RAD for PRAC Guidance Published for Comment

BY Monica Hilton Sussman and Nathaniel Cushman

HUD published on Multifamily Housing’s “Policy Drafting Table” website a draft of the highly-anticipated Section IV of the RAD Notice, Rev-4, setting forth the policy and procedures for RAD for PRAC conversions.  HUD has indicated it intends to alter this guidance in response to stakeholder feedback, but requests comments by March 12.  Some highlights:
  1. Rents.  The guidance does not provide a lot of comfort on rents, stating that initial contract rents shall be set at the lesser of (a) “approved PRAC rents” or (b) 120% of FMR for PBRA projects, 110% of FMR for PBV projects.  A process for standardizing PRAC project rents, which vary greatly from project to project, was not included.  However, there is some hope: (i) 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 current’s PRAC annual renewal.  This process could provide a rent increase before conversion allowing the project to leverage adequate debt upon conversion.  (ii) Rent bundling is allowed.  (iii)  Without elaborating, 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. 
  2. Use Restrictions & Existing Debt:  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.  This will likely necessitate lender and investor provisions in the HAP contracts in order to accommodate lender and investor concerns, as in RAD Component I (“RAD I”).
  3. Social Services required.   The conversion plan must account for the provision of social services, which, presumably, can be accounted for in the budget.  HUD is increasing allowable payment to social services coordinators from rents to $27 per unit per month, up from $15. 
  4. 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. 
  5. Other requirements blend RAD I and RAD II.  Site and neighborhood standards and the Uniform Relocation Act apply.  Davis-Bacon does not apply for PBRA.  A 20-year CNA, environmental review and resident consultation requirements apply. 
HUD has solicited comments specifically as to whether there is interest in maintaining PBV as an option or if projects will overwhelmingly choose PBRA; whether the terms of the Elderly Housing Use Agreement are reasonable and adequate; and whether there are unique features to PRAC projects or elderly housing which have not been adequately accounted for.  In addition, if any provisions are unclear, or unworkable, please identify those provisions in comments. 

Tags: RAD, HUD