RAD Notice Revision 4 (H 2019-09 PIH 2019-23) (Published September 5, 2019)

RAD Notice Revision 3 as amended Vs RAD Notice Revision 4 (Published September 5, 2019)

RAD Supplemental (Notice H-2020-09 Notice PIH-2020-26) | RAD Supplemental COVID-19 Guidance

RAD Supplemental Notice | RAD Federal Register Supplemental Guidance on Final Notice (Published July 2, 2018)

RAD Notice Revision 3

Rental Assistance Demonstration (RAD) – Supplemental Guidance 3.B (Published 12/11/2018)

RAD Federal Register Notice Implementing Certain FY 18 Appropriations Act Provisions (Published July 2, 2018)

RAD Notice of Increase in Cap and Rent Setting (Published August 23, 2017)

RAD Notice Revision 3 (Published January 12, 2017)

RAD Notice Blacklined Version of Revision 2 vs Revision 3 (Published January 12, 2017)

Fair Housing, Civil Rights, and Relocation Notice (Published November 10, 2016)

Purpose
This revised notice (Notice) provides program instructions for the Rental Assistance Demonstration (RAD or Demonstration), including eligibility and selection criteria.

Background
RAD is authorized by the Consolidated and Further Continuing Appropriations Act of 2012 (Pub. L. No. 112-55, approved November 18, 2011), as amended by the Consolidated Appropriations Act, 2014 (Pub. L. No. 113-76, approved January 17, 2014), the Consolidated and Further Continuing Appropriations Act, 2015 (Pub. L. No. 113-235, approved December 16, 2014), the Consolidated Appropriations Act, 2016 (Pub. L. No. 114-113, approved December 18, 2015), the Consolidated Appropriations Act, 2017 (Pub. L. No 115-31, approved May 5, 2017), and section 237 of Title II, Division L, Transportation, Housing and Urban Development, and Related Agencies, of the Consolidated Appropriations Act, 2018 (Pub. L. 115-141, approved March 23, 2018) collectively, the “RAD Statute.” RAD has two separate components:

• First Component. The First Component allows projects funded under the public housing program to convert their assistance to long-term, project-based Section 8 rental assistance contracts. Under this component of RAD, public housing agencies (PHAs) may choose H-2019-09 PIH-2019-23 (HA), Rental Assistance Demonstration REV-4 – Final Implementation 2 between two forms of Section 8 Housing Assistance Payment (HAP) Contracts: project-based vouchers (PBVs) or project-based rental assistance (PBRA). No incremental funds are authorized for this component. PHAs will convert their assistance at current subsidy levels. The FY 2018 Appropriations Act authorizes up to 455,000 units to convert assistance under this component. Section I of this Notice provides instructions for PHAs that apply for conversion under the First Component.

  While the RAD Statute, as amended, contains language authorizing HUD to convert Section 8 Moderate Rehabilitation (Mod Rehab) projects (including Mod Rehab McKinney Vento SROs)1 under the First Component, HUD is exercising its discretion to prioritize public housing conversions under the competitive requirements of this component. The demand for public housing conversions is extremely high and significantly exceeded the initial limitation on the number of units that could be converted under the First Component. In addition, unlike Mod Rehab conversions, there is no Second Component option available for public housing projects. Consequently, Mod Rehab conversions are processed exclusively under the Second Component of RAD, which is non-competitive.

• Second Component. The Second Component allows owners of projects funded under the Rent Supplement (Rent Supp), Rental Assistance Payment (RAP), and Mod Rehab programs to convert to PBV or PBRA contracts upon contract expiration or termination occurring after October 1, 2006. The Second Component further allows owners of projects funded pursuant to Project Rental Assistance Contracts under the Section 202 Supportive Housing for the Elderly program (202 PRAC) to convert to PBV or PBRA contracts. Section II of this Notice provides instructions for owners of Mod Rehab projects. Section III of this Notice provides instructions for owners of Rent Supp and RAP projects. Section IV of this Notice provides instruction for owners of 202 PRAC projects. Collectively, pre-conversion projects whose assistance is converting from one form of rental assistance to another are referred in this Notice as “Converting Projects.” Post-conversion projects with assistance converted from one form of rental assistance to another are referred in this Notice as “Covered Projects.”

“Converting Projects.” Post-conversion projects with assistance converted from one form of rental assistance to another are referred in this Notice as “Covered Projects.”

Previous versions of this Notice were published as follows:

• PIH 2012-18 (March 8, 2012, superseded by PIH Notice 2012-32)
• PIH Notice 2012-32 (July 26, 2012)
• PIH Notice 2012-32 REV-1 (July 2, 2013)
• PIH Notice 2012-32 REV-1 Technical Correction (February 6, 2014)
• PIH 2012-32 Rev 2 (June 15, 2015).
• Notice PIH 2012-32 (HA) H 2017-03, REV 3 (January 12, 2017)
• Notice PIH 2018-11 H 2018-05 (July 2, 2018)
• Notice PIH 2018-22 H 2018 11 (December 11, 2018)

The terms of the Notice in effect at the time of closing generally govern all projects converting assistance under either component of RAD, notwithstanding execution of a conditional approval or commitment for conversion. For all conversion types, HUD reserves the right, in its sole discretion and upon request from the applicant, to apply provisions from previous versions of this Notice to program participants that are near conversion.  

Major Revisions in Revision 4

This revised Notice includes a change in eligibility and selection criteria as well as clarifications of existing instructions. Major revisions are summarized below. Where indicated, the provisions will be subject to a 30-day Notice and Comment period.

First Component (Public Housing Conversions)

1. Extends all resident rights to households that will reside in non-RAD Project Based Voucher (PBV) units placed in a converted public housing project so as to facilitate the standard protection of residents (see Section 1.6);
2. Increases resident notice requirements to improve communication with residents throughout the conversion process (see Section 1.8);

3. Establishes a mechanism for public housing agencies (PHAs) to enter into partnerships in order to pool resources or capacity with each other so as to effectively convert properties through RAD (see Section 1.5.L.);

4. Allows limited rent increases for public housing conversions to Project Based Rental Assistance (PBRA) contracts in certain scenarios, including in designated Opportunity Zones (see Section 1.7.A.5);

5. Modifies the requirements for portfolio awards so as to provide PHAs greater flexibility in staging the conversion of their properties (see Section 1.9.C.);

6. Streamlines Capital Needs Assessment (CNA) requirements to eliminate the submission of the CNA Tool when certain conditions have been met (see Section 1.5.A.);

7. Introduces a “Concept Call” so that PHAs can receive confirmation that project plans are sufficiently advanced to submit a Financing Plan (see Section 1.12.C.);

8. Prohibits PHAs from entering debt into the Earned Income Verification “Debts Owed” module purely as a result of the 50058 End of Participations that is required to be submitted into Public and Indian Housing Information Center (PIC) as part of the conversion (see Section 1.13.B);

9. Broadens the use of “tiered” environmental reviews so that streamlined submissions are needed for certain 24 CFR Part 50 reviews; requires the use of the HUD Environmental Review Online System (HEROS) for Part 50 reviews; and requires radon testing for PBRA and PBV conversions (see Attachment 1A);

10. Establishes policy that RAD rents will be updated every two years and the updated rents will be applied to new awards issued after those established dates (see Attachment 1C);

11. Establishes a priority for “Section 3” employment and other economic opportunities for residents of public housing or Section 8 assisted housing (see Section 1.4.A.18.).

The following additional changes are subject to Notice and Comment because they impact eligibility and selection criteria (see below):

1. Removing restrictions on certain HOPE VI properties that are under 10 years old; and

2. Eliminating the selection of applications based on previously established “Priority Categories” so that HUD reviews applications on a first-come, first serve basis. In the event that a waiting list forms, establishes the priority selection of applications for properties located in designated Opportunity Zones.

Second Component (Section 202 PRAC, Mod Rehab, Mod Rehab SRO, Rent Supp, RAP Conversions)

1. Implements the provision of the 2018 Appropriations Act authorizing the conversion of Section 202 PRAC projects to Section 8 PBRA or PBV contracts

2. Streamlines Capital Needs Assessment (CNA) requirements for Mod Rehab conversion to eliminate the submission of the CNA Tool when certain conditions have been met;

3. Broadens the use of “tiered” environmental reviews so that streamlined submissions are needed for certain Part 50 reviews; requires the use of the HUD Environmental Review Online System (HEROS) for Part 50 reviews; and requires radon testing for PBRA and PBV conversions

4. Streamlines the Conversion Plan (Financing Plan) requirements for Mod Rehab Conversion when certain criteria has been met

5. Creates an ability for Mod Rehab and SRO properties converting to PBRA to utilize contract rents based on the condition of the property following rehabilitation H-2019-09 PIH-2019-23 (HA), Rental Assistance Demonstration REV-4 – Final Implementation 5

6. Provides an ability for owners of converting SRO properties serving the homeless to establish a leasing or occupancy preference that facilitates permanent supportive housing;

7. Fully establishes resident right of return and the prohibition against re-screening for existing residents; and

8. Establishes a final date that any remaining RAP properties may make a submission of conversion under RAD.

Notice and Comment for Changes in Eligibility and Selection Criteria

This Notice is effective immediately except with respect to changes in the project eligibility and selection criteria, which are subject to a 30-day comment period commencing on the effective date for the remainder of the Notice. Unless HUD receives comment that would lead to the reconsideration of any of the indicated changes in eligibility and selection criteria, these changes will become effective seven calendar days following expiration of the 30-day comment period. If HUD receives adverse comment that leads to reconsideration, HUD will notify the public in a new revision immediately upon the expiration of the comment period. Please submit all comments to RAD@hud.gov.

PHAs and Project Owners applying to RAD during the 30-day public comment period will be subject to the new eligibility and selection criteria of this Notice. In the event that HUD reconsiders any changes to the eligibility and selection criteria after the 30-day comment period that materially impact an application submitted during the comment period, a PHA or Project Owner may amend an application previously submitted. However, CHAPs and Portfolio Awards for projects satisfying eligibility and selection criteria that are subject to notice and comment will only be issued upon expiration of the comment period.

Notice Organization
The main body of this Notice (Program Instructions) is divided into four sections:

• Section I: Provides instructions to PHAs and their development partners, who can convert the assistance of public housing projects under the First Component of the Demonstration.
• Section II: Provides instructions to owners of Mod Rehab projects, including SROs, who can convert the assistance of these projects under the Second Component of the Demonstration.
• Section III: Provides instructions to owners of Rent Supp and RAP projects, who can convert the assistance of these projects under the Second Component of the Demonstration.
• Section IV: Provides instructions to owners of 202 PRAC projects, who can convert the assistance of these projects under the Second Component of the Demonstration.

Please refer to the appropriate section for relevant instructions. A table of contents is provided on pages 6-8 of this Notice for reference.

Demonstration Goals
RAD provides the opportunity to test the conversion of public housing and other HUD-assisted properties to long-term, project-based Section 8 rental assistance to achieve certain goals, including the preservation and improvement of these properties through enabling access by PHAs and owners to private and public debt and equity to address immediate and long-term capital needs. RAD is also designed to test the extent to which residents have increased housing choices after the conversion, and the overall impact on the subject properties.

Evaluation
Each component of RAD will be evaluated separately:

• For conversions under the First Component, HUD is required under the RAD Statute to assess and publish findings regarding the impact of the conversion on: the preservation and improvement of the former public housing units, the amount of private capital leveraged as a result of such conversion, and the effect of such conversion on residents. (The 2012 Appropriations Act does not require an evaluation of the conversion of Mod Rehab under the First Component.) On September 30, 2014 HUD published “A Progress Report on the Rental Assistance Demonstration (RAD) Evaluation,” which provides a summary of early program results and outlines the evaluation underway.2 In addition, in September, 2016 HUD published the “Interim Report: Evaluation of HUD’s Rental Assistance Demonstration (RAD).
• For conversions under the Second Component, the legislation requires that the Comptroller General of the United States conduct a study of the long-term impact of the fiscal year 2012 and 2013 conversion of TPVs to PBVs on the ratio of tenant-protection vouchers to project-based vouchers. The study, which was completed and published on April 24, 2014, is available at http://www.gao.gov/products/GAO-14-402.

Further Information
Please check www.hud.gov/rad for the latest information on RAD or to join the RAD listserv. Materials referenced in this Notice may be obtained from this RAD website. Email questions to RAD@hud.gov.  Additionally, HUD will develop informational materials to address various program elements that HUD will post on the RAD website.

Paperwork Reduction Act
The information collection requirements contained in this document have been approved by the Office of Management and Budget (OMB) under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) and assigned OMB control number 2502-0612, 2529-0013, and 2506-0087. In accordance with the Paperwork Reduction Act, HUD may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection displays a currently valid OMB control number.

Pending
The information collection requirements contained in this document are pending approval by the Office of Management and Budget (OMB) under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) and assigned OMB control number 2502-0118. In accordance with the Paperwork Reduction Act, HUD may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection displays a currently valid OMB control number.

The Act. The United States Housing Act of 1937.

Administering PHA. A PHA that administers rental assistance under the Act, which may include the HCV, Mod Rehab, or PBV programs.

Affordable Housing Purposes. Activity that supports the pre-development, development or rehabilitation of other RAD conversions, public housing, housing assisted under Section 8 of the Act, properties subject to Low-Income Housing Tax Credits (LIHTC) use restrictions, or other federal or local housing programs serving households with incomes at or below 80% of area median income, or that provide services or amenities that will be used primarily by low-income households as defined by the Act.

Anniversary of the HAP Contract. The annual recurrence of the date of the first day of the term of the HAP Contract.

Annual Contributions Contract (ACC). The written grant agreement between HUD and a PHA under which HUD agrees to provide funding for a program (e.g., public housing or HCV) under the Act, and the PHA agrees to comply with HUD requirements for the program.

Capital Needs Assessment (CNA). A detailed physical inspection of a property to determine critical repair needs, short- and long-term rehabilitation needs, market comparable improvements, energy efficiency, unmet physical accessibility requirements, and environmental concerns, including lead-based paint. In accordance with Chapter 5 of the MAP Guide, the CNA identifies “Critical repairs,” which include 1) “Life Safety” repairs that, in HUD’s determination, are needed to address hazards to life and health and must be completed before residents can occupy or continue to occupy the affected units and 2) “Accessibility” repairs that are needed to correct accessibility deficiencies. The correction of accessibility deficiencies must take the minimum time reasonably possible given the physical characteristics of the repairs and construction process and given the reasonably anticipated impact of the deficiencies and the repairs on the tenants, including disruption or displacement of their occupancy and their safe and full enjoyment of the property.

