04 Mar Got Good Debt?
Why Presario Ventures utilizes 221 (d)(4) HUD-insured construction loans for Multifamily.
GOOD DEBT?
Housing and Urban Development, (HUD) insured loans are not for everyone, but can be the perfect structure for the right multifamily investment. There can be bad debt, good debt, and really good debt.
First, let’s define a HUD-insured loan in the context of multifamily market-rate opportunities. HUD has many types of loan products they insure. HUD’s charter is to help provide housing at all levels of personal income and all demographics. In our case, HUD is not the lender, however, they are the insurers for the debt. Presario utilizes this debt structure which is considered market rate and geared towards the general public’s needs at large.
PROCESS FOR HUD APPROVAL
For a Developer or Sponsor team to get their initial HUD approvals, there is considerable underwriting from HUD to ensure that the team has both experience and financial capacity to weather a downturn when the market softens. HUD wants to protect its asset as the insurer and requires multiple layers of safety and compliance to produce a healthy cash flowing asset while providing quality housing. When you have the right team in place, have a longer-term investment horizon and can be patient, the results can be significant. For a Sponsor and or Private Equity, the additional checks and balances that the HUD process requires helps ensure the overall success of the project.
Highlights of why Presario leverages HUD-insured loans.
WHY PRESARIO UTILIZES HUD
- 40-year fixed interest rate (42 years including construction) which eliminates interest rate risk.
- Higher Loan To Value than most other multifamily loans.
- Non-recourse during the Construction period and the Permanent Loan.
- Asset-based underwriting and only available with proven market demand.
- Conservative underwriting (max 93% occupancy allowed), income and expenses.
- The General Contractor (GC) is bonded and has a Guaranty Construction Completion Contract.
- Annual 3rd party operational audits.
- 3rd party property inspections for compliance and oversight.
- Extensive construction underwriting and GC approvals.
- Significant cash reserves are held to ensure construction completion and lease-up of the project.
GOOD DEBT CAN MAKE ALL THE DIFFERENCE
As with all platforms, strategies, and tools, the “right” debt and equity can mean all the difference in your return on investment and asset performance. HUD-insured loans can be a superb tool when you are looking for favorable debt terms that can provide so many features and exit options. At Presario Ventures, we focus on capital preservation, recession-resistant financial structures, and a defensive investment strategy that allows us to safeguard our investments while capitalizing on the upside.
Removing interest rate risk is just one of the strategies we focus on with HUD-insured debt and for this reason alone, this is really good debt for patient money.
To learn more about this debt platform and strategy, please contact Darin Davis at (512) 433-6325.
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