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Substantial rehabilitation means to bring a development back to its original state with added improvements, where the value of these repairs and improvements exceeds 40 percent of the appraised as is value of such development before repair and less than 50 percent of proposed construction work consists of new construction. HUD considers substantial rehabilitation of multifamily rental housing to occur under one of the following circumstances: 1) when the required repairs and improvements involve replacing two or more major building components or 2) the cost of the improvements is greater than 15% of the property’s replacement cost after completion of all required repairs; or $6,500 dwelling unit; or 20% of the mortgage proceeds applied to the rehabilitation expenses.
Source: Law Insider
