimum wage rates as required by HUD.
• The mortgagor must retain a qualified 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.

Costs of Financing:

• LF processing fee is $5,000.
• The client must pay for all third party reports, which include a market study, a phase I environmental analysis, a limited and a full appraisal, and our contracted architectural and cost reviewers. Funds must be remitted to LF and these contractors are engaged and paid by LF directly.
• Financing and permanent placement fees of up to 3.5% are based on final loan amount, due upon commitment and payable from mortgage proceeds at closing.
• Annual Mortgage Insurance Premium (MIP) of .57% is escrowed at initial endorsement for each year or fractional year during construction; 0.57% annually thereafter.
• HUD inspection fee for new construction is 0.5% of mortgage amount.
• HUD application fee is 0.3% of mortgage amount due at the time of submission of the Firm Application.