5.12.4 Builder’s and Sponsor’s Profit and Risk Allowance (BSPRA)

A. BSPRA is a presumed profit for development and construction of a multifamily project. It is unique to applications for new construction or substantial rehabilitation under HUD’s “cost-based” programs (Sections 220 and 221(d)(4)) when an identity of interest exists between the Borrower and the General Contractor.

B. BSPRA is always 10% of replacement cost, not including land but is itself not an actual cost or fee to be paid to the identity of interest General Contractor and/or development entity (Sponsor). It is used to calculate the mortgage amount in Criterion 3 on the form HUD-92264-A.

C. Its effect is to allow the identity of interest Borrower/Developer/contractor to contribute its presumed builder/Developer profit (BSPRA) as equity whenever the mortgage amount is limited by Criterion 3. In a balanced summation of sources (loan proceeds, equity, etc.) and uses (costs of land, development, construction, capitalized interest, etc.) this imputed profit or BSPRA is added both to uses and sources.

1. When Criterion 3 prevails, the mortgage amount will be a fixed percentage of costs.

2. The “B” in BSPRA refers to the presumed fee of the builder or General Contractor.

3. The “S” refers to development cost of the Sponsor/Borrower outside the general contract and is called SPRA. The appraiser calculates the BSPRA amount and enters it in line G 68 of form HUD-92264.

D. Use of BSPRA is not mandatory. A Borrower may pay an affiliated General Contractor an actual builder’s fee or profit provided that:

1. The amounts of the fee are reasonable and customary;

2. The form of the construction contract is cost plus fixed fee; the mortgagor and General Contractor cost certify; and,

3. The amount of the fee is funded in the construction escrow established at initial endorsement. When BSPRA is used, the Lender should:

   • Calculate an equivalent builder’s profit (the “B” portion of BSPRA) and an equivalent subtotal; and

• On the Builder’s Profit line of form HUD-92326 and in Line G 44 of form HUD-92264, enter the word “BSPRA”. The equivalent builder’s profit calculated above is not included in the Total for All Improvements (bottom of form HUD-92326 and Line G.50 of form HUD-92264).