June 24, 2019

JF1755: Learn About A Loan Product We Have Never Discussed: HUD 223F #SkillSetSunday with Judah Rosenberg

Judah is joining us as a very accomplished Vice President for a huge lender that we’ve probably all heard of, Greystone. Not only does Judah deliver amazing value today with the knowledge of the HUD 223F loan, but he’s also demonstrating his mindset that has helped him succeed at such a high level. You’ll hear Judah’s stutter in this episode, which is part of his story of overcoming his stuttering and putting himself in uncomfortable positions (like doing this podcast) a great episode that everyone can learn something from. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

Best Ever Tweet:

“One other catch, HUD only allows for bi-annual distribution. If you’re syndicating, you’d only be able to pay your investors twice per year” – Judah Rosenberg

Judah Rosenberg Real Estate Background:

  • Vice President Greystone, a national commercial real estate lending, investment, and advisory company.
  • Greystone’s affiliated businesses include a $32 billion loan servicing portfolio, $2 billion in completed property development projects, and a portfolio of over 8,000 affordable housing rental units and 3,000 skilled nursing beds.
  • Based in New York, NY
  • Say hi to him at https://www.greyco.com/ or 917.204.8854 or judah.rosenbergATgreyco.com


If you’re a passive investor wanting to learn more about questions to ask sponsors in order to qualify the opportunities, sponsors, and the markets opportunities are in, visit BestEverPassiveInvestor.com.

We created this site just for passive investors to have a free resource providing the questions to ask and things to think through. BestEverPassiveInvestor.com


Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast, where we only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Judah Rosenberg. How are you doing, Judah?

Judah Rosenberg: I am great, thank you, Joe.

Joe Fairless: My pleasure, glad to hear that you’re great. A little bit about Judah – he is the vice-president of Greystone, which is a national commercial real estate lending investment and advisory company. Everyone knows Greystone, right? Greystone’s affiliated businesses include a $32 billion loan servicing portfolio, $2 billion in completed property development projects, and a portfolio of over 8,000 affordable housing rental units and 3,000 skilled nursing beds. Judah is based in New York City. With that being said, Judah, do you wanna give the Best Ever listeners a little bit more about your background and your current focus within Greystone?

Judah Rosenberg: Sure. First off, I actually moved from New York to Los Angeles about four years ago. It’s been a great move. Historically, since the company is headquartered in New York, our West Coast footprint wasn’t as large; there was just a tremendous opportunity to not only help grow the business on this side of the country, but also the weather here isn’t too bad.

Joe Fairless: [laughs]

Judah Rosenberg: I actually started at the company probably about eight years ago. Interestingly, I started by analyzing new deals for debt. At that time, because of my stutter, I had a tremendous fear of picking up the phone. The phone would ring, and I just could not bring myself to pick up the phone. So while analyzing deals is obviously a really crucial learning process, in my heart I knew that I really wanted to be in a sales role, but my fear was so intense that I avoided the phone at all costs.

Fast-forward to today — I actually moved into a sales role a few years back, because what I knew inside is that I absolutely loved to build relationships; I love to make new connections… So right now I focus most of my time originating HUD, Fannie Mae Freddie Mac and bridge loans for the Greystone debt platforms.

Joe Fairless: Got it. So for the last couple years you’ve been in a sales role… So what’s a typical client transaction look like for you right now?

Judah Rosenberg: I spend probably about 75% of my time focused on growing our HUD platform. I’ve had this affinity for the HUD programs, and it’s probably because a) they are unique; the terms, in my mind, for a long-term holder – I think the terms really can’t be beat. And it’s a specialized product; there’s not many groups out there who are doing it well. Over the last few years I’d say that we’ve been the lead innovator in this space.

I guess you’re probably thinking now “So what are these great terms?”

Joe Fairless: Yeah, exactly. Please tell us.

Judah Rosenberg: Okay, sure. The first thing which I would say is that the biggest misconception about HUD that I run into all the time with even very large groups is that HUD is not only for affordable properties. HUD is absolutely for market rate properties… And actually, a large percentage of our HUD volume is in HUD financing for market rate properties.

The HUD finance programs can be used for multifamily and healthcare, new construction, refinance and acquisitions. I think that the program which I would like to share the terms with now are the HUD 223(f) program. The terms are it’s an 85% LTV loan, it’s a 35-year term, 35-year amortization; it’s non-recourse, it’s fixed rate, with rates below 4%. It’s assumable. There’s a 10-year step down prepay, so there’s no yield maintenance, there’s no [unintelligible [00:08:02].13] feasance, and after 10 years there’s no prepay.

One thing about the program which is great is that HUD is agnostic to location. Even if you’re in a tertiary market where perhaps Fannie or Freddie or some of the banks either don’t wanna lend in, or will not be that aggressive on their terms, HUD will still be at that same LTV, and all the terms will be exactly the same in all markets.

