If there’s an existing 202 Project with a loan balance or a capital advance that requires a single audit each year, programs like Project Rental Assistance Contracts (PRACs) can help get rid of that debt. This program stems from the HUD’s Rental Assistance Demonstration (RAD) program and includes a component which can eliminate debt or capital advance. The program is also designed to convert a preexisting project to a Section 8 Housing Assistance Payment (HAP) Contract.
RAD was created in order to give public housing authorities (PHAs) a powerful tool to preserve and improve public housing properties and address the multi-billion dollar nationwide backlog of deferred maintenance. The option to convert to long-term Section 8 assistance under RAD provides an opportunity for the aging stock of Section 202 PRAC properties to be recapitalized while protecting residents, maintaining non-profit control, and extending the period that the properties must remain affordable.
We recently explained the link between HUD and our firm, so its important to address PRAC property conversions and how owners can alleviate debt concerns with specific RAD program components designed with conversion in mind.
According to the official HUD website, a fourth revision of the RAD Notice was published on September 5, 2019. This revision included the enacted authority of the previous year’s Consolidated Appropriations Act that authorized the conversion of affordable housing for the elderly. Non-profit owners were eligible to apply by making an initial submission of interest to undertake a conversion through the RAD Resource Desk official website. HUD then assigned a Transaction Manager to discuss the conversion process and project goals with interested Project Owners.
This revision was supported by eligible Section 202 PRACs to Section 8 project-based rental assistance (PBRA) or project-based voucher (PBV) contracts. A 202 PRAC Project Owner was able to convert an eligible PRAC to one of two forms of long-term Section 8 Housing Assistance Payment (HAP) Contracts previously mentioned: PBVs or PBRAs — with the Project Owner choosing either of the two contracts.
At the time of conversion, Converting Projects will be released from any outstanding obligations under the Capital Advance Agreement, the Capital Advance Mortgage Note, and several other Agreement obligations in addition to related or collateral documents associated with the PRAC. The projects will then will enter into an Elderly Housing Use Agreement, which will be recorded as a restrictive covenant in first position on the Covered Project. This EHU Agreement will have a term of 20 years plus the balance of the term left on the Capital Advance Program Use Agreement at the time of conversion. Any PRAC documents still in effect at the time of conversion will be terminated immediately prior to execution of a new PBV or PBRA HAP Contract and the Elderly Housing Use Agreement.
After a Project Owner requests to enter a Section 8 PBRA HAP Contract (subject to annual appropriations), the HAP Contract will be executed by HUD’s Office of Housing to determine if the requirements are satisfied. The Project Owner and HUD will then execute the HAP Contract to finalize the conversion and establish/adjust contract rents according to the terms of this contract. The initial contract must be for a period of 20 years, as stated previously, and will be subject to annual appropriations. At expiration, the initial contract shall be eligible for renewal under the Multifamily Assisted Housing Reform and Affordability Act of 1997 (MAHRAA).