RAD Conversions for Section 202 PRACs

Published: 03/12/2019

Recently HUD emailed interested parties a notice of a proposed change to the existing RAD Notice. This draft notice is available here or a pdf copy can be downloaded here. The proposed change would allow Section 202 projects to convert to the RAD program. Although Section 4 is lengthy, AHACPA wishes to notify users about this proposed section and allow them to comment on appropriately.

The proposal is a result of The Consolidated Appropriations Act, 2018 (Pub. L. No. 115-141), which authorized the conversion of properties assisted by Section 202 Project Rental Assistance Contracts. The general idea of the proposal is as follows:

  1. Projects will be released from their current Capital Advance mortgage-related restrictions
  2. Projects may convert form the current 202 PRAC to either a RAD Section 8 contract or a project-based voucher (PBV) contract. PBV requires an arrangement with a local PHA.
  3. Eligibility to participate is based on the following criteria:
    1. Project in good standing with HUD and a history of compliance with contractual requirements
    2. Certify to Fair Housing Compliance
    3. Current PRAC in place (units may not be increased)
    4. Physical condition score above 60
  4. A Capital Needs Assessment will be required
  5.  Supportive Services be provided (see details)
  6. For repairs required by the CAN that exceed $5,000/unit, the owner must show availability to finance repairs
  7. Reserve for replacements will be required
  8. Owner will be required to maintain an operating reserve of $250/unit for distributions to be available
  9. An Elderly Use Agreement will be in place for the remainder of the Capital Advance Use Agreement plus 20 years
  10. There are restrictions on the use of sale or refinance proceeds.
  11. See proposal for additional requirements

Section 4.6 contains provisions related to PBRA conversions. The length of the contract will an initial period of 20 years and renew through the Use Agreement period. Contract rents will be adjusted by an OCAF at each anniversary date. Distributions will be available to the project subject only to the minimum $250 operating reserve requirement. Surplus cash will be calculated similar to current requirements.

AHACPA believes that this change represents a significant opportunity for these project to change their current operating requirement for the better. We urge interest parties to comment on the proposal.

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