“Rockhall Funding Corp Refinances Villa Del Mar, Oceanside, CA, with a $11.2 Million loan at 3.70%. ”

Oceanside, CA –April 3^rd 2012—Rockhall Funding Corp., an FHA MAP lender, refinances Villa Del Mar with a $11.2 Million loan and a 3.70% note rate.  The FHA insured loan is non-recourse and has a fixed rate fully amortizing 35 year term.

Villa Del Mar is a 184 unit garden style apartment complex built in 1973.  Rockhall provided financing under FHA’s 223(f) refinance program, that paid off the existing Freddie Mac loan, and financed needed repairs. The project owners refinanced through FHA because of its superior loan terms.

“Kathryn Thompson, and the team at Rockhall are the best,” said Gus Owen, owner and manager of Villa Del Mar. “I have worked with many mortgage bankers over the years and have not met one as responsive and with the in-depth knowledge of the apartment business as Kathryn and her team.  They without any doubt a clear understanding of the HUD requirements and how to steer through the process.  The rate of 3.70% that I received for an $11,166,000 loan locked in for 35 years is just incredible.  My loan closed smoothly and as planned even though I had a complicated ownership structure.”

Rockhall Funding Corp. is a commercial mortgage bank that specializes in FHA-insured apartment and healthcare lending. Rockhall is experienced with new construction lending as well as existing property financing and has closed low-income and market-rate transactions throughout the U.S. Rockhall offers all FHA commercial loan programs.  Rockhall is a direct lender, GNMA issuer and servicer.

Broadway Lofts 221(d)4 Receives Best Project Of The Year

Broadway Lofts 221(d)4 Receives Best Project Of The Year

San Antonio, TX, Aprl 6th, 2012— In late 2010, Rockhall Funding Corp. provided Broadway Lofts with an FHA Construction-Permanent loan for 268-unit 4-story market rate apartments on San Antonio Riverwalk. The construction phase is reaching completion, the project is 100% occupied and the project’s developers are already winning awards.

“Broadway Lofts was my first experience with FHA-insured financing.  I am not sure we would have been able to complete the financing due to the existing complications of a previous HUD loan on the property.  We were applying for a substantial rehabilitation 221(d) 4 loan in a downtown redevelopment area that, at the time, was in a flood zone.  Kathryn and her team at Rockhall took the project on and clearly knew how to navigate the HUD process and get us to the ultimate loan commitment of $23,400,000 for a construction and permanent loan with incredible terms of 40 years, fixed rate interest of 5.45%in a market, at the time,  that was still void of commercial financing.  It also was very helpful that Kathryn’s past experience in development enabled us to solve the issues other than just the HUD  process.  Our project, which is now fully-occupied,  just received an award from the Downtown Alliance in the City of San Antonio as the best project of the year.” David Adelman, Developer/owner

Kathryn Thompson To Promote FHA Apartment Financing at Apartment Association of Greater Dallas 2012 Tradeshow

Kathryn Thompson To Promote FHA Apartment Financing at Apartment Association of Greater Dallas 2012 Tradeshow

On March  21, 2012 at the Dallas Market Hall, the Apartment Association of Southern California will hold its annual trade show. Kathryn Thompson of Rockhall will promote the benefits of FHA apartment financing to the sold out trade show. Many apartment owners who will attend the trade show are unaware of the sub 3.75% note rates on 35-year fixed rate 85% loan to value ratio mortgages available with FHA mortgage insurance through Rockhall. At the trade conference, Rockhall will promote recently FHA financed projects in the Dallas market and demonstrate how apartment owners, developers and investors are benefiting from FHA Financing. Apartment owners interested in discussing refinance opportunities with Kathryn can reach her at 214-252-8733.

Greater Centennial Homes: Sub Rehab of an Environmentally-Contaminated Nonprofit Low Income Housing Project

Greater Centennial Homes: Sub Rehab of an Environmentally-Contaminated
Nonprofit Low Income Housing Project

Overview.  The Greater Centennial African Methodist Episcopal Zion Church sponsored the construction of a scattered site low income master-metered 157-unit garden apartment project in Mount Vernon New York in the early 1970’s.  The original loan was FHA-insured. By 2006, the project was in serious need of substantial rehabilitation. The HAP rents, having only received OCAF increases over the years, were seriously below market and the project, although fully occupied, was struggling financially. During the course of environmental review, it was discovered that the project was located directly over an abandoned coal gasification plant site. The soil and groundwater were seriously contaminated with volatile hydrocarbons, some of which had been permeating the air outside project buildings for over a generation.

Challenges

·         Substantial Rehabilitation. The project needed extensive exterior work (brick pointing, new roofs, windows and doors, resurfacing of parking areas, sidewalk repairs) and all of the apartments needed new cabinets, appliances, retiling, subflooring and flooring. All of the boilers needed to be replaced. To reduce energy costs, the apartments needed to be submetered.

