PURPOSE: To provide mortgage insurance to finance the new construction or substantial rehabilitation of nursing homes or intermediate care facilities, or a combined nursing home and intermediate care facility accommodating 20 or more persons, or a board and care facility.

DEFINITION: Under this Section of the National Housing Act, HUD-FHA insures first mortgages made only by HUD-approved lenders such as Red Stone for the new construction or the substantial rehabilitation of nursing homes, intermediate care facilities or board and care homes. NOTE: major items of movable equipment may be included in the mortgage.

a) Nursing Home – a facility which provides accommodations for convalescents or other persons who are not actually ill and not in need of hospital care, but who require skilled nursing care and related medical services.

b) Intermediate Care Facility – a facility which provides accommodations for persons who, because of incapacitating infirmities, require minimum but continuous care, but are not in need of continuous medial or nursing services.

c) Board and Care Home – a facility that provides room, board and continuous protective oversight to residents; aka Assisted Care Living Facility (ACLF).

ELIGIBLE PROPERTIES:

a) Must be either new construction or substantial rehabilitation.

b) Must be licensed or regulated by a state or local municipality.

c) Must comply with all applicable zoning and deed restrictions, and with any applicable building and/or other governmental regulations.

d) Must be designed in accordance with HUD minimum property standards.

e) Must provide group dining facilities.

Additionally;

Nursing Homes and Intermediate Care Facilities:

(i) Must obtain a Certificate of Need from the appropriate state agency, or a survey or assessment of need by the state agency or a qualified consultant acceptable to HUD;

(ii) Must contain at least 20 beds.

Board and Care Homes (ACLF’s);

(i) Must be located in states which have certified that the state is in compliance with Section 1616(e) of the Social Security Act (Keys Amendment).

(ii) Must contain at least 5 one-bedroom or efficiency units.

COMMERCIAL AREAS:

Commercial facilities as may be appropriate to meet the reasonable needs of the residents may be provided. This may include arts and crafts areas, lounges, recreation rooms, barber shops/hair salons, and libraries/reading rooms. Additionally, the facility must provide areas for central dining and a kitchen, or a food preparation area if food is supplied from an outside source.

SUBSTANTIAL REHABILITATION:

a) Must equal at least fifteen percent (15%) of HUD’s estimated value of the property after completion of the rehab,

b) Must encompass the replacement of at least two (2) major building components. “Major building components” includes; roof structures, ceiling, wall or floor structures, foundations, and plumbing, heating, air conditioning or electrical systems.

REAL ESTATE REQUIREMENTS:

All new developments or sub-rehab properties must be on real estate held, or to be held:

a) in fee simple, or

b) under a renewable lease for a period of not less than 99 years, or

c) under a lease having a period of not less than 10 years to run beyond the maturity date of the insured mortgage.

RESIDENT SELECTION:

Occupancy is not restricted on the basis of tenant income. All individuals subject to normal resident/patient selection procedures are eligible for occupancy.

ELIGIBLE BORROWERS:

Individuals, general or limited partnerships, limited liability corporations (LLC’s), trusts, private (proprietary) profit-motivated or non-profit organizations, and public bodies.

NOTE: borrowers/borrowing entities must be single asset mortgagors.

CONSTRUCTION, HIRING AND WAGES:

This program requires that payment of no less than the wages prevailing in the locality, as predetermined by the Secretary of Labor, pursuant to the Davis-Bacon Act, be paid to all laborers and mechanics employed in the development of the project.

Additionally, all borrowers and general contractors must comply with HUD’s Equal Employment Opportunity regulations, in that discrimination because of race, color, religion, sex or national origin is prohibited.

UNDERWRITING CONSIDERATIONS/FEATURES:

a) No “Founders Fees,” life care fees, life estate fees or other forms of entrance fees are permitted to be charged; only normal security deposits and first month’s charges.

b) Boarding houses and single room occupancy hotels (SRO’s) are not eligible under this program.

c) 40-year, level annuity payment, fully amortized permanent loan term for new construction or substantial rehab projects.

d) 35-year, level annuity payment, fully amortized permanent loan term for existing facilities.

e) 90% loan-to-value mortgages for new construction or substantial rehab projects.

f) 85% loan-to-value mortgages for existing facilities.

g) 1.11 to 1 debt service coverage required for new construction or substantial rehab projects. 1.17 to 1 DSC required for existing facilities.

h) Fixed rate of interest during both construction and permanent loan terms. Permanent loan rate fixed at closing of construction loan.

i) Up to 36 months interest only during construction.

j) No personal liability.

k) Permanent loans are prepayable.

l) Permanent loans are assumable.

m) Board and Care facilities (ACLF’s) containing independent living units (i.e. each unit with full kitchen and bath) will require a 6-month debt service reserve.

n) Escrows for real estate taxes, insurance, special assessments (if any), and reserve for replacements are required.

o) No limit on number of loans to one borrower.

