[hi, everybody. i'm margie with federal practicegroup. if it's your first day today orif you joined us yesterday as well to multifamily housingpartners housing training. this is a culmination of atraining session that has been done forestry partners all overthe country and seven different cities.now we have the opportunity to do it today in d.c.a little webinar here. we'll have three modules whichwe'll talk about.
over to you.>> hi. we're a 501â (c)3 profit.we work with folks that are trying to refinance andreposition their hud-financed properties.today we have an agenda that has three modules.margie will be talking about renewing section 8 contracts.that's from now until 1:00. we'll take a break at 1:00 andthen start back with a module on fha refinancing strategies.the last module is on tax credit refinancing strategies.we've been asked to read a
statement in response to a fewquestions received about the audio/visual aspects.we want to take a moment to say whatever system or technologyanybody is using to access this webinar can influence thebroadcast on your end. we want it to be valuable andhelpful for everybody with hud multifamily properties.if you're having technical difficulties, you can accessthese after they're complete on hud's archive website.margie? >> thank you.let's jump in with lesson 5,
which is preserving rentalassistance through long-term contracts, specifically section8. we'll be talking about therental assistance demonstration program.so let's start with our objective.the first one is we want to recognize the opportunity ofrental 8 contracts. we're going to analyze therequirements, incentives and tools associated with thesection 8 20-year contract renewal.so first of all, we'll talk
about the markup to market,which is option one in the section 8 renewal guide.the second one we'll talk about is markup to budget, which ischapter 15 of the renewal guide. also known as option 2.we're going to evaluate the tools for your property based onthe situation. we're going to identify currentoptions available for owners of properties with expiring section8 mod rehab. we have contracts.that's the rental assistance program that i alluded to and wespoke about yesterday.
topic 5-1 is renewing section 8,rental assistance contract. here we see a little bit ofinformation on hud section 8 renewal guide.this is available on the multifamily web page.if you go under section 8 contract administration, theguide is there along with additional information.a policy guide provide comprehensiveâ -- it's guidancefor project-based contracts. you can also find actualtemplates. the contracts themselves arethere.
so it's a really good resourceto have. so each section 8 contract isrenewed per u.s. want to the housing reform and affordabilityact. rents are either adjusted withan operating cost adjustment factor or a budget-based rentincreases. contracts are renewed and rentsare adjusted. we'll talk about those.you may be familiar with options 1-6 of the renewal guide.again, today we'll be talking about options 1 and 2.each property is eligible for
different renewal options thatsets the term for how the rents may be adjusted and the terms ofthe contract. and when we were doing thistraining session in denver and chicago, sometimes folks weren'tas familiar with it. almost everybody has section 8contracts. a couple people asked what theoptions were. we'll touch on those.number 1 is markup to market. two is renewals of othercontracts that are at or below the market rent.3 is referral to the mark to
market program where the rentsare above the market. 4 is for properties that wereexempt. like a section 515 property or a202 property. properties that didn't havefha-insured mortgages. option 5 is for portfolioreengineering properties. this was the predecessor to themark to mark program and also the preservation 2 programs.and then option 6 is opt out. we won't be talking about optsout. so moving on.the evolving nature of section 8
renewal policy.the renewal sections in the guide are updated as needed.i can think of two recent updates.one in may and one in june. so it's a quicker way forgetting changes out there. and then you can see the linkwhere you can find the renewal guide.and then we won't beâ -- once again, we won't be talking onall the renewal types. just the two i mentioned.so back on july 15th, 2010, willie spearman was at the timethe director of the office of
housing assistance and grantadministration issued a memo. really the memo came out becausewhile for some time had the authority to do 20-year renewalcontracts, there was some confusion in the beginning.not all of the field offices recommended the 20-year.sometimes they might say one year or five year and some wereadvocating for the 20 year. the key points the memo raisedis the owner i may request 20-year renewals.the field offices should suggest that the owners request thelongest possible term for their
section 8 contract renewal.in this case, 20 years, we will talk about a couple things.this is where you can go above 20 years.so the maximum term is 20 years. here's a couple exceptions.if you have an existing group that controlling the optionsavailable to the owner. in that case, the term of thesection 8 is a terminus with the agreement and may be less ormore than 20 years. so the first bullet there, themaximum term of the contract for a title 2 preservation projectwith the use agreement having a
remaining life of ten years isten years. those are the elipa projects wetalked about yet. if there's ten years left on theyouth agreement, the section 8 contract can only be ten years.the second example there is for a title 6 preservation project.those are the lipra projects we talked about yesterday.so if the use agreement has 30 years remaining object it, youcan do a 30-year renewal. so now we're going to some ofthe benefits of a 20-year contract renewal.stable long-term income stream.