Choice-Mobility. For residents of Covered Projects, the option to obtain an HCV from a PHA after a defined period of residency. (See Section 1.7.C.5 of this Notice for PBRA conversions, and 24 CFR § 983.261 and Section 1.6.D.8. for PBV conversions, for further details on the Choice-Mobility component.)

Closing. The event during which the applicable transaction documents are entered into. “Conversion” does not occur prior to Closing. (See Section 1.13 for further details on closing.)

Combined Agency. A PHA that either directly, or through an affiliate, administers both an HCV program and public housing.

Commitment to enter into a Housing Assistance Payments Contract (CHAP). Conditional commitment provided to the PHA for units that have been selected under the First Component of the Demonstration that describes the terms under which HUD would enter into a HAP Contract with the Project Owner once the project complies with all requirements in the CHAP, this Notice, and other statutory and regulatory requirements applicable to the project.

Contract Administrator. HUD or a PHA under ACC with HUD that either executes a HAP Contract with a Project Owner or, in PBRA, to which HUD may assign the HAP Contract and which upon assignment, the assignee becomes responsible for administering the HAP Contract.

Contract Rent. The total amount of rent specified in the HAP Contract as payable to the Project Owner for a unit occupied by an eligible family. In PBV, the contract rent is referred to as “Rent to Owner.”

Converting Project. The pre-conversion property whose assistance is converting from one form of rental assistance to another under the Demonstration.

Covered Project.  The post-conversion property with assistance converted from one form of rental assistance to another under the Demonstration.

Current Funding. Applicable to public housing conversions, the combination of Federal subsidy and tenant rents for which a project is eligible under the public housing program in the fiscal year of conversion. (See Sections 1.6.B.5. and 1.7.A.5., and Attachment 1C for further details on current funding.)

Date of Full Availability (DOFA). Per 24 CFR § 905.108, the last day of the month in which substantially all (95 percent or more) of the units in a public housing project are available for occupancy.

Declaration of Restrictive Covenants (DORC). The restrictive covenants covering a public housing mixed-finance project that obligate the Project Owner to operate a project in accordance with the Act, HUD regulations, the ACC, the Mixed Finance ACC Amendment, the HOPE VI Grant Agreement (if applicable), and the Choice Neighborhoods Implementation Grant Agreement (if applicable).

Declaration of Trust (DOT). The restrictive covenant on projects assisted through a public housing ACC that obligates PHAs to operate public housing projects in accordance with the ACC, the Act, and HUD regulations and requirements. In some cases, a Declaration of Restrictive Covenants is used in lieu of a Declaration of Trust, which Declaration of Restrictive Covenants obligates the owner of the property to operate certain units as public housing in accordance with the ACC, the Act and HUD regulations and requirements. For purposes of this Notice, the defined term Declaration of Trust (DOT) shall refer to a Declaration of Trust and/or a Declaration of Restrictive Covenants, as applicable to the specific site.

Distributions. Any withdrawal or taking of Surplus Cash by the Project Owner (see definition for “Surplus Cash”, below). Surplus Cash, once determined pursuant to applicable HUD requirements, is not subject to further federal restrictions.

Enhanced Vouchers (EVs). A type of tenant protection voucher provided pursuant to an eligibility event under Section 8(t) of the Act. EVs differ from regular vouchers in three significant ways: (1) the payment standard used to calculate the voucher housing assistance payment for EVs may exceed a PHA’s ordinary payment standard; (2) an EV provides residents with a right to remain in the project as long as the units are used for rental housing and are otherwise eligible for voucher assistance; and (3) the household must pay for rent no less than the rent the household was paying on the date of the eligibility event (minimum rent). If the household elects to move, the voucher is administered as a regular voucher. HUD provides EVs and funding to a voucher agency that has jurisdiction over the area in which the property that the eligibility event occurred is located.

Fair Market Rent (FMR). The cost in a particular housing market area of privately owned, decent, safe and sanitary rental housing. HUD establishes and publishes in the Federal Register FMRs for dwelling units of varying sizes for each metropolitan area. FMRs are gross rent estimates, i.e., they include the cost of tenant-paid utilities. See 24 CFR part 888 subpart A. The use of the term “FMR” on its own refers to the metropolitan area-wide FMR.

Faircloth-to-RAD. The process by which PHAs develop additional public housing units pursuant to the Faircloth Limit using the public housing development process at 24 CFR Part 905, Subpart F with conditional pre-completion approval to convert these units to a long-term Section 8 contract through RAD following completion of construction, rehabilitation, or acquisition under the public housing development process.

Faircloth Limit. The limitation on the number of new public housing units a PHA may develop as described in Section 9(g)(3) of the Act.

Family Self-Sufficiency (FSS). FSS is a program authorized under section 23 of the Act and designed to promote self-sufficiency of assisted families through the coordination of services. Residents enter into a five-year contract of participation which outlines goals related to seeking, obtaining, and maintaining employment. During the period of participation, residents may earn an escrow credit, based on increased earned income. FSS Coordinator funding may be available to PHAs to pay for the salary and benefits of a program coordinator who links residents with training opportunities, job placement organizations, and local employers.

Financing Plan. Documentation submitted to HUD for review to demonstrate that the Covered Project can be sustained physically and financially for the term of the HAP Contract at the rent Definitions H-2019-09 PIH-2019-23 (HA), Rental Assistance Demonstration REV-4 – Final Implementation 14 levels permitted under the Demonstration. The Plan must show how the project’s immediate and long-term capital needs will be addressed.

Good-Cause Exemption. An allowance made by HUD exempting a PBRA Covered Project from the Choice-Mobility component. (See Sections 1.7.C.5 and 2.6.I for further details on good-cause exemptions.)

Green Building. An approach to building, rehabilitation, repairs, maintenance, and property operations that is more sustainable than traditional approaches to such activities and results in a project that is more energy efficient, costs less to operate, has better indoor air quality, and reduces its overall impact on the environment. (See Section 1.4.A.2 for further details on green building.)

Gross Rent. The Gross Rent shall equal the contract rent plus any utility allowance for the unit.

HOTMA Implementation Notice. Federal Register Notice Housing Opportunities Through Modernization Act of 2016: Implementation of Various Section 8 Voucher Provision, published January 18, 2017 at 82 FR 5458.

Housing Assistance Payment (HAP). The payment made by the Contract Administrator to the Project Owner of an assisted unit as provided in the HAP Contract. Where the unit is leased to an eligible household, the payment is the difference between the contract rent for a particular assisted unit and the tenant rent payable by the family.

Housing Quality Standards (HQS). Standards set forth in 24 CFR § 982.401 that must be met by all units in the HCV program before assistance can be paid on behalf of a household. The HQS in 24 CFR § 982.401 apply to PBV, in accordance with 24 CFR § 983.101. Generally, Voucher Agencies must conduct HQS inspections of PBV projects not less than biennially during the term of the HAP Contract.

HAP Contract. The contract entered into by the Project Owner and the Contract Administrator that sets forth the rights and duties of the parties with respect to the Covered Project and the payments under the contract.

Identity of Interest (IOI). A relationship where two parties have closely related business operations or other activities. An identity of interest must be disclosed and may be prohibited. Examples of Identity of Interest relationships include, but are not limited to, a financial or family relationship between the PHA or owner (which includes but is not limited to an officer, director, or partner of the PHA or owner) and general contractor, subcontractor, seller of the land or property, any consultants, or other parties to the transaction.

MAP Guide. Housing Guidebook 4430.G “Multifamily Accelerating Processing (MAP) Guide”

Mixed-Finance Project. A public housing project developed in accordance with 24 CFR part 905 subpart F using public housing, nonpublic housing, or a combination of public housing and non-public housing funds, where the public housing units are owned in whole or in part by an entity other than the PHA, pursuant to 905.604(a). A mixed-finance project may include 100 percent public housing (if there is an Owner Entity other than the PHA) or a mixture of public housing and non-public housing units.

Notice of Anticipated RAD Rents (NARR). Conditional commitment provided to the PHA for units the PHA proposes to develop under Faircloth-to-RAD that describes the terms under which HUD will issue a CHAP to the PHA once the units are developed and accepted into the public housing program.

Operating Cost Adjustment Factor (OCAF). An operating cost adjustment factor established by HUD that is applied to the current contract rent, less the portion of the rent paid for debt service.

Ownership or Control. The RAD Statute provides requirements for the ownership or control of Covered Projects under the First Component. See Section 1.4.A.11 for a description of how to satisfy those requirements for PBV and PBRA conversions.

Prepayment. The satisfaction (i.e., payment in full) of the underlying mortgage prior to its maturity date. Prepayment is one of the eligibility triggering events for RAD conversion under Section III of this Notice.

Project. For purposes of determining a RAD transaction, a “project” is a structure or group of structures that in HUD’s determination are appropriately managed as a single financial asset. In most cases, this corresponds to a grouping of residential units that are managed and marketed as a single entity and are geographically proximate. In determining whether multiple structures constitute a project, HUD will take into account types of buildings, occupancy, location, market influences, management organization, financing structure or other factors as appropriate. For a RAD PBV conversion, the definition of “project” in 24 CFR 983.3 continues to apply for all references to the term in 24 CFR 983.4

Project-Based Voucher (PBV). A component of a PHA’s HCV program, where the PHA attaches voucher assistance to specific housing units through a PBV HAP Contract with an owner, pursuant to 24 CFR 983. Unlike a tenant-based voucher, the PBV assistance remains attached to the unit when the family moves, and assists the next eligible family to move into the PBV unit. The PBV program is administered by HUD’s Office of Public and Indian Housing.

Project-Based Rental Assistance (PBRA). Rental assistance under Section 8(C) of the Act provided by HUD to owners according to the terms of a HAP Contract for the provision of housing to eligible tenants. The PBRA program is administered by HUD’s Office of Housing.

Project Owner. The term Project Owner refers to the owner of the Covered Project, including but not limited to any owner pursuant to a HAP Contract. For purposes of HAP Contracts, an Owner is a private person, partnership, or entity (including a cooperative), a non-profit entity, a PHA, or other public entity, having the legal right to lease or sublease the dwelling units subject to the HAP Contract.  

Public Housing Agency (PHA). A Public Housing Agency that administers programs under the Act, which could include public housing, Mod Rehab and HCVs. In addition to this general definition, the term PHA, as used in this Notice, refers to the owner of a First Component Converting Project (even if the project is a mixed finance project and the PHA does not own the ACC units).

Public Housing Assessment System (PHAS). The current system used to measure the performance of PHAs administering the public housing program, per 24 CFR part 902, or any successor system.

Public Housing Project. Per 24 CFR § 905.108 the term ‘‘public housing’’ means low-income housing, and all necessary appurtenances thereto, assisted under the Act, other than assistance under 42 U.S.C. § 1437f of the Act (section 8). The term ‘‘public housing’’ includes dwelling units in a mixed finance project that are assisted by a PHA with public housing Capital Fund assistance or Operating Fund assistance. The term “public housing project” means housing developed, acquired, or assisted by a PHA under the Act, and the improvement of any such housing. Each public housing project has a project identification number in the Public and Indian Housing Information Center (PIC), though a PHA may propose to convert individual sites within the public housing project.

RAD Conversion Commitment (RCC). For the First Component, the contract executed by HUD, the PHA and, as applicable, the pre-conversion owner (if not the PHA), and the post-conversion Project Owner. The RCC follows completion of HUD’s review of the Financing Plan and describes the terms and conditions under which HUD will approve the proposed conversion and execute closing documents. (See Section 1.12 and Attachment 1A for further details on the RCC.)

RAD Fair Housing, Civil Rights and Relocation Checklist or Checklist.  The Accessibility and Relocation Checklist or its successor, the RAD Fair Housing, Civil Rights, and Relocation Checklist (when available) used in First Component transactions.

RAD Use Agreement. Applicable to the First Component, the document specifying the affordability and use restrictions on the Covered Project, which will be coterminous with the HAP Contract and must be recorded in a superior position to any new or existing financing or other encumbrances on the Covered Project. (See Sections 1.6.B.4 and 1.7.A.4 for further details on the RAD Use Agreement.)

REAC. HUD’s Real Estate Assessment Center.

Resident Opportunity and Self-Sufficiency Service Coordinators (ROSS-SC). Funding under this program is made available for Service Coordinators to assess the needs of residents of public housing and coordinate community resources to meet those needs. These services should enable participating families to make progress toward achieving economic independence and housing self-sufficiency, or, in the case of elderly or disabled residents, improve living conditions and enable residents to age-in-place.

Section Eight Management Assessment Program (SEMAP). The current system used to measure the performance of PHAs administering the Section 8 HCV program, per 24 CFR part 985, or any successor system.

Small Area FMR. The FMR established on a zip-code basis per 81 FR 80678, as published annually in the Federal Register.

Surplus Cash. For both PBV and PBRA, following completion of the Work, the amount determined to be available at the end of an annual fiscal year period after payment, or after funds have been set aside for payment, of (i) operating expenses, (ii) mortgage payments, and (iii) all amounts required to be deposited in the replacement reserve or other restricted accounts essential to the Covered Project’s operations.

Tenant Protection Vouchers (TPVs). Vouchers issued to eligible tenants of certain properties when an event at the property would otherwise expose tenants to a loss of rental assistance, resulting in an increase in their housing costs. Such events include when a Rent Supp or RAP contract terminates due to expiration, prepayment of the underlying mortgage, or an enforcement action; the termination or expiration of a Mod Rehab or SRO contract; or HUD approval of public housing unit demolitions, dispositions, and conversions under Section 18, Section 22, or Section 33 of the Act. HUD provides TPVs and funding to a voucher agency that has jurisdiction 5 https://www.hud.gov/sites/documents/16-17HSGN_16-17PIHN.PDF. Definitions H-2019-09 PIH-2019-23 (HA), Rental Assistance Demonstration REV-4 – Final Implementation 18 over the area in which the property is located. TPVs may be regular HCVs, which are administered in accordance with all HCV program requirements, or EVs, as described above.

