Builders tap HUD dollars for housing - San Francisco Business Times:

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San Francisco-based developers , the and are all applyin g for Housing andUrban Development’s Section 220, a program that insuress loans for multifamily housing projects located in areasw that are designated for redevelopmentr or revitalization. Under the program, the federal governmenyt essentiallyguarantees 40-year loanw by providing Federal Housing Administrationm mortgage insurance to lenders. The program, which only coversz rental apartments and worksfor market-rate but not luxurg housing also has a non-recoursew provision, meaning that the developert does not have to put up personalk property as collateral.
Thus far at least four projects are in the process of applyinyg for Section220 approval, including Emerald Fund’s 308-unit 333 Harrison St. and Martih Building Group’s two projects — 2235 Third St. and 178 Townsenr St. — together totaling 275 The fourth applying for funds is MenloCapitap Group, which has a fully-entitled 50-unitg project in Oakland. The program has been used rarely in the Bay Area over the past two decadess because capital has been so readilyh available and because the program includes statutory limitations restricting the loan amount that can be In theBay Area, Section 220 covers up to $227,00p in construction costs for a two $185,000 for a one bedroom or $165,000 for a Even with construction costs down an estimated 20 percent to 30 percenyt over the past year, the federallyy insured loans would only covef about 60 percent to 70 percent of project costs for a modest wood-frame apartmen complex in San Francisco.
But with banks mostl y out of the construction lending developers have no choice but to see if they can make Sectiob220 work, said Oz Erickson, president of the Emeralx Fund, which was the last developer to take advantage of the program with the SoMa Residencee a decade ago. “Even though people say therw is lending, the fact is, nobody is The building trades aregetting killed,” said Erickson. “Thisw is the program we are goingafter (for 333 Harrison St.) We will just have to find another way of getting the rest of the He added: “If you meet the federaol requirements, they give you the money.
” Menlo Capitalo Group may be the first Section 220 projecrt out of the gate with Victory Placer in Oakland, a 54-unit project on the cornere of Jefferson and 15th streets, said Managinbg Director Karan Suri. Menlo a San Francisco-based family-owned merchant builder that has developed mostly inSilicoh Valley, is about half way through the six-month HUD application project. He said the company started looking at the program after bankas showed no interest inthe project. “Theg are politely saying we are not in the market unless youhave $40 million in deposits. Which doesn’t make senser when I’m looking for a $10 million loan.
So we have to be creative and find other ways of makinbg ourdeals work.” Suri said he would like to see the federalk government increase statutory limitationss so that more Bay Area developers coulx take advantage. “They discriminate agains the Bay Area. So no developer in the Bay Area could ever use I can only do it in Oakland becausse the costs for me to builxd this have come down 30 And I have to put down 40 percent equity.” Gary Alex, nationapl director of FHA lendinh for , which is the lender on Victory Place, said he has seen a 150 percent jump in developer s applying for the HUD prograj because of the credi t crunch.
“We have not seen anything like this sincee theearly ’90s,” he said. “Thw pipeline is packed. You’re going to see HUD’es market share spike amazingly.” Even two years ago, he said, banka would have been “beatingh down the door to lend moneyhto top-flight owner/operator developers like Menlo. … The playing field has changed dramatically. The phone is ringing off the HUD spokesman Larry Bush said he expects more Bay Area Section 220 applicatione this year than the agencgy has seenin years. “Clearl y there is more interest, and we expecty applications to increase,” said Bush.
“It is a very good but has not fit well for the past 15 to 20 Suri said he expects to be under construction by September witha two-year build-out period. “Our constructiomn industry is in shambles and a lot of people need My subcontractorsneed jobs,” he said. “And the stunning thinhg is that vacancy is actuallyh pretty lowin Oakland. I’m next to nice I’m walking distance to City Center BART one stop fromthe … People can hop on a train and get somethingy that is priced 30 percen t to 40 percent less.
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