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HUD INSURED LOANS for ACQUISITION or REFINANCE of EXISTING OCCUPIED HEALTHCARE FACILITIES Section 232/223(f) ~ LEAN Processing ~ PROGRAM FEATURES • Faster Processing • Accounts receivable financing now permitted • Fixed rate, level pay • Long term - 35 years • 100% of refinancing costs • Non-recourse • Fully assumable • 80%-85% loan to value QUALIFYING PROPERTIES Nursing Homes, Intermediate Care Facilities (ICF's), Board and Care homes, and Assisted Living Facilities which are at least three years old. An addition may be built as part of an acquisition or refinance of an existing property. Allowable repairs include replacement of no more than one system; the cost can be no more than 15% of after-repair value. Nursing Homes and ICF’s must have at least 20 beds and a CON or market study; Board & Care homes and Assisted Living Facilities must have at least 5 units with not more than 4 residents sharing each full bathroom. Up to 25% of the units in a Board & Care home may have bedrooms and kitchenettes or full kitchens. Assisted Living Facilities may offer 0, 1 and 2 bedroom units with or without full kitchens/kitchenettes. Both must provide central dining and recreation areas for residents. A Nursing Home may include Board & Care units but Board & Care residents must be kept identifiably separate. Assisted Living units may be offered in a nursing home, but nursing beds may not be offered in an Assisted Living Facility. Acquisition or Refinance of Healthcare Properties: 232/223(f) Page 2 of 5 LOAN AMOUNT Acquisition, least of: • 85% of appraised value after repairs including major movable equipment; or, • 85% of the cost of acquisition, repairs, reserve for replacements, and soft costs; or, • An amount for which debt service does not exceed 85% of net operating income with a 5%-6% assumed management fee. • Nonprofit Borrowers use 90% of cost to acquire, 90% of NOI, and 90% of value. For Faster Processing: 80% LTV and 1.45 debt service coverage for nursing homes; 1.30 debt service coverage for assisted living facilities; 1.25 debt service coverage for independent or board and care facilities. Refinance, least of: • 85% of value after repairs including major moveable equipment; or • 100% of the cost to refinance including outstanding debt, repairs, reserve for replacement, soft costs and fees (no cash out); or • An amount for which debt service does not exceed 85% of net operating income, with a 5%-6% assumed management fee. • Nonprofit Borrowers use 100% of cost to refinance, 90% of NOI, and 90% of value. For Faster Processing: 80% LTV and 1.45 debt service coverage for nursing homes; 1.30 debt service coverage for assisted living facilities; 1.25 debt service coverage for independent or board and care facilities. LOAN TERM • The maximum term is the lesser of 75% of the remaining economic life of the property or 35 years. Acquisition or Refinance of Healthcare Properties: 232/223(f) Page 3 of 5 INTEREST RATE • Interest rates are fixed rate, level-pay for the life of the loan, and set at the time the loan is purchased which occurs after a Firm Commitment is issued and before Closing. Prepayment penalties and discounts vary depending on market conditions. SECONDARY FINANCING (Secondary debt must by fully subordinated to the HUD-insured first mortgage) • If Source is Federal, State or Local Debt: The loan cannot exceed the difference between the HUD insured mortgage and the HUD Fair Market Value of the project. • If Source is Other Entities or Natural Persons: The aggregate amount of the insured first loan and the second loan cannot exceed 92.5 percent of the HUD Fair Market Value of the project. UNDERWRITING PROCESS • AGM prepares a preliminary mortgage calculation. If the preliminary mortgage calculation indicates that the project qualifies for an acceptable HUD-insured loan, AGM will schedule a site visit with the Borrower and informally discuss the project with HUD. • Firm Commitment Application: This application includes a Phase I, Part A of the Form HUD-4128 (further environmental investigation), market study, complete appraisal, Property Capital Needs Assessment (PCNA), and all mortgage credit documents. HUD has 30 days to issue a Firm Commitment and close assuming the underwriting meets the faster processing criteria noted above for loan-to-value ratio and debt service coverage. COMMITMENT and CLOSING • Concurrent with AGM’s application for Firm Commitment, the Borrower's closing attorney prepares the HUD closing package with HUD's and lender's closing attorneys. The debt is competitively bid. Closing is scheduled by HUD within 2 to 3 weeks of Commitment. Acquisition or Refinance of Healthcare Properties: 232/223(f) Page 4 of 5 MORTGAGEABLE FEES • HUD Application fee 0.3% of the mortgage • Inspection fee Greater of 1.0% of repairs or $30 per bed • Financing fee 2.0% of the mortgage • Placement fee 1.5% of the mortgage • Mortgage Insurance Premium Reset Annually by HUD • Review Fees: Appraisal, Market Study, all Environmental Reports, Property Capital Needs Assessment (PCNA) ANNUAL FEES AND RESERVES (Paid Monthly) • Mortgage Insurance Premium Reset Annually by HUD • Reserve for Replacement 0.6% of structures (New Construction); or 0.4% of mortgage (Rehabilitation) • Major Movable Equipment Reserve 10.0% annually • Taxes & Insurance Adjusted annually LETTERS OF CREDIT • 20% of repair cost, posted at Closing and released after repairs are completed. • Operating deficit, if required by HUD, posted at Closing and released as needed or after 90 days sustaining occupancy. OTHER PROGRAM FEATURES • A Firm Commitment application includes a detailed work write-up listing quantities and unit prices for repair items. • LEAN processing requires a 3rd party market study, appraisal, environmental, Property Capital Needs Assessment (PCNA) at your expense. AGM completes mortgage credit. • Underwriting occupancy is based on subject property’s operating history with a maximum of 95%; HUD assumes market-based Medicaid occupancy in nursing homes, unless consistent operating history of existing property indicates otherwise, 100% private pay in Board and Care homes and Assisted Living facilities. • Board & Care homes and Assisted Living Facilities must offer three meals per day. Assisted Living residents with kitchens must take at least one meal per day. • Owners cannot require assisted living residents to share an apartment. Acquisition or Refinance of Healthcare Properties: 232/223(f) Page 5 of 5 • Board & Care homes and Assisted Living Facilities may be insured only in states or territories in compliance with Section 1616(e) of the Social Security Act. Both must be licensed if required by the state. • Davis-Bacon (prevailing) wages do not apply. • Cash out is not permitted • Five years experience developing, managing, and marketing is required for Assisted Living Facilities. • Proof of professional liability insurance meeting HUD guidelines must be provided. • Leased facilities are underwritten as if the operating lease was not in effect.
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