More Apartment Developers Seeking FHA-insured Loans

October 2, 2010 Posted In

By Margaret Jackson

Developers are clamoring to secure insurance through the Federal Housing Administration in an effort to finance apartment projects.
This year’s volume of FHA-insured loans for multifamily projects is nearly 70 percent greater than 2009’s, and U.S. Housing and Urban Development officials expect applications to triple next year, said Marcie LaPorte, director of HUD’s Denver multifamily hub.
If the borrower defaults, HUD pays off 99 percent of the loan balance.
“If banks know they have insurance, they’re more willing to loan,” she said.
This year, 100 developers in the six-state region covered by Denver’s HUD office have applied for the insurance, up from 59 last year and 44 in 2008. The FHA has insured $490.2 million in loans this year, up from $291.4 million in 2009 and $178.8 million in 2008.
That has translated into 5,556 new apartments being built, an increase from 2,942 last year and 2,802 in 2008.
The new units are coming on line just as demand for apartments is rising. Apartment vacancies in metro Denver were at 6.1 percent in the most recent quarterly report, the lowest second-quarter vacancy rate since 2001.
The increase in applications to the Denver office mirrors the national trend. This year, the FHA has insured $11.5 billion in mortgages, up from $5.3 billion last year and $3.7 billion in 2008. There have been 172,535 units built under the program, up from 88,481 last year and 71,000 in 2008.
“Because of economic conditions and the tight credit market, FHA insurance is becoming very sought-after,” said Rick Garcia, HUD’s regional administrator in Denver. “Private developers work through lenders to get it. A lot of these developers are new to our HUD world.”
Loveland developer McWhinney got an FHA-insured loan from Wells Fargo for Lake Vista, a $45 million, 303-unit luxury apartment complex northwest of the Interstate 25-U.S. 34 junction. It’s the first FHA-insured loan for McWhinney, but chief operating officer Doug Hill has experience with the program through a previous job in Florida.
“It’s been a challenging environment to get loans,” Hill said. “The amount of equity required would basically make this project unfeasible. In today’s market, this has proven to be the only viable financial tool available.”