BSPRA (Builder and Sponsor’s Profit and Risk Allowance) is a credit to the builder, and consists of 10% of the estimated project cost. It is used if an identity of interest (joint custody or ownership) between the mortgagor and general contractor exists. BSPRA is typically used with one kind of HUD multifamily loan, the HUD 221(d)(4) loan. It reduces cash due at closing and motivates builders to complete the project on time. BSPRA is calculated by taking 10% of the "hard costs" of the project (which does not include the land) added to the total development costs. As a result of the BSPRA process, the builder contributes their profits for a degree of equity in the development, tying the interests of the developer and the builder together.

Sources: What is BSPRA (Builder and Sponsor’s Profit and Risk Allowance)? and BSPRA: Builder Sponsor Profit & Risk Allowance in Relation to HUD 221(d)(4) Loans

BSPRA (Builder Sponsor Profit & Risk Allowance) can reduce the amount of cash needed at closing for a HUD multifamily development project. This is because it increases the total development costs of the project, based on 85% Loan-to-Cost (LTC) ratio. This can add up to 3-4% of the total cost, and in some cases, negate the need to bring on an additional equity investor into the project. Source

The Builder Sponsor Profit & Risk Allowance (BSPRA) can reduce the amount of cash needed at closing for a HUD multifamily development project, while also increasing the total development costs of the project. This can be a big plus for many developers, as it may even negate the need to bring on an additional equity investor into the project. Source

The risks associated with BSPRA for a commercial real estate sponsor include reduced monthly cash flow due to increased debt payments, and the fact that BSPRA can only be used with one kind of HUD multifamily loan, the HUD 221(d)(4) loan. This source explains that while BSPRA can reduce the amount of cash needed at closing, it may not be right for every development project due to the increased debt payments. This source explains that BSPRA is used as a credit to the builder, and consists of 10% of the estimated project cost.

BSPRA can increase the total development costs of the project, which can reduce the amount of cash required at the project closing. This can increase the return on investment for a commercial real estate project, as it may negate the need to bring on an additional equity investor into the project. However, due to the fact that monthly debt payments will increase, it will reduce a development's monthly cash flow, which may or may not be acceptable, depending on the individual project.

The best practices for calculating BSPRA in a commercial real estate project include taking 10% of the "hard costs" of the project (which does not include the land) added to the total development costs. This ties the interests of the developer and the builder together by giving the builder a stake in the project. This makes it in the builder's best interests to complete the project on-time and on-budget. BSPRA is typically only used with one kind of HUD multifamily loan, the HUD 221(d)(4) loan.