Intermediate Care in Relation to HUD 232 Loans
In addition to allowing for the financing of skilled nursing, assisted living, and memory care facilities, HUD 232 and HUD 232/223(f) loans also permit the funding of intermediate care facilities. But what is an intermediate care facility? The definition of intermediate care can vary significa
What is Intermediate Care?
In addition to allowing the financing of skilled nursing, assisted living, and memory care facilities, HUD 232 and HUD 232/223(f) loans also permit the funding of intermediate care facilities. But what is an intermediate care facility? The definition of intermediate care can vary significantly based on the context, but typically involves the care of elderly individuals who have significant medical conditions, but who may not need full hospitalization. Therefore, most intermediate care facilities offer a level of medical care somewhere between that of an assisted living facility and a full hospital.
How long do patients stay at intermediate care facilities?
It depends. In some cases, an intermediate care facility could be a long-term choice for patients with significant health issues. In other situations, a stay in an intermediate care facility could simply be a temporary step between hospitalization and returning to a more conventional assisted living or skilled nursing facility. However, since the definition of intermediate care is still in flux, average patient stay length can also vary greatly depending on the specific facility.
Related Questions
What is the difference between HUD 232 and HUD 232/223(f) loans?
HUD 232 loans are the best option for developers who want to build or substantially rehabilitate a healthcare facility. However, they don't quite work for as-is purchases or refinances of healthcare properties. That's why HUD has another, similar program, the HUD 232/223(f) loan, which is specifically intended for that purpose. Just like HUD 232 loans, HUD 232/223(f) loans are non-recourse, fixed-rate, fully assumable (with FHA approval), and have similar terms to HUD 232 loans.
In addition, it should be noted that both HUD 232 and HUD 232/223(f) loans can be refinanced with the HUD 232/223(a)(7) loan program, which generally only requires one third-party report, a project capital needs assessment (PCNA). In addition, these loans can increase the term of your financing by an additional 12 years, and offer DSCRs as low as 1.11x (for-profits) and 1.05x (non-profits).
What are the eligibility requirements for HUD 232 loans?
In order to be eligible for HUD 232 financing, properties need to meet a variety of eligibility requirements, including offering continuous care, being appropriately licensed, and having at least 20 patients. To take out a HUD 232 or HUD 232/223(f) loan, a borrower must typically have experience successfully operating one or more facilities of the same kind that they intend to build or purchase. In addition, a borrower must also be structured as a single asset, special purpose entity (SPE). Eligible borrowers may either be a for-profit or a non-profit entity.
For more information about FHA 232 loans, you can fill out the form on our website to speak to a HUD/FHA loan expert and get a free HUD/FHA multifamily loan quote.
What are the benefits of HUD 232 loans?
HUD 232 loans have a variety of benefits for large-scale owners of senior properties, including:
- HUD 232 refinancing of multiple properties can greatly increase cash flow, potentially giving developers the capital to purchase or construct new assets
- HUD fixed-rate financing allows large companies to stabilize expenses and make accurate financial projections well into the future
- Low, fixed interest rates
- Loans are fully assumable (with FHA/HUD approval)
- HUD 232 loans are non-recourse, limiting risks for developers
What types of healthcare facilities are eligible for HUD 232 loans?
HUD 232 loans are designed solely for healthcare properties. In order to qualify for HUD 232 financing, healthcare properties must meet certain requirements, including:
- All facilities must be licensed by the proper city or state government agency
- Project construction must be finished at least 3 years before purchase (for acquisitions)
- If an addition has been built in the last 3 years, it must be smaller than the original building
- Projects must be able to assist at least 20 patients in need of continuous/skilled medical care
- Day care for non-residents must account for less than 20% of the property’s gross area and less than 20% of its gross income
- Commercial space must be equal to or less than 20% of the project's gross area, and contribute less than 20% of its gross income
- No more than 25% of the project can consist of independent living units
Since HUD 232 projects involve federal insurance and construction over $2000, they are subject to the Davis-Bacon act, which requires that all workers be paid the "prevailing wage" in their area. In order to determine the prevailing wage in your area, you can use this free Davis-Bacon wage calculator, provided by wdol.gov.
What is the maximum loan amount for HUD 232 loans?
There is no maximum dollar amount for HUD 232 loans. However, the mortgage amount is limited by loan guidelines. For example, the 2021 HUD 232 Loan Terms include a loan size of $2 million ($7.6 million average loan size) and a leverage of 75% (for profit) or 80% (non-profit) for new construction, purchase, and substantial rehabilitation. Source
For substantial rehabilitation, the hard cost of the rehabilitation needs to be more than 15% of the project's post-rehab value, or, alternatively, two or more major building systems (i.e. plumbing or roofing) must be replaced. Source
HUD 232 loans typically require third-party reports, including: HUD/FHA Approved Full Property Appraisal, Borrower/Stakeholder Credit Reports, Plans and Specifications Review, Phase I Environmental Assessment, Architectural/Engineering Report, and Market Study. Source