Multifamily Housing Construction Loans...

Most multifamily housing construction loans are typically processed through the HUD Loan Insurance Program because the HUD program provides non-recourse multifamily housing construction loans and permanent loans in a single, streamlined (supposedly) package.  For those willing to wait, the HUD program provides the tools (in the form of loan insurance to qualified HUD program lenders) that create 40-year amortized, non-recourse financing for multifamily housing construction loans and permanent loans.  Pricing is fairly aggressive but the key to making the HUD program work is to be prepared for a lengthy application cycle (HUD's "Multifamily Accelerated Processing" - called "MAP" has become a joke because some loans require YEARS for HUD to process) and the attending requirement to fund all the project carrying costs until the HUD-insured loan can close.  This places an exceptional burden on the developer who - quite frequently - have six months or less in which time to put the project financing together or the developer risks losing the site as the seller's patience runs out.  Sound familiar?

The most readily apparent alternative to the HUD approach to multifamily housing financing is to go the institutional investor route (via an investment banking firm) and underwrite a private placement offering to fund the project.  Compared to the HUD process, the private placement offering route may in fact create more financial investment leverage than can be had through the HUD program because offsite construction costs, minor furniture/fixtures/equipment, uses of working capital and development management fees are not part of the allowable basis for computing a HUD multifamily property loan.  This results in the loan for for-profit developer having an LTV as low as 72% of the total project budget.  As time wonders on and the carrying costs mount for a given project, the financial investment leverage is further eroded.  These fundamental facts are frequently overlooked by the developer (along with the investment incentive entitlements the project may also qualify for), thus most of the time complaints regarding the HUD process start after the actual application is made.  

What if there was a better way?

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