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Deals Using New HUD Debt Eligibility Guidance Close

In May of this year, the U.S. Department of Housing and Urban Development (HUD)/Federal Housing Administration (FHA) released an update to its Sec. 232 Handbook that included important changes on eligible indebtedness; specifically, an elimination of the two-year seasoning rule in certain instances. Under the changes, certain high quality, stable cash-flowing projects that previously were subject to debt seasoning for two years were now immediately eligible to seek HUD financing. Lancaster Pollard recently put the new HUD debt eligibility guidance to use as it announced the successful closings of 10 separate transactions for three different clients.

Six of the transactions were for a portfolio of facilities owned and operated by The Brook Retirement Communities, a provider of seniors housing in northern and central Michigan. Lancaster Pollard helped Brook Retirement Communities recapitalize six of their facilities using the FHA Sec. 232/223(f) program for a total loan amount of $26.9 million. Using the new debt eligibility guidance, Lancaster Pollard obtained the waiver necessary to immediately begin the process, allowing the borrower to benefit from permanent financing at a low interest rate. Brandon Healy led the transactions for Lancaster Pollard.

Similarly, Lancaster Pollard assisted Agemark Corporation in bypassing the two-year seasoning period and refinancing two of its Nebraska memory care facilities with the FHA Sec. 232/223(f) program. The total loan amount was $11.1 million.

“Agemark has been a best-in-class owner and operator for decades and we were pleased to obtain such a favorable long-term debt solution for the recapitalization of their facilities using HUD’s updated debt eligibility guidelines,” said Grant Goodman, who spearheaded the transactions for Lancaster Pollard.

The final two transactions were for a seniors housing operator in the Midwest. In this case, the operator was looking to buy out its partners and refinance the facilities’ existing debt.

“We utilized our internal bridge loan platform to structure the partner buyout and refinance of existing facility debt,” said Healy, who again led the way for Lancaster Pollard. “We then submitted the FHA 232/223(f) applications as soon as the new debt eligibility guidance was released.”

Under the updated guidance, debt eligibility and seasoning definitions may be broadened to allow for more immediate refinancing of project-related debt in the operator’s name. In addition, bridge financing may be used for identity of interest (IOI) purchases and partner buy-outs. Both of these options are subject to HUD’s review. Eligible indebtedness and loan-to-value (LTV) requirements will vary depending on the specific circumstances of a transaction.    

“HUD’s recent efforts to make it easier for strong projects to enjoy the benefits of long-term debt financing under the Sec. 232 program are clearly working as planned,” said Kass Matt, president at Lancaster Pollard. “We are excited our clients get to benefit from these changes and we have a robust pipeline of similar deals ahead.”

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