InsightsWorkforce Housing in the Time of COVID-19
Multifamily workforce housing is defined as housing for those making between 80-120% of the average median income (AMI) for a census area. With the uncertainties created by COVID-19, developing workforce housing will likely be a smart choice for multifamily developers during this time. This is because the A+ market may see a hit due to the economic impacts of the pandemic, while the affordable housing market (for those who make under 80% of the AMI) comes with a lot of strings attached since it is financed through government subsidies.
The HUD 221(d)(4) loan program is often used to create housing for moderate income (i.e. workforce) families. Thus, a 221(d)(4) loan can be a great way to finance workforce housing projects during this time, without fear of penalty for default later on. HUD seems to finance these projects, as they look to accept projects that fill gaps in the market. While the A+, luxury rental housing market is pretty saturated, and with the affordable housing market being addressed through low income housing tax credits (LIHTC), workforce housing is often overlooked by developers.
For developers, workforce housing projects financed through the HUD 221(d)(4) program are appealing for a number of reasons. The first and foremost being that a 221(d)(4) loan is a non-recourse loan, so there is no penalty for default. Additionally, since there are no government subsidies involved like you would see with affordable housing, there is less oversight of the construction and management of the property, because you won’t have to prove that tenants only make a certain percentage of the AMI.
However, through our extensive experience in the architecture and construction of HUD projects, we have noticed that there are special HUD requirements that tend to affect the architectural design process of a project. For example, architectural 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. If your architect isn’t familiar with HUD projects, this can certainly cause issues. Download our HUD Architectural Design Process Checklist for more information on requirements and considerations you should make when working on a HUD-financed project.
In metro areas, workforce housing projects tend to be located in second and third-tier suburbs, where lower land prices help drive project cost down. For example, in the Dallas-Fort Worth metroplex, we see a lot of these projects located in the mid-cities, or in suburbs like Prosper, Melissa and Aubrey. But these projects are all about finding creative ways to efficiently use money, something we pride ourselves on at JHP. As with any project, they require good design to create great spaces that will rent well, in order for the developer to see a return and for HUD to accept the project. This means finding efficiencies in the building structure in order to free up funds that can be put into the actual units to create better living spaces and drive steady rent and retention.
Perhaps one of the most key elements with a 221(d)(4) project, though, is working with a team of experts that are familiar with HUD projects. At JHP we have worked on a number of HUD projects and have really developed strong relationships with HUD offices around the country. HUD is familiar with our work and we know the idiosyncrasies from HUD office to HUD office, so our projects are more likely to be accepted for closing. If you’re ready to begin your HUD 221(d)(4) project, talk to us and we can navigate the process together.
The information presented is based on JHP’s experience.