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On March 12, 2020, HUD’s Office of Multifamily Housing released a memorandum (click here to view) regarding budget-based rent increases for PRAC Properties. In July 2019, increased budget-based rents at PRAC properties were temporarily suspended, except for approving increases for core operating costs. Once the FY 2020 Appropriations bill was enacted, this suspension was lifted. The Multifamily office created a new system to review Capital Needs Assessments and requests for budget-based rent increases. In this memorandum, HUD also provides owners of 202 PRACs with guidance on converting their properties to Multifamily Section 8 through the RAD program.

Capital Needs Assessments for the RAD Program

“Multifamily’s updated approach considers the new option for Section 202 PRAC properties to convert to Project-Based Section 8 through the Rental Assistance Demonstration (RAD). Through RAD, many PRAC owners can leverage financing to address capital repairs on the timeline projected in their CNA without large, short-term increases to PRAC replacement reserves. The FY 2021 President’s Budget released on February 10, 2020, proposes to expand the RAD program to include Section 811 PRACs, in addition to the existing authority for Section 202 PRAC conversions.”

Utilizing CNAs for Applying for Budget-Based Rent Increases on HUD Properties

As part of applying for a budget-based rent increase and/or increase in replacement reserves, the property will need to submit a Capital Needs Assessment. The Capital Needs Assessment will be used to support the request-for-increase and demonstrate immediate, short-term, and long-term needs.

“Asset Management will require submission of a recent CNA (use of the E-Tool is not currently required) to justify significant increases in monthly reserve deposits. A CNA will typically not be required where requested monthly deposits remain below $250 a unit OR the requested percentage increase to the deposit falls below the Operating Cost Adjustment Factor in the state where the property is located. Large rent increases may require additional internal budget processing before approval, making it particularly important that such requests are submitted timely — 120 days before the annual contract renewal or amendment effective date.”

Please let us know if you have any questions about best practices in preparing a Capital Needs Assessment that properly captures the property’s needs and provides a clear and concise explanation of future needs.

Scott Precourt is the Managing Partner and Founder of US Housing Consultants.