San Antonio, TX; 268 Units, Market Rate Apartments
Broadway Lofts was an FHA-financed new construction project that went into default and was taken over by 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 Interstates 35 and 37 and State Highway 281 on the San Antonio Riverwalk. For years, the half-completed structure was an eyesore for commuters driving into the city.
This project presented a number of 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. 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.
Once the Rockhall loan was closed and construction resumed, the project received significant positive coverage in the media. Before getting to that point, Rockhall addressed the key issues as follows:
- Perception of Soft Rental Market. Through project-level occupancy and absorption rate data, we were able to show that primary market area rents were rising, vacancies were falling, and that the overall picture was good. In fact, the submarket in question actually had a 97.6% occupancy rate for similar class A properties. Rockhall’s detailed analysis eliminated HUD’s reservations about the softness of the market.
- Office Space Exceeded HUD Guidelines. The San Antonio office market was indeed soft and the location of the project not ideal. 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. Recent flood control work done to the San Antonio River actually addressed this problem but the new floodplain delineation map demonstrating this was not yet available. To address the problem, HUD required Rockhall to conduct an 8-step review, a process that would cause a significant delay. We knew, however, that the review should have been completed during the prior processing of the project as a new construction FHA insured deal. Unfortunately, no one involved with the project could produce any evidence of this. Repetition of the process was avoided when the originator, after spending hours reading microfiche of government records, found the completed 8-step review.
- Noise. On Rockhall’s advice, the developer hired an acoustical engineer with HUD experience to work with the design engineer to ensure that all interior and exterior spaces met HUD acoustical requirements.