Tenant Rent. The amount payable monthly by the household as rent to the unit owner as defined in 24 CFR Part 5.634 (public housing and PBRA) and 983.353 (PBV).

TTP. The total tenant payment as calculated pursuant to 24 CFR Part 5.

Uniform Physical Condition Standards. Protocols used for HUD Real Estate Assessment Center (REAC) physical inspections in accordance with 24 CFR part 5, subpart G.

Uniform Relocation Act (URA). The Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970 as amended (42 U.S.C. 4601 et seq.) and its implementing regulations (49 CFR part 24).

Utility Allowance. As defined in 24 CFR Part 5, the amount that a PHA or Project Owner determines is reasonable for tenant-paid utility costs. In the case where the utility allowance exceeds the Total Tenant Payment (as defined at 24 CFR § 5.613), the tenant is reimbursed in the amount of such excess.

Voucher Agency. A PHA that administers a HCV program.

Work or Scope of Work. The improvements required by HUD to be performed within a defined period following the conversion and specified in the RCC or other RAD conversion documents.

This Section provides RAD program instructions to owners of Section 8 Moderate Rehabilitation projects, including Single Room Occupancy (SRO) dwellings as authorized by title IV of the McKinney-Vento Homeless Assistance Act. Collectively, these projects will be referred to as “Mod Rehab” projects unless otherwise noted.

HAll Mod Rehab conversions are processed under the Second Component. While the Second Component does not have the broad statutory waiver authority that the First Component does, the Second Component does provide that participation is subject to the “requirements established by the Secretary.” HUD has used this authority to waive regulatory provisions and develop alternative requirements to fulfill the purposes of the Demonstration as described in this Notice and only to the extent described in this Notice.

Owners may choose between two forms of long-term Section 8 Housing Assistance Payment (HAP) Contracts: project-based vouchers (PBVs) or project-based rental assistance (PBRA). Conversions may be prospective (when an owner still has an active Mod Rehab contract at the project) or retroactive (when the Mod Rehab contract has already expired at the project). Owners pursuing a prospective conversion may choose from either a PBV contract or a PBRA contract. Owners who are pursuing a retroactive conversion will be limited to PBV conversions only.

1. PBV Conversions. An owner may request to enter into a Section 8 PBV HAP Contract with an eligible PHA to administer the contract. With the exception of provisions identified in this Notice (as well as retained flexibilities of Moving to Work (MTW) agencies, all regulatory and statutory requirements of the PBV program in 24 CFR Part 983, and applicable standing and subsequent Office of Public and Indian Housing guidance, including related handbooks, shall apply.

   1. Prospective Conversions. Projects are eligible for prospective conversions if the Mod Rehab contract has not yet expired or been terminated. In a prospective conversion, the project will receive PBV assistance in lieu of the TPV assistance that would have been otherwise provided to project residents. Prospective conversions may be suspended in a particular fiscal year if HUD does not have sufficient TPV appropriations to fund all of the demands on the TPV account, in which case the Mod Rehab contract would be renewed until funds become available.

      Owners must comply with the resident consultation procedures described in this Notice and must submit a request to HUD to confirm that the PHA that currently administers the Mod Rehab contract is willing to administer the PBV contract. If that PHA declines to consent, HUD will make a reasonable effort to find a PHA with operational jurisdiction willing to enter into a PBV contract with the owner.

      Following resident consultation and submission and approval of a Converesion Plan, the project will close when any new financing closes, the Mod Rehab contract is terminated (or expires), and the new HAP Contract is executed. The PHA that has agreed to administer the PBV HAP Contract will have the vouchers added to its Annual Contributions Contract (ACC).

   2. Retroactive Conversions. Where contract expiration has occurred and TPVs or Evs have already been issued to project residents, projects may be eligible for a retroactive conversion to PBV assistance. The contract expiration and issuance of Evs or TPVs must have occurred on or after October 1, 2006.

      Only the units occupied by eligible low-income residents that received TPV or EV assistance at the time of contract expiration or termination, who continue to reside in the project, and who consent to the conversion may be assisted under the PBV HAP Contract. For retroactive conversions, as required under the RAD Statute, the “Administering PHA” must approve a request for a retroactive conversion to a PBV HAP Contract. If the actively Administering PHA does not consent to long-term conversion of the contract to PBV assistance, the project is not eligible for retroactive conversion.

2. PBRA Conversions. An owner may request to enter into a 20-year Section 8 PBRA HAP Contract (subject to annual appropriations). The HAP Contract will be executed by HUD’s Office of Housing. Initial contract rents will be determined by an RCS and be limited to 110% of FMR (unless a higher limitation not exceeding any applicable statutory maximum is approved by HUD pursuant to Section 2.6.C) and will be adjusted only by an OCAF at each anniversary of the HAP Contract, subject to the availability of appropriations for each year of the contract term and the requirements of section 2.6.D. At expiration of the initial contract, the owner is eligible to renew the contract under section 524 of MAHRAA, subject to the terms and conditions applicable at the time of renewal and to the availability of appropriations for each year of such renewal. Regulatory requirements of the PBRA program in 24 CFR Part 880, with the exception of provisions identified in this Notice, and applicable standing and subsequent Office of Housing guidance, including handbooks, shall apply.

Owners of Mod Rehab projects that meet all eligibility requirements described below may submit a Conversion Plan to convert assistance under the Second Component of RAD.

2.3.1 Eligible Owner

1. Compliance with HUD and PHA Requirements. Owners must be in good standing with HUD and the PHA. The owner must not have a history of non-compliance with program and contractual requirements, including maintaining units in a decent, safe, and sanitary manner. If a proposed conversion is in the context of an acquisition, the purchaser must provide evidence of successful experience owning and operating HUD or other affordable multifamily housing properties.¹⁰⁵
2. Fair Housing and Civil Rights Compliance for PBV and PBRA Conversions. An owner must resolve to HUD’s satisfaction any outstanding civil rights matters prior to conversion. All pending legal processes must have been satisfied to meet this standard. If eligibility would be denied on this basis, HUD will notify the applicant of its determination and any actions necessary to permit a finding of eligibility.

   Additionally, an owner may be required to demonstrate that its proposed activities under RAD are consistent with any applicable VCA, conciliation agreement, consent order or consent decree, final judicial ruling, or administrative ruling or decision. HUD may terminate an approval if it determines that the terms of the conversion would be inconsistent with fair housing or civil rights laws or a fair housing or civil rights court order, settlement agreement, or VCA. Furthermore, if a project is subject to a VCA, conciliation agreement, consent order or consent decree, or final judicial ruling or administrative ruling or decision, it must ensure that the ownership agreement or other appropriate document makes the new owner subject to the remedial provisions contained in such documents. It is the owner’s obligation to disclose such VCAs, etc., to the prospective owner. The extent of the owner’s responsibilities, including whether the responsibilities are appropriately limited to the development, maintenance, or operation of the particular RAD project, must be appropriately documented. The owner will follow any requirements for the modification of such VCA, conciliation agreement, consent order or consent decree, or final judicial ruling or administrative ruling or decision. If HUD is a party to such docoument, the RAD project will not close without HUD’s express approval of the transfer of obligations to the new owner.

2.3.2 Eligible Properties and Units

1. Eligible Properties.  A project is eligible for a prospective conversion if the project is currently receiving assistance through a Mod Rehab contract that is either in its initial or renewal term. For retroactive conversions, a project is eligible to convert if the project previously had a Mod Rehab contract that expired or terminated on or after October 1, 2006. Properties that were previously assisted under a Mod Rehab contract where the HAP Contract has been terminated by the Administering PHA due to non-compliance are ineligible to participate under this Notice.
2. Physical Condition. For PBRA conversion, unless provided explicit approval by HUD, the owner must provide evidence that the project meets the minimum threshold requirements of “decent, safe, and sanitary” housing. An owner must submit the project’s most recent HQS or REAC score as evidence that the project meets this minimum threshold requirement.

   For PBV conversions, the converting units must qualify as existing housing in order to be selected for conversion under the Second Component of RAD. The PHA must ensure that the units substantially meet HQS, as defined in the PHA’s Section 8 administrative plan, prior to project selection. Prior to entering into a PBV HAP Contract, the Administering PHA will inspect the units proposed for conversion to ensure that the units fully comply with HQS. The HAP Contract will not be executed until and unless the converting units fully meet HQS, unless the PHA is using HOTMA non-life threatening and alternative inspection provisions.¹⁰⁶

   All PBRA and PBV conversions of properties constructed before 1978 must provide evidence that the project meets the lead paint evaluation and remediation requirements in 24 CFR 35.

3. Eligible Units. For prospective PBRA conversions, all units on the original Mod Rehab contract are eligible for conversion under RAD. Retroactive conversions to PBRA are not authorized.

   For prospective PBV conversions, all units on the Mod Rehab contract that are eligible for TPVs at the expiration or termination of the Mod Rehab contract under PIH’s HCV funding Appropriations Act notices (or successor PIH notices regarding TPV allocations) are eligible for conversion under RAD. The PHA makes the final determination of unit eligibility to be included in the PBV HAP Contract.

   For retroactive PBV conversions, eligible Mod Rehab contract units are those that are occupied at the time of the RAD conversion by households who received TPV assistance as the result of the expiration or termination of the contract.

1. Capital Needs Assessment (CNA).¹³⁸ Except as noted below, each project selected for award will be required to perform a detailed physical inspection to determine both short-term rehabilitation needs and long-term capital needs to be addressed through a Reserve for Replacement Account. A CNA must be submitted with the Conversion Plan.
   1. For FHA transactions, owners must use the CNA eTool and follow applicable requirements in the MAP Guide governing exemptions. The CNA must be completed by a qualified, independent third-party professional.
   2. For all non-FHA transactions using equity sources of financing, the equity provider will determine the scope of work and required Initial Deposits to the Reserve for Replacement (IDRR) and Annual Deposits to the Reserve for Replacement (ADRR), as long as the ADRR is not less than $450 per unit per year. Submission of a CNA to HUD is not required unless the owner proposes an ADRR below this minimum threshold.
   3. For all other transactions (i.e., without any FHA-insured debt or equity financing sources):
      1.  The Project Owner must provide a copy of a CNA completed within 12 months of RAD Conversion Plan submission by a qualified, independent third-party professional.
      2. A CNA will not be required to include an assessment of critical or immediate needs if the project:
         1. was built within the last 5 years; or
         2. qualifies as new construction or “substantial rehabilitation” (generally defined as meeting Level 3¹⁴⁰ Alterations per the 2012 International Building Code for Existing Buildings);
         3. HUD will use the component replacement and reserve schedule from the submitte CNA to verify that the IDRR and ADRR are in accordance with HUD requirements.
         4. HUD may exempt projects from submitting a CNA where the project has 20 or fewer units or where the total assisted units (e.g., RAD units and other units supported by PBV) at the project will constitute less than 20% of the total units at the project (or a higher amount at HUD’s discretion).

   Any proposed exemptions must be confirmed with the Transaction Manager assigned to the RAD conversion.

   No utility consumption baseline analysis is necessary as part of the CNA conducted for the RAD conversion.

   HUD may, at its discretion, conduct a site visit to substantiate that site conditions established in the CNA are as reported.

2. Healthy Housing and Energy Efficiency. For all projects retrofitted under a RAD conversion, if systems and appliances are being replaced as part of the Work identified in the approved Conversion Plan, Owners shall utilize the most energy- and water-efficient options that are financially feasible and that are found to be cost-effective. The use of Energy Star®, WaterSense® or Federal Energy Management Program (FEMP)-designated products and appliances replacements, if any such designation is available for the applicable system or appliance, is presumed to be the minimum threshold for meeting such requirement.¹⁴² Owners are strongly encouraged, for all RAD conversion projects, to scope rehabilitation and ongoing replacements that utilize components that will improve indoor air quality and/or reduce overall environmental impact where those components have little or no cost premium, consistent with the principles and best practices of the green building industry.

3. Financing. An owner’s Conversin Plan (as described in Section 2.8.4 below) must demonstrate the availability of resources adequate to address all current and ongoing capital needs identified in the CNA.

4. Environmental Reviews. Under Federal environmental review requirements, proposed RAD projects are subject to environmental review. Environmental documents are required to be submitted as part of the applicant’s overall Conversion Plan. A Conversion Plan cannot be approved by HUD if the project plan does not meet environmental review requirements. Please see Attachment 2A for a discussion of the environmental review requirements applicable to RAD transactions, including transactions that will not result in the alteration of the physical condition of the property. Once an awardee has submitted an application for a specific project, they may not make any choice limiting actions before the completion of the environmental review.¹⁴³

5. Lead Safety.
   • A CNA performed for a project built before 1978, and the scope of the rehabilitation that follows, must address lead safety with respect to paint, dust, soil (including compliance with 24 CFR 35, subparts B - R), and water (including lead service line replacement).
   • For a project built before 1978 for which a CAN is not performed, the scope of the rehabilitation must address lead safety with respect to paint, dust, soil (including compliaance with 24 CFR 35, subparts B - R), and water (including lead service line replacement).

