The U.S. Department of Housing and Urban Development (HUD) and the Federal Housing Administration’s (FHA) Section 232 LEAN program for senior care facilities debuted in 2008. The program was designed to meet the capital needs of senior housing and long-term-care facilities and continues to serve as an important source of debt capital to the senior housing industry. We will be taking a closer look at the program in honor of its 10th anniversary.
If you are considering financing a healthcare project, here are 10 things you should know:
FHA loans are non-recourse and fully assumable with a low, fixed interest rate.
The FHA Section 232/223(f) refinance program allows you to acquire or refinance licensed healthcare properties, including skilled nursing, assisted living, memory care, intermediate care, and board and care facilities. Independent living units are also permitted if they make up less than 25% of the overall facility.
The 232 mortgage insurance program is one of the most attractive credit enhancement programs and is available for new construction projects and the rehabilitation of residential care facilities, providing both construction and permanent financing at one low-interest rate.
HUD continues to increase its production year-over-year and the Section 232 program continues to serve as an important source of long-term debt capital to the seniors housing industry.
For the fiscal year ending Sept. 30, 2017, the LEAN program closed $3.4 billion of loan volume, an increase of 20% as compared to 2016. The FHA Section 232/223(f) refinance program was the largest contributor to the volume with a total loan amount of $2.8 billion.
New debt seasoning requirements focus exclusively on the period of time needed for a project to demonstrate its ability to generate a sufficient level of cash flow to support the value and pay the debt service. What this means is that there is no longer an automatic two-year seasoning requirement, but rather tiered leverage depending on the use of the existing debt.
When using a short-term bridge loan, HUD will refinance loans that include an equity cash out.
Some of your operational debts, such as furniture, furnishings and equipment (FFE) and working capital related to lease-up and/or stabilization of the project can be included in the 232/223(f) refinance program. In the past, these operational debts could not be included in your financing.
If you are looking to expand or renovate an existing HUD facility, you might consider using the 241(a) program. The 241(a) program is intended to keep a property competitive, extend its economic life, and provide replacement of obsolescent equipment.
The LEAN process continues to produce predictable outcomes and HUD review times that meet or beat program timeframes.