Acute Care And Critical Access Hospital Loans
FHA 242 hospital loans provide federal full faith and credit insurance to enhance loans for the construction or rehabilitation of major acute care hospitals and for smaller local, critical access hospitals. Since its inception in 1968, the FHA 242 program for hospital loans has provided more than 370 hospital construction loans in 43 states totaling more than $15 billion. The FHA insurance is available for proprietary and not-for-profit and can insure bond issues both taxable and tax exempt. The underwriting is a joint effort of HUD and HHS and is very straightforward. Loans proceeds cover all realty construction, all equipment, and all reserves. This is a detailed and intensive program relying heavily on third party reports and their analysis. The professionals at Apartment Financing America are experienced in the critical decision-making processes involved in institutional financing of this type.
Maximum Term of Hospital Loans
25 years. Self-liquidating amortization.
Certificate of Need
HHS requires a Certificate of Need (CON) and governs the regulations and approval process. CON’s are issued under state laws. In states where there is no CON procedure, such as Texas, a state-approved comprehensive feasibility study of need is required.
Financial Feasibility Study
The hospital developer must (1) commission a 3rd party financial feasibility report documenting the need for the proposed project and, if an existing hospital in need of rehabilitation, (2) generate standardized financial tables which benchmark the hospital’s performance versus industry standards and representative peer groups. The guidelines for the creation of the feasibility reports are governed by HUD and HHS regulations.
Hospital Loans Eligible Borrowers
For-profit entities, such as private hospital systems, physician-owned partnerships, and not-for-profit operators, such as universities.
Prepayment is allowed under the general FHA rules but is not generally an important consideration in these institutional loans
Maximum Loan Refinancing
- The amount supported by 80% of the NOI.
- 90% of the replacement cost or value
- FHA Statutory mortgage limits (FHA statutory loan limits are subject to adjustment based on the location of the project.
- Contact Us for a determination of the loan limits that would apply to a project.
Market interest rates change daily. Call for quote.
- HUD Application Fee – 0.150% of the loan amount due at application
- HUD Commitment Fee – 0.150% of the loan amount due at commitment
- HUD Inspection Fee – 1/2% of the loan amount due at closing
The first year 1% MIP fee due at closing, subsequently, .50% per annum
Third Party Reports
The feasibility reports will run at least $100,000 and appraisal, environmental, and architect’s review an additional $50,000 .
- Concept meeting with HUD Washington DC staff to outline transaction and seek guidance or current rules
- A general meeting with both HUD and HHS staff to present the reports, the development team and the structure
- Upon receipt of a “go forward” letter, the mortgage broker and staff will complete underwriting package(s)
- HUD and HHS will issue simultaneous commitments
- Mortgage banker will work with investment banker if bonds are being used or will sell GNMA’s to set the interest rate
- Closing documents will be circulated and the Initial Closing will occur
- Construction will commence and draws will be handled by the mortgage broker and HUD
- Upon construction completion and occupancy, a full accounting will be done called Final Endorsement
- The development can be in fee or via long-term lease of a hospital operator
- Construction rules similar to the 221(d)4 are applicable regarding interest during construction, working capital, operating deficit, etc.
- Davis Bacon prevailing wage requirement do apply
- A approved bonded general contractor is required with 100% performance and payment bonds
- A Mortgage Reserve Fund will be funded over five years to equal one year of debt service, and two years debt service by year ten
- A replacement reserve will be funded at closing
- Escrows for property taxes, insurance, and replacement reserves are required
- Annual audit of operations is required
- Hard second mortgages are not allowed. Soft seconds and stock pledge financing are allowed if properly structured.
Need a hospital loan? We offer the most competitive hospital loans available anywhere.