SECTION 232 INSURED LOANS – SUMMARY SHEET

Program Features:

 ·         Financing for the new construction or substantial rehabilitation of nursing homes and/or sheltered care facilities (aka, assisted living facilities or board and care facilities).  Substantial rehabilitation must encompass at least 15% of the project value after completion of the rehab, or the replacement of a minimum of two major building components.

·         No personal liability.

·         Higher loan-to-cost ratios (90% of total replacement cost for new construction).

·         Low, fixed interest rates for construction, rehab and permanent loans.  Permanent loan rates are fixed prior to the closing of the construction loan.

·         Interest only for up to 36 months during the construction period.

·         Longer loan terms of up to 40 years for new construction and 35 years for sub-rehab projects, structured on a fully amortized basis.

·         Loan proceeds may include major movable equipment, as well as the rehab costs for projects requiring substantial rehabilitation.  Costs of major movable equipment and rehab are considered in the project’s valuation.

·         Permanent loans are fully assumable.

·         Permanent loans can be prepaid

·         HUD mortgage insurance can be used as credit enhancement for new construction taxable or tax-exempt bond issues.  Bond proceeds can be used to fund both the construction and permanent loan.

·         No limit on number of loans to one borrower.

Eligibility Features/Project Criteria:

·         Both for-profit and not-for-profit entities are eligible borrowers, to include individuals, corporations, general and limited partnerships, limited liability corporations (LLC’s) as well as public or proprietary entities.

·         The real estate must be held in fee simple or under a long term lease.

·         Kitchen facilities and/or private bathroom facilities are not required for each bed or living unit.

·         Properties or facilities that charge entrance fees or Life Estate fees to residents are NOT eligible.

·         Full year escrows for real estate taxes, property insurance and special assessments, if any, are required to be funded at the closing and maintained for the life of the loan, in non-interest bearing escrow accounts.

·         A reserve for replacements escrow is required for the life of the loan, with monthly contributions.  Funds may be used by the borrower for ongoing replacement of depreciable items.  This escrow account may be interest bearing to the benefit of the borrower.

·         An operating deficit escrow is required at the time of the loan closing and must be funded with cash or a letter of credit.  This escrow is required to fund any operating losses until sustaining occupancy is achieved.

·         A working capital escrow (or letter of credit) equal to 2% of the loan amount is required during the construction period.

SECTION 232 INSURED LOANS – SUMMARY SHEET

Program Features:

· Financing for the new construction or substantial rehabilitation of nursing homes and/or sheltered care facilities (aka, assisted living facilities or board and care facilities). Substantial rehabilitation must encompass at least 15% of the project value after completion of the rehab, or the replacement of a minimum of two major building components.

· No personal liability.

· Higher loan-to-cost ratios (90% of total replacement cost for new construction).

· Low, fixed interest rates for construction, rehab and permanent loans. Permanent loan rates are fixed prior to the closing of the construction loan.

· Interest only for up to 36 months during the construction period.

· Longer loan terms of up to 40 years for new construction and 35 years for sub-rehab projects, structured on a fully amortized basis.

· Loan proceeds may include major movable equipment, as well as the rehab costs for projects requiring substantial rehabilitation. Costs of major movable equipment and rehab are considered in the project’s valuation.

· Permanent loans are fully assumable.

· Permanent loans can be prepaid

· HUD mortgage insurance can be used as credit enhancement for new construction taxable or tax-exempt bond issues. Bond proceeds can be used to fund both the construction and permanent loan.

· No limit on number of loans to one borrower.

Eligibility Features/Project Criteria:

· Both for-profit and not-for-profit entities are eligible borrowers, to include individuals, corporations, general and limited partnerships, limited liability corporations (LLC’s) as well as public or proprietary entities.

· The real estate must be held in fee simple or under a long term lease.

· Kitchen facilities and/or private bathroom facilities are not required for each bed or living unit.

· Properties or facilities that charge entrance fees or Life Estate fees to residents are NOT eligible.

· Davis Bacon prevailing wage requirements and labor standards apply.

· Borrower must file annual, audited project financial statements.

· Full year escrows for real estate taxes, property insurance and special assessments, if any, are required to be funded at the closing and maintained for the life of the loan, in non-interest bearing escrow accounts.

· A reserve for replacements escrow is required for the life of the loan, with monthly contributions. Funds may be used by the borrower for ongoing replacement of depreciable items. This escrow account may be interest bearing to the benefit of the borrower.

· An operating deficit escrow is required at the time of the loan closing and must be funded with cash or a letter of credit. This escrow is required to fund any operating losses until sustaining occupancy is achieved.

· A working capital escrow (or letter of credit) equal to 2% of the loan amount is required during the construction period.