The Capital Concerns of 202 PRAC Program

In the mid-nineties to mid-2000s the affordable housing industry saw an explosion in the number of properties approved and built under the Section 202 PRAC program. This was a terrific program that which was restricted to non-profit sponsors providing housing for the elderly, and the operating subsidy was guaranteed for forty-years – securing housing for the elderly for many years. However, the problem with a 40-year compliance period is that periodically the property requires revitalization, and the only way that 202 PRAC properties can afford to pay for major repairs is through the reserve for replacement (R4R) account – and budget-based rent increases. Over the last few years we have seen more and more 202 PRACs enter into their 20th year or beyond, and many of the major and minor components are aging and starting to fail – and unfortunately – what is being deposited into their reserves has not been updated to reflect the new realities. Coupling this with very few or infrequent rent increases, and restrictions on the program -- restricting owners from funding revitalization with additional debt. This has forced properties to pick and choose what systems to replace or upgrade, deferring maintenance and putting the initial investment at risk. Due to this concern, HUD has now taken a keener interest in these properties and worki...
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