Rule Change Creates Opportunities For Multifamily Developers

Written by David Wilkins, Managing Director, Real Estate Finance, Walker & Dunlop

Say what you want about HUD, they have been a stalwart of multifamily financing for more than a half century. Many local family offices employ HUD right alongside of agency and life company lending. For the right property and owner, HUD insured loans are a perfect fit.

Traditionally new developments, not currently HUD insured, were prevented from seeking out HUD insured loans due to what was commonly known as The Three-Year Rule. This long standing rule created many negative unintended consequences and was eliminated in 2020.

Developers of recently completed projects or those planned, may now consider the very popular 223(f) loan for their permanent financing solution. The 223 (f) carries many positive attributes, including generally the lowest long-term interest rate in the industry. Owners also recognize the higher leverage one can obtain through a HUD insured loan. Owners can achieve 80 percent and 85 percent loan to value and not suffer a higher rate of interest due to the higher leverage.

To bring this home for our Apartment Association readers: a Grand Rapids developer recently completed a 50+ unit town home development. The sub 3 percent; 35-year HUD insured loan funded all of the construction debt and returned equity to the developer.
In another recent example a Mid-Michigan based developer completed a large multifamily development project. Upon stabilization they considered: life company loans, Fannie Mae, Freddie Mac and HUD insured loans. To compete with the HUD insured interest rate, they were compelled to shorten the loan term of the life company and other loan quotes. The shorter maturity and subsequent need to refinance would be occurring at a time when their brownfield tax incentives would be diminishing. In the end, the longer-term HUD loan better protected the ownership from an expected tax increase when the associated brownfield development benefits expired.

Owners are benefited by the many debt options available to them and the historic low interest rates we have recently experienced. As loan programs evolve and improve we will be pleased to share that news with you. n

David Wilkins is a Managing Director for Walker and Dunlop. He is an active member of the AAM. David can be reached at

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