this is a form of creditenhancement that we've been talking about.lenders in particular like to see this and investors.you're able to secure financing for repairs and remodelling.and the potential to receive distributions.so you're not doing a full blown renewal every year.most importantly, preserves the long-term affordability ofsection 8 properties. there might be more.these are the suggested ones we came up with.and which of course leads you to
a nice sustainable property.so looking at the benefits of a 20-year versus a five-yearrenewal. 20-year contract provides incomeprotection from the housing market.the stream is required by lenders and makesrehabilitation. not to say you couldn't do thatwith the five year but you have the stability of the 20 year.looking at renewaling a contract.i have a multiyear contract. can i still apply?this was actually amended by one
of the recent changes to thesection 8 renewal guide. actually don't have to do theattachment 20 anymore. you can terminate and get a new20-year contract. even if you're in the middle ofa multiyear contract. so with talk about executing anew 20-year contract. hud can terminate the existingcontract. the owner would like to enterinto a 20-year. the remaining time on theexisting contract is added to extend the term of the contract.we talk about the lipra
properties before.that was one exception to go beyond 20 years.this is another one. if you have a 20-year contract,add your remaining years in the current contract and you haveyour new term. the example cited here, theowner wants a new 20-year. they'd get a 22-year contract.obviously the time we keep in mind with these subsidies,funding is subject to appropriations.the good news is that at least as long as i've been doing this,congress has not never funded
it.there's that caveat in there. here's some other examples wherea new 20-year contract might be possible.original contract that has not yet been renewed under mara.there's a few years left in the contract to terminate thecontract early for the purpose of executing the 20-yearrenewal. a hud-approved waiver issued byhud headquarters is needed. so that's similar to the examplewe covered in the previous slide.owners have to agree about a
20-year contract that includesthe preservation exhibit stating they will add the yearsremaining on the contract to the new 20-year contract term.hud issued renewal guide pages that provide more guidance onthis process. one of the things about thesection 8 renewal guide as opposed to the old days thatprovided the changes is that when one comes out, there'salways a transmittal page that explained what the currentchanges are and the text is highlighted usually in gray forwhat has changed since the last
version.makes it easy to see what the differences are.so how to apply for a 20-year renewal.you're going to complete the following document.specifically the contract renewal request form.that's form hud 9624. you pick your option.specify the 20-year. we're talking about 20 years.there's the link where you can find that.again, to me the easiest way is to go to hud.gov, go to offices,housing, multifamily section 8
and everything is there.there's also a link for preservation that we talkedabout over yesterday's sessions. and any accompanied documents.you can check with your performance-based contractadministrator or your traditional administrator for alist of the required documents, depending on the option that youuse. that information is also in therenewal guide. here's a typical renewal.you'll submit the cover letter and all the necessary documentsto the contract administrator or
your hud project manager.i know at the time that i was working at hud when the contractadministrator, the pbcas were originally brought on and hudretained the option to keep the contract administration of thecontract, although that was rare.i'm not sure if hud administers any contracts.it's possible. for more options, you'll berequired to submit a rent comparability study.if you're submitting a budget-based adjustment for therent, submit an operating
budget.if you're obtaining a new loan for the property, have the debtservice in the calculation. so looking at required documentsmore specifically for contract renewals.the owner's letters, cover letter stating the purpose ofthe proposal. your attachment of thesupporting docs. the request form.rent comparability study. a budget work sheet.the head form 92457 a. an explanation for the moniesgoing up.
