Mixed Use Condominium Exception Requests for FHA Condo Approval

7_25_14Mixed-use condominium projects may be eligible for an FHA condo approval if they meet these two additional basic requirements:

  • The total floor area of the non-residential space is 25% or less (calculations must be provided) and
  • The non-residential aspect of the condominium is homogenous with the residential component.

Exceptions do exist for condominium projects that have more than 25% of their floor area dedicated to non-residential purposes.  Obviously, they would have to meet additional requirements and they may only be processed for approval at the Philadelphia Home Ownership Center.  DELRAP is not an option.

I fielded an inquiry recently regarding a 3-floor condominium where top two floors are residential units and the first floor is commercial space and roughly 33% of the total floor area.  This raised several questions about the exception process.  Here are the answers to those questions:

1. In addition to the standard criteria, what other criteria are examined in order to approve such a project?  I.E., must the project have excessive reserves?

No, but it would be a positive factor if it did, and you would want to point it out.

2. Does the commercial vacancy rate come into play?  If so, is there an allowable percentage of vacancy of the commercial units at the time of approval?

Yes, the vacancy rate is significant, but no minimum acceptable rate has been established.

3. If the elevator only services the residential units, is it acceptable for the legal documents to require that only the residential units be responsible for its maintenance?

Yes.  However, the legal documents must not give preferential treatment to the non-residential units over those that are residential.  This would not be an example of preferential treatment.

4. Is the single-entity ownership percentage allowed to exceed 10% of the units/floor area (up to 50%) or is the project held to the former 10% rule because this approval would be on an exception basis?

One entity may not own more than 50% of the units, including the commercial floor space.

In addition to the above, exception requests must include a statement of ‘good cause’ and must accompany the project-approval package.  For the most part, the request should include the documentation listed on the bottom of page 5 and the top of page 6 of ML 2012-18.

Note that only projects completed for more than one year for which control has been transferred to the unit owners are eligible, and they can only be reviewed under the HRAP process.

Exception requests for FHA condo approval of mixed-use condominium projects are highly subjective.  Homogeneity and the financial picture play a large role in the final determination.

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