HUD’s latest update states that it has been using contractors to assist with the large number of projects currently in the queue with the goal of eliminating the queue altogether for 223(f) and 223(a)(7) nursing home transactions by the middle of 2012. In anticipation of a shorter and then non-existent queue, HUD is requiring that all applications upon submission must be ready for underwriting (e.g. current financials, APPS submissions and completed exhibits). HUD reserves the right to reject applications that are deemed incomplete or have “placeholder” documents.

HUD’s prior update reiterated its earlier position that nursing homes considered to be “special use facilities” will not be approved for HUD loans except in extraordinary circumstances. HUD clarified that “special use facilities” do not include memory care and dementia units (whether part of an ALF, SNF or a stand alone facility).

HUD’s earlier update also raised issues with financing very high acuity facilities due to the high portion of the valuation in the operation rather than the real estate compared to a skilled nursing facility. To counter the perceived greater risk associated with the higher acute care facilities, HUD will require a “very short amortization period”, low loan to value, higher than normal debt service coverage ratios, strong principals and a conservative net operating income projection supported by historical performance.