you need a nice narrativeexplanation for the changes needed.a request for the replacement account if needed.that should be a given. that should be mandatory.i remember seeing so many propertiesâ -- it's moreautomatic now. back in the olden days, it wasnot unusual to see properties where they have rent increaseand the deposit was the same as when the project was initiallyendorsed. you know, years later you havethese capital needs and didn't
have the funding to make them inyour reserve account. moving on, you will also includea notice of tenants for the contract.a utility analysis. and if you're requesting abudget-base rent increase, the proposal to hud.and then also if you're requesting a budget-based rentincrease, title 24 of code regulations, part 245.so looking at rent comp study is required.will i need to do that every five years if i have a 20-yearcontract?
the answer is probably.depends on the options. generally today we're speakingabout options 1 and 2 for both of those, yes, you need tosubmit a rent comparability study.you can follow up with your project manager for additionalguidance if you're not sure. okay.our next topic is topic 5.3. 20-year contract renewal.this is option 1. markup to market.for profit motivated or limited distribution mortgagers.the limited term is five years.
but hud encourages 20 years whenpossible. here's a little overview.it's a critical preservation tool for owners in hud.it was introduced in june 1999. became permanent under mara in2000. this was emergency legislation.what was happening head in your stronger housing market, ownersthat didn't have like the nonprofits that were required tomaintain the properties in the stronger markets, if theycouldn't get their rents marked up to market, they did have theoption to opt out.
they still do today.this was encouraging them to stay in the program.and then owners can obtain a rent increase to comparablemarket rate rents for all units covered under the section 8contract. owners can benefit under thisoption from active to increased distributions, this isspecifically to the limited distribution owners.in this case, limited dividend owners can get in a higherdistribution. it's an effective tool torecapitalize.
for market rents, owners are notrequired to submit budgets to hud.and chapter 3 of the section 8 renewal guide provides thelatest guidance on this program. so looking within option 1, youhave option 1 a and 1 b. 1 a is the mandatory provision.under 1 a is renewing for mara for the first time is eligible.you have to have a physical inspection score.the score has to be 60 or higher with no health and safetydeficiencies. and the ownership has to beprofit motivated or limited
distribution entity.the market comparable rents for the property that areâ -- well,the rents are either at market or up to 150% of their fairmarket rent potential. that's that cap.the 150% of the fair market rent is your cap.the ownership has to be free from low and moderate income userestrictions that cannot be limited by unilateral actions bythe owner. if you have flexible subjectu.s. did use agreements or low numbers tax credits.this will encourage those folks
that could walk away to stay inthe program. option b.this is the discretionary one. you have to come in and get itpreapproved. this is what hud looks for.generally you have to meet one of these criterias.the renewal guide says is funding is limited, hud couldrequire the folks to qualify. first one is vulnerablepopulations. if the property hasâ -- must be aparticularly vulnerable population that is defined as atleast 50% or more of the units,
provide housing for the elderly,disabled or large families. vacancy rate.the property must be where there's a lack of affordablehousing and vouchers would be difficult to use.hud defines that as 3%. community support.the property must be a high priority for the local communityas demonstrated by contribution of state or local funds to theproperty. then we want folks to note thatdiscretionary markup to market request might be forwarded toheadquarters for final approval.
>> can i ask a question?>> sure. >> is option 1 bâ -- we get thisa lot. option 1 b is a way for anonprofit entity that may not qualify to go after an option 1markup to market? >> yes.like your market to budget. >> okay.all right. so if you're requesting a markupto market renewal, you don't have to wait for the expiration.give hud 120 days. you don't have to wait till youget to the end of contract term.
with your markup to marketrequest, include an approval under 1 b.so determining the rent levels under this option for section236 and d-3 beamer properties. levels will be reduced by thesubsidy attributed to each unit type.there's some exceptions under this under a 260 coupling.in some cases, hud will waive that under certain preservationtransactions. generally you'll reduce the debtservice by the amount of subsidy you'll get on the two propertytypes.
hud will generate cap and newmarkup rent capitals in a proven increase equal to the differencebetween the current rents and the new marked up rents insteadof basing it on the initial equity.and for properties with 100% section 8, hud will allow ownersto distribute 100% of surplus cash at year's end.contract also receive rent adjustments under publishedoperating cost adjustment factors.now let's go on to the second option we're going to covertoday.
