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HUD 223(f) FAQs
Last updated on Sep 22, 2022
3 min read

Special Purpose Entities (SPEs) in Relation to HUD 223(f) Loans

If you’re a HUD 223(f) loan borrower, in most cases, you will have to structure the legal entity that borrows the funds as a Special Purpose Entity, or SPE. The SPE will then own the project itself.

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In this article:
  1. SPEs for HUD 223(f) Loan Borrowers
  2. Comparing SPEs, LLCs, and LPs
  3. Get Financing

SPEs for HUD 223(f) Loan Borrowers

If you’re a HUD 223(f) loan borrower, you typically need to structure the legal entity that borrows the funds as a Special Purpose Entity, or SPE. The SPE will then own the project itself. SPEs are typically required due to the fact that they are bankruptcy remote; if the corporation or individual who is the actual borrower declares bankruptcy, the SPE is much less likely to be affected. Therefore, using a Special Purpose Entity protects the borrower, the lender, and HUD throughout the entire loan process. SPEs are usually structured as a limited liability company (LLC), but can also be structured as a limited partnership (LP).

Comparing SPEs, LLCs, and LPs

Below are some basic details about these three entities:

  • SPE (Special Purpose Entity): A ‘bankruptcy-remote entity’ formed under a parent company. The purpose is isolating both the SPE and the parent company from each other’s liability and risk. SPE operation is usually limited to specific assets (like real estate). It is sometimes called an SPV (Special Purpose Vehicle). In many cases, SPE’s are also referred to as Single Asset Entities (SAEs), since they only hold one asset, in this case, a multifamily or apartment property.

  • Limited Liability Company (LLC): A corporate model in which only the company (the LLC) and not the owner or owners are liable for a company's debts or liabilities. It is flexible like a partnership, but limits the partners’ personal risk. LLCs are considered pass-through entities for tax purposes. Since LLC property is considered personal property of the members, it is not eligible for a 1031 Exchange.

  • Limited Partnership (LP): A limited partnership consists of a general partner, who directly runs the business, and one or more limited partners, who invest money but do not get involved in the day-to-day functioning of the business.

    • A general partner can be an individual or an entity. For example, if a HUD 223(f) borrower wanted to reduce risk even further, they could decided to have an LLC as the general partner in a limited partnership.

    • However, unlike in an LLC, an LP’s general partner can be held personally liable for the partnership’s risks, debts, and obligations. Limited partnerships also act as a pass-through entities for tax purposes. As the term suggests, these partnerships often have a limited lifespan.

    • In general, property held by an LP is considered personal property, and, like LLC-held property, is not eligible for 1031 exchanges.

TO LEARN MORE ABOUT FHA 223F LOANS, FILL OUT THE FORM BELOW AND A HUD LENDING EXPERT WILL GET IN TOUCH. 

In this article:
  1. SPEs for HUD 223(f) Loan Borrowers
  2. Comparing SPEs, LLCs, and LPs
  3. Get Financing
Categories
  • FHA 223f
  • HUD 223(f) Loans
Tags
  • HUD 223(f) Loans
  • HUD Multifamily Loans
  • HUD Multifamily Financing
  • HUD 223(f) Special Purpose Entity

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