HUD 232/223(f)
Healthcare Loans

Operator and Ownership Structure

HUD underwrites the real estate and the operation together. When the owner and operator are separate entities, the operating lease, the operator's financial statements, licensure and survey history are all part of the review, and the borrower must be a single-asset special purpose entity. Under the HUD Regulatory Agreement, distributions are limited to surplus cash, and replacement reserves are funded monthly in line with the physical needs assessment. Owners who plan to change operators or ownership during or shortly after the loan process should raise it at the outset, because HUD approval is required for these changes.

Underwriting Focus

• Coverage. HUD tests 1.45x on its own underwritten NOI, which adjusts reported revenue and expenses and applies management fee and reserve assumptions. Coverage at the borrower's reported NOI is not the controlling figure.
• Operator quality. Skilled nursing facilities are reviewed against CMS ratings and survey history, and a project cannot appear on the Special Focus Facility list or candidate list.
• Revenue mix and census. For skilled nursing, payor mix and census trends drive the underwritten revenue. For assisted living and memory care, occupancy trends and private-pay rate support matter most.
• Capital needs. The physical needs assessment sets reserve deposits and any required repairs, which affects both loan proceeds and cash required at closing.
• Cost-based limits. Acquisition loans are capped by a percentage of acquisition cost, and refinance proceeds are generally limited to existing debt, eligible costs and repairs. Section 223(f) is not a cash-out product.

When HUD 232/223(f) Is Not the Best Fit

• Timing is fixed by a contract or maturity. HUD processing runs on HUD's schedule. A bridge loan can carry the asset, with HUD financing as the takeout once the facility qualifies.
• The facility is less than three years past its certificate of occupancy, or needs substantial work. A bridge loan or the Section 232 construction and rehabilitation path is the better structure.
• Cash-out proceeds are required. HUD 232/223(f) refinances are limited to existing debt, eligible costs and repairs.
• The operator's quality or coverage record is weak. Facilities that cannot satisfy HUD's operator review or 1.45x coverage may need transitional or conventional capital first.
• The borrower is an owner-user or smaller operator. SBA 504 and 7(a) and other programs may fit better. The Healthcare Facility Financing page compares the options.

Sizing Tools and Related Resources

• DSCR Calculator to test coverage under different loan structures
• Loan Calculators for sizing and payment analysis
• Loan Programs at a Glance to compare leverage, term and recourse across programs
• Capital Sources and Loan Types for a comparison of lender types
• Representative Transactions for examples of financings we have arranged

Frequently Asked Questions

What is the difference between HUD 232 and HUD 232/223(f)?

Section 232 insures loans for new construction and substantial rehabilitation of residential care facilities. Section 232/223(f) insures the purchase or refinance of existing facilities that do not need substantial rehabilitation. The two share the same facility types and underwriting framework but differ in term, leverage and eligibility timing.

Which facilities are eligible?

Licensed nursing homes and skilled nursing facilities, assisted living facilities including memory care, intermediate care facilities and board and care homes are eligible. The project must have at least 20 beds or units, provide continuous protective oversight and offer three meals a day. Independent living units may make up to 25% of the project, and non-resident day care and commercial space are each limited to 20% of gross area and 20% of gross income. Standalone adult day care centers and home health businesses are not eligible projects.

What leverage and coverage does the program allow?

Maximum loan-to-value is generally 80% for for-profit borrowers and 85% for nonprofits, with a minimum debt service coverage ratio of 1.45x on underwritten NOI. On acquisitions and refinances, cost-based tests can reduce proceeds below the value-based limit, and the loan amount is the least of the applicable tests.

Is the loan fully non-recourse?

The loan is non-recourse for repayment of the debt, with no personal guarantee of the balance. HUD's standard carve-outs apply for items such as fraud, misapplication of funds and unauthorized distributions, and the Regulatory Agreement governs distributions, reserves and reporting.

How long does a HUD 232/223(f) loan take?

Timing depends on HUD workload and the quality of the submission, and is generally measured in months. Complete, well-supported applications from stable operations move faster, and qualifying applications may be eligible for HUD's Express Lane.

Can I take cash out in a HUD 232/223(f) refinance?

Not directly. Refinance proceeds are generally limited to existing debt, eligible transaction costs and repairs. Owners who need liquidity beyond that should discuss alternatives before applying.

Can a facility that was recently built or renovated qualify?

The program generally requires three years since the certificate of occupancy was issued. Facilities that do not meet that test, or that need substantial rehabilitation, are better served by a bridge loan or by Section 232 construction and rehabilitation financing.

This section provides general information about HUD Section 232 and Section 232/223(f) for business borrowers. Terms are indicative, subject to HUD approval, and change with program guidance and market conditions. Nothing here is an offer of financing or a statement of current pricing. All loans are subject to credit approval.