that's option two or chapter 15in the section 8 renewal guide. that's markup to budget fornonprofit section 8. also, related to what you said,if you could have like a tax credit property or one partneris a nonprofit but it's a for-profit entity, those wouldqualify under 1 a. so this option is designed tofacilitate ownership transfer to nonprofit purchasers and/orcapital repairs by nonprofit owners.rents may be increased on a budget basis for acquisition andrehab costs subject to the
market cap.in the first, it was 100%. here it's the market keep.hud may approve rents at the post rehab level.so it's the rent that the unit will get once the repairs aredone. those rents will take effectafter the rehab is complete. this is only available tononprofit owners. the final note on there might behard to read. says the nonprofit controlpartnership or llc may elect to proceed under either markup tomarket or markup to budget.
hear the eligibilityrequirements for chapter 15 or option two.you have to be a nonprofit with a charter under the state law orin certain cases a profit motivated organization is awaiver is provided by hud. i believe that relates to howthe documents were originally executed when they acquired theproperty. you have to have 501â (c)3 taxexempt status except where the status was not required toparticipate in a hud program. financial solvency with nounresolved audit findings.
and a react score greater than30 with capital repairs or greater than 60 without capitalrepairs. additional requirements.you have to have previous ownership or managementexperience with affordable multifamily housing.and community ties. so if you're a national orregional nonprofit, you have to have secured tenant support.required documents under this option include a budget-basedrent increase application. you are marketing up the budget.you need a budget.
a rent comparability studyshowing the as-is market conditions and after rehabmarket conditions. a capital needs assessment,sources and uses statement, documentation of site control inthe property is being transferred and documentation ofrehab costs for capital repair component.so your components for a budget-based submission forchapter 15, you cover repairs. increase reserve for replacementcontribution and/or debt service on a new rehab or acquisitionloan.
all the costs must be budgetjustified. hud prohibited cashdistributions to nonprofit owners of subsidized properties.this does not apply to limited partnerships or llcs.nonprofit owner mays apply for a regulatory waiver.i know that's in your policy. the required contract term is 20years. hud requires a youthrestriction. so if you have a youth agreementor you already have afford ability restrictions, plan totag on another 20 years.
most but not all existing postcontracts may be terminated early and replaced with a budgetto markup contract. hud will terminate and renew anexisting markup to budget contract starting with thecurrent rents for up to 20 years at the owner's or purchaser'srequest. all right.rents determination. when rehab is scheduled, rentsmay reflect a post market rent. the higher rents won't be madeuntil the critical repairs if you're doing mod rehab or theentire construction scope is
completed.mod rehab, you have to finish the critical repairs.during the contract term, rents will generally be cap adjustedto the old cap adjusted market rent cap.went will be readjusted based on the rent comparability study.whatever the rent determination is in the comparability study,that gets adjusted by the cap factor in addition to the rentsat the property. the tenant portion of the rentsin any nonsection 8 units or a property that is not 100%section 8 may be increased 10%
in conjunction with thetransaction. if you want to request a chapter15 contract, request it at any time.you don't have to wait for the expiration date.the 120 days still does apply. you could still submit it within120 days but might not get processed.let's look at renewal options for nonprofits.on the left you can see markup to market option 1 b.you don't have to submit a budget.there's no limit on rents for
nonassisted units.you don't have to show a need for capital repairs.under the markups to budget option two or chapter 15,there's no need for discretionary approval that isrequired nor option 1 b. you might not qualify for a 1 b.i went through the criteria before.the low vacancy rate. this is pretty much automatic.so with this, i'm going to turn it over to gaye who will walk usthrough this. >> for those of you joining usfor the first time, we have
these activities scatteredthroughout the modules to help cement the lessons.this is the characteristics of the property.we're trying to determine the most feasible contract.either the markup to market or the renewal option to preservethis affordable multifamily housing property.we also want to determine the rationale for choosing whichoption renewal. and then we want to list thepotential benefits that can be realized through a successfulsection 8 contract renewal for
the property.we have a second property to do this on.we're going through property 1 and ask questions.it's located in a midwest city downtown.>> chicago. >> okay.chicago. she confirms.it's a strong market. the building type is an adaptivereuse to housing. we're going to say it's familyhousing as opposed to senior housing.79 units.