6. Relocation and Right to Return. Any person who is legally on the lease or otherwise in lawful occupancy at the Converting Project at or after the time of submission of the Conversion Plan has a right to remain in, or, in the event that rehabilitation will result in the relocation of residents, a right to return to an assisted unit at the Covered Project. Any relocation as a direct result of acquisition, demolition, or rehabilitation is subject to requirements of the Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970 (URA) which are found at 49 CFR part 24. Proper notices including the General Informatoin Notice (GIN), when applicable, must be sent in accordance with URA regulations and other applicable relocation regulations. Additionally, relocation and one-for-one replacement requirements under section 104(d) of the Housing and Community Development Act of 1974 may apply when CDBG or HOME funds are used in connection with a RAD conversion. Section 104(d) requreiments ar found at 24 CFR part 42, subpart C, and program-specific relocation requirements for CDBG and HOME projects are found at 24 CFR 570.606 and 24 CFR 92.353, respectively. The applicability of URA or section 104(d) requirements to a RAD conversion is fact-specific and must be determind in accordance with the applicable URA and section 104(d) regulations. Permanent involuntary displacement of residents may not occur as a result of a Project’s conversion of assistance. If proposed plans for a Project would preclude a resident from returning to the Covered Project, the resident must be given an opportunity to comment and/or object to such plans. If the resident objects to such plans, the Project Owner must alter the Project plans in order to house the resident in the Covered Project. If a resident agrees to the plans which would preclude the resident’s return, the Project Owner must ensure that the resident’s decision is fully informed, voluntary, and well documented. To be fully informed, at a minimum the resident must be notified in writing of a) his or her right to return; b) his or her right to object to plans which would preclude the resident from returning; c) the Project Owner’s obligation to accommodate the resident’s right to reutrn; and d) a description of the short and long-term implications of both the right to return arrangements (e.g., temporary relocation) and the resident’s options if the resident agrees to such plans. The resident must be provided counseling regarding the resident’s rights and options. To be voluntary, a resident must be informed of their right to return, potential for relocation, and temporary and permanent housing options 30 days before making a decision. In addition., under the URA regulation, residents must be provided notice of relocation at least 90 days before the relocation. The Project Owner cannot employ any tactics to pressure the resident into relinquishing his or her right to return or accepting permanent relocation assistance and payments. To be well documented, evidence of a resident’s decision must be retained by the Project Owner. At a minimum, such evidence must include copies of notices informing the resident of their options, records of any counseling or assistance provided, and the resident’s informed, written consent, including an acknowledgement that acceptance of such assistance terminates the resident’s right to return to the Covered Project. If the resident agrees to the Project Owner’s plans, the permanent relocation is considered voluntary, but must include at a minimum, any relocation assistance and payments required under the URA and Section 104(d), as applicable. The Project Owner may not propose or request that residents waive their rights or entitlements to relocation assistance under the URA or Section 104(d).

7. Accessibility Requirements. Federal accessibility requirements apply to all conversions. The laws that most typically apply to rehabilitation include Section 504 of the Rehabilitation Act of 1973 (Section 504), and in some cases, the Americans with Disabilities Act (ADA). Although the requirements of each of these laws are somewhat different, Owners must comply with each law that applies. Section 504 and the ADA apply to substantial alterations and other alterations as defined in 24 CFR § 8.23 and to existing, unaltered facilities (24 CFR § 8.24). See also 28 CFR § 35.151(b) and 28 CFR § 36.

   When a project’s rehabilitation meets the definition of a “substantial alteration” under 24 CFR § 8.23, the PHA or Project Owner, as applicable, must comply with all applicable accessibility requirements under Section 504 and HUD’s implementing regulations. For some projects undertaking repairs, “other alterations” described at 8.3 are made over time. If other alterations, considered together (such as improvements to the kitchen and bathroom), amount to an alteration of an entire dwelling unit, the entire dwelling unit shall be made accessible.

   Owners are encouraged to use universal design principles, visitability principles, and active design guidelines in planning any construction, wherever feasible. However, adherence to universal design principles does not replace compliance with the accessibility requirements of Section 504, the ADA, and the Fair Housing Act.

8. Site Selection and Neighborhood Standards. Where an owner is planning to convert assistance under RAD, the owner must comply with all applicable site selection requirements, including those of 24 CFR § 983.57 for PBV conversions and of Appendix III of this Notice for PBRA conversions, and of the Fair Housing Act and Title VI of the Civil Rights Act of 1964, including implementing regulations at 24 CFR § 1.4(b)(3), and of Section 504 of the Rehabilitation Act of 1973, including implementing regulations at 24 CFR § 8.4(b)(5).

9. Change in Unit Configuration. Owners may change the unit configuration in conjunction with conversion (e.g., combine SRO units into efficiencies or one-bedroom apartments. However, the Owner must ensure that the change in bedroom distribution will not result in the involuntary permanent displacement of any resident (see Section 2.4.E on Relocation and Right to Return) and will not result in discrimination based on race, color, national origin, religion, sex, disability, or familial status. Where the change in unit configuration will result in a reduction of assisted units, PHAs may request Tenant Protection Vouchers (TPVs) for any eligible residents that elect not to return to the property upon completion of the change in unit configuration (see Section 2.4.F) regarding Right to Return requirements). For SRO projects that are converting, such changes will require a letter of support from the CoC in which the project participates. See Section 2.7.B of this Notice.

10. Transfer of Assistance. In order to facilitate the financing, development, and preservation of decent, safe, and affordable housing, there are three scenarios under which assistance converted pursuant to RAD may be transferred off of the existing parcel of land (for the purposes of this paragraph, transfer of assistance does not include transfers to an adjacent site): (1) where the Owner requests assistance to be transferred as part of the conversion from Converting Project to Covered Project; (2) post-conversion where a Project Owner requests a partial or full transfer of assistance, or (3) where, as a result of a default of the HAP Contract, HUD terminates the HAP Contract.

    After compelling circumstances, HUD will assess that the transfer does not occur in neighborhoods with highly concentrated poverty based on the criteria formulated for transfers under 8(bb) of the Act. Further, HUD will consider whether conversion on-site is economically non-viable; whether the Converting Project is physically obsolete or severely distressed; how the transfer would affect the Converting Project’s residents; and all applicable fair housing and civil rights requirements. Owners are strongly encouraged to request HUD approval of the proposed site prior to submission of the Conversion Plan.

    For PBV transfers of assistance to a new site, the Mod Rehab contract will remain in effect at the original site and will not be terminated until the units at the new site are ready for occupancy and the new HAP Contract is executed. For PBRA transfers of assistance, the new HAP Contract can be executed at the close of construction financing and the Project Owner can use the Section 8 Pass-Through.¹⁴⁶

    After initial conversion, in general, a Project Owner may only request a transfer of assistance to HUD after 10 years from the effective date of the initial HAP Contract. A Project Owner may submit a transfer request sooner if it is needed as a result of eminent domain proceedings, natural disasters, unforeseen events, or as otherwise approved by HUD (for example, if HUD provided approval of a future transfer prior to conversion). HUD may consider, and approve with such conditions as HUD determines appropriate, a partial or complete transfer of assistance to a new location if the new location complies with applicable site selection standards. If applicable, any lender to and/or investor in the Covered Project must also approve the transfer of the assistance. Substantially all units covered by the initial HAP Contract must remain or be replaced as a result of the transfer. Residents of the original location at the time of the transfer request shall not experience a loss of rental assistance. PBV-assisted families living at the property upon termination of a PBV HAP Contract have a statutory right to receive a tenant-based voucher and to certain tenancy protections.¹¹⁴ A family may voluntarily decline the tenant-based voucher and accept a PBV unit at the new location but may not be required to do so.) Termination of a PBV contract is not cause for issuance of additional tenant-based voucher assistance from HUD. PHAs and owners contemplating RAD PBV transfers after conversion must take the PBV families’ right to tenant-based voucher assistance into consideration and ensure that there will be sufficient resources available to the PHA to both effectuate the transfer and meet the PHA’s obligation to provide tenant-based vouchers to those families that wish to receive them. Subject to the availability of appropriations, PBRA-assisted families living at the property upon termination of a PBRA HAP Contract that meet the eligibility requirements for voucher assistance may receive tenant-based tenant protection vouchers (TPVs) in the event the termination of the original PBRA HAP Contract qualifies for issuance of such vouchers.

11. No Rescreening of Tenants upon Conversion. Pursuant to the RAD Statute, atconversion, current households cannot be excluded from occupancy at the Covered Project based on any rescreening, income eligibility, or income targeting. With respect to occupancy in the Covered Project, current households in the Converting Project will be grandfathered for application of any eligibility criteria to conditions that occurred prior to conversion, but will be subject to any ongoing eligibility requirements for actions that occur after conversion.115Post-conversion, the tenure of all residents of the Covered Project is protected pursuant to PBV or PBRA requirements regarding continued occupancy. Under PBV, a unit with a household that was over-income at time of conversion would continue to be treated as an assisted unit. Thus, Section 8(o)(4) of the Act and 24 CFR § 982.201, concerning income eligibility and income targeting of tenants at initial occupancy, will not apply for current households. Under PBRA, a household that would not be income eligible for initial occupancy of a Section 8 unit at the time of conversion would still be placed on a Section 8 lease and eligible for assistance under the provisions governing continued occupancy. Thus, the first clause of section 8(c)(4) of the Act and 24 CFR § 880.603(b), concerning determination of eligibility and selection of tenants for initial occupancy, will not apply for current households. Once the grandfathered household moves out, the unit must be leased to an eligible family. Income eligibility requirements associated with new sources of financing, such as Low-Income Housing Tax Credits, do not supersede this prohibition on rescreening, and the Project Owner may be required to exclude Section 8 units occupied by ineligible households from being covered by the new financing’s restrictions. Additionally, any owner-adopted preference shall not apply to any current resident.

Certain PBV statutory provisions have been waived or altered consistent with the authority Congress has provided for Second Component conversions. In these cases, HUD also notes the corresponding regulatory provisions that are waived or altered. Additionally, HUD has waived certain regulatory provisions (that are not statutorily based) and established alternative requirements in order to prevent displacement of certain residents and otherwise serve the purposes of this Demonstration. All other regulatory and statutory requirements of the PBV program in 24 CFR Part 983 and section 8(o)(13) of the Act shall apply, including resident choice, environmental review, and fair housing requirements.

The modified or alternative requirements that pertain solely to PBV conversions under the Demonstration are described below.

1. Length of Contract. Section 8(o)(13)(F) of the Act provides, in part, that the HAP Contract may have an initial term of up to 20 years. In addition, 24 CFR § 983.205(a) provides the PHA with discretion to set the conract term, for a mimimum period of one year and a maximum period of twenty years. By choosing to participate in the RAD program, the PHA and owner agree to an initial HAP Contract term of 20 years. A PHA may enter into an extension of the initial HAP Contract term with the Owner at any time during the initial term. The PBV HAP Contract during the initial and any extended term is subject to the requirement for sufficient annual appropriated funding.

2. PBV Percentage Limitation. Per the RAD statute, Section 8(o)(13)(B) of the Act (and, by extension, 24 CFR § 983.6) does not apply and covered projects do not count against the percentage limitation applicable to the PBV program. As a result, a PHA that is administering RAD PBV assistance does not take the RAD PBV into consideration when calculating the percent limitation for any non-RAD PBV actions that are subject to the percent limitation. In other words, RAD PBV is excluded from both the numerator and the denominator when calculating the percent of the PHA's voucher portfolio that may be project-based for non-RAD PBV.

3. Cap on the Number of PBV Units in Each Project. There is no cap on the number of units that may receive RAD PBV assistance in each project. Under the HOTMA Implementation Notice, certain formerly assisted properties are excepted from the project cap. For any Covered Projects not covered under the HOTMA Implementation Notice, HUD is waiving section 8(o)(13)(D) of the Act, as well as related provisions of 24 CFR §§ 983.56, 983.257(b), and 983.262(a) and (d).

4. Site selection –Compliance with PBV Goals, section 8(o)(13)©(ii) of the Act and 24 CFR § 983.57(b)(1) and ©(2). HUD waives these provisions having to do with deconcentration of poverty and expanding housing and economic opportunity, for the existing site.

5. Owner Proposal Selection Procedures, 24 CFR § 983.51. Projects are selected in accordance with program requirements detailed in this Notice. HUD is waiving 24 CFR § 983.51. With respect to site selection standards, HUD requires compliance with the site selection standards as set forth in this Notice.

6. Initial Contract Rent Setting. Initial rents for PBV contracts are determined by the PHA, in accordance with 24 CFR Part 983 Subpart G. Such rents generally cannot exceed the lowest of: (i) an amount determined by the PHA, not to exceed 110 percent of the applicable fair market rent (or any exception payment standard approved by the Secretary) for the unit bedroom size minus any utility allowance; (ii) the reasonable rent; or (iii) the rent requested by the owner. (See 24 CFR § 983.301 for program requirements on establishing initial rents). For RAD conversions, HUD is waiving 24 CFR § 888.113(f)(2) and establishing the alternative requirement that the applicable FMR used for SRO units for initial and re-determined rents shall be the zero bedroom (efficiency) FMR.

7. Re-Determined Rents. The rent to owner will be redetermined in accordance with 24 CFR § 983.302.

8. Under-Occupied Units. If a family is in an under-occupied unit under 24 CFR § 983.260 at the time of conversion, the family may remain in the unit until an appropriately-sized unit becomes available in the Covered Project.¹⁴⁹ When an appropriately-sized unit becomes available in the COvered Project, the family living in the under-occupied unit must move to the appropriately-sized unit within a reasonable period of time, as determined by the PHA. In order to allow the family to remain in the under-occupied unit until an appropriately-sized unit becomes available in the Covered Project, 24 CFR §983.260 is waived.¹⁵⁰

9. Davis-Bacon Prevailing Wages. Execution of a PBV contract through RAD that provides rental assistance to previously-assisted units does not trigger Davis-Bacon prevailing wage requirements (prevailing wages, the Contract Work Hours and Safety Standards Act, and implementing regulations, rules, and requirements). However, to the extent that construction or rehabilitation is performed on nine or more units that were not previously rent assisted or rent restricted and will be newly assisted as a result of the conversion transaction (including, without limitation, through transfer of assistance), such construction or rehabilitation is subject to Davis-Bacon prevailing wage requirements.

10. Replacement ReserveThe Project Owner shall establish and maintain a replacement reserve in an interest-bearing account to aid in funding extraordinary maintenance and repair and replacement of capital items. The reserve must be built up to and maintained at a level determined by HUD to be sufficient to meet projected needs. Replacement reserves shall be maintained in a bank account or similar instrument, as approved by HUD, where funds will be held by the mortgagee or, where there is no financing, by the Project Owner and may be drawn from the reserve account and used subject to HUD guidelines.

For Mod Rehab projects converting assistance to PBRA under the Demonstration, 24 CFR Part 880, Section 8 Housing Assistance Payments Program for New Construction (and applicable standing and subsequent Office of Housing guidance ) will apply, except for the provisions listed below. Where applicable, reference is made to the affected statute and/or regulation. For additional background purposes, HUD has provided Appendix I, which is a copy of the existing Part 880 regulation with the provisions stricken that will not apply to covered projects. Appendix III provides the site and neighborhood standards applicable to RAD conversions to PBRA.

