All Forum Posts by: Kyle Jean

No.

No the developer's fee in this instance would already have been received by the original developer. The developer's fee is quite literally a fee (or "bonus") if you will that is eligible as part of a LIHTC transaction at time of initial closing.

You would not be eligible for a developer's fee purely due to a loan assumption. In order to secure a developer's fee you would need to do another round of tax credits (syndication) which is not unheard of, but generally only makes sense if the property needs substantial improvements.

Agreed with Spencer. HUD is best for mid or long term holds. If doing a merchant build or selling an existing asset within two or three years, etc it doesn't make sense to go HUD.

A 223f has a standard declining 10 year prepay (10% reduced by 1% per year is typical) so it's not quite as painful as yield maintenance/defeasance, but you have to ask yourself if HUD is worth if for shorter term holds due to the upfront timing, soft costs and ongoing reporting requirements.

Unlike Fannie/Freddie programs, HUD also doesn't have any easy supplemental loan process to do an equity take-out, so if you're trying to realize the appreciated value of an asset soon after the initial HUD closing, there's no way to do that.

In my experience HUD 223(f) is best for the legacy holds (as mentioned above), estate planning, "crown jewels", etc where you have a pretty good idea that you're not going to sell for at least 10 years or later.

For shorter term investment strategies, I wouldn't recommend it. 

In addition to the above considerations, because of the timing and soft costs you need to be planning a project large enough to make the HUD process economical. I'd say a good rule of thumb is at least 50 units or a loan size of $5mm. Below that and it's just a lot easier to go conventional and do a HUD take-out since HUD removed their take-out limitations earlier this year.

Of note a HUD d4 loan is only going to be economical above $5 or $6mm at least.

The d4 program has statutory limits that would not be favorable in a market like yours, and would not be economical for a small unit count. Generally you want a $5mm+ loan for a d4 to be worth it. 

Unfortunately that program is really only feasible for loan sizes above roughly $1.5mm. My recommendation would be a local bank or credit union at $200k.

Like the 223f program? What size project are you looking to use HUD for? It does not scale well for smaller assets.

As a note, a 5-10 unit project would not be economical under the HUD 221d4 program.