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Notice Listings on Financing Plan Milestones and Requirements
Notice Section 1.4 Project Conversion Requirements and Financing Considerations Notice Section 1.14 Developer Fee Notice Section 1.15 Streamlined RAD Conversion for Small Public Housing Agencies Notice Section 1.4.A.1 Capital Needs Assessment Notice Section 1.5.E Conversion is a Significant Amendment o Annual/Five Year Plan Notice Section 1.12.D Milestones and Financing Plan Notice Section 1.14.A Notice Section 1.14.B Notice Section 1.14.C Notice Section 1.14.D Notice Section 1.15.A Notice Section 1.15.B Notice Section 1.4.A.2 Green Building and Energy Efficiency Notice Section 1.4.A.3 Environmental Review Notice Section 1.4.A.4 Substantial Conversion of Assistance Notice Section 1.4.A.5 Relocation Requirements Notice Section 1.4.A.6 Accessibility Requirements Notice Section 1.4.A.7 Site Selection and Neighborhood Standards Notice Section 1.4.A.8 Additional Design Considerations Notice Section 1.4.A.9 Demolition Notice Section 1.4.A.10 Change in Unit Configuration Notice Section 1.4.A.11 Ownership and Control Notice Section 1.4.A.12 Transfer of Assistance Notice Section 1.4.A.13 Davis-Bacon prevailing wages Notice Section 1.4.A.14 Section 3 of the Housing and Urban Development Act of 1968 (Section 3) Notice Section 1.4.A.15 Lead Based Paint Hazard
Questions on Financing Plan Milestones and Requirements

Certification of Previous Participation/2530

The Financing Plan requires certification of previous participation. Are paper 2530s still acceptable or does information have to be in APPS?

Yes, submission of paper 2530s is still permitted. The lender has the option of submitting either paper (Form HUD 2530) or electronic “previous participation clearance” via APPS.

Pro Forma Title Insurance Policy

Typically, a title policy is obtained immediately before closing, but this is identified as a 90-day CHAP milestone. Are we talking about the same thing? Does the title company need to provide a preliminary version for inclusion with the financing plan in addition to an updated version for closing?

Yes, a preliminary/pro forma title insurance policy must be obtained in the financing plan. It should be submitted with the financing plan at the 180 day milestone or, if has FHA financing, at the 150 day milestone. It is a required exhibit for FHA firm commitment application. Note: At the 90 day milestone, the PHA owner is required to submit to HUD: 1) a certification to HUD that all the due diligence lending has been completed, and 2) a copy of the PCA. The PHA owner isn’t required to provide all the 3rd party reports which the lender has received by then, only the PCA. The lender will submit the other reports with its FHA application.

Updated Engagement Letters for Financing Plan

The Financing Plan requires updated engagement letters from equity partners and the lender/HUD containing this approval. Does this apply to 1) Public Housing Capital and Operating funds pledged to the project? and 2) Deferred Developer fees?

Yes, the requirement applies to all of the above, except for the deferred developer’s fee. The PHA’s financing plan is due by 180 day milestone; however, in the case of RAD transactions with FHA financing, it’s due by the 150th day when the FHA Firm Commitment is to be submitted. As part of the underwriting, the FHA lender will need to confirm the owner equity to be contributed and any other funding commitments including secondary financing. The lender can’t do this without getting confirmation of the pledged funds, and confirmation of tax credit funding commitments. The deferred developers’ fee will be a secondary financing, in the form of a surplus cash note.

Subsidy Layering Review

Who will be conducting the subsidy layering reviews when required?

The RAD Subsidy Layering process is currently being finalized. Subsidy Layering Reviews will be done either by the RAD Transaction Manager or (for transactions involving certain non-RAD sources of funds) by another funder. For example, some state HFAs do the subsidy layering review for tax credit project.

RAD Underwriting with High Expense Ratios

In RAD deals with high expense ratios, at 2% & 3% rent/expense trending, NOI trends downward. This makes the debt sizing difficult if you need to keep the DSCR positive for 15 years. You have a very high DSCR in year 1 to get to a 1.05 or 1.10 in year 15. Has HUD considered any measures to mitigate this risk?

The RAD program does not have any requirements regarding how a lender or investor underwrites the transaction or what level of debt service coverage be maintained over time. You may use any trending assumptions that you think are reasonable. Please note though that because rents will increase each year by the OCAF, which incorporates market expense factors, that rents and expenses may trend at the same rate.

RAD and Smoke Free Housing

Do housing complexes receiving RAD funds need to provide smoke free apartment blocks?

RAD does not include any smoke free building requirement. You would, however, want to check whether your project has any non-RAD funding sources that include such a requirement.

Limits on Deferred Developer Fee Amount

Is there any limit on how much of the developer fee can be deferred to finance a RAD conversion, assuming all project financing will be from Housing Authority sources?

While in tax credit deals only a certain amount of deferred developer fee can be counted towards basis, there’s no such rule outside of that context. As a general principle, the RAD team generally wants a material amount of non-deferred developer fee because it acts as an additional contingency (if there are cost overruns, the developer can defer more fee without having to invest more cash in the deal). Additionally, funding requirements may change based on the findings from the completed RAD Physical Condition Assessment (RPCA).

Timing of Accessibility and Relocation Plan Checklist

Is it appropriate for a PHA to provide the accessibility and relocation plan checklist prior to submission of an application for firm commitment for FHA financing or submission of a financing plan?