it is subsidized with no hudfinancing. the primary financing is estatehousing financing loan. the property was purchased in1981. the company owner is a limiteddididn'tâ -- dividend owner. it's under its original contractphase and it's just all of the units.all 79 units. there's the name of the programand then the rent and mar ratio is 123%.so the rents are 123% of fmr. it says it's below theâ -- thesection 8 rents are below the
comparable market rents.so let's look at that for a second.let margie think. here's the questions.the first one is characteristics of property 1.then we're going to ask for the best option and the rationalefor choosing the option and the potential benefits.so let's talk about the characteristics.what would you tell me out of that description that we gave,what are the important salient facts that we can derive fromthat?
>> one important one thatimmediately jumps out at me, when you determine eligibility,the first thing i look at is that this is a limited dividendownership entity. it's a right there that gives mea clue. i also see another criticalpiece is where the rents are in relationship to not only themarket but to the fair market rents as well.and that it's 100% subsidized. >> okay.based on some of those critical elements, what do you think thebest options for renewal?
>> i would pick option a.because you have the potentialâ -- a couple differentreasons. one, you can mark up the rentsup to 150% of the fair market rent.it doesn't say how below the comparable market rents are, butyou're certainly looking at a rent increase either way.either up to the market or up to 150% of fair market rents.the other thing about this option, for a limited dividendowner, it provides for increased distribution.those are the biggest factors.
>> they don't haveâ -- it's notdiscretionary. >> exactly.>> and then the benefits, you just said, it's more like theautomatic rent increase. >> higher revenue and increaseddistribution. >> let's look at a secondproperty. this property is located in asouthern city downtown. i'm from atlanta.we can pretend it's atlanta. it's in a moderate market, whichwe have sometimes. high rise elderly building with196 units.
it's an insured subsidizedproperty category. hud insured loan.it was purchased in 1970. there's a nonprofit owner.the section 8 inception date was 2004.153 of the 196 units are assisted by the section 8.lmsa program. we'll let that sink in.another slide that shows you more details.>> that's a low management set aside contract for those thatare not familiar with it. and then continuing on.the rent to fmr ratioâ -- the
rents are 84% of the fmr.the section eight rents are equal to comparable market.the initial endorsement date is 1973.final endorsement date was 75. basically the completion date.the original mortgage is under $3.5 million.the date of the first payment, which i'm not sure why that isrelevant is 1972. >> it's okay.>> throwing in more. the mortgage matures in 2014,december. the mortgage term in terms amonth was 474 months.
the interest rate is 8â 1/2%.the principal balance on the mortgage is just under a milliondollars. it's a 236 loan, which we couldhave deduced ourselves. let's leave that up a second.we're going to ask the same questions.in fact, i'll leave that up. characteristics of property 2,which we think the best renewal option is, the rationale forchoosing that option and the potential benefits.what do you think, margie? >> we know that it's anonprofit.
it's a straight nonprofit.and you could go for option 1 b, but option 2 might be better.it's not discretionary. i think you also haveâ -- i'mgoing to jump to some potential benefits.that if the current rentâ -- the property needs rehab.so if you're doingâ -- >> it's an old property.>> probably. in a moderate market.so maybe that would help. even though the current rentsare at the market that if there's a repair program, youcould conceivably gets higher
rents at the post rehab rentlevel. >> which you're not able to takeadvantage of under 1 b. >> that's right.there's also provisions. i don't remember if we discussedit. there's a provision where hudcanâ -- yeah. previously limited nonprofitowners can not receive a distribution but hud willconsider waivers, 6% of the equity amount and allow thenonprofit to take a distribution.i mentioned old discretionary
approval is need.>> so they could get a rent increase that they wouldn't getunder option 1 b through the idea they're going to do newrehabâ -- >> to support the higher rent.back to you, margie. >> requests is of the utmostimportant. contract administrators and hudfield office also work with you to make sure your request isprepared in accordance with hud guidelines.contract renewal requests are requested 120 days before thedate.
