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HUD Multifamily Loans Blog
Last updated on Dec 8, 2022
2 min read
by Jeff Hamann

RAD for PRAC Conversion

Learn about the HUD program to transition properties operating under Section 202 PRACs into RAD, or rental assistance demonstration, assets to provide greater long-term stability to communities and residents.

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In September 2019, the Department of Housing and Urban Development announced a program to transition properties operating under Section 202 PRACs into RAD (rental assistance demonstration) assets. 

Such a conversion can provide greater long-term stability to a community and its residents through enabling critical rehabilitation and the creation of reserves to cover future improvements and repairs. Additionally, conversion may enable annual rent increases to cover increases in costs.

In order to convert a property, the owner must go through a series of steps, briefly outlined below:

  • Evaluate goals and define a basic strategy for the community.

  • Provide a preliminary conversion plan to HUD via the RAD Resource Desk.

  • Get a MAP-compliant capital needs assessment performed.

  • Develop a comprehensive financing strategy.

  • Submit the full conversion plan for HUD to review and approve.

  • Upon closing, the new Section 8 HAP contract will take effect, replacing the PRAC.

For more information on each step, HUD has a 17-minute video to provide more granular detail.

Eligibility Criteria

In order to qualify for RAD for PRAC conversion, properties must typically meet several criteria. In addition to maintaining compliance with fair housing standards, assets must have:

  • An active PRAC agreement

  • Operating reserves of at least $250 per unit (this requirement can be met via funding from a lender or equity investor)

  • A physical inspection score from HUD of at least 60 prior to applying

  • Evidence that supportive services are accessible to residents

Another requirement for the process is the involvement and engagement of a property’s residents. A property owner is required to hold, at minimum, two meetings with residents to discuss any rehabilitation plans, relocations (if applicable), any policy changes, etc.

One of these meetings must happen more than 30 days prior to submitting a final conversion plan, while another must occur after the plan is submitted to HUD but before conversion begins. During the approval process, additional meetings are also required if the conversion plan is revised in any significant, material way.

Related Questions

What is the RAD for PRAC conversion process?

The RAD for PRAC conversion process is a program created by HUD to convert properties operating under PRACs into RAD communities. This process can be a critical component in addressing capital improvements needed at a senior housing community and can ensure the financial stability of the property through the remainder of its HAP contract. In order to qualify for RAD for PRAC conversion, properties must typically meet several criteria. In addition to maintaining compliance with fair housing standards, assets must have:

  • An active PRAC agreement
  • Operating reserves of at least $250 per unit (this requirement can be met via funding from a lender or equity investor)
  • A physical inspection score from HUD of at least 60 prior to applying
  • Evidence that supportive services are accessible to residents

Another requirement for the process is the involvement and engagement of a property’s residents. A property owner is required to hold, at minimum, two meetings with residents to discuss any rehabilitation plans, relocations (if applicable), any policy changes, etc. One of these meetings must happen more than 30 days prior to submitting a final conversion plan, while another must occur after the plan is submitted to HUD but before conversion begins. During the approval process, additional meetings are also required if the conversion plan is revised in any significant, material way.

What are the benefits of RAD for PRAC conversion?

The benefits of RAD for PRAC conversion include the ability to address capital improvements needed at a senior housing community and ensure the financial stability of the property through the remainder of its HAP contract. Additionally, RAD for PRAC conversion allows for the preservation of affordable housing and the ability to access additional capital through the Low-Income Housing Tax Credit (LIHTC) program. This program can also provide access to additional debt and equity financing, which can be used to fund capital improvements and other necessary repairs.

What are the requirements for RAD for PRAC conversion?

In order to qualify for RAD for PRAC conversion, properties must typically meet several criteria. In addition to maintaining compliance with fair housing standards, assets must have:

  • An active PRAC agreement
  • Operating reserves of at least $250 per unit (this requirement can be met via funding from a lender or equity investor)
  • A physical inspection score from HUD of at least 60 prior to applying
  • Evidence that supportive services are accessible to residents

Another requirement for the process is the involvement and engagement of a property’s residents. A property owner is required to hold, at minimum, two meetings with residents to discuss any rehabilitation plans, relocations (if applicable), any policy changes, etc.

One of these meetings must happen more than 30 days prior to submitting a final conversion plan, while another must occur after the plan is submitted to HUD but before conversion begins. During the approval process, additional meetings are also required if the conversion plan is revised in any significant, material way.

What are the risks associated with RAD for PRAC conversion?

The risks associated with RAD for PRAC conversion include the potential for disruption of services to residents, the need for additional capital to fund the conversion, and the potential for changes in the terms of the HAP contract.

The conversion process can be disruptive to residents, as it requires two meetings with residents to discuss any rehabilitation plans, relocations (if applicable), any policy changes, etc. Additionally, the conversion process may require additional capital to fund the conversion, such as operating reserves of at least $250 per unit (this requirement can be met via funding from a lender or equity investor). Finally, the conversion process may result in changes to the terms of the HAP contract, such as changes to the rent structure or other terms of the contract.

For more information, please see RAD for PRAC Conversion and HUD Project Rental Assistance Contracts (PRAC).

How long does the RAD for PRAC conversion process take?

The RAD for PRAC conversion process typically takes between 6 and 12 months to complete. This timeline is dependent on the complexity of the project and the availability of resources.

According to the HUD RAD for PRAC Conversion FAQs, the process typically includes the following steps:

  • Submission of the RAD for PRAC Conversion Application
  • Review of the Application by HUD
  • Execution of the RAD Conversion Agreement
  • Submission of the RAD Conversion Plan
  • Review of the RAD Conversion Plan by HUD
  • Execution of the RAD Conversion Plan

What are the costs associated with RAD for PRAC conversion?

The costs associated with RAD for PRAC conversion vary depending on the scope of the project. Generally, the costs include the cost of any rehabilitation or capital improvements, the cost of any supportive services, and the cost of any relocation services. Additionally, there may be costs associated with the meetings required with residents and the preparation of the conversion plan.

For more information on the costs associated with RAD for PRAC conversion, please refer to the HUD website.

Categories
  • HUD Multifamily Financing
Tags
  • RAD
  • RAD for PRAC
  • PRAC
  • HUD Section 202
  • Project Rental Assistance Contract
  • Rental assistance demonstration

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