3.1.30 Scattered Sites

A. FHA insured multifamily properties may be traditional multifamily structures on one site, or may be detached, semi-detached, or row houses. Each property must consist of five or more dwelling units. Group homes are not eligible properties.

B. The site may consist of two or more noncontiguous parcels of land when the parcels comprise one marketable, manageable real estate entity and each parcel (or combination of contiguous parcels) has at least 5 units. (The regulations, 24 CFR 200.73(c), prohibit sites with less than 5 units.) “Contiguous”, in this context, means adjacent or next to one another. Two parcels separated by a driveway or road may still be contiguous for purposes of establishing one “single” site.

C. Certain factors should be considered in underwriting, and determining whether a scattered site property is one marketable, manageable real estate entity:

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1. Degree of Separation. Generally, a greater distance would be acceptable in a rural area than an urban one, but two sites funded by one FHA insured multifamily mortgage separated by more than 15 or 20 miles in exurban areas or 10 to 15 minutes in travel time in metropolitan locations, or in any event located in different market areas or different political jurisdictions (township, city, county), would be considered unacceptable.

2. Physical condition, construction type, and age. If individual sites vary in these criteria, it is more difficult to make the case that they comprise a single entity, and to evaluate the collateral (e.g. requiring separate CNA and Appraisal analyses, which are then combined.) If an Underwriter cannot rely on a single CNA and appraisal to analyze a property, then the property is not a single mortgageable real estate asset.

3. Occupancy type and turnover history. Combinations of sites with and without age restrictions, or properties with and without unique tenant populations, e.g., students or military personnel are not single marketable, manageable real estate entities.

4. Unit configuration and project layouts. This includes single-family homes in a “checkerboard” configuration. Projects consisting only of single-family homes whether located on one or multiple sites are strongly discouraged.

5. Expense volatility. This is particularly important for single family structures or more widely disbursed properties. In such cases, risk must be mitigated by high-end expense estimates, and, in some cases, shorter amortization periods.

6. Homeowners Associations (HOA). An insured project operating within and governed by an HOA may be subject to terms and conditions that may be detrimental to the operation of the insured project, especially when such agreements limit or regulate maintenance or repairs and alterations. In addition, sites subject to different HOA Associations are not acceptable.

7. Flexibility for Affordable Housing. HUD has and will continue to provide greater flexibility to RAD and affordable transactions (as well as refinancing Section 202 Project Rental Assistance Contract (PRAC) projects) with significant outside funding sources. However, the factors outlined above should be carefully considered in any transaction involving scattered sites.