reminder letters are sent.it's a recommended best practice that as soon as you receive yourreminder letter, that this could be a time consuming process.okay. our last topic for this sectionis the rental assistance demonstration program.affectionately called rad. today we're going to talk aboutpreservation tools for section 8 mod rehab projects.even though rad has another title.you can find out more about rad on the website, hud.gov slashâ --hud.gov/rad.
there's archived websites toview. currently the notice is goingthrough without for comment. the final version of the noticeis scheduled to come out sometimes this month.stay tuned for that. some of the provisions in here,it's possible that they'll change.i'm not sure how likely that is. so i'll proceed with that littlewarning. so rad specifically addresseswhat is known as three orphan programs.just because there's noâ -- there
was no way to go ahead to renewthese contracts, there's really no successor program to themuntil now. so the first one is rentsupplement. this is a precursor to section8. beamer mortgages and what washappening with those programsâ -- the same thing with the rentalassistant payment which was created in 1974.this was primarily for section 8 properties experiencingfinancial problems because back then, the rents were set notonly to provideâ -- to cover
recovering costs and debtservice, but also during high inflationary periods, rents wereexceeding the tenant's income. so this was an additional formof subsidy. and then the third program, therubik's cube program, i'm not sure what that means, but thisis the mod program. it authorized in the 1980s.thousands of units were developed under this program.it was subsequently discontinued.there was a bit of a scandal involved with it.i wasn't there.
but it was considered a prettysuccessful program until congress repealed it.let's talk about rents up and wrap extensions.hud does not have the authority for wrap extensions.hud may authorize short term extensions of the contracts forterms up to 12 months. so it's not considered a newcontract. it's just considered an ex-stoneshun of an existing contract. if the contract is terminatingdue to a prepayment or other reason, it's not eligible for anextension.
the owners must be in goodstanding including have a react score of 60 or above.the contract is extended at current rents.there's no provision for rent increases.may only extend the contract out until to maturity date of thehud mortgage. there's noninsured program thathave rents up. if there's mo mortgage or it'sbeyond 12 months, the beyond can be extended for a full year fromthe date it would have expired. for example, the expiration isjuly 1 of this year.
the contract can be extended.it expires on july 1 of next year.these extension also be considered as long as ones areavailable. hud will not consider extensionsmore than six months ahead of the expiration date and requires60 days for the extension. so you want to get startedearly. the owner contacts the fieldoffice to request an extension and the field office willprovide the necessary contract extension documents.so here's a recent change
related to hud's authority toprovide vouchers. until recently, hud providedtenant vouchers when a rent was terminated, but not when thewrap contract expired. hud provides vouchers for allunits on the original contract when these events occur.and in some projects, there may be some units on the wrap upcontract but only a small number are actively billing.hud will provide tenant protection vouchers on theoriginal contract even if the units are not billing as long asthe units were occupied in the
24 month prior to thetermination. this is not all that unusualwhere owners are not billing for 100% of their units.it's nice. if you have 20 units and you'reactively billing on half of them, but let's say in the last24 months, maybe 18 were occupied, hud will providevouchers for all 18 units. so the new program we're talkingabout is rad. you might have been familiarwith some of the predecessor ones that were originallyproposed, including petra and
tra.there are some substantial differences and somesimilarities. the main body of rad provideshud with temporary authority. it's a demo program to convertup to 60,000 units of public 8 housing to long-term projectbased vouchers or project based rental assistance, renewalableunder mara. and again, the final notice isexpected to be published later this month.rad is assistance program that we talked about.through the brown amendment,
provides authority to provideproject based rental assistance for the orphan programs andsection 8 mod rehab. there's the two senators.and i always think ofâ -- used to think it would be cool to havelegislation named after me. >> i don't know, margie.you knowâ -- >> we can talk about that later.>> and then i think ofâ -- i think that's a bad idea.never mind. i've gotten over that moment.so project-based vouchers or pbvs.these are at a pha housing
