HUD HQ staff have consistently discouraged these applications for numerous reasons, most notably that they are difficult to underwrite as operating expenses and reserves tend to be higher due to the increased exposure of exterior areas. There are different categories of portfolios.
- Checkerboard type with various segments of units scattered throughout, which increases
HUD’s risk as there is no control over other contiguous units.
- Individual lots each having its own legal title – usually combined with different unit types and
ages, making it difficult to underwrite from a capital needs perspective and expense/reserve
perspective, many times with cash out.
- Self‐contained site with one legal description involving newly constructed units with
recreation, leasing office and community building accessible only to the renters. Of all the
variations, this would be the most palatable, however this model is currently being developed
by some single ‐ family sales developers who seem to be meeting this niche.