Multifamily Loan Programs

Overview of the Program:

This loan provides non-recourse, assumable construction and permanent financing for new apartments or substantial rehabilitation of existing apartments.

For a property to qualify for substantial rehabilitation, the cost of repairs, replacements and/or improvements to the existing property must exceed the greater of either:

15% of the estimated replacement cost after completion of all repairs, replacements and improvements;

$6,500 per unit adjusted by the local HUD Field Office high cost percentage for that area.

Two or more major building components are being substantially replaced regardless of the cost. Additions are permitted in substantial rehabilitation projects, but the costs for the additions of new units (not building component additions) are not included in the eligibility test.

Program Highlights:

• Loan term: 40 years, plus construction period.
• Loans are fixed rate and fully amortizing; interest only during construction.
• Debt service coverage of 1.11.
• Loan-to-Cost: 90% of total Replacement Cost, subject to additional escrow requirements. Loan is not limited by estimated improved market value. Replacement Cost includes land or "as-is" value and Builder's and Sponsor's Profit and Risk Allowance (BSPRA), but not developer's fees or general contractor's profit.
• Permanent financing is not conditioned upon occupancy requirements, however an initial operating deficit (IOD) escrow may be required.
• Maximum processing occupancy: 95%.
• Underwritten on current market rents and expenses.
• Other allowable income includes among other things laundry, vending, covered parking or storage.
• Commercial space generally cannot exceed 10% of physical space or 15% of gross income.
• Annual deposit to replacement reserve is computed as a percentage of structure cost or loan amount.
• Escrows are required for property taxes and insurance.
• No limitation on distribution of surplus cash except annual or semi-annual computation by a CPA.

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 borrower.
• 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 escrow 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 0.45% is escrowed at initial endorsement for each year or fractional year during construction; 0.45% 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.