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SMF Does the Jersey Shore, Preserves Affordable Elderly Housing

Wesley by the Bay is an affordable senior housing community located in Ocean City, NJ and sponsored by the United Methodist Homes of New Jersey. The Project, consisting of four buildings, was built in the early 1980s with a high-interest rate HUD Section 202 Direct Loan. In addition to an aging physical plant, the Project does not have a community building for office management and resident services – these activities historically have been conducted off-site. The Sponsor looked to Sims Mortgage Funding to provide a long-term capital solution to meet the diverse needs of the Project.

Our recommendation? HUD Section 223(f) financing provides an excellent vehicle to recapitalize Section 202 properties. Sponsors effectively swap out a HUD-issued Direct Loan with a HUD-insuredloan, and in the process, earn a Developer Fee of up to 15% of the loan. We used the Section 223(f) program to originate a new $4,236,700 refinancing loan, which was underwritten to a 1.11 debt service coverage ratio, a 69% loan-to-value, and 35-year amortization. As part of the refinancing, the Project entered into a new 20-year Section 8 HAP Contract plus an additional 2 years, extending the affordability while providing a stable revenue source for the future.

In addition to refinancing the existing debt and funding repair and reserve escrows, Section 223(f) loan proceeds will be used to build a new2,500 square foot Community Building. This will enable the social services, nursing, and project management functions to move on-site, while giving the residents a place to congregate. We also included funds to modernize three handicapped-accessible units, and a Developer Fee of $635,500 for the Sponsor.

Because of how the Project’s original Section 8 HAP Contract was structured, the refinancing released the Project’s existing reserves and residual receipts accounts to the Sponsor at closing, creating more liquidity, with flexibility as to how the funds can be used. 

The Sponsor was so pleased with the outcome “down the Shore” that we are exploring a second recapitalization of one of their other Section 202 communities, this one near “Exit 14” of the Turnpike. Please contact us if you need explanations of the italicized Jersey references!