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 working with the owners to fund needed capital projects by increasing their annual replacement reserve deposit and by extension increasing their gross rents. From our work with owners and managers of 202 PRACs, we have seen the benefits which can come from a capital needs assessment that reevaluates the property's short and long-term costs.
But unlike for-profit properties, all of the funding of long-term needs has to be done from within the program. If a property owner of a 202 PRAC is not diligent in keeping pace with the replacement needs, eventually the reserve account will be so far behind that it is difficult to restore it to proper funding levels.
For owners and agents of 202 PRACs it is vital that they make sure that the replacement reserves are properly funded, as it remains the only way to keep a property in good repair well into the future. The benefit of a budget-based rent program is that as the property's needs increase, the rent can compensate the needs – but these changes have to be incremental to be realistic. We at US Housing Consultants are seeing more and more owners conduct a new Capital Needs Assessment every five years, to keep up with the ever-changing needs of a property.

We are at the forefront of this ever-increasing issue and have a very successful record of quickly producing CNAs which explain why changes to the reserve accounts are to vital continuing their mission of providing decent safe and sanitary housing, and most of all, independent living, for our ever-aging population. If you would like to find out if your replacement reserves and rents are properly structures, call our dedicated staff and they will help you navigate the process. Please contact us at any time by calling (603) 223-0003 or visit our website at www.us-hc.com.
Renowned Compliance Trainer Amanda Gross Joins US ...
HUD Looks to a New Future for REAC Inspections

Latest Blogs

13 January 2020
REAC Inspections
Resident Involvement in REAC/NSPIRE Inspection Process​​As part of the NSPIRE pilot process, HUD has announced that additional processes will be added to engage the residents in the REAC/NSPIRE process. You can read the press release on HUD's website...
24 August 2019
REAC Inspections
On August 21, 2019, HUD published a set of proposed rules in the Federal Register "Notice of Demonstration To Assess the National Standards for the Physical Inspection of Real Estate and Associated Protocols" 24 CFR Parts 5 and 200; [Docket No. FR–6...
21 August 2019
REAC Inspections
On August 20, 2019, HUD released the first of the new NSPIRE protocols which will be expected to become active once the pilot/demonstration program has concluded. This is a first look at what deficiencies will look like under NSPIRE, the inspection ...
16 July 2019
REAC Inspections
July 8, 2019 HUD's Office of Multifamily Housing Asset Management and Oversight released a memorandum reiterating the rules surrounding notice prior to entering resident's units, availability of documentation for residents to review, and clarificati...
09 July 2019
REAC Inspections
The House Financial Services Committee passed a bill - the Safe Housing for Families Act of 2019 (H.R. 1690), and it will likely move forward to a full vote in the near future. The bill provides $300 million over three years to fund the installation...

Blog Archive