The next interesting thing is that HUD does not have a net worth and liquidity requirements. What that means is that you can take advantage of the really spectacular terms even if you don’t have a high net worth and  a ton of liquidity. Those are the general terms of the loan

The transactions that excite me most have to do with  a really interesting nuance for value-add. HUD has this really cool nuance, where if you renovate somewhere between 15% and 20% of the units at a property, then HUD will allow us to underwrite all of the unrenovated units to those future rents, assuming that those unrenovated units will get renovated through the financing of the HUD loan. So what that means is that even though you only have 15% to 20% of the units at your property renovated, you’re achieving 80% LTV of the stabilized value.

Joe Fairless: Wow. This loan sounds tremendous. There’s gotta be some reasons why people don’t do it. Let me just ask a couple questions, and then I’d love to hear your thoughts… Can you get a supplemental loan on this loan?

Judah Rosenberg: You can get a supplemental loan. However, the supplemental loan has to be used for improvements at the project. You cannot use a supplemental to cash out. However, through this value-add strategy, because you’re financing based on the improvement plan, you can really get close to 90% to 100%, because we are utilizing the numbers in the proforma.

Joe Fairless: And with the HUD 223(f) loan, how much time does it take to get approved for the loan? The reason why I’m wondering is if I find the property, I like it, what do I need to negotiate with the seller in order to make sure I have enough time?

Judah Rosenberg: Sure. That is a great question. Okay, so it has been taking us somewhere between 4 and 6 months to close the 223(f) HUD loan. So what we do… So there’s no seller — I’m not gonna say “never”, but it’s very rare to find a seller who will wait that amount of time for the new buyer to put a HUD loan in place. So what we do is we have a bridge to HUD execution. What we do is we will close on our balance sheet bridge, while we simultaneously process the HUD loan. So what you can do – for the value-add plan you can close on the bridge, you can renovate a sample size of the units, so you can prove out the higher rents, and then put a HUD loan in place.

Joe Fairless: Okay, that’s good to know. So with that process I imagine that increases the cost of getting the financing, because you’re doing a bridge loan to a HUD 223(f) loan – one, is that true? And then two, what are they doing for 4 to 6 months if they’re not looking at your net worth and liquidity?

Judah Rosenberg: [laughs] Right. So the thing I would say is that only a few years ago — it used to take about 12 months to close. But through some technology that we built, we’ve really been able to cut down the processing time. Our goal is to be able to close a HUD loan as quickly as you can close a conventional loan.

So there are absolutely added costs to doing a bridge loan, and then you have to weigh those costs compared to getting 90% to 100% financing for your project.

Joe Fairless: Right… Which is a fair trade-off.

Judah Rosenberg: Yeah, I would say so. To add to that, there are higher costs associated with getting a HUD loan done. I would say that the first cost is called mortgage insurance premium. HUD is acting as an insurance company. They are taking the risk, and are saying that “In the event of a default, we will cover 100% of the loan amount, and repay the lender.” In exchange for that, HUD will charge either 25 basis points  annually, if you go green. If you don’t go green, then it’s a 60 basis point fee annually.

Today, with rates where they are, you could potentially lock a HUD loan at a 3.75% rate. That rate is locked in, it’s a fixed rate for 35 years. If you go green, it would be 25 basis points on top of that rate. And if you don’t go green, it’ll be a 60 basis point fee annually.

Joe Fairless: Okay. Most people go green, right?

Judah Rosenberg: Yeah. When you talk about the difference between 25 BPS versus 60 BPS over the course of — even if you’re only gonna have the loan in place for 10 years, that’s a significant amount of money to be saved.

Joe Fairless: Yup. This has been very informative, the HUD 223(f) loan. We’re gonna actually make this a Skillset Sunday episode, so that investors who are interested in learning more about a great long-term loan for a project, whether (as you said) it’s a new construction, or a new finance project acquisition, then this is a great option.

Anything else as we wrap up that you think you should talk about as it relates to the HUD 223(f) loan?

Judah Rosenberg: Yeah, I’d say the one other catch is that HUD also only allows for bi-annual distributions. So if you’re syndicating, you’d only be able to pay your investors twice a year. As you can see, this program really excites me, and I’ve seen groups who are growing their portfolios, who don’t have a ton of net worth, who don’t have a ton of liquidity, and they’re doing so well using this strategy to grow their portfolios, especially if they’re focused in some markets where other lenders are not that excited about.

And then on the flipside, we have some older investors who love the idea that they could put on a fixed-rate 35-year loan, and because it’s fully-amortizing and there’s no balloon payment, that they can potentially pass down a debt-free property to their kids, and to their great-grandkids.

Joe Fairless: Thanks for mentioning that. That’s something that should be underscored for sure, the fully-amortizing 35-year term. Well, thank you so much for being on the show, Judah. How can the Best Ever listeners learn more about you and get in touch with you?

Judah Rosenberg: The best way is either a call – my number is 949-734-2665. My cell – I’m pretty easily accessible – is 917-204-8854. My e-mail address is judah.rosenberg@greyco.com.

Joe Fairless: Judah, thanks for being on the show. I hope you have a best ever day, and we’ll talk to you again soon.

Judah Rosenberg: Okay, thanks Joe.

    Get More CRE Investing Tips Right to Your Inbox

    Get exclusive commercial real estate investing tips from industry experts, tailored for you CRE news, the latest videos, and more - right to your inbox weekly.