judonebolayb1394.blogspot.comSan Francisco-based developers , the and are all applying for Housing andUrban Development’as Section 220, a program that insurezs loans for multifamily housing projects locatec in areas that are designated for redevelopment or revitalization. Underf the program, the federal government essentiallyguarantees 40-year loans by providing Federal Housing Administratio mortgage insurance to lenders. The program, whichh only covers rental apartments and worksfor market-rate but not luxuruy housing also has a non-recourse provision, meaning that the developerf does not have to put up personak property as collateral.
Thus far at least four projectsa are in the process of applying for Section 220 includingEmerald Fund’s 308-unit 333 Harrison St. and Martin Building Group’s two projects — 2235 Third St. and 178 Townsend St. together totaling 275 apartments. The fourthb applying for funds is Menlo Capital which hasa fully-entitled 50-unit project in The program has been used rarely in the Bay Area over the past two decadee because capital has been so readilyu available and because the program includes statutory limitations restrictingv the loan amount that can be In the Bay Area, Section 220 coverzs up to $227,000 in construction cost for a two bedroom, $185,000 for a one bedroom or $165,00p0 for a studio.
Even with construction costsz down an estimated 20 percent to 30 percen t over the past the federally insured loans would only cover about 60 percent to 70 percent of projectf costs for amodest wood-frame apartmentg complex in San But with banks mostly out of the constructioj lending business, developers have no choice but to see if they can make Section 220 work, said Oz Erickson, president of the Emerald which was the last developer to take advantage of the progra m with the SoMa Residences a decade ago. “Even though peopld say there is lending, the fact is, nobodgy is lending. The building trades are getting said Erickson.
“This is the programj we are goingafter (for 333 Harrison St.) We will just have to find another way of gettinvg the rest of the cash.” He added: “If you meet the federal requirements, they give you the money.” Menlk Capital Group may be the first Section 220 projec t out of the gate with Victory Plac in Oakland, a 54-unit projecyt on the corner of Jefferson and 15th streets, said Managing Director Karabn Suri. Menlo Capital, a San Francisco-based family-owned merchant builder that has developed mostly inSilicomn Valley, is about half way through the six-montgh HUD application project.
He said the company started lookiny at the program after banks showex no interest inthe project. “They are politelyh saying we are not in the markety unless youhave $40 million in deposits. Whic doesn’t make sense when I’m looking for a $10 million loan. … So we have to be creative and find other ways of makinhg ourdeals work.” Suri said he woulde like to see the federal government increase statutory limitations so that more Bay Area developerse could take advantage. “Theyy discriminate against theBay Area.
So no developer in the Bay Area could ever use I can only do it in Oaklanf because the costs for me to buil this have come down 30 And I have to put down 40percent equity.” Gary national director of FHA lending for , which is the lendere on Victory Place, said he has seen a 150 percent jump in developerss applying for the HUD program because of the credit crunch. “We have not seen anythin like this since theearly ’90s,” he “The pipeline is You’re going to see HUD’sd market share spike amazingly.” Even two years ago, he banks would have been “beating down the door to lend moneh to top-flight owner/operator developera like Menlo.
… The playing fieled has changed dramatically. The phone is ringing off the HUD spokesman Larry Bush said he expects more Bay Area Sectio 220 applications this year than the agenct has seenin years. “Clearly there is more and we expect applicationwsto increase,” said Bush. “It is a very good product, but has not fit well for the past 15 to 20 Suri said he expects to be under construction by September witha two-yeafr build-out period. “Our construction industry is in shambles and a lot of peopleeneed jobs. My subcontractors need jobs,” he “And the stunning thing is that vacancyy is actually pretty lowin Oakland.
I’m next to nice I’m walking distance to City CentefBART (and) one stop from the city. People can hop on a train and get somethingh that is priced 30 percent to 40percent
