| ID | Status | Date | Public/Private | Industry | AHACPA Contact |
|---|---|---|---|---|---|
| #6625 | Closed | public | Multifamily | Les Sparks |
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In the case of a Section 232 HUD property that is leased to a nursing home operating entity, we have a question on how to handle repairs performed by the operating entity. The operating entity performs and pays for a repair (that is not capitalized) and the HUD property requests reimbursement from the reserve for replacement. Does the HUD property need to then reimburse the operating entity for the cost of the repair or can the cash received from the approved replacement reserve account just be kept in the property? Can that cash received be included in cash for determining surplus cash and possibly be available for distribution to owners? In our situation the HUD property and operating entities are related and have the same owners. |
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From Les Sparks: Typically the borrower is responsible for repairs (in HUD’s mind). If the operator makes repairs and then wants to be reimbursed from R4R, what is their entry? Do they reduce lease expense or some inter-company payable? All of those really tweak HUD And REAC negatively. Depending on that entry, the operator could be double-billing for reimbursement. They bill for rent and they bill for repairs which may be covered by R4R funds collected/paid in rent. The cleanest version is to simply record those expenses on the books of the borrower. I know they all argue about this. The question is “Why?” Anytime the borrower sends money back to the operator the entries will cause trouble. |