authority agrees to link to aspecific property. providing rental assistance atthe project level. typically you think of it at thetenant level, not the project level for vouchers.the owner contracts with the housing authority, not with hud.the housing authority manages the waiting list for theoccupants. after a year, the tenant maytake the voucher. the housing authority fills thevacancy with another voucher. the pbv contract term may be upto 15 years subject to
appropriations and isrenewalable after the 15-year term.the rent limit is generally 110% of the ffr.the long-term contract supports financing against income stream.another nice form of credit enhancements that both lendersand investors like to see. now, here on this slide, we'retalking about project based voucher limitations.i want to stress, they're current limitations prior torad. previously no more than 20% ofthe housing authorities funding
voucher could be used in aproject based format. no more than 25% of the units ina project can have pbv assistance unless the propertyhas 1-4 units, served elderly or disabled family occupancy orwhere supported services are provided.it's a competitive selection to have your propertyâ -- i'm sorry.competitive process to be selected.so looking at rad. provisions for converting toproject-based vouchers. hud is provided with short termauthority to convert tenant
protection vouchers to projectbased vouchers. in fiscal years 2012 and 2013.so beyond that, there's no current authority to go beyond2013. there's no limit to the projectsthat may convert and no competition required.if you do go and look at the rad notice, you know, i would sayprobably 70, 75% of the texts relate to the first part of it,which is public housing unit and mod rehab, the competitiveprocess. and this is not competitive.the first part is limited to
60,000 units.there's no competition or no limit on the number of units onthe piece that we're discussing today.so you have a couple scenarios. you could have a prospectiveconversion. the projects where the contractwill expire, terminate in 2012 or 13.you can also do a retroactive conversion to project-basedvouchers where the tenants receive tenant protectionvouchers because the contract expired or terminated afteroctober 1, 2006.
so going on.the owner may convert these tenant protection vouchers toproject-based vouchers under terms of the rad notice.the rad notice is 12-18. but it was actually signed byboth the offices of public housing and housing jointly.it is a pih notice. the benefit is that theproject-based contract provides a stable source of income to theproject for 15-year term with renewal options.under rad, the housing authority has additional flexibilitieswith the project voucher
program.examples includeâ -- now more than 20% can be voucher based.the owner can cover 25% of the units with the voucher-basedcontract. so if you want to apply forconversion to project-based vouchers as described in the radnotice, you apply to the multifamily field office.that's only for 2012 and 2013. owners of mod rehab projects orretroactive projects going back to the 2006 date that imentioned, submit the application to the housingauthority that administers the
vouchers.again, prospective you go to multifamily.retroactive you go the housing authority that administers thevouchers. there's more information on thisprocess. some of the provisions forconverting to long-term section 8 contract.in addition to the provisions we just described related to modrehab, rad authorizes hud to convert public housing units orexpiring mod rehab units to section 8 contracts eitherthrough project based voucher
contract with the housingauthority or with hud that renewable under mara.that's rad. i couldn't resist.so that's the first part of the notice that we talk about, thatcompetitive process. thoseâ -- i just saidauthorization, the regulation, the implementation will not bemade until the final notice is published.the second part is already in effect.so back to the first part of the notice.just for additional information.
this is the part that has the60,000 unit limit through 2015. it's competitive.the new section 8 contract must be paid for with fundstransferred from public housing operating or capital funds orthe section 8 mod rehab contract.so in other words, there's no in funding provided in thedemonstration program. it's all funded throughtransfers of existing funds. so now we have a littleactivity. >> okay.we're going to review a
property.i want to determine the options with the optimal chance ofsuccess to preserve the property as affordable multifamilyhousing. ready?>> ready. >> let's look at this property.the property is a 200-unit section 236 property located inan inner city neighborhood. 50 units are covered by section8 loan management set aside lms am contract.75 units by a wrap cracked and 75 by basic rents.the basic rents are 10% less
than the section 8 contractrents and the section 8 properties are 15% lower thanthe fair market rents. the contract expires in 2013.tenants will get vouchers but will likely over time take thevouchers and move to more desirable parts of the city.the owner is concerned they will have to reduce rents and won'tbe able to refinance at a level to readdress the capital needs.so the question is what are the options that this owner has?and i won't reveal any answers. i'll let you talk and reveal aswe need.
