7.7.13 Limited Waiver of Commercial Income and Space Limits

A. Regional Center Directors may issue waivers of the commercial income limits in Section 7.7.12.9, so long as the amount does not reflect a property that is primarily commercial rather than residential. New construction and substantial rehabilitation projects with commercial income greater than 20% of the effective income should, if located in a Section 220 eligible location, use the Section 220 program rather than a waiver of the 221(d)(4) limit. The Regional Center Director’s approval must document that the project’s commercial component will contribute to meeting the Department’s Strategic Plan Goals, including promoting sustainable communities or supporting transit-oriented development. If the Lender requests a waiver of the commercial income limits, HUD may require that the request be supplemented by a complete credit analysis of all existing or pre-leased commercial tenants. Waivers may be granted where there are clear mitigating circumstances that justify such a waiver. Examples include, but are not limited to:

1. A long-term lease with a credit-worthy tenant, such as a government agency or a large, wellestablished business;

2. A multi-tenant commercial space where most of the tenants have a long history of occupancy (5 or more years) and full occupancy of this space is not needed to provide a break-even cash flow for the project; or

3. There is substantial Borrower equity and/or local government funds that mitigate risk.

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Chapter 7 Valuation & Market Analysis 7.8 Project Operating Expenses, NOI

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4. Existing Section 223(f) projects with an established history of commercial income exceeding the 20% limitation, but less than or equal to 30%.

B. Regional Center Directors may issue waivers to exceed the commercial space limits in Section 7.7.12.9. In order to justify a request to waive the commercial space limitation, the owner must demonstrate:

1. that the additional space will not negatively impact on the use of the project by its residential tenants and will not create a nuisance to the surrounding community, so as to create a situation where the project is no longer residential in nature;

2. there is ample market support to assure occupancy of the space within the projected absorption period; and

3. any issues involving easements, liability insurance, parking and zoning must be resolved prior to granting the waiver.