Yes. PHAs must provide the accessibility and relocation checklist prior to submission of an application for firm commitment for FHA financing or submission of a financing plan. However, since approval of the checklist is required prior to closing, in order to avoid delays HUD strongly recommends that PHAs submit the checklist as soon as details of the transaction are known (i.e. before all of the other components of the Financing Plan or application for firm commitment is ready). Submission of the checklist in an earlier stage will help speed up transaction processing and allow HUD more time to work with a PHA to resolve any issues that may arise during review.

2530 Requirements

Is there a HUD 2530 submission required as part of RAD?

If a PHA converts to PBVs, the 2530 process does not apply. If a PHA converts to PBRA, the PHA itself is exempt from the 2530 process, but any development partner with greater than a 25% stake in the project, or any management agent (other than the PHA) will be subject to the 2530 process. Please note that transactions utilizing FHA financing are subject to the existing 2530 procedures for FHA. Please discuss with your respective Transaction Manager.

Architecture and Engineering Fees

Does RAD have a standard for the reasonableness of Architectural and Engineering (A/E) fees?

For projects subject to Subsidy Layering Reviews, the RAD SLR has a threshold of 5% of hard construction costs for architectural fees. Engineering fees, however, should be reported separately, as should construction management, permitting, and commissioning services. For any amount above 5%, the PHA would need to provide documentation that such amounts are consistent with local practices, including allowable amounts under the applicable State Qualified Allocation Plan (QAP).

Subsidy Layering Review form

I'm working on a LIHTC transaction. The HFA has agreed to do the subsidy layering review. Is there a form that HUD would prefer the HFA use?

No. HUD does not have a subsidy layering form for external parties to use. The HFA should perform the subsidy layering review in accordance with their existing internal process.

Construction Interest Eligibility for Subsidy Layering Review

Is construction period interest an eligible cost in the Subsidy Layering Review?

Construction period interest is an eligible cost only if is paid in cash. If it is not to be paid in cash (for example, if it is to be paid from future cash flow of the property) then it is not eligible because no cash is needed during the development period.

Appraisal Requirements for non-FHA Financing Under RAD

Does RAD have any Appraisal requirements?

RAD does not have any appraisal requirements. For non-FHA financing, your lender will decide on any appraisal requirements.

Next Steps for Project Not Awarded 9% Tax Credits

What are the specifics of HUD’s decision to issue a new Financing Plan due date if the project is not awarded credits in current round and needs more than 30 days to established a financing strategy that does not include 9% credits? Notice states that the decision is based on score and rank. What does "score and rank" refer to?

If the PHA’s applications for 9% tax credits is unsuccessful in the first tax credit round that begins 90 days after CHAP issuance, the CHAP will be terminated unless, within 30 days of notification, the PHA demonstrates that it diligently pursued 9% tax credits, as evidenced by the score and ranking in the unsuccessful 9% application OR proposes a financing strategy that does not rely on 9% tax credits and that is feasible. “Score and ranking” refers to the QAP score and rank within the LIHTC application round. Typically projects are rated and ranked based upon how well the project met the priorities and criteria set forth in the state’s QAP and the top scoring applicants are awarded LIHTCs. The PHA would need to submit evidence showing that their project received a high QAP score and ranking but still did not receive the credits due to the competiveness of the round.

Insurance Requirements

What are the insurance requirements for a RAD project? Is an AM Best rating required for the insurance company?

The RAD requirements for insurance can be found in the RAD Notice (1.6.D.5 for PBVs, 1.7.C.4 for PBRA): "Mandatory Insurance Coverage. The Covered Project shall maintain at all times commercially available property and liability insurance to protect the project from financial loss and, to the extent insurance proceeds permit, promptly restore, reconstruct, and/or repair any damaged or destroyed project property." If your RAD project has a first mortgage loan or other non-RAD funding, your other funding provider(s) probably have their own insurance requirements, so be sure to check with your non-RAD funders as well.

Requesting an Opportunity Zone Rent Increase

When may a PHA make the request for an Opportunity Zone Rent Increase and how will HUD document approval?

PHAs may make an initial request for the rent increase up to six months prior to submission of the Financing Plan and will make the final request when the Financing Plan is submitted. The PHA’s initial request should affirm that the project: Is converting to a Project Based Rental Assistance (PBRA) HAP contract Is located in a designated Opportunity Zone Will be newly constructed or substantially rehabilitated Requires the rent increase in order to achieve viability of the transaction Unless the project is not converting to PBRA or if it is located outside of an Opportunity Zone, HUD will issue a CHAP addendum that will provide a modified rent schedule conditioned on 1) submission of a complete and acceptable Financing Plan within six months of the date of the addendum and 2) HUD’s verification at the time of Financing Plan that the transaction meets the criteria for the rent increase as described above. The PHA can use the CHAP addendum to support lender and investor underwriting. Please note that while HUD anticipates being able to fund most requests, HUD may need to delay issuance of a CHAP addendum if there is inadequate funding available to support the request. If a complete and acceptable Financing Plan is not submitted within six months of the date of the CHAP addendum is issued, the CHAP addendum will expire. HUD will not provide extensions. The PHA may submit a subsequent request for the rent increase, which HUD will consider subject to the availability of funding. In reviewing the submitted Financing Plan, HUD will confirm that the project meets all criteria to be eligible for the increase and confirm that the amount of the rent increase is necessary for the viability of the transaction. Once confirmed, HUD will amend the CHAP to fully incorporate the increased rents.