The Section 232/223(f) program has been an outstanding vehicle to refinance or acquire existing skilled nursing, assisted living and memory care communities.
But did you know that you also could use the program to finance repairs and improvements to a project, provided they did not exceed 15% of the project’s value after the work is in place?
Projects with repairs that exceeded that level were eligible under the Section 232 substantial rehabilitation program, but that is a more complicated application and required the use of prevailing wages for the work, adding to the costs.
The 15% limit had been around since the Section 232/223(f) program was established in 1992 and was never adjusted for inflation. Not anymore! With an eye to improving the program, HUD recently increased the limit on repairs/improvements for Section 232/223(f) loans to 25% of value excluding major movable equipment. This will enable borrowers the opportunity to incorporate a more robust repair and renovation program into their refinancing or acquisition loan, which might come in handy for turn-around situations.
An additional benefit – work done under Section 232/223(f) does not require prevailing wages, keeping a lid on costs and maximizing the efficiency of the loan. Although the impact of prevailing wages on construction projects varies by location, it is believed that they typically increase costs by 15% – 20%.
Whether that’s a fact or one of the many myths, urban legends or murky rumors surrounding HUD financing is open for discussion!
