Effective immediately, HUD providers of Section 202 Housing for the Elderly with Project Rental Assistance Contracts (202/PRACs) can now begin to leverage private capital to preserve their affordable housing over the long-term.
On September 5, 2019, HUD released the long-anticipated implementing instructions for accessing new resources for the recapitalization of 202/PRAC properties.
Notice H 2019-09: Rental Assistance Demonstration – Final Implementation, Revision 4 provides valuable information for owners of communities funded pursuant to Project Rental Assistance Contracts under the Section 202 Housing for the Elderly program (202/PRAC) to convert to Project-Based Vouchers (PBVs) or Project-Based Rental Assistance (PBRA) contracts. As a result, these owners of more than 125,000 202/PRAC homes can decide whether to leverage financing for preservation and position themselves for sustainable futures.
According to HUD’s RAD Blast announcement, “The option to convert to long term Section 8 assistance under RAD provides an opportunity for the aging stock of 202 PRAC properties to be recapitalized while protecting residents, maintaining non-profit control, and extending the period the properties must remain affordable.” And, as HUD Secretary Ben Carson has told media sources, “This is exciting news for those who provide affordable housing for senior citizens who need a stable home to age-in-place.”
The Rental Assistance Demonstration (RAD) was authorized by Congress in 2011 to allow for the conversion of primarily public housing to the Section 8 platform (either to PBVs or to PBRA). RAD has allowed public housing agencies to leverage billions of dollars in financing to preserve these homes. After years of advocacy by LeadingAge and other stakeholders, Congress expanded the RAD program in March 2018 to include 202/PRACs. Conversion to the PBRA or PBVs is voluntary. HUD’s September 5 Notice makes revisions to the entire RAD program, including a new Section IV detailing how HUD and owners will implement RAD’s expansion to 202/PRACs.
The notice addresses many issues that LeadingAge commented on from the earlier draft (read more about LeadingAge’s comments) including incorporating safeguards for the future sustainability of converting PRAC properties, ensuring continuation of the unique nature of the original program by retaining age-distinct eligibility, grandfathering of current residents, ensuring continued not-for-profit control, and sustained delivery of services and service coordination.
Here are some significant highlights from the new Section IV (pp. 234 – 273) on converting 202/PRAC properties under RAD:
- At the time of conversion, converting projects will be released from any outstanding obligations under the capital advance agreement, mortgage note, program regulatory agreement, use agreement and will enter into an Elderly Housing Use Agreement to be recorded as a restrictive covenant in first position on the covered project, with a 20 year term plus the balance of any term left on the capital advance use agreement at the time of conversion, not to exceed 60 years from the date of the original Capital Advance use agreement. The Elderly Housing Use Agreement will, further, restrict the units covered under the HAP Contract, but not govern any other units at the covered project; will remain in effect even in the case of abatement or termination of the HAP Contract; will require compliance with all applicable fair housing and civil rights requirements; and will prescribe potential remedies in the event of default
- After the initial HAP contract term, the contract will be eligible for renewal under section 524 of MAHRAA and mandatory contract renewal will occur subject to the terms and conditions applicable, and subject to the availability of appropriations for each year, at the time of renewal.
- The age-distinct nature of the property is preserved in that Section 202 PRAC projects converting assistance under RAD must continue to serve elderly persons.
- Properties may (prior to conversion, subject to the availability of funds in the Section 202/Housing for the Elderly account controlled by HUD, and subject to HUD approval) have their PRAC rents adjusted up from $15 to $27 per unit per month if needed to provide effective supportive services for the elderly. This rent adjustment would become effective immediately prior to the conversion and would be rescinded if the conversion does not occur.
- Conversion plans must ensure adequate provision of supportive services for the residents, including service coordination whether through the project budget or another service coordination/service provision arrangement, and any specific services funded by an increase to the PRAC prior to conversion, on a consistent and long-term basis as part of the conversion plan will be recorded into the new Elderly Housing Use Agreement and/or HAP contract at closing.
- All current residents at the time of the conversion will not be subject to rescreening for occupancy, however, income eligibility requirements associated with new sources of financing may require owners to exclude Section 8 units occupied by ineligible households from being covered by the new financing’s restrictions.
- With HUD approval, project owners may adjust subsidy across multiple projects proposed for conversion – termed “bundled rents” – in order to modify the initial contract rents that would be established according to limits as defined in the notice.
- For converting properties that did not have a comprehensive needs assessment (CNA) available at the time of the most recent PRAC renewal, rent adjustments to update reserves for replacement deposits may be requested in the middle of the contract year, ahead of conversion.
- Throughout the remaining term of the converting project’s Capital Advance Use Agreement, HUD will require ownership or control of the converting property by a non-profit entity, and provides detailed descriptions of how, subject to HUD review, non-profit entity ownership or control requirements may be satisfied.
- Proceeds from any refinance or sale that occurs during the period equal to the remaining term of the original Capital Advance Use Agreement will be restricted to benefit the covered project or residents (to include capital improvements, service delivery, or any uses set forth in a HUD-approved sources and uses statement other than acquisition) or to other affordable housing purposes.
- Covered projects will not be subject to any limitation on distributions, contingent on satisfaction of program requirements and the availability of surplus cash as determined by year-end audited or certified financial statements.
The notice is effective immediately, except for changes to project eligibility criteria, which are subject to a 30-day comment period.
Non-profit owners may make an initial submission of interest to undertake a conversion through the RAD Resource Desk.
HUD will provide live webinars in the coming weeks:
- Section 202 PRAC conversions, September 26, 2019 2:00 PM EST – Register Here.
- Resident rights in Section 202 PRAC and Mod Rehab conversions October 17, 2019, 2:00 PM EST – Register Here
LeadingAge will also be offering several opportunities to learn more about RAD for PRAC. Watch this space for news as we announce these events.