HUD issued Rental Assistance Demonstration (RAD) Notice PIH 2019-23 on Thursday, September 5, 2019. HUD is hosting a webinar on September 19, 2019 2:00 PM EST for First Component Public Housing Conversions Register Here
Highlights from the RAD Notice, First Component Housing Conversions include:
A. Rent boost for PBRA New Construction or Substantial Rehab projects in Opportunity Zones (Section 1.7.A.5, starting on page 77)
For any transaction that is proposed in its Financing Plan to undertake new construction or substantial rehabilitation (60% of HCC) in a designated Opportunity Zone, HUD may provide up to a $100 per unit per month (PUM) increase to the RAD rents, subject to the availability of funds and such conditions as HUD may impose. Funds for this purpose shall be allocated on a first-come, first served basis, subject to the availability of funds, based on the time of the request (communicated through the submission of a complete and acceptable Financing Plan), where the PHA demonstrates it is necessary for the viability of the transaction. Initial contract rents will be capped at 120 percent of the Section 8 FMRs, adjusted by the number of bedrooms, and after subtracting any applicable utility allowance. However, when HUD’s calculation of contract rents exceeds 120 percent of the FMR but where the PHA believes that such rents are below the comparable market rent, the PHA may request an exception under which the project may receive rents in excess of 120 percent of the FMR but not in excess of the lower of comparable market rents or 150 percent of FMR. HUD will grant such a request only when HUD determines that a Rent Comparability Study (RCS), Where initial contract rents are at or below 120 percent of the FMR, no RCS is required.
B. Increased resident notice requirements to improve communication with residents throughout the conversion process (see Section 1.8, page 92)
- Before application: a) Notice provided to resident organization; b) RAD Information Notice (RIN) to all residents; c) two resident meetings; d) PHA provides comprehensive written responses to all resident comments.
- Before concept call: After receipt of CHAP, but prior to requesting a Concept Call, the PHA must have at least one meeting with residents to discuss updated conversion plans in order to solicit feedback on proposed property improvements. Additional resident meetings may be required if the PHA requests extension to the submission of the Financing Plan. The PHA shall prepare comprehensive written responses to comments received.
- Before financing plan: Following the Concept Call and invitation to submit a Financing Plan, the PHA must have at least one more meeting with residents prior to submission of the Financing Plan to discuss updated conversion plans and the anticipated Financing Plan submission. The PHA shall prepare comprehensive written responses to comments received.
- Before closing: Upon issuance of the RCC, the PHA must also notify residents that conversion of the project has been approved, and address, as appropriate, anticipated timing of the conversion, the anticipated duration of the Work, the revised terms of the lease and house rules, any anticipated relocation, and opportunities and procedures for the exercise of the choice-mobility option.
Additional RAD resident meetings are required if there is a substantial change to the conversion plans includes, but is not limited to:
- Introduction or abandonment of a transfer of assistance or a material change in the projected location to which the assistance would be transferred
- Plans to partner with an entity other than an affiliate or instrumentality of the PHA if such partner will have a general partner or managing member ownership interest in the proposed Project Owner
- Change in the number or configuration of assisted units or any other change that may impact a household’s ability to re-occupy the property following repairs or construction
- De minimis reduction of units which had been vacant for more than 24 months at the time of RAD Application
- Substantial change in the proposed scope of the work
- Material change in utility allowances
C. Concept Call RAD Conversions will now require a concept call(already occurring for FHA-insured projects, CMHA is already having these calls with HUD FHA and Recap) before submitting a Financing Plan (Page 102).
D. Capital Needs Assessment (CNA) (Section 1.5.A, page 24)
The CNA eTool is required as part of any RAD Financing Plan (or application for FHA Firm Commitment), except as described below. The CNA eTool contains two major components – the narrative (the description of each component and its condition and may include an energy audit) and the financial model (the 20-year schedule and associated determination of the Initial Deposit to Replacement Reserve, or IDRR, and the Annual Deposit to Replacement Reserve, or ADRR). The CNA must be completed by a qualified, independent third-party professional as required by the MAP Guide.
Exemptions. HUD may exempt the transaction types set forth below from CNA requirements, provided that the proposed exemption is confirmed with HUD prior to submission of the Financing Plan and eligibility for the exemption confirmed in HUD’s review of the Financing Plan. Exemptions may apply to some or all portions of the CNA, including the assessment of immediate needs and the portions of the CNA eTool necessary to produce the 20 Year Reserve Schedule.
- Non-FHA transactions-neither component of the CNA will be required as long as the Annual Deposit to the Replacement Reserve is no less than $450 per unit (or a lower amount if justified by an alternate form of CNA acceptable to HUD, typically one performed for an investor or lender), and the Project: a) Has been newly constructed or financed with 9% LIHTC within the last five years, as calculated from the date the final certificate of occupancy was issued; b) Qualifies as new construction or will be financed with 9% LIHTC;
- Non-FHA transactions-the narrative will not be required where the transaction will be financed with 4% LIHTC;
- Non-FHA transactions-neither component of the CNA will be required where the total assisted units (e.g., RAD units and other PBV units) at the project will constitute less than 20% of the total units at the project (or a higher percentage at HUD’s discretion, taking into consideration the absolute number of RAD units at the project).
- FHA transactions-PHAs should follow applicable requirements in the MAP Guide governing exemptions.
E. Environmental Review streamlining For environmental review, past streamlining efforts have been continued through expansion of categorical reviews of certain transaction elements which simplify submission requirements. Broadens the use of tiered environmental reviews so that streamlined submissions are needed for certain 24 CFR Part 50 reviews; requires the use of the HUD Environmental Review Online System (HEROS) for Part 50 reviews; and requires radon testing for PBRA and PBV conversions (see extensive detail provided in Attachment 1A, page 120)
F. Calculation of HAP contract rents Establishes policy that RAD rents will be updated every two years and the updated rents will be applied to new awards issued after those established dates (see detail in Attachment 1C, page 136);
G. EIV PHAs will be able to use existing income certifications and will not need to re-certify tenants upon the date of conversion. Prohibits PHAs from entering debt into the Earned Income Verification “Debts Owed” module purely as a result of the 50058 End of Participations that is required to be submitted into Public and Indian Housing Information Center (PIC) as part of the conversion (see Section 1.13.B);
H. Facilitates PHA joint ventures Establishes a mechanism for PHAs to enter into partnerships in order to pool resources or capacity with each other so as to effectively convert properties through RAD (Section 1.5.L, beginning on page 50) By entering into a written agreement, PHAs can contribute public housing funds to each other’s projects, rent bundle across each other’s portfolio, transfer land or make other arrangements to facilitate RAD conversions across portfolios.
I. Increased resident protections Extends RAD resident rights to all units involving a project mixing RAD and non-RAD PBVs (75/25), eliminating re-screening and continuation of Earned Income Disregard exclusions, without seeking a special waiver. (Section 1.6, beginning on page 60)
J. Resident Paid Utilities (Attachment 1C, page 143) For projects with an existing EPC using the Resident Paid Utility (RPU) Incentive, HUD will allow an amendment to the posted RAD rent to add the Per Unit Month (PUM) EPC Resident Paid Utility Incentive. Further, if a converting project currently has surcharges for excess consumption of PHA-supplied utilities (in accordance with 24 CFR § 965.506), HUD will allow an amendment to the posted RAD rent by the amount in Row 19 of the HUD-52722 (Calculation of Utility Expense Level) divided by Total Unit Months (Section 2 Column A Line 15) of the HUD-52723 used in the Fiscal Year in which the RAD contract rents were calculated.