LURA/HUD - Multifamily

[Brian Alfaro]

Hello!

Does anyone have any experience with HUD and LURA (Land Use Restriction Agreements) for Multifamily? We are looking at a 100+ unit that the seller is currently restricted to with HUD/LURA regulations. It is causing the property to have very low occupancy, so there is a lot of meat on the bone if we could remove the restrictions. The property is fully renovated in an up-and-coming area, and the current on-site manager has stated they reject a hefty amount of applicants due to the restrictions.

From my understanding, the LURA restricting the income of potential residents cannot be removed even when sold until year 15 of the 30 year contract. Does anyone have any experience with these types of properties and potentially removing the LURA or formulating a business plan to make this project successful with the restrictions in place? I think this would be a tough sell to passive investors; selling this property in 5-10 years with the restrictions still in place limits the amount of interested buyers. 

Any info or advice would be much appreciated! 

[Steve Morris]

OK, go to title and pull the LURA.  It will outline the use restrictions on the property and for how long.

Example - If a T/C sale, it may be recorded as all tenants must meet 60% AMI (area median income) for a period of 30 years from signing. So each tenant will need to sign a income verification they make less than 60% AMI. From there, you need to calc out what their rent will be. So if 2 person H/H, they get a 1 bed and their contribution will be <29% of their income. Then you need to set the rent which will usually be FMR or less (depending on what the local H/A pays out) on 1 bed per the HUD FMR calcs by county less the quality allowance.

My head hurts - Go find a PM that does LIH.

What would worry me is why is occupancy an issue?  These places usually have waiting lists, so I'd think it has some other warts than just being LIH.