1. Length of Contract. Pursuant to the RAD Statute, covered projects shall have an initial HAP term of 20 years. Additionally, 24 CFR § 880.502, which imposes maximum contract terms for New Construction projects consistent with statutory authority that was repealed in 1983, will not apply.

2. Contract Renewal. Pursuant to the RAD Statute, after the initial term of the HAP Contract, the owner is eligible for renewal of the contract under section 524 of MAHRAA, subject to the terms and conditions applicable at the time of renewal and the availability of appropriations for each year of such renewal.

3. Initial Contract Rent Setting Based on the requirements of section 8(c)(1) of the Act, the initial contract rents will be established at the lesser of the following rent levels: (a) the comparable market rent, as determined by a Rent Comparability Study (RCS), which must be prepared in accordance with the requirements of Chapter Nine of the Section 8 Renewal Policy Guidebook¹⁵² and submitted with the request for prospective conversion; and (b) 110 percent of the applicable FMR, less utility allowances or 120 percent of the applicable FMR, less utility allowances, in the case of projects that (i) preserve project-based rental assistance in communities with high percentages of rent-burdened households and where it is particularly hard to utilize tenant-based assistance, (ii) serve to expand housing opportunities in communities with poverty rates less than 30%, and/or (iii) support revitalization activities that are resulting in material private investment in the surrounding neighborhoods. For RAD conversions, HUD is waiving 24 CFR § 888.113(f)(2) and establishing the alternative requirement that the applicable FMR used for SRO units at initial contract rent setting and when adjusting contract rents shall be the zero bedroom (efficiency) FMR. Further, with HUD approval, the Project Owner may use the Small Area FMR in place of the FMR in the computation of rents. To implement this provision HUD is implementing an alternative requirement to 24 CFR §888.113(h) so as to permit the use of a Small Area FMR by project for initial contract rent setting and when adjusting contract rents.

   For projects with units that will be undergoing Work, the contract rents will be established at the lesser of the following rent levels: (1) the “post-rehabilitation” rents, as determined by an RCS; and (2) 110 percent of the applicable FMR, less utility allowances (or 120 percent of the applicable FMR, less utility allowances, per the criteria described above). For owners who wish to establish rents using this method, the owner must submit an RCS that includes both “as-is” rents at the project and “post-rehab” rents at the project. The contract will include both an “as-is” rent schedule and a “post-rehabilitation” rent schedule in one or more exhibits to the PBRA contract. The HAP Contract will reflect a date for the completion of the Work. The owner will be required to submit for HUD approval a cost-certification prepared for the third-party financing source once the Work has been completed.

   If the Work is not completed by the date reflected in the HAP Contract, unless HUD agrees to extend the deadline for completion of the Work, on the first day of the month following the date for the completion of the Work as reflected in the HAP Contract, HUD will reduce the rents to those reflected in the “as-is” rent schedule starting on the first day of the month when the Work was to have been completed. Further, HUD will consider the difference between the “as-is” and the “post-rehab” rents from the date of the effective date of the HAP Contract until the date by which the Work was to have been completed as an overpayment and will offset future HAP payments until the overpayment has been repaid. Effective on the date the Work is completed and the cost-certification accepted by HUD, HUD will resume providing the rents that are reflected in the “post-rehab” rent schedule. For transactions where initial rents will be set at the “post-rehab” rents, the PBRA HAP Contract will be effective on the first day of the month following the closing on the construction financing. Owners will be required to submit evidence that they have successfully closed on the construction financing to their transaction manager.

4. Method of Adjusting Contract Rents. Contract rents will be adjusted by the OCAF at each Anniversary of the HAP Contract, subject to (a) the availability of appropriations for each year of the initial term of the HAP Contract, and (b) the Maximum Rent, as defined below.¹⁵⁴

   The Maximum Rent is the higher of 120% of FMR (less utility allowances) or the market rents, as demonstrated by an RCS procured and paid for by the Project Owner. Where an RCS has been used to justify an OCAF adjusted rent that exceeds 120% of the FMR, the RCS will remain valid for five years, the Maximum Rent will not apply for the next four annual rent adjustments, and rents will be adjusted only by the OCAF. The applicable FMR used for SRO units shall be the zero bedroom (efficiency) FMR. Further, where HUD has approved  the use of Small Area FMR by project, the Small Area FMR will continue to serve as the applicable FMR when determining the rent cap.

5. Distributions. Covered Projects will not be subject to any limitation on distributions, contingent on the availability of Surplus Cash as determined by year-end audited or certified financial statements. To implement this provision, HUD will not apply 24 CFR § 880.205, which, among other provisions, establishes certain limitations on distributions for profit-motivated owners and authorizes HUD to require not-for-profit and certain for-profit owners to establish a residual receipts account.

6. Davis-Bacon Prevailing Wages. Execution of a PBRA contract through RAD that provides rental assistance to previously-assisted units does not trigger Davis-Bacon prevailing wage requirements (prevailing wages, the Contract Work Hours and Safety Standards Act, and implementing regulations, rules and requirements). However, to the extent that construction or rehabilitation is performed on nine or more units that were not previsouy rent assisted or rent restricted and will be newly assisted as a result of the conversion transaction (including, without limitation, through transfer of assistance), such construction or rehabilitation is subject to Davis-Bacon prevailing wage requirements. In such cases, Davis-Bacon applies to a PBRA conversion to the same extent it would apply if the conversion were a PBV conversion.

7. Under-Occupied UnitsIf at the time of conversion, an eligible family assisted under the Mod Rehab contract is occupying a unit that is larger than appropriate because of the family’s composition, the family may remain in the unit until an appropriately-sized unit becomes available in the Covered Project.¹⁵⁵ When an appropriately-sized unit becomes available in the Covered Project, the family living in the under-occupied unit must move to the appropriately-sized unit within a reasonable period of time. In order to allow the family to remain in the under-occpied unit until an appropriately-sized unit becomes available in the Covered Project, HUD is waiving the portion of 24 CFR § 880.605 that assumes the unit has become under-occupied as the result of a change in family size.¹⁵⁶

8. Physical Inspection. Under current regulations at 24 CFR Part 5 Subpart G, a unit covered under a PBRA HAP Contract must meet the UPCS before assistance can be paid on behalf of a household. Under RAD, however, only after the PBRA HAP Contract is executed and the Work completed, HUD will order a REAC inspection of the project to ensure conditions meet the UPCS. HUD is waiving and establishing this alternative requirement to 24 CFR Part 5 Subpart G.

9. Choice Mobility. HUD seeks to provide all residents of covered projects with viable Choice-Mobility options. Unless provided an exemption as described below, owners that are applying to convert the assistance of a project to PBRA are required to provide a Choice-Mobility option to residents of covered projects (through a voucher agency willing to provide vouchers to covered projects) in accordance with the following:
   1. Resident Eligibility. Residents have a right to move with tenant-based rental assistance (e.g., Housing Choice Voucher (HCV)) the later of (a) 24 months from date of execution of the HAP Contract or (b) 24 months after the move-in date.
   2. Voucher Inventory Turnover Cap. Recognizing the limitation on the availability of turnover vouchers from year to year, the voucher agency would not be required, in any year, to provide more than one-third of its turnover vouchers to the residents of Covered Projects. While a voucher agency is not required to establish a voucher inventory turnover cap, if implemented the voucher agency must create and maintain a waiting list in the order in which the request from eligible households were received.
   3. Project Turnover Cap. Also recognizing the limited availability of turnover vouchers and the importance of managing turnover in the best interests of the project, in any year, an owner may limit the number of Choice-Mobility moves exercised by eligible residents to 15 percent of the assisted units in the project. (For example, if the project has 100 assisted units, the owner could limit the number of families exercising Choice-Mobility to 15 in any year but not less than 15). While a voucher agency is not required to establish a project turnover cap, if implemented the voucher agency must create and maintain a waiting list in the order in which the requests from eligible households were received.

   HUD recognizes that not all Mod Rehab Owners will have access to sufficient vouchers to support this effort. HUD will provide voucher agencies that make a commitment to converting properties bonus points under the Section Eight Management Assessment Program (SEMAP) for deconcentration.

   Additionally, HUD will grant a good-cause exemption for no more than 10 percent of units in the Demonstration. All Mod Rehab owners are eligible to request a good-cause exemption in their Conversion Plan, unless the project owner administers, directly or through an affiliate, a Housing Choice Voucher program.

   Unless exempt, project owners should include in their Conversion Plan their intention to provide Choice-Mobility at the Project and include the following as part of the House Rules for the associated project: “Family Right to Move. Each family has the option to obtain tenant-based rental assistance (commonly known as a Housing Choice Voucher) from [name of the PHA], subject to certain program limitations, at any time after the second year of occupancy. Before providing notice to terminate the lease, the family must first contact the PHA to request tenant-based rental assistance if the family wishes to move with continued assistance. If tenant-based rental assistance is not immediately available, the PHA shall give the family priority to receive the next available opportunity for tenant-based rental assistance. After the PHA offers the family the opportunity for tenant-based rental assistance in accordance with HUD requirements and after the family has secured a lease with such tenantbased rental assistance, the family must give the owner advance written notice of intent to vacate (with a copy to the PHA) in accordance with the lease.”

As the purpose of the conversion of SRO assistance to assistance under a PBV or PBRA contract is to place the properties on a more sustainable footing while retaining and preserving the original purpose of SRO properties to serve the homeless, the following requirements apply specifically to SRO conversions:

1. Homeless Preference. All properties converted shall follow procedures under the PBV and PBRA programs to establish an admissions preference for converted properties for homeless individuals or families. The preference for the homeless must apply to individuals or families that fall within the definition for homeless established by the McKinney-Vento Homeless Assistance Act and contained in the Continuum of Care Interim Rule at 24 CFR § 578.3. For PBV, the preference shall be established by the PHA. For PBRA, the Owner shall establish the preference consistent with 24 CFR § 5.655(c)(5), Housing Handbook 4350.3 REV-1, Chapter 4; and Notice H2013-21 (July 15, 2013). The preference shall not apply to current residents because these residents will continue to be assisted after conversion, but will otherwise be an absolute preference with higher priority than any other preference that the owner adopts (for PBRA) or that the PHA establishes (for PBV). For PBV, the PHA must establish the preference in their Administrative Plan, pursuant to 24 CFR § 982.54. For PBRA, the owner must establish the preference through their Tenant Selection Plan as described in Notice H2013–-21. This requirement shall apply for the term of the contract and any renewal contract.¹⁵⁸

2. Consultation with CoC. Owners must meet with their CoC to discuss the conversion of assistance, project rehabilitation plans, the ongoing requirement for a preference for homeless individuals or families, coordinated entry for new homeless participants, and any plans to modify the means by which the project will provide housing for homeless individuals or families (e.g., reconfiguring SRO units into efficiency or 1-bedroom units. To the extent that project plans entails a reconfiguration of units, owners must secure a letter of support from the CoC for these actions.

3. Admission of Homeless Participants. The Administeirng PHA or Project Owner is strongly encouraged to follow the COC's established coordinated entry process to identify new homeless participants for converted SRO properties prior to screening. The Administering PHA or Project Owner must apply ^all mandatory screening criteria to homeless individuals and families that are new admissions (e.g., sex offender sreening under 24 CFR § 982.553(a)(2)(i) or 24 CFR § 5.856).

   For PBV properties, the Administering PHA may establish screening requirements for new admissions to the SRO project which are distinct from those in place for its HCV program, provided that such screening requirements do not conflict with the prohibition on screening of pre-conversion residents upon conversion (see Section 2.4.K). Specifically, the PHA may chose not to apply discretionary screening criteria (see in particular 24 CFR § 982.552 and 24 CFR § 982.553) to admission policies for converting SRO properites. If the PHA chooses ot exercise this discretion it must have a consistent policy in its administrative plan with respoect to all SRO projects converting to PBV under RAD. In administering its regular PBV program, PHAs generally may not choose to apply different screening criteria to different properties within its HCV program. HUD is authorizing this limited exception for SRO conversions under RAD. (Project Owners under PBRA already have the discretion to apply distinct screening requirements for any individual assisted project).

   All discretionary admission policies must be applied to all applicants to a converted SRO property uniformly.

   Administering PHAs and Project Owners should be aware that some discretionary criteria can have the effect of screening out homeless individuals or families, who may be more likely to have past convictions, past evictions, or previous debts. HUD strongly encourages Administering PHAs and Project Owners to carefully consider their discretionary admission policies and ensure that they are free of such barriers. Further, as a condition of participation in RAD, Administering PHAs and Project Owners are prohibited from adopting discretionary screening requirements that have the effect of circumventing the homeless preference described above such that no homeless individuals or families would be eligible for admission.

4. Data Submission Requirements. In order to maintain data on the project’s ongoing housing of formerly homeless persons, the project will continue to be required to participate in the CoC’s Homeless Management Information System (HMIS) and the annual Housing Inventory Count (HIC). Collaboration with the CoC will be critical in meeting these requirements.

