Wednesday, July 27, 2011

Some Want HUD/FHA/Fannie/Freddie to Jack Up Allowable Commercial to Up to 45% of Project.

D.C. Streets Blog post is HERE.  Post says some want to increase commercial use limit to 45% of project.

My multifamily experience is that income from non housing uses often failed to meet projections, ending up with housing subsidizing the commercial space---NOT a good thing for a housing finance program. 

My take is that it would be better to handle unique situations through waivers but ONLY if there are enforceable front end long term lease requirements that insure clearly definable future income stream and IF those waivers are transparent and disclosed.  Your take? -Add a comment. 

Originally created and posted on the Oregon Housing Blog.

3 comments:

  1. I agree. But, I have a lot of clients that bought condos on Hawthorne, with large amounts of commercial space. They can't sell their homes because no one can get financing, even though the companies underneath the condos are doing well. There should be some waivers.

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  2. FHA has been seeing a large increase in urban mixed use applications since 2007 after banks pulled out of the construction lending market. Most are coming in under the Section 220 program which allows higher per-unit mortgage amounts and also a higher percentage of commercial space (up to 20%). The commercial space limits are not regulatory so field offices can waive them on a case by case basis. But HUD headquarters is not confident that FHA can underwrite that much space intelligently so they are tightening the standards and requirements along the lines you are suggesting. HUD's experience with street level commercial driven by local zoning as in Seattle has not been particularly favorable. This space is driven by zoning and not by market demand so it goes begging for tenants. If HUD were to increase the published limitations, it would probably be limited to the Section 220 program and lead to an increase in the Mortgage Insurance Premium for that program (currently 0.50%) to compensate for the additional risk.

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  3. HUD has a notice out on documenting and calculating commercial rents in FHA financed deals: You can find it HERE: http://portal.hud.gov/hudportal/documents/huddoc?id=11-10hsgn.pdf

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