Two HUD RAD notices this week bump up initial rents for RAD 1 transactions, allow comparable market rents for new Rent Supp & RAP PBRA conversions in high cost areas, intro five new innovations and implement the RAD updates from the FY 2018 Appropriations Act.
Notice to Implement FY 2018 Approps Act provisions. The first notice HUD released this week, FR-6105-N-01, implements certain provisions from the FY 2018 Appropriations Act, namely:
· Increasing the cap. The notice officially raises the RAD 1 cap to 455,000 units and extends the application deadline to September 30, 2024. PHAs that had previously submitted an LOI to hold their place on the waitlist now have 60 days to submit an application. Note, however, there is a new streamlined application.
· Higher rent! The notice makes use of the FY 2018 Appropriations Act bump to the Capital Fund formula, giving a boost to RAD 1 rents. Any deal that has not yet closed can take advantage of the FY 2018 Capital Fund increase, but projects that already have a CHAP must ask for the increase and go through an amendment process. The notice frames this process as a withdrawal of CHAP and request for reissuance, but notes that re-submission of application materials may not be required.
· CMR for RAD2 PBRA. To addressing the need identified by the few remaining Rent Supp and RAP projects who want to convert but just couldn’t make the rents work, the notice allows Rent Supp and RAP projects in “high cost areas” converting to PBRA to use comparable market rents. A further benefit: it seems these projects may be able to seek future rent increases through the Option 1A: Mark-Up-To-Market process. HUD is using the high cost areas listed in Housing Notice 2017-06, applying the benefit to any locality in any state that has a high cost area on the list. Conversions to PBV are not covered for now, only PBRA conversions. But HUD’s soft language on the topic (“HUD is not prepared … at this time…”) suggests that PBV-intended projects in a pinch may be able to make a case.
· RAD2 No Re-Screening. Pursuant to the statutory amendment added in the FY 2018 Appropriations Act, the notice prohibits tenant re-screening in RAD 2 transactions, just as has always been the case in RAD 1 transactions.
Part 2 of this blog post will discuss the supplemental guidance set forth in the other notice HUD published this week. HUD will host a webinar on July 9, at 2pm EST to discuss the updates in both notices. You can register for that webinar here.