·         Tenant Relocation. The project would lose its HAP contract benefits if tenants were moved out of the project and there was no money to cover the cost of securing alternative housing during renovations. 

·         Rents. The HAP rents were insufficient to cover the existing debt service much less the debt service for the much larger loan needed to fund the substantial rehabilitation of the property.

·         Environmental Remediation. Con Ed, the successor in interest to the original coal gasification plant operator, entered into a voluntary cleanup agreement with the New York State Department of Environmental Conservation to remediate all abandoned coal gasification sites for which they were responsible. HUD guidelines in effect at the time did not allow such a seriously contaminated site to be eligible for mortgage insurance. Furthermore, the remediation work, which was more costly than the substantial rehabilitation, would be disruptive to the construction work and would expose several buildings to high levels of contamination during excavation.

·         Sale of Parcel of Mortgaged Land. The sponsor church wanted to subdivide a vacant parcel of land owned by the mortgagor entity for the purpose of developing a conventionally-financed community center.

Solutions

·         Substantial Rehabilitation. The mortgagor retained an architect who developed detailed plans for the rehabilitation of the project. With assistance from Rockhall, the mortgagor’s consultant sought a State Weatherization grant to cover the cost of boiler replacement, new insulation and installation of energy efficient windows and appliances. The plans included submetering so Rockhall calculated the utility allowances to be used for Section 8 certifications once the improvements were completed.

·         Tenant Relocation. During processing, the managing agent was directed to not lease up vacant units and let natural attrition increase the vacancy rate to the point that there was the equivalent of two empty buildings in the project. Rockhall and the mortgagor’s consultant held extensive meetings with the tenants to explain the process and to earn their cooperation. The plan was that tenants would be moved into vacant units to clear out two buildings at a time so that work could be done. Once the buildings were completed, tenants would then be returned to their original units and the next two buildings would be cleared out. Although this process involved moving each of the tenant households twice, it was vastly cheaper than the cost of off-site relocation. An additional benefit of this type of relocation is that many of the occupants of larger units had, over the years, become “empty nesters.” This stage of the process was used to “right size” tenant households with apartments to more effectively use the available affordable units.

·         Rents. Rockhall commissioned the necessary rent studies and worked with HUD to obtain a budget-based rent increase for the project that would ensure that project revenues would be sufficient to support operating costs and the new debt service.

·         Environmental Remediation. Because the project was already FHA-insured, the HUD office realized that without new financing, the project would become a default and an assignment. Eric Axelrod, HUD’s Chief Environmental Clearance Officer worked directly with HUD field office personnel, the mortgagor and Rockhall to craft a strategy that would make it possible to complete the substantial rehabilitation, conduct the environmental remediation and do the post-remediation monitoring necessary to ensure that the site was clean. Given iron-clad guarantees from Con Ed that the remediation work would be done, along with full approvals from the New York State Department of Environmental Conservation and the New York State Department of Health, HUD waived numerous environmental requirements to allow the initial endorsement of a loan to fund the substantial rehabilitation prior to remediation of the site. Remediation followed the rehabilitation work. During remediation work, Con Ed paid the cost of relocating tenants in the affected areas to off-site apartments. The site will have monitoring wells for the next ten years.

·         Sale of Parcel of Mortgaged Land. The loan was processed as if the vacant site had been carved out. Before and after surveys were prepared. The transfer of the vacant land to the new church entity was done simultaneously at initial endorsement of the new FHA-insured mortgage.

Lessons Learned

·         A Good Mortgagor’s Consultant Can Be worth Her Weight in Gold. We were lucky to have Karen Hill as mortgagor’s consultant. She was an effective liaison with the sponsoring church and helped ensure their cooperation throughout the process. She worked closely with the tenants, earning their trust and willingness to be relocated. She played hardball with Con Ed to get their support for the relocation of tenants during environmental remediation. She spent many hours wrangling with the State Weatherization contractor. She even convinced the Mount Vernon police to maintain a bicycle patrol presence in the area of the project during construction. After final endorsement, a senior HUD field office official commented to me that initially he was concerned about how much we had budgeted for her. But he said that, without her, we would never have pulled it off.

·         Low Income Tenants Have a Sense of Ownership in their Units. Many of the tenants of the project had lived there since the project was built in over 25 years ago. Initially, there was great skepticism about what we were planning to do. It took many group meetings and a lot of individual meetings to earn their trust and cooperation.

·         HUD Can Be Flexible and Creative if the Stakes are High Enough. Under the existing guidelines, there really was no way that our project was going to get a commitment for FHA mortgage insurance. Since the alternative to not getting a loan was a default and assignment, HUD really stepped up to the table. Many of the innovations that HUD used on this transaction eventually found their way into the new Environmental Review Requirements Chapter of the MAP Guide. I can’t say that our deal was the inspiration for the new environmental guidelines, but we certainly were a preliminary test case.