5. Tenant Selection in Permanent Supportive Housing.
   1. In setting preferences for new admissions following accommodation of current residents pursuant to Section 2.4.E, the Administering PHA or Project Owner may not deny admission to or otherwise discriminate against or among any federally protected classes, including among different groups of persons with disabilities. Although an owner or PHA may adopt a preference for admission of families that include a person with disabilities, the owner or PHA may not adopt a preference for admission of persons with a specific disability.¹⁵⁹ However, an owner or PHA may provide a suite of supportive services, and a preference for admission to assisted units for households containing individuals who would qualify for the supportive services offered, such as, for example, by having Medicaid reimbursement authority for the supportive services provided. Any preference for admission to assisted units may not discriminate based on the type of disability and any individual who would qualify to receive the services offered under the service’s nondiscriminatory eligibility requirements may not be excluded from the preference.
   2. For Mod Rehab projects converting SRO assistance to PBV under the Demonstration, the Administering PHA may establish a selection preference for families who qualify for voluntary services, including disability-specific services, offered in conjunction with assisted units, provided that the preference is consistent with the PHA plan. The voluntary services may be designed to be particularly beneficial for specific subpopulations, pursuant to PBV program requirements. Voluntary services can consist of a variety of activities, including for example, meal service adequate to meet nutritional needs, housekeeping assistance, personal assistance, transportation services, case management, child care, education services, employment assistance and job training, counseling services, life skills training, and other services designed to help the recipient live in the community as independently as possible. Voluntary services can also include disability-specific services, such as mental health services, assistance with activities of daily living, personal assistance services, outpatient health services, and the provision of medication, which are provided to support a person with a disability. Such services may also include, for example, services provided by State Medicaid programs to promote community-based settings for individuals with disabilities. To implement such a preference, such housing, aid, services, benefits, and accommodations must be provided in the most integrated setting appropriate to the needs and choices of qualified individuals with disabilities, participation cannot be designed to deny participation in housing, programs, or activities that are not separate or different, participation in such housing, aids, benefits, or services cannot be required, and such preference must comply with and be implemented in accordance with applicable anti-discrimination requirements. This type of preference must be implemented in accordance with the requirements in Federal Register Notice 82 FR 5458 “Housing Opportunities Through Modernization Act of 2016: Implementation of Various Section 8 Voucher Provisions” and any successor regulations, notices and guidance. As part of the PHA plan review process, the Office of Fair Housing and Equal Opportunity, in consultation with the Office of General Counsel, will review the proposed preference. However, HUD’s limited review and authorization to implement a preference is not a determination by HUD of compliance with such requirements.
   3. For Mod Rehab projects converting SRO assistance to PBRA under the Demonstration, the following provisions shall apply.
      1. The Project Owner may establish a preference for admission of households including a person that qualifies for the services provided at the site, including services, aids, benefits, and accommodations which are designed to be particularly beneficial for specific subpopulations, if it is determined that all of the following criteria are met:
         1. The housing, aid, benefits, services, and accommodations will serve the resident population in the most integrated setting appropriate to the needs and choices of qualified individuals with disabilities in accordance with Section 504 and Title II of the ADA. For example, the housing’s design, location, and/or operational policies and procedures must mitigate the effects of segregation or concentration of individuals with a specific disability or diagnosis.
         2. The preference is limited to the population of families that include an individual where that individual’s need for services significantly interfere with the family’s ability to obtain and maintain housing.
         3. Such families will not be able to obtain or maintain themselves in housing without the availability of such supportive services.
         4. Participation in such services is voluntary. Families are not required to accept the housing, aids, benefits, accommodations, or services offered at the project. The Project Owner may not condition admission into the project on the basis of utilizing services offered at the project. The Project Owner may not deny the opportunity for continued occupancy at the project on the basis that an individual chooses to no longer participate in a service or that the individual no longer qualifies for a service.
         5. The preference will not be used to exclude a family or individual based on disability.
      2. The determination required in Section 2.7.E.3(a), above, shall be made by the Project Owner. The Project Owner shall consult with the state and county Medicaid authorities, health services agencies, and other state officials implementing Olmstead settlements, as applicable, regarding how the project and the proposed preference fits with the state system of care and expands individual choice.
         1. The Project Owner’s determination with respect to subsection (a)(i), above, shall consider factors at a minimum including the number of units and bedroom distribution of units eligible to be filled pursuant to the proposed preference relative to the number of units in the property (including whether the preference applies to more than the greater of five units or 25% of the total units at the project), whether any other units at the project are subject to a preference for persons with disabilities, the overall size of the property, whether the location of units appropriate for persons admitted under the proposed preference are dispersed throughout the property, the availability of cooking facilities in the units, access and egress to the units, the ability of residents with disabilities to interact with residents who do not have disabilities, the property location, access to public transportation, access to other neighborhood amenities, the nature of the services provided, and the qualifications of the provider. The Project Owner must also consider standards for proposed integrated settings that are specific to the state where the property is located (e.g., Olmstead settlements, Qualified Allocation Plans, state transition plan under the Home and Community Based Services settings rule,125 and state and local guidelines governing the concentration of persons with disabilities within a property, for various disability types). The Project Owner’s determination may rely heavily on whether the proposed setting is consistent with such state standards for integrated settings, but Project Owners are cautioned to conduct appropriate due diligence regarding whether the state standards are appropriate for such reliance.
         2. In evaluating whether the factors in subsections (a)(ii) and (a)(iii), above, are met in a particular case, the Project Owner may look to whether payment for the services for the individuals that qualify for the preference is provided through a federal agency, state, or local program implementing homeand community-based supportive services for people with significant and long-term service needs, which program is established to mitigate the risk of institutionalization or 125 42 C.F.R. § 441.301(c)(4). homelessness pursuant to authorities such as, but not limited to, (i) Sections 1115, 1115a, 1915(i), 1915(k), and 1915(j)(3) of the Social Security Act of 1935; (ii) a Home and Community Based Services Waiver pursuant to Section 1915(c) of the Social Security Act of 1935; (iii) the Money Follows the Person Demonstration and (iv) a state or local plan for implementing the “most integrated setting” mandate of Olmstead v. L.C.¹⁶¹
      3. The Project Owner may not implement a preference as described in this Section 2.7.E.3 absent notice to and authorization from HUD. Compliance with all applicable fair housing and civil rights requirements is the responsibility of the Project Owner, and HUD’s limited review and authorization to implement a preference is not a determination by HUD of compliance with such requirements. Prior to or contemporaneous with the RAD Conversion Plan submission, a request for review of a preference must be submitted through the applicable Office of Multifamily Housing Programs regional asset management office pursuant to Notice H 2013-21. The request must include a certification from the Project Owner regarding the determinations set forth in Section 2.7.E.3(a), above, and must include the information and documentation to support the certification, a description of how the Project Owner reached the determinations, and any appropriate additional documentation. The request must be accompanied by appropriate ancillary documents such as a description of the property (including of the services offered and the provider), a tenant selection plan (which must identify all tenant screening and selection preferences at the property), and an affirmative fair housing marketing plan. The Office of Multifamily Housing Programs will document authorization to implement the preference following a finding by regional asset management staff and by the Office of Fair Housing and Equal Opportunity staff, in consultation with Office of General Counsel staff in the applicable HUD Region, that the Project Owner’s determination documentation is adequate for purposes of HUD’s limited review. HUD may request that the Project Owner provide additional documentation necessary to review the adequacy of the Project Owner’s determination.

Conversion of a Mod Rehab project will generally entail:

• An initial submission of interest
• Resident consultation
• CoC consultation (for SROs only)
• Selection of PHA (PBV conversions only)
• Conversion Plan submission and conditional approval
• Closing of financing and HAP Contract execution consistent with conditional approval

2.8.1 Initial Submission of Interest to HUD

Prior to submitting a Conversion Plan, an owner must make an initial submission to HUD indicating the owner’s interest in conversion under this Notice. The submission must include:

• Project name;
• Project address;
• Project Owner’s name;
• Project Owner’s contact information;
• The Mod Rehab Contract number(s);
• Mod Rehab Contract expiration date;
• Total number of units covered under the Mod Rehab Contract(s), by bedroom size;
• Property Type (Mod Rehab or Mod rehab SOR) and
• Conversion Type (PBRA or PBV).

HUD has developed an electronic form submission for Project Owners to make the initial submission. To access the electronic submission template, Project Owners must request access to the RAD Resource Desk at www.radresource.net where users will be prompted to provide the information listed above.

HUD will provide the Project Owner a confirmation of successful submission. HUD will use the initial submission in order to:

1. Assign a Transaction Manager, who will make contact to discuss the conversion process and the Project Owner's goals for the Project; and
2. For PBV conversion, initiate the process to identify a PHA willing to administer the new PBV contract (usually this is the curretn PHA administering the Mod Rehab contract).

There is no fee associated with the initial submission, and there is no cap on the number of Mod Rehab Projects for which a Project Owner may make a submission. HUD will take no adverse action against an owner who makes an initial submission, but does not later submit a Conversion Plan.

2.8.2 PHA Administration of the PBV Contract

1. Selection of a PHA. For PBV conversions only, HUD will need to identify a PHA able and willing to administer the PBV contract, and the PHA will need to accept the responsibility. For prospective conversions, HUD will generally select the PHA that currently administers the Mod Rehab contract, unless HUD finds the PHA to be unfit for this role, the PHA is uninterested in administering the contract, or there is a strong business justification for selecting an alternative PHA. In such cases, HUD will make a reasonable effort to find a PHA, in consultation with the Project Owner, with operational jurisdiction willing to enter into a PBV contract with the Project Owner for eligible units at the Project. For retroactive conversions, only the PHA whose ACC the vouchers are under may administer the PBV contract.

Within 30 days of the Conversion Plan submission, HUD will identify an eligible PHA and request that the PHA provide written consent to administer the PBV contract or to decline the request within 30 days of HUD’s request. HUD will communicate the PHA’s response to the Project Owner. If no PHA consents to enter into the PBV contract, the project cannot convert to PBV, and the Project Owner may consider conversion to PBRA instead. Applicants must wait until a PBV HAP Contract Administrator has been identified before submitting their Conversion Plan, as the PHA who will act in this capacity must be identified in that plan.

2. Role of Administering PHA. The PHA that agrees to administer the PBV contract is responsible for administrative duties described in 24 CFR Part 983 and this Notice. Prior to conversion, the PHA’s key roles will include:

1. Pre-Selection Inspection. The PHA must ensure that the units substantially meet HQS, as defined in the PHA’s Section 8 administrative plan prior to submission of the Conversion Plan.
2. Initial contract rent setting. The PHA will determine the initial contract rents pursuant to Section 2.5.G.
3. Number of Vouchers. The PHA will request vouchers based on the number of units on the Mod rehab contract that are eligible for TPVs at the expiration or termination of the Mod rheab contract under PIH's HCV funding Appropriations Act notices (or successor PIH notices reagrding TPV allocations).
4. HQS inspections. Prior to execution of the HAP Contract, the PHA must inspect the Converting Project proposed for conversion to ensure that the units fully comply with HQS, unless the PHA isusing HOTMA non-life threatening and alternative inspection provisions.¹⁶³

2.8.3 Resident Notification and Consultation

1. Resident Notification – All conversions.

   For all conversions, Project Owner is required to notify residents in writing of its intent to participate in the Demonstration.¹⁶⁴The Notification letter must:

   1. Be delivered to all Project residents, including each Mod Rehab–assisted household, as well as posted in the Project office or other common area, and at no fewer than three prominent locations on the Project site;
   2. Include the date and time of resident briefings;
   3. Include an estimated (for prospective) or actual (for retroactive) date of contract expiration or termination and the units that would be covered under a new PBV or PBRA HAP Contract;
   4. Include a description of any proposed rehabilitation or construction at the property;
   5. State the Project Owner’s plan for relocation, if applicable as a result of rehabilitation or construction, including the expected length of the relocation, household’s right to return, and the owner’s responsibility for covering relocation costs; and
   6. Supply information on the method to submit comments to the Project Owner and provide for a 30-day comment period.

The Project Owner must conduct two resident meetings with all affected residents and provide the residents with an opportunity to comment on the conversion. The purpose of the resident meetings is to provide residents with greater detail related to the conversion, including rehabilitation plans (if applicable), relocation (if applicable), and PBV or PBRA program rules that may differ from Mod Rehab rules. The Project Owner must hold an additional meeting when there has been a material change that was not already discussed in a previous meeting.

When providing resident notification and meetings, a Project Owner must use effective communication for persons with hearing, visual, and other communication-related disabilities consistent with Section 504 of the Rehabilitation Act of 1973 and, as applicable, the Americans with Disabilities Act of 1990. Effective communication includes, but is not limited to, providing written materials in appropriate alternative formats (e.g., Braille, large type), as needed, and providing sign language interpreters and assistive listening devices at resident meetings, as needed (24 CFR Part 8.6). Additionally, resident meetings must be held in facilities that are physically accessible to persons with disabilities. Where physical accessibility is not achievable, an Owner must use alternative methods to meet with qualified individuals with disabilities, such as holding meetings at an alternate accessible site or offering in-home meetings. Such meetings must be provided in the most integrated setting appropriate to the needs of qualified individuals with disabilities in a setting that enable individuals with disabilities to interact with nondisabled persons to the fullest extent possible (28 CFR part 35, Appendix B).

Additionally, a Project Owner must provide meaningful access to its programs and activities for persons who have a limited ability to read, speak, or understand English. For projects undergoing RAD conversion, a Project Owner must provide language assistance to residents of the project who are Limited English Proficient (LEP) to ensure that they have meaningful access to RAD resident notifications and meetings. Such language assistance may include, but is not limited to, providing written translation of notices regarding the plans for the project and relocation and oral interpretation at resident meetings. For guidance on providing language assistance to persons with LEP, please see Final Guidance to Federal Financial Assistance Recipients Regarding Title VI Prohibition Against National Origin Discrimination Affecting Limited English Proficient Persons (72 FR 2732).

The Project Owner must submit a copy of all comments received with their Conversion Plan, along with a description of how the residents’ comments will be addressed in the conversion. HUD will consider all resident comments and the Project Owner’s plan to address the comments before approving the Conversion Plan. For prospective conversions, if more than 50 percent of written resident comments disapprove of the conversion of assistance, HUD will contact the Project Owner to discuss options for proceeding with the conversion request or may decline the request.

Upon conditional approval of the Conversion Plan, the Project Owner must notify each affected family that the project has been approved for conversion.

Resident Notification — Additional Requirements Specific to Retroactive PBV Conversions. For retroactive conversions, where families have EV or TPV assistance and have decided to remain at the project, the additional purpose of the resident meeting is to inform the households that only if they voluntarily relinquish their EV or TPV assistance can the owner place their unit under the PBV contract. Units occupied by households that consent to the conversion are eligible for PBV assistance, provided all other requirements are satisfied. Whether to relinquish their assistance is solely the decision of the assisted household. As such, the owner must explain and provide written documentation that completely and accurately describes how the proposed conversion will affect resident rights, rent payments, and mobility. Households must be made aware that if they elect to remain in the unit with EV or TPV assistance, the unit would be ineligible for the conversion. A household currently assisted with an EV would retain the right to move from the project with tenant-based voucher assistance. Further, if the household were to move prior to the execution of the PBV HAP Contract, the unit would not receive PBV assistance.

