The recently approved fiscal year 2018 omnibus spending bill expands the U.S. Department of Housing and Urban Development (HUD) Rental Assistance Demonstration Program (RAD) to include Section 202 Supportive Housing for the Elderly properties with Project Rental Assistance Contracts (PRAC). The program expansion opens the door for current owners of Section 202 projects to address significant capital repairs and maintenance.
Section 202 funds are structured as a government grant, so until now, owners of Section 202 PRAC properties were not permitted to take on private debt or secondary financing, hindering their ability to address all of their capital needs. Now, Section 202 PRAC properties will be able to leverage new financing and access private capital by converting existing short-term PRACs to long-term subsidies under the RAD program, such as project-based vouchers (PBV) or project-based rental assistance (PBRA). The program is being referred to as RAD for PRAC.
How it works
The RAD program was initially enacted to preserve and improve public housing buildings by converting a property’s HUD funding to either Section 8 PBV or Section 8 PBRA. The long-term nature of Section 8 contracts allows for more funding flexibility, including the use of other funding sources like bank financing and tax credits in addition to public funds.
Although additional guidance from HUD is forthcoming, we anticipate that the conversion process for Section 202 owners will be similar to public housing, which is:
- Feasibility analysis
- Submission of application package to HUD
- HUD award of Commitment to enter into a Housing Assistance Payments (CHAP) Contract
- Submission of financing plan to HUD
- Execution of RAD conversion commitment
- Final HUD review and closing
Based on our experience with the high demand at the start of the RAD program, we encourage owners to start examining their Section 202 projects now. Owners should determine their current and future capital needs and understand their existing resources. This information will guide the transaction financing plan and structure features of the conversion as you work through the RAD process.
We will continue to monitor how RAD for PRAC will be allocated.
For more information on this topic, or to learn how Baker Tilly senior living specialists can help, contact our team.