·         The Endgame Is Really Important. Final endorsement of a nonprofit sub rehab project can be challenging in itself. This project also was switching over from being mastered metered to having tenant-paid electric. This requires HUD approval and coordination with tenants who will be receiving utility bills for the first time. Additionally, we needed to coordinate with HUD to ensure that the new HAP rents would kick in so that there would be sufficient funds to cover the new, and significantly larger, monthly mortgage payment.

Broadway Lofts: Substantial Rehabilitation of a Defaulted FHA Project

Broadway Lofts: Substantial Rehabilitation of a Defaulted FHA Project

Overview

Broadway Lofts was an FHA-financed new construction project that went into default and was assigned to HUD. The developer purchased the note from HUD, resolved all outstanding litigation and came to Rockhall seeking an FHA-insured substantial rehabilitation loan to complete construction. The San Antonio property is prominently located at the confluence of I-35, I-37 and Highway 281 by the San Antonio Riverwalk. For years, the half-completed structure was an eyesore for commuters driving into the city. Once the Rockhall loan was closed and construction resumed, the project received significant positive coverage in the media.

Challenges

• Perception of Soft Rental Market. HUD rejected the 2009 preapplication on the grounds that the market had a 12% vacancy rate, high vacancies in recent multifamily completions and slow absorption for newly built projects.
• Office Space Exceeded HUD Guidelines. The project plans included an 80,000 square foot office building which was slightly in excess of published HUD limits. Existing office space in San Antonio-area FHA-insured deals was showing high vacancies.
• 100-Year Floodplain.   HUD discourages new construction in mapped 100-year floodplains.
• Freeway Noise.  The project is very close to three large freeways. HUD has strict indoor and outdoor noise limits for new construction projects.

Solutions

• Perception of Soft Rental Market. In our experience, HUD often relies on macro-level data to draw conclusions about rental housing demand for a particular project. By obtaining project-level occupancy data from Lincoln Management, we were able to show that in the primary market area rents were rising, vacancies were falling and the overall picture was good. We provided detailed information about absorption rates of new multifamily projects located along the very desirable Riverwalk. The subject project’s submarket actually had a 97.6% occupancy rate for class A properties such as the subject. HUD accepted our analysis that the subject’s market was stronger than the HUD economist originally thought.
• Office Space Exceeded HUD Guidelines. In this case, HUD was right. Burdening the project with an 80,000 square foot office building was risky. The San Antonio office market was soft and the location of the project was not ideal for office. We convinced the borrower to pull the office building out of the FHA deal and finance the rehab of the office conventionally.
• 100-Year Flood Plain. Because of recent flood control work done to the San Antonio River, a new floodplain delineation map was being prepared by the San Antonio River Authority that would take the subject project out of the 100-year floodplain designation. Due to delays in obtaining FEMA approval, Rockhall would have been required to conduct an 8-step review which would have significantly delayed processing. We knew that the project had previously been FHA insured as a new construction deal. No one involved with the project, including HUD, could produce any evidence that an 8-step process had been completed. The originator, after spending hours reading microfiche of government records, found the completed 8-step review for the project and that satisfied HUD.
• Noise. Rockhall advised the developer to hire an acoustical engineer with HUD experience to work with the design engineer to ensure that all interior and exterior spaces met HUD acoustical requirements. The acoustical engineer issued a report that HUD used to ensure that the project was in compliance.

Lessons Learned

• Pick Your Fights. We felt highly confident that HUD had understated the strength of the multifamily market. We were able to press our case and win. We tended to agree with HUD about the office market. Rather than fight HUD we convinced the developer to pull the office building out of the deal and finance its rehab conventionally.
• Extra Effort Can Save a Deal. If the originator hadn’t been able to exhume the microfiche record of the 8-step process, the deal could have been delayed by months.
• Don’t Give Up If You Believe in the Deal. Although we knew this lesson already, Broadway Lofts reinforced our belief that good deals eventually will get funded.

Place Properties: Refinance and New Construction of Off-Base Military Housing

Overview

Place Properties is a large national developer and manager of student and military housing. Prior to 2008, Place relied on life insurance company relationships for its financing needs. With the financial market meltdown, a number of Place developments lost their commitments for permanent financing. Construction financing for Place development deals dried up. Place came to Rockhall for FHA construction and permanent financing.

