InsightsNew to Projects Financed with a HUD 221(d)(4) Loan?
The HUD 221(d)(4) program provides financing for the new construction or renovation of multifamily rental properties for moderate income families, the handicapped and the elderly. It’s a non-recourse loan option, which is certainly advantageous for developers since it makes capital readily available without penalty for default.
But HUD 221(d)(4) projects come with their own requirements and considerations that can be different from a privately financed project. If it’s your first time working on a HUD 221(d)(4) project, some of the requirements can come as a surprise and affect the design process if you or your project team are not experienced with the HUD office in charge of your project. It also means that your project could be delayed or worse, not accepted, because HUD wants to work with project teams that are experienced in HUD projects.
Through our extensive experience in the architecture and construction of 221(d)(4) projects, and other HUD projects or government-financed multifamily projects in general, we’ve seen some of the following things affect the architectural design process. They typically fall into one of these categories: business/legal requirements, project design, or construction administration.
HUD requires the agreement for services to be inclusive. Reimbursable expenses must be included, but not identified as a separate line item. After closing, any additional costs incurred during construction, such as change orders and owner upgrades, cannot be funded out of loan proceeds and must instead be funded “out of pocket.”
Drawings produced for HUD projects must include additional information, such as HUD’s method for determining square footage calculations, and respond to additional requirements including HUD’s Minimum Property Standards for Housing.
The architect must be present to physically walk each unit and issue the “PTO” or “Permission to Occupy” before HUD will accept the building. This adds cost to the project.
Of course, this list isn’t exhaustive — it’s only a very small sampling of the things we tend to see come up on HUD projects. There are many more considerations under each category that tend to affect the project’s architectural design process.
To read more on the requirements and considerations that you should take into account when it comes to the architectural design process of a HUD project, download our HUD Architectural Design Process Checklist. It outlines several items under each category referenced here.
The main thing to making any HUD project run more smoothly is assembling the right project team. HUD offices prefer to work with architects, bankers, contractors, etc. that have sufficient HUD project experience. At JHP, because of our extensive HUD experience, we have developed great relationships with other experts in the field, and have learned the intricacies and idiosyncrasies of different HUD offices. This makes the projects we work on much more likely to be successfully accepted by HUD. Contact us if you have questions or are interested in working together on your next HUD project.
The information presented is based on JHP’s experience.