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

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San Francisco-based developers , the and are all applyingg for Housing andUrban Development’s Section 220, a prograjm that insures loans for multifamilt housing projects located in areas that are designated for redevelopmentf or revitalization. Under the the federal government essentiallyguarantees 40-year loansz by providing Federal Housing Administration mortgagee insurance to lenders. The program, which only covers rental apartments and worksfor market-ratew but not luxury housing also has a non-recoursre provision, meaning that the developer does not have to put up personall property as collateral.
Thus far at least four projects are in the procesds of applying for Section220 approval, including Emeraldf 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 fourth applyinvg for funds is MenloCapital Group, whic h has a fully-entitled 50-unit project in Oakland. The progra has been used rarely in the Bay Area over the past two decadees because capital has been so readily availabld and because the prograkm includes statutory limitations restricting the loan amountt that canbe insured.
In the Bay Section 220 covers upto $227,000 in construction cost s for a two $185,000 for a one bedrookm or $165,000 for a Even with construction costs down an estimatefd 20 percent to 30 percent over the past year, the federallh insured loans would only cover about 60 percenf to 70 percent of project costs for a modest wood-framde apartment complex in San Francisco. But with banks mostlu out of the constructionlending business, developers have no choicd but to see if they can make Section 220 said Oz Erickson, president of the Emerald Fund, which was the last developer to take advantage of the program with the SoMa Residences a decader ago.
“Even though peoplre say there is lending, the fact is, nobody is The building trades aregetting killed,” said Erickson. “Thiss is the program we are goinbafter (for 333 Harrison St.) … We will just have to find anothefr way of getting the rest of the cash.” He “If you meet the federal they give you the money.” Menll Capital Group may be the first Sectionj 220 project out of the gate with Victoryg Place in Oakland, a 54-unift project on the corner of Jefferson and 15th streets, said Managing Directord Karan Suri.
Menlo Capital, a San Francisco-basex family-owned merchant builder that has developed mostly inSilicobn Valley, is about half way through the six-month HUD application project. He said the companyy started looking at the prograkm after banks showed no interest inthe “They are politely saying we are not in the markeft unless you have $40 million in Which doesn’t make sense when I’m lookinhg for a $10 million loan. So we have to be creative and find otherr ways of making our deals Suri said he would like to see the federall government increase statutory limitations so that more Bay Area developer s couldtake advantage. “They discriminate against the Bay Area.
So no developer in the Bay Area couldr everuse them. I can only do it in Oaklane because the costs for me to build this have come down 30 And I have to put down 40 percent Gary Alex, national director of FHA lending for , whicnh is the lender on Victory said he has seen a 150 percent jump in developer applying for the HUD program becausr of the credit crunch. “We have not seen anythinf like this since the early he said. “The pipeline is packed. You’re going to see HUD’ws market share spike amazingly.” Even two years ago, he banks would have been “beating down the door to lend moneuyto top-flight owner/operator developerx like Menlo.
… The playing field has changed The phone is ringing offthe hook.” HUD spokesman Larrh Bush said he expects more Bay Area Sectiom 220 applications this year than the agency has seen in “Clearly there is more interest, and we expect applications to increase,” said “It is a very good product, but has not fit well for the past 15 to 20 Suri said he expects to be under constructio by September with a two-year build-out period. “Our construction industry is in shambles and a lot of peopldneed jobs. My subcontractors need jobs,” he “And the stunning thing is that vacancy is actuall y pretty lowin I’m next to nice retail.
I’m walking distance to City CentetBART (and) one stop from the city. People can hop on a trainm and get something that is priced 30 percent to 40percent less.”