Challenges

• Military Impact Areas. HUD may not insure mortgages in military impact areas unless HUD determines that demand from nonmilitary households is sufficient to sustain occupancy in both the insured project and the market as a whole. Many of the areas where Place had developments were rural areas where the military base was the primary source of housing demand.
• Leasing by the Bed. The Place business model was to lease by the bed so that lower-grade enlisted personnel could use their housing allowance to afford to share a larger apartment. HUD does not allow leasing by the bed.
• Market Rent. HUD requires that the project be valued and underwritten at the area market rent for comparable projects. In many areas, there were no comparable projects that could be used. In general, the market rents that could be established were much lower than the actual rents that the Place projects could generate.
• Unit Design. HUD insists that the units be designed as family housing. The typical Place design included a bathroom in every bedroom with no common area bath.
• 3-Year Waiver Deals. The Place projects to be refinanced all had completed construction less than three years from the date of submission to HUD.

Solutions

• Military Impact Area Prohibition. We directed the appraiser or market analyst to use comparables with predominantly non-military tenants and to do an assessment of the impact of a base down-sizing on demand for the subject units. We also analyzed the likelihood of the local base being downsized as per the Base Realignment and Closure (“BRAC”) process. Place, as part of their marketing strategy, located their developments near the bases most likely to benefit from the BRAC process. In general, we found that HUD was primarily concerned with the long-term prospects for the base as opposed to the relative contribution of the base to the overall rental market.
• Leasing by the Bed. We required Place to change the form of lease that they would use so that one long-term lease would be executed for each unit. In seeking for a way to allow service people to move in and out of standing leases without violating HUD requirements, we found a HUD Office of General Counsel attorney who formerly was a JAG who handled housing-related issues for service people. He pointed out to us that, as per the Soldiers and Sailors Civil Relief Act of 1940, the federal government mandates that the lease is invalidated for a military person who is being deployed elsewhere. In his detailed written reply to our request, the HUD attorney made it clear, that offering lease flexibility to service people was the responsibility of the managing agent:

In the situation where the apartment is leased by two or more unrelated service members, and one subsequently invokes the clause to cancel his/her obligation under the lease upon deployment, such obligations are not terminated for the other tenant(s) without deployment orders…Undoubtedly, all of our market-rate insured projects near military bases have provisions like this in some or all of their leases, whether we know it or not, as they would otherwise be on the base off-limits list, which would surely be an embarrassment for HUD.

This detailed review of the modified Place lease accompanied every application and not one HUD office had a problem with it.

• Market Rent. By using market rents in our appraisal and underwriting, we undoubtedly understated the true economic potential of the projects. Since the refinance projects were being done under the 3-year rule waiver, cash-out was not allowed. So, it didn’t affect the loan sizing. To find proper comparable properties, the appraiser or market analyst often had to cast a very wide net. We found that HUD didn’t object to locating comparables outside of the primary market area so long as the properties were truly comparable.
• Unit Design. The typical Place design involves bedroom suites each with their own bathroom. This is very similar to student housing designs. HUD routinely required units without a common area bathroom to have an additional door installed in one bathroom to allow common area access. These changes were done as a non-critical repair. For new construction projects, HUD asked for larger common area space.
• 3-Yr Waiver. The refinances all were built within three years of submission to HUD and therefore could only qualify for FHA mortgage insurance as per the waiver provisions of ML 2009-06. The Mortgagee Letter set forth the requirements to obtain this waiver and we provided all the required materials.

Lessons Learned

• The Military Impact Area Prohibition Can Be Overcome.  Sometimes it pays not to take no for an answer. Our first meeting with a HUD office ended with a cordial but very firm “no.” We wound up closing a 300 unit new construction Place deal in that office. We financed a total of 1,322 Place units through four HUD field offices. Only one HUD office rejected all of our attempts to finance a Place deal.
• Look for Help in the Right Places. When we were struggling to design a lease that could accommodate Place’s military marketing approach while staying within HUD guidelines, our closing counsel at Krooth and Altman recommended that we contact a HUD attorney who was a former JAG. Once we did that, what we considered to be a problem turned into a federally-mandated requirement.

Rockhall Funding Corp, funds 35 year, non-recourse loans totaling $32.3 Million and provides over $9.5 Million of cash out for a portfolio of three Brooklyn, NY, low income properties

Rockhall Funding Corp, funds 35 year, fully amortizing, fixed-rate, non-recourse loans totaling $32.3 Million and provides over $9.5 Million of cash out for a portfolio of three Brooklyn, NY, low income properties

Sunset Park,  NY –January 10th, 2012—“Rockhall Funding Corp, an FHA MAP Lender, funds 35 year, fully amortizing, fixed-rate, non-recourse, loans totaling $32.3 Million and provides over $9.5 Million of cash out for a portfolio of three, Brooklyn, NY, low income properties. The Sunset Park portfolio includes 380 scattered site apartments units which were mostly built in the early 1900’s and gut rehabbed in the early 1980’s.  Rockhall utilized the current financing to pay off the existing mortgage, reduce the note rate, finance repairs and provide cash out. An important part of the repairs funds included reserves to maintain the buildings throughout the loan term.