Page 24 —
COLORADO REAL ESTATE JOURNAL
— April 20-May 3, 2016
Finance
C
olorado’s broad appeal
helped propel it to No.
1 on the 2016 U.S News
& World Report Best Places to
Live ranking. Population growth
has helped spur construction of
new high-end multifamily prop-
erties but the state is struggling
with a shortage of affordable and
workforce housing.
Increasing land and construc-
tion costs have sent the cost to
develop multifamily properties
skyrocketing in recent years, cre-
ating a difficult environment to
develop affordable and market-
rate communities. In response,
developers in Colorado and
nationwide have focused on
high-end housing in prime loca-
tions with higher price points,
where Americans’ preferences to
live close to urban centers and
to be more mobile are fueling
demand.
Beginning April 1, the Federal
HousingAdministration enacted
two major changes to its guide-
lines that should help stimulate
the development of affordable
and energy-efficient communi-
ties.
First, FHA revised its mort-
gage insurance premium sched-
ule, lowering the cost of capital
and making it more financially
practical for developers to build
or rehabilitate quality afford-
able housing and market-rate,
energy-efficient communities.
The revised MIP schedule reduc-
es upfront costs and effective
interest rates for affordable and
energy-efficient properties, while
also increasing loan proceeds in
many situations.
Additionally, the U.S. Depart-
ment of Housing and Urban
Development issued an updated
MultifamilyAccelerated Process-
ing guide, which allows prop-
erty owners to borrow at higher
leverage levels for market-rate
properties. It also streamlines
the processing requirements
for affordable and market-rate
loans, making it more cost effec-
tive to borrow.
Combined, these changes are
intended to make FHA financing
terms more attractive to prop-
erty owners and developers for
c o n s t r u c t -
ing energy-
e f f i c i e n t ,
market-rate
prope r t i e s ,
a f f o r d a b l e
p r o p e r t i e s
and refinanc-
ing affordable
prope r t i e s ,
particularly
100 percent
Section
8.
Des i gna t ed
FHA lenders
can provide
property owners with expert
guidance on these new guide-
lines.
Whymake these changes now?
FHA recognizes the national
affordable housing shortage
and has emphasized its desire
to be more proactive in build-
ing both affordable and energy-
efficient properties, and these
policy changes are designed to
encourage owners and builders
to undertake such projects.
A breakdown of the new pro-
grams follows.
n
So what exactly is an
MIP?
The FHA does not provide
direct loans to property owners.
Instead, it insures loans made by
FHA-approved mortgage origi-
nators. To compensate for the
risk of default, the FHA charg-
es an initial fee and an annual
mortgage insurance premium,
or MIP. The premiums vary
depending on the type of loan.
A construction loan carries a dif-
ferent premium than a refinance,
for example.
However, an MIP is separate
and apart from themortgage rate
and is not part of amortization.
Rather, it is based on the unpaid
principal balance of the loan,
meaning it declines as the loan
amortizes.
Historically, the FHA charged
MIP rates of 0.65 percent for mar-
ket rate construction and sub-
stantial rehabilitation loans and
0.6 percent for refinances. Under
the new schedule, the MIP rate
for all projects is now 0.25 per-
cent provided they meet certain
energy-efficient standards.
Regardless of energy efficiency,
properties can still qualify for
reduced premiums. Rates are
being lowered from 0.45 percent
to between 0.25 to 0.35 percent
depending on the level of afford-
ability.
n
What about the MAP
guide?
Under the new guide-
lines, owners and developers of
market-rate properties can bor-
row at higher leverage rates.
For example, the guidelines
increased leverage on a market
rate construction or substantial
rehabilitation project from 83.3
percent loan-to-cost and 1.2
times minimum debt service
coverage to 85 percent LTC and
1.18 times DSC. Similar increases
were implemented for acquisi-
tion and refinance loans.
The new guidelines also allow
for significantly higher repair/
upgrade costs, allowing proper-
ties to undergo moderate reha-
bilitation without having to pay
Davis-Bacon wages. In Denver,
the maximum repairs allowed
under the federal 223(f) pro-
gram, which is for construction
and substantial rehabilitation
projects, has increased to $40,500
per unit from $17,550 per unit.
Certain guidelines apply.
FHAalso changed its approach
to calculating replacement
reserves for construction and
refinance loans, which is expect-
ed to reduce reserve require-
ments in many situations.
Another benefit of the new
MAP guidelines is a streamlined
processing protocol for afford-
able and certain market-rate
developments. Certain projects
undertaken by experienced
FHA developers may qualify for
bypassing the pre-application
stage and submitting plans and
specs on a delayed schedule.
Colorado’s multifamily mar-
ket has clearly heated up with
an influx of people moving to
the state and to Denver in par-
ticular. These changes in federal
guidelines should help spur the
development of affordable and
workforce multifamily commu-
nities by increasing loan pro-
ceeds and reducing the effective
interest rates of FHA loans for
many properties.
s
Andrew Dale
Director, Prudential
Mortgage Capital Co.,
Centennial
ing the Great Recession.
The hotel features The Ritz-
Carlton Club Level with dedicat-
ed concierge and continuous food
service throughout the day as well
as Elway’s Restaurant.
Elway’s is a six-time winner of
Wine Spectator’s Award of Excel-
lence.
The Ritz-Carlton Spa is rated
four stars by Forbes. The spa is
adjacent to recently renovated
fitness center.
Guests also have access to the
adjacent TruFit Athletic club with
lap pool, Olympic weights and an
indoor climbing wall. The hotel
also includes 12,383 square feet of
meeting and event space.
s
the investment market really
embraced this factor of having
the opportunity to move the
current rental rates more in line
with market standards,” he
said, adding there is an oppor-
tunity in some case to increase
rents by $6 to $8 per sf.
There were several parties
interested in the asset, but
Hashimoto said the seller was
comfortable with Melcor. Both
companies have ties to Canada.
“The buyer was looking to
add to their current Denver
portfolio, and this asset fit nice-
ly into their investment criteria.
I had a lot of faith in their abil-
ity to perform based upon their
current buying patterns in the
marketplace,” said Hashimoto,
who handled the transaction
with Dan Grooters. Both are
executive managing directors
in NGKF Capital Markets.
Most of Syracuse Hill I’s ten-
ants are in the 3,000- to 5,000-
sf range; however, Leidos Inc.
occupies approximately 11,000
sf. It is one of the building’s
original tenants.
The three-story, reflective-
glass building was built in
1982.
Melcor Developments Arizo-
na is the U.S. affiliate of Melcor
Developments Ltd., based in
Edmonton, Alberta, Canada.
The company recently acquired
Office Plaza at Inverness in
Inverness Business Park and
the Offices at the Promenade in
the Denver Tech Center.
s
Tupler
Melcor