The owner must provide each household that would be affected by a retroactive conversion with a form that they can use to indicate their consent or non-consent to the conversion. The owner must give families at least 30 calendar days from the date of the briefing to submit the completed form. The form must be signed by the head of household and returned to the PHA. Units occupied by households that affirmatively withhold consent are ineligible for conversion and shall not be included in the PBV contract. If a household does not reply within the timeframe outlined, the PHA must attempt to contact the household; if the PHA is unsuccessful at obtaining the household’s consent, the unit shall not be included in the PBV contract.

The owner may not employ any tactics to pressure a household during the notification and comment period and may not terminate a household’s lease based on a household’s comments or failure to submit a completed form.

Compliance with Applicable Notices Regarding Contract Expiration or Termination. Section 8(c)(8)(A) of the Act requires that not less than one year before the termination or expiration of any contract under which assistance payments are received under section 8, which includes Mod Rehab Contracts (including SRO properties), the owner must provide written notice of the impending Mod Rehab Contract expiration to residents assisted under the Mod Rehab Contract. An owner requesting conversion under this Section of the Notice must comply with this requirement. However, conversion under this Notice will adequately protect residents form displacement and from an increase in the resident portion of the rent. Consequently, conversion may be processed and completed during the one-year notification period. If the owner has not provided residents with the one-year statutory notification at the time of the owner's request to convert assistance under this Notice, the owner must provide such notice prior to submitting its application for conversion. If the owner subsequently decides not to pursue a RAD conversion, they are still subject to compliance with 8(c)(8)(A). Section 8(c)(8)(a) also requires that the owner submit the notice to HUD; however, since local PHAs administer the Mod Rehab program, the owner shall submit the notice to the appropriate PHA instead of HUD.

2.8.4 Conversion Plan, RAD Approval, and Closing

1. Conversion Plan. The Owner must submit to HUD through the RAD Resource Desk a complete Conversion Plan that satisfies all HUD underwriting standards and program requirements. (See Attachment 2.A for Conversion Plan Requirements). HUD will have 60 calendar days from the date of submission of the Conversion Plan to conditionally approve or reject the plan, or request additional information. HUD’s decisions regarding the acceptance of the Conversion Plan will be made in HUD’s sole discretion. If HUD determines that a Conversion Plan is not feasible or that the requirements of the Conversion Plan as set forth in Attachment 2A have not been met, then the owner may either make corrections that satisfactorily address HUD’s concerns or appeal the decision to HUD within 30 days of notification. If a Conversion Plan is disapproved, HUD’s letter of disapproval will discuss changes, if any, that would result in an acceptable Conversion Plan.

2. Conversion Approval. An owner will be notified of HUD’s acceptance of the Conversion Plan via issuance of an approval letter, conditioned upon a firm commitment(s) of financing on substantially the same terms as those presented with the Financing Plan. The approval letter will outline the key components of the planned RAD conversion and will discuss the conditions that need to be satisfied in order to close the conversion.

   Once the conditional approval letter is issued, HUD expects that the RAD conversion will close in a timely manner. The conditional approval letter will allow 90 calendar days (from the date the conditional approval letter is issued to the owner) in which to close the RAD conversion transaction, unless extended by HUD. The owner and financing partners will need to work diligently to achieve closing within the timeframe required under this Notice in order to avoid rescission of the conditional approval.

3. Closing. Conversion under RAD, and execution of the new PBV or PBRA HAP Contract occurs when the financing is closed. In the event that construction or bridge financing will be used as part of the transaction financing, HUD will require evidence at closing of firm commitment of take-out or permanent financing conditional only to the completion of construction or term of the bridge financing, and routine processing conditions acceptable to HUD. In transactions with outside financing, a successful closing will also include evidence that financing sources have closed and will provide the contemplated funding. If the project is being financed with an FHA-insured loan, the closing requirements listed under the MAP Guide will apply.

For additional information on this section of the Notice, please check www.hud.gov/rad or email questions to RAD2@hud.gov.

Attachment 2A: Conversion Plan Requirements and Feasibility Benchmarks for Mod Rehab Conversions

A Conversion Plan will not be reviewed until all required documentation is submitted electronically to the RAD Resource Desk at www.radresource.net. HUD will complete an initial review for document completeness within five business days of submission and will notify the Project Owner of deficiencies. Once HUD has determined that all required documents appear to have been received, HUD will review the submission.

 

HUD’s purpose in reviewing Conversion Plan is to ensure the long-term physical and financial viability of the Covered Project. If a Conversion Plan fails one or more feasibility benchmarks, the HUD reviewer may still accept the Financing Plan if HUD determines that, taken as a whole, the Financing Plan is consistent with the long-term physical and financial viability of the project and/or the owner can adequately support, through historical data or other means, the presented figures. HUD reserves the right to reject any Conversion Plan if the information provided is not complete, accurate, or in compliance with the submission requirements listed below. HUD will not accept the Conversion Plan if the Covered Project does not meet environmental review requirements, as described below.

 

Below are all the required components of a complete Conversion Plan and the requirements of each component.166 Please note that for RAD conversions that will utilize FHA mortgage insurance, the submission requirements and feasibility benchmarks are primarily found in the FHA Multifamily Accelerating (MAP) Guide, as revised by Mortgagee Letter 2012-20. Owners must upload their Conversion Plan as outlined below, following submission of the FHA insured loan application for Firm Commitment.

 

HUD reserves the right to streamline any or all of these requirements for classes of project, e.g., no debt-transactions or small projects.

1. Conversion Overview. A narrative summary of the Covered Project and the Project Owner’s conversion goals. Include details such as a description of the physical Project, the number of proposed units of each bedroom type, project history, identification of immediate capital needs of the Project, identification of other properties to be held within the same ownership entity, anticipated financing that will be obtained to meet the capital needs, anticipated relocation, and circumstances such as new construction, Transfer of Assistance, scattered site, and reconfiguration of units.
2. HQS or REAC Inspections. Submit the project’s most recent Housing Quality Standards (HQS) or Real Estate Assessment Center (REAC) score as evidence that the project meets this minimum threshold requirement.
3. Mod Rehab Contract. Submit a copy of the fully executed original and current Mod Rehab Contract(s), including all exhibits.
4. Statement of Compliance with Fair Housing and Civil Rights. The Project Owner must submit a written statement certifying that it will comply with the requirements identified in section 2.3.1.B of this Notice.
5. Type of Conversion. Identify whether the Covered Project will convert to PBV or PBRA assistance. For PBV conversions, identify the PHA that will administer the PBV HAP Contract.
6. Choice- Mobility Letter of Agreement. For PBRA conversions, include a fully executed Choice- Mobility Letter of Agreement signed by the owner converting units and the PHA that has agreed to administer the vouchers in order to comply with the Choice- Mobility requirement or a request for a good-cause exemption for Choice-Mobility.
7. Resident Notification. The Project Owner must provide proof of written notification informing residents of the intent to participate in RAD. Include a PDF attachment of all comments received from residents as described in Section 2.8.3. Owners must provide a certification that they have held the required meetings with residents and have provided residents with a reasonable time period to submit comments on the conversion. The Project Owner must also provide a description of how the residents’ comments will be addressed in their plan for conversion.
8. Capital Needs Assessment (CNA). A CNA is required in order to identify the short-term and long-term capital needs of the property, which will factor into the Scope of Work and both the Initial and Annual Deposits to the Replacement Reserve. See Paragraph 2.4.A. for additional information on CNA requirements.
9. Initial Contract Rent Setting.
   1. For PBV conversions, submit evidence that the Project Owner’s proposed rents are in accordance with the PHA’s rent setting. See Section 2.5.F. for additional information on Initial Contract Rent Setting for PBV.
   2. For PBRA conversions, submit a Rent Comparability Study, including the Owner’s RCS Cover Letter. The rents cannot exceed the limits set forth in Section 2.6.C.
10. Scope of Work. The Conversion Plan must include a Scope of Work that accompanies the CNA. The Scope of Work must:
    1. Identify and address all repairs identified in the CNA as critical or immediate, (including all items identified in the CNA as not functioning at the time of the site visit) or provide a written justification why those items are not included. Briefly discuss any differences between the proposed Work and the conclusions and recommendations of the CNA provider; additional scope items not identified in the CNA; and the Project Owner’s choices for replacement components.
    2. Identify replacement quantities and costs. Rehabilitation cost estimates must be based upon reasonable market estimates of actual costs, confirmed either by cost estimating completed by the architect/engineer, or through actual competitive bids for major rehabilitation or construction items, in compliance with HUD requirements.
    3. Include a summary of environmental issues and corresponding remediation activities known at that time, and a summary of accessibility features that are required pursuant to applicable accessibility standards and other accessibility requirements. Other accessibility requirements include, but are not limited to, physical features that need to be provided as reasonable accommodations for qualified persons with disabilities.
    4. Include a reasonable timeline for completion of all rehabilitation items acceptable to HUD, from the date of Conversion Closing and any financing, depending on the scope of rehabilitation needed.

     

     

    For Conversions using FHA financing or equity sources of financing. submit a copy of the Scope of Work included with the FHA Application for Firm Commitment, or submitted to the lender, equity provider (including LIHTC, historic tax credit or Opportunity Zone equity providers), LIHTC allocating agency or comparable funding source.

11. Environmental Review. HUD cannot approve an applicant’s Conversion Plan unless and until the required environmental review has been completed for the applicant’s proposed conversion Project and found to meet environmental review requirements. The following describes the submission and approval steps for securing a completed environmental review.

     

    A RAD transaction will either be reviewed under 24 CFR Part 50 (“Part 50 Reviews”) or 24 CFR Part 58 (“Part 58 Reviews”). Part 50 applies when HUD conducts the environmental review, and Part 58 applies when an RE conducts the environmental review. The following table shows which review protocol a transaction will follow, along with who will conduct the review:

    Description

    Type of Environmental Review

    Reviewer

    PBRA Non-FHA

    Part 50

    RAD Transaction Manager

    PBRA FHA Non-Risk Share168

    Part 50

    FHA Production

    PBRA FHA Risk-Share

    Part 50

    Transaction Manager

    PBV FHA Non-Risk Share

    Part 50

    FHA Production

    PBV Non-FHA

    Part 58

    Responsible Entity (RE)

    PBV FHA Risk-Share

    Part 58

    State Housing Finance Agency or Responsible Entity, as applicable169

     

    Under limited circumstances, per 24 CFR 58.11(c), an Awardee with a non-FHA PBV transaction may request HUD to undertake the environmental review under Part 50 if a suitable RE cannot be found or if the local government was not a direct recipient of the funds and refuses to accept responsibility or when HUD determines the local government does not have capacity to act as an RE.170 This request must be made in writing and submitted to HUD no later than at the time of the Conversion Plan submission.

     

    For multi-phase developments, the environmental documents submitted with the Conversion Plan during the first phase must be submitted for the entire site (i.e. all of the phases of the multi-phase development) and the environmental review conducted during the first phase will cover the entire site.

     

    Requests to transfer assistance from the Converting Project to a new location are subject to environmental review.

     

    For transactions receiving funding from other HUD programs (i.e. HOME, CDBG, non-RAD PBV), HUD encourages all parties to complete one review for all programs, even if these programs’ environmental reviews are conducted under a different review protocol (Part 50, Part 58). In cases where two Part 58 programs are combined, HUD encourages applicants to work with the Responsible Entity to see if environmental reviews can be combined. However, this is solely the Responsible Entity’s determination. In cases where a Part 50 program and a Part 58 program are combined, HUD may determine that it will perform one Part 50 environmental review for both programs under 24 CFR 58.11 if performing an additional Part 58 environmental review is not feasible in the time allotted. HUD must ensure that the Part 50 review considers the full scope of all activities and funding associated with all programs. When one review is used for both programs, the Approving Officials for both programs must certify the review.

     

    For all Part 50 reviews, the applicant must submit reports and documentation to HUD in accordance with 24 CFR Part 50, as discussed in Chapter 9 of the MAP Guide, except as follows:171

    1. For PBRA conversions (or where HUD has determined to conduct the PBV environmental review under Part 50) without FHA insurance and without any rehabilitation, construction, or demolition,135 HUD conducted a tiered review of program-wide and site-specific compliance. HUD has made program-wide compliance determinations for most of the applicable environmental laws and authorities, and will complete a site-specific compliance review of the following:
       1. Coastal protection pursuant to the Coastal Barrier Resources Act, as amended by the Coastal Barrier Improvement Act of 1990 (16 U.S.C. 3501);
       2. Flood insurance and floodplain management pursuant to the Flood Disaster Protection Act of 1973, the National Flood Insurance Reform Act of 1994 (42 U.S.C. 4001-4128 and 42 U.S.C. 5154a), Executive Order 11988, particularly section 2(a), and 24 C.F.R. Part 55;
       3. Contamination pursuant to 24 C.F.R. 50.3(i) (HUD Standard).

        

       Additionally, while Historic Preservation (National Historic Preservation Act of 1966, particularly sections 106 & 110; 36 CFR Part 800) is not included in the tiered review, for conversions that entail no physical activities or only activities that are limited to maintenance as defined in HUD Notice CPD-16-02, HUD has no further obligations under Section 106. HUD is not required to contact SHPO, THPO, and/or other interested parties or the public.173

        

       Owners will be required to submit documentation to facilitate HUD’s site-specific review.

        

       For Environmental Reviews under 24 CFR Part 58, PHAs and/or proposed Owners should reach out to the responsible entity.

        

        

    2. For all non-FHA PBRA conversions (or where HUD has determined to conduct the PBV environmental review under Part 50) that do not meet the requirements under paragraph 1 above, the owner or vendor will follow the guidelines in Chapter 9 of the MAP guide. Owners or vendors will upload all applicable documentation directly into HEROS at the time of Conversion Plan submission. The following exceptions to the MAP Guide apply:

        

       • In lieu of a Phase I Environmental Site Assessment (ESA) in accordance with ASTM E 1527-13 (or the most recent edition)174, except for conversions involving substantial rehabilitation or new construction activities, Awardees may submit a more limited report on potential sources of contamination. Where a Phase I ESA is not required (i.e., projects without any associated substantial rehabilitation176 or new construction), the Awardees can submit a “transaction screen” in accordance with ASTM E 1528-14 (or the most recent edition) . A transaction screen will identify potential environmental concerns based on questionnaires, owner/occupant inquiry, site visit, government records inquiry and historical sources inquiry. The transaction screen must be prepared by a qualified professional, in accordance with 24 CFR 50.3(i)(4). As the definition of preparer in ASTM E 1528-14 does not meet this requirement, the professional must have either (a) a science degree and at least one year of practical environmental assessment experience in the field, or (b) three years of practical environmental assessment experience in the field performing site assessments for site contamination. If any potential environmental concerns are identified, an ASTM Phase I ESA in accordance with ASTM E 1527-13 (or the most recent edition) must be provided.
       • Awardees may submit a Phase I ESA that is up to 5 years old upon submission; however, it must be updated by a Transaction Screen that is up to 1 year old upon submission.

