Three pieces of good news coming your way this week on 202 project preservation.
The omnibus for FY 2018 appropriations, now expected to be signed by the president, contains the long-awaited, industry-supported, “RAD for PRAC.” Section 202 projects that receive operating assistance under a Project Rental Assistance Contract (PRAC) will be eligible for participation in HUD’s Rental Assistance Demonstration (RAD) program. The Office of Recapitalization has expressed that they stand ready to start working on a notice to implement RAD for PRAC.
PRAC properties have been notoriously difficult to reposition because the PRAC supports only budget-based rents and does not recognize debt service. Under RAD for PRAC, a 202 owner could convert the PRAC into a long-term Project-Based Rental Assistance (PBRA) or Project-Based Voucher (PBV) contract, presumably taking the rents out of the restrictive budget-based method into line with the rent setting and rent adjustments of the other current RAD programs that are set according to different formulas related to fair market rents and comparable market rents. The Office of Recapitalization presumably will need to establish requirements for RAD for PRAC including the rent setting parameters of the program. The omnibus language also provides that a project with a PRAC would be eligible for subordination and/or restructuring of the 202 mortgage in connection with the RAD conversion, also facilitating a re-positioning.
Other provisions in the omnibus also facilitate use of the PBV program for RAD for PRAC including not counting RAD for PRAC units against the statutory limit that generally prohibits a PHA from putting more than 20% of the PHA’s housing choice vouchers under section 8 PBV contracts. In addition, HUD may waive statutory provisions that require PHAs to assure that the allocation of PBVs meets the PHA’s plan requirements with respect to the de-concentration of poverty and expanding housing and economic opportunities. Section 811 PRAC projects are not included in the omnibus language. The omnibus provisions do not make any amendments to the underlying requirements of the section 202 program including ownership requirements.
This week, HUD has published a new notice on the preservation of section 202 elderly housing projects that were developed pre-1974 without any project-based rental assistance. Under the new notice, PHAs may now provide the tenant protection assistance in the form of Project-Based Vouchers (PBVs) without going through a project selection process and without first offering the families Tenant Protection Vouchers (TPVs).
Notice 2018-02 also makes available up to $5 million in funding for Senior Preservation Rental Assistance Contracts for the same universe of older section 202 projects. These funds will be awarded on a first-come, first-serve basis based on the time of the submission of complete section 202 prepayment requests in accordance with the section 202 Prepayment Notice 2013-17.
The foregoing has been prepared for the general information of clients and friends of the firm. It is not meant to provide legal advice with respect to any specific matter and should not be acted upon without professional counsel. If you have any questions or require any further information regarding these or other related matters, please contact your regular Nixon Peabody LLP representative. This material may be considered advertising under certain rules of professional conduct.
NP Affordable Housing Blog | 04.18.19
Affordable Housing Alert | 04.08.19