HUD Publishes RAD for PRAC Notice for Comment

The FY 2018 Appropriations Act authorized the conversion of properties assisted by Section 202 Project Rental Assistance Contracts (PRAC). HUD has requested comments to a new draft Section 4 to be added to the Rental Assistance Demonstration (RAD) Revised Notice. The new section would allow for the conversion of these properties, and HUD has indicated it intends to alter this guidance in response to feedback. Here are some highlights from the Section 4 draft:

Rents. The guidance states that initial contract rents shall be set at the lesser of: (a) “approved PRAC rents”; or (b) 120 percent of fair market rents (FMR) for project-based rental assistance (PBRA) projects and 110 percent of FMR for project-based voucher (PBV) projects. A process for standardizing PRAC project rents, which vary greatly from project to project, wasn’t included. But HUD requires project owners to analyze project operating expenses, capital needs, and resident services and request adjustments to the Operating Expense Amount accordingly at the PRAC annual renewal, thus possibly providing a rent increase before conversion. Rent bundling is allowed, and HUD reserves the right to modify PRAC rents if necessary to adequately fund replacement reserves, support a service coordinator, or otherwise meet the needs of the residents.

Use restrictions and existing debt. Existing debt and use restrictions are gone. Upon conversion, all existing obligations of the capital advance are terminated. In their place, a new Housing for the Elderly Declaration of Restrictive Covenants and Use Agreement (“Elderly Housing Use Agreement”) will be in effect for the remaining term of the Capital Advance Use Agreement plus 20 years. The Elderly Housing Use Agreement will be in first position and survive foreclosure.

Social services required. The conversion plan must account for the provision of social services. HUD is increasing allowable payment to social services coordinators from rents to $27 per unit per month, up from $15.

Non-profit involvement required, but flexible. Non-profits must maintain ownership or control rights, but these requirements are much more flexible than the current Section 202 loan prepayment requirements.