>> well, one of myâ -- what isthe word? issue.we do have a suggested answer in here.you know, one recommendation is to prepay andout rad.the provision to convert the pbv is currently active.my only problem is, and they threw this at me to see if icould catch it, i thought you said the rad contract didn'texpire until 2015. >> let's look at that.the contract expires in 2015. >> so that wasâ -- there's atrick in there.
luckily i caught that.>> we'll reveal the first answer and show the complication.>> it does have complications. >> so viewing audience, younotice that? so let's lookâ -- get past thatone and talk about other options.let's say they actually could convert to make it moreinteresting. so you know, the rents would beset at aren't reasonableness. they could qualify for ahigherâ -- qualify for a higher rent.it's also aâ -- make sure i have
my facts right so i don'tmisspeak. it's a 236 property.i noticeâ -- if they prepare the mortgage, the 236, thenonsection 8 rents are only 10% lower than the section 8 rents.you can increase them up to 10% without hud approval.that's another option. also, if you prepare, you couldconvertâ -- i'm sorry. you could provide the nonsection8 tenants with vouchers as well. so those are some other options.>> i'll reveal the next bullet. it says the rents will be setbased on a reasonableness for
option.rad. and let's talk about the third.the owner can prepare the 236 loan by right, they can get pbvsfor the rad construction and for the section 236 units for 100%vouchers. >> so looking at the wrap units,the 75. the issue on the rad side is youcould not convert them for vouchers.if you prepare, you could still get vouchers for those units.>> okay. let's look at the last part.if the owner cannot prepare the
loan, if the owner is anonprofit, they can get pbvs for a total of 75.>> that's correct. >> they were required tomaintain the additional 75 units as affordable.>> how about i go through the review questions?>> that's great. >> and we always end the lessonwith a few review questions. we have three here.the first is which of the following are conditionsrequired in order for hud to be able to terminate an existing20-year section 8 contract?
circle all that apply.i'll tell you two. >> okay.>> the first possible answer is the purpose of terminatingexisting contract is to execute a new 20-year contract.>> i like that one. >> we talked about that one.the term of the contract must have less than two yearsremaining in order to do that. >> yeah.you made that one up. >> i didn't make it up.i did not write this. the third, the amount ofremaining time in existing
contract will be a pended to thenew 20-year contract resulted in the new contract exceeding 20years. the tenants that live at theproperty must be notified in writing.i think that's a trick one. >> yeah.you have your one year, you know, contract expirationnotice. >> correct answers given are aand c. are we in agreement on that?>> we are. >> okay.the next question, a profit
motivated owner is applying fora 20-year housing assistance renewal under option one marketto market. when can the owner request thepayment renewal? can that it do it 90 days beforethe contract expires, 90 daysâ -- the same answer twice, 90 daysbefore the contract expires. 90 daysâ --[laughter] this is great.i like this. or any time.i think the answer to that is any time.the key here isâ --
>> we're trying to move a point.>> no matter when it is, they can always get the renewal.going on to question 3. the newly passed rentalassistance demonstration provides new opportunities forpreserving properties participating in which of thefollowing programs? circle all that apply.the rental assistance payment, the rent sop, the section 8 modrehab. >> all right.applies to all three exception for c.>> you're right.
you review the less thanobjectives. >> all right.so what we covered today in this lesson 5, we wanted to recognizethe potential opportunity to renew existing section 8 rentalassistance contracts, which we did.we analyzed the requirements and incentives and tools associatedwith the section 8 contract 20-year renewal.we also explored two specific tools to get a section 8 rentincrease in conjunction with the contract renewal.we evaluated the potential for
two tools for your property andrecognizing that everything we covered today in these casestudies, your property might vary.we're not trying to advocate that this is always the onlyright answer. but these are things for you toconsider when you are looking to preserve your property.then we identify current options available for owners ofproperties with expiring section 8 mod rehab and rad programs.>> thanks, margie. if you'd come back in 25minutes, we'll be starting on
our sixth lesson, which is onfha refinancing strategies. 1:15 eastern time.thanks.
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