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Developer Fee
Will developer fee be permitted on straight-refinance (non-LIHTC) transactions?The developer fee is a permitted use of funds and does not fall under restricted net proceeds. The Notice does not prescribe a limit on the Developer Fee in PRAC conversions, however we routinely process conversions with a developer fee that is up to 15% of the Total Development Cost.
Seller Equity
In a sale or refinance, how is the seller's equity calculated?When there is a sale or refinance, the PRAC owner is permitted to take proceeds. However, HUD may restrict the use of some of those proceeds depending what portion of the 40-year Capital Advance Agreement term has passed. The completed portion of the Agreement is applied to the original Capital Advance amount to calculate how much equity the owner has accrued in the project and can take as unrestricted sale or refinance proceeds. For example, if an owner is 20 years into the 40-year Capital Advance agreement, they have accrued 50% equity in the original capital advance amount. If the original capital advance amount was $10 million, the owner can take out $5 million unrestricted. Any amount in excess of $5 million would be restricted to affordable housing purposes.
PRAC R4R Uses
Can Reserve for Replacement funds be used to pay for a Capital Needs Assessment?Yes. Consult your Multifamily Account Executive for guidance for submitting for reimbursement of the expense.