          

    When HUD conducts the environmental review under Part 50, PHAs (or their vendors) must submit environmental reports and documentation139 for HUD review into the HUD Environmental Review Online System (HEROS), where HUD will complete its review.

     

    HUD staff will review the submissions and may require additional information in order to complete their review. HUD’s review will result in a determination, which may stipulate the rejection of the site for this demonstration or may require the completion of mitigation measures. The RAD approval will include any conditions required to carry out any and all mitigation measures as may result from the environmental review. Any conditions or mitigation that cannot be satisfied before Closing will survive Closing.

     

    When a Responsible Entity (RE) completes an environmental review under Part 58, the Conversion Plan must include either Form 7015.16 or a letter with the Responsible Entity’s (RE’s) finding of exempt activity in order to consider the environmental review to be complete. The RE should use HUD recommended formats to document the environmental review record.179 The PHA should submit an environmental report to the RE, in such form as prescribed by the RE, to enable the RE to complete their analysis. Once the review is completed, the PHA must submit either:

    • Form HUD-7015.15, Request for Release of Funds (RROF), to their local PIH field staff.180 After the PIH Field Director approves the RROF, the Director sends a completed HUD Form 7015.16 to the PHA, approving the release of funds. The PHA must submit proof of the completed Form 7015.16 (either a copy of the paper form or a screenshot of the completed screen in HEROS) to HUD; or
    • If form HUD-7015.15 is not required because the project converts to Exempt under 24 CFR § 58.34(a)(12), the PHA must submit the RE’s finding of exempt activity with their RAD Conversion Plan. A finding of exempt activity is a statement of the result of the RE’s environmental review, and is required even when form HUD7015.15 is not required. A letter from the RE indicating that the project converts to Exempt under 24 CFR § 58.34(a)(12) is sufficient.

Additionally, the PHA must submit a Radon Report consistent with the requirements of the Section 9.6.3 of the MAP Guide (or successor provision) for HUD to review.

1. Accessibility and Relocation Plan Checklist. All Project Owners shall complete and submit the Accessibility and Relocation Plan Checklist provided by HUD on the RAD Resource Desk. The checklist shall include a certification that anticipated relocation activities comply with all applicable HUD requirements, including the URA as well as applicable accessibility standards, including, but not limited to those under Section 504 of the Rehabilitation Act of 1973 and its implementing regulations (24 CFR §8). The cost of accessibility improvements and relocation must be fully funded in the Development Budget. Project Owners are encouraged to use HUD’s guidance on relocation planning for persons with disabilities in HUD Handbook 1378.0, Exhibit 3-1 and the RAD Fair Housing, Civil Rights, and Relocation Notice.
2. Proposed Financing
   1. For all conversions using financing, the following must be addressed:
      1. Provide a brief discussion of conditions/milestones to be satisfied prior to closing including any known impediments to closing within the timeframe required under the Notice;
      2. Estimated closing date(s) for all proposed financing;
      3. For each proposed loan, equity contribution, or grant, the Conversion Plan must include a recent lender, investor or grant commitment letter, dated no more than 60 days prior to Conversion Plan submission, with key terms identified (including amount, repayment terms, interest rate, amortization, maturity, prepayment restrictions, and pay-in schedule) from all financing provider(s);
   2. For conversions not using FHA financing or equity sources, the following requirements must be addressed in addition to the requirements set forth in Attachment 2A, Section M.a. 1-3 above:
      1. Permanent debt financing with monthly payment amounts not conditioned on the availability of cash flow (i.e., “hard” debt) on Covered Projects must:
         1. Be at a fixed rate of interest, for a fixed term, fully amortized over no more than 40 years;
         2. Not have a balloon payment until after the earlier to occur of a) expiration of the term of the HAP Contract or b) 17 years from the date of the permanent debt financing; and
         3. Not have a debt service coverage less than the higher of 1.11 or lender requirements.
      2. All subordinate (or secondary) financing must be disclosed and then approved by the first-mortgage lender;
      3. The terms for all seller take-back financing must also be disclosed;
      4. If project revenue or existing reserves will be a source of funding, submit evidence of the current account balances.
   3. Development Budget (Sources and Uses of Funds). All owners must submit a Development Budget.
      1. For Conversions using FHA financing or equity sources of financing, submit a copy of the Development Budget included with the FHA Application for Firm Commitment, or submitted to the lender, equity provider (including LIHTC, historic tax credit or Opportunity Zone equity providers), LIHTC allocating agency or comparable funding source. The Project Owner must submit the FHA Application for Firm Commitment review before the RAD conversion is submitted to the Office of Recapitalization. Include a Subsidy Layering Review (SLR) if one has been performed by another agency. If no SLR is provided, HUD will complete an SLR whenever multiple federal sources are proposed.
      2. For all other Conversions with new financing:
         1. Include a reasonable, balanced, and comprehensive presentation of both construction period and permanent sources and uses of funds.
         2. Identify existing loans or debt that will be paid off at the closing, if applicable.
         3. Include a construction contingency of 10 percent (HUD may require a higher contingency on a case-by-case basis) if the Project Owner plans to obtain new financing simultaneous with the Conversion.
         4. Demonstrate that any Identity of Interest (IOI) loans or advances will be converted to unsecured Surplus Cash Notes (Project’s cash remaining, after debt service, project operational costs and other permitted payments) unless otherwise approved by HUD.
         5. If applicable, identify the initial operating deficit during the construction period and how that deficit will be funded, such as an operating deficit escrow or similar fund.
         6. Include a Subsidy Layering Review (SLR) if one has been performed by another agency. If no SLR is provided, HUD will complete a SLR whenever multiple federal sources are proposed.
   4. Proposed Development Team. The Project Owner must identify the proposed legal entity that will own the Covered Project following conversion, the proposed management agent following conversion, and the “principals” of both entities. In addition, the Project Owner shall provide the following:
      1. For all conversions with a proposed change in ownership entity, the new Project Owner must provide evidence of successful experience owning and operating HUD or other multifamily housing properties. New Project Owners may be required to demonstrate that the criteria specified in HUD Handbook 4350.1, Chapter 13, Change in Ownership: Transfer of Physical Assets have been met in part or in whole.
      2. For PBRA conversions with a proposed change in ownership entity or a material proposed change in ownership of the existing ownership entity, the new Project Owner must submit evidence that all new principals have a Previous Participation Certification in the Active Partners Performance System (APPS) (formerly referred to as Form HUD-2530) and are not be debarred, suspended, or subject to a Limited Denial of Participation.
      3. For all conversions with a proposed change in management agent the new agent must provide evidence of successful experience managing and operating HUD or other multifamily housing properties.
      4. For all conversions in which Work is proposed, the Project Owner must submit the identity of the general contractor or construction manager or a statement that the Project Owner will be managing construction directly, together with evidence of the general contractor’s, construction manager’s or Project Owner’s recent and successful experience with similar rehabilitation or construction projects.
   5. Operating Pro Forma.The Operating Pro-Forma must:
      1. For all FHA transactions or Conversions using equity sources of financing:
         1. Provide a copy of the Operating Pro Forma that was submitted with the FHA Application for Firm Commitment or submitted to the lender, equity provider (including LIHTC, historic tax credit, or Opportunity Zone equity providers), LIHTC allocating agency, or comparable funding source.
         2.  
      2. For all other Conversions:
         1. Provide a 20-year Operating Pro Forma in an owner-provided template.
         2. Include columns capturing the average amount for the past three years for all line items listed in the Pro Forma. Provide explanations and/or supporting documentation for any major deviations of the historical average from the year 1 data entered on the Pro Forma.
         3. Include an attached discussion of the extent of energy and water savings that are anticipated as a result of the rehabilitation or construction and the basis Attachment 2A: Conversion Plan Requirements and Feasibility Benchmarks H-2019-09 PIH-2019-23 (HA), Rental Assistance Demonstration REV-4 – Final Implementation 195 for those estimates. The discussion must explain to what extent anticipated savings in utility costs have been included in the pro forma operating expenses.
         4. Ensure the Pro Forma complies with at least the following feasibility benchmarks unless otherwise approved by HUD:

            Revenue:

             

            1. Rents shall not exceed the amounts permitted under program rules;
            2. All other sources of income must not exceed the average for the last three years (other income should not include interest income on the replacement reserve account, which must remain in the reserve and is not available for other purposes);
            3. Vacancy loss shall be no less than the greater of the average over the past three years or 3 percent;
            4. Allowance for bad debt should be not less than the greater of the average over the past three years or 2 percent;

            Expenses:

            1. All other operating expenses shall be no less than 85 percent of the average for the last three years;
            2. The ADRR should be equal to that amount which, if deposited annually, will be sufficient to fund all capital needs, as identified in the CNA, arising during the first 20 years and otherwise not addressed upfront in either the rehabilitation or an initial deposit to the replacement reserve account. The Owner should use reasonable estimates for inflation, but in doing so, the rate for escalating the increase in repair costs should not exceed the rate of interest on reserve deposits by more than 1%. HUD may consider alternative arrangements with respect to the Initial Deposit to the Replacement Reserve (IDRR) if risks to the Covered Project can be adequately mitigated. The ADRR must be sufficient to maintain a minimum balance at the end of each year during the initial 20-year HAP Contract term in accordance with the HUD MAP Guide Appendix 5g Section VII.C.3D, Minimum Balances; and
            3. For non-leveraged transactions, the stabilized cash flow should not be less than $12 per unit monthly. For leveraged transactions, the debt-coverage ratio should not be less than 1.11 over a ten-year period using 2% growth in revenue and 3% growth in expenses.
      3. Market Study.A market study or net demand analysis may be required if the project is currently experiencing a high vacancy rate or if the Project Owner is requesting a reconfiguration of units. The Project Owner should consult with the Transaction Manager to determine if a market study is necessary before procuring one.
      4. Certification of Compliance with Site and Neighborhood Standards. The Project Owner (for PBRA) or the PHA (for PBV) shall evaluate and include a certification that the site complies with applicable Site Selection and Neighborhood Standards (see Section 2.4.H).
      5. Affirmative Fair Housing Marketing Plan and Tenant Selection Plan. For PBRA conversions, evidence that a completed AFHMP (Form HUD-935.2A) has been submitted for approval to the local Multifamily Regional Center. Typically, the management agent or the entity responsible for marketing (if different) is responsible for completing and submitting the AFHMP. If a Project Owner plans to adopt any preferences, the Project Owner must submit its Tenant Selection Plan along with the AFHMP (see HUD Handbook 4350.3, page 4-4) for review. Please note that in accordance with Notice H 2013-21, if a Project Owner plans to adopt any preferences that are not authorized in 24 CFR 5.655(c), it must obtain HUD approval. The AFHMP and any owner-adopted preferences may not conflict with any special condition arising from the RAD conversion or any provision in a remedial order or agreement. Each Covered Project must have a HUD-approved AFHMP prior to closing.

          

         -

         The purpose of affirmative marketing is to ensure that individuals of similar income levels in the same housing market area have a like range of housing choices available to them regardless of their race, color, national origin, religion, sex, disability, or familial status.

      6. Transfer of Assistance. For all conversions involving a transfer of assistance to a new site, the PHA must have secured HUD approval of the site (Covered Project). See Section 2.4.J.
      7. Coordination with CoC. SRO projects converting under RAD must provide a certification with their Conversion Plan that the local CoC has been consulted with regards to the RAD conversion and that it will participate in the CoC’s Homeless Management Information System (HMIS) and the annual Housing Inventory Count (HIC). To the extent that project plans entail a reconfiguration of units or include a transfer of assistance, owners must also secure a support letter from the CoC.

Section III of this Notice provides instructions to owners of Rent Supplement (Rent Supp) and Rental Assistance Payment (RAP) projects seeking to convert assistance of a Rent Supp or RAP project under RAD.

Except with HUD approval, any request under this Section must be submitted by September 30, 2019, and the conversion must be completed no later than November 30, 2019.

Owners may choose between two forms of long-term Section 8 Housing Assistance Payment (HAP) Contracts: project-based vouchers (PBVs) or project-based rental assistance (PBRA). Conversions may be prospective (when an owner still has an active Rent Supp or RAP contract at the project) or retroactive (when the Rent Supp or RAP contract has already expired at the project). Owners pursuing a prospective conversion may choose from either a PBV contract or a PBRA contract. Owners who are pursuing a retroactive conversion will be limited to PBV conversions only.

1. PBV Conversions. An owner may request to enter into a Section 8 PBV HAP Contract with an eligible PHA to administer the contract. With the exception of provisions identified in this Notice (as well as retained flexibilities of Moving to Work (MTW) agencies, all regulatory and statutory requirements of the PBV program in 24 CFR Part 983, and applicable standing and subsequent Office of Public and Indian Housing guidance, including related handbooks, shall apply.
1. Prospective Conversions. Projects are eligible for prospective conversions if the Rent Supp or RAP contract expiration or termination has not yet occurred. To be considered a prospective conversion, the expiration or termination date of the contract must be at least 60 days after the owner’s conversion request to HUD (see Section 3.7.1). In a prospective conversion, the project will receive PBV assistance in lieu of the TPV assistance that would be otherwise provided to project residents. Prospective conversions to PBV may be suspended in a particular fiscal year if HUD does not have sufficient TPV appropriations to fund all of the demands on the TPV account due to conversions.

   Short-term extensions have been used in conjunction with RAD to provide adequate time for an owner to prepare and submit a request under RAD before the contract reaches its expiration date. Short-term extension requests are made directly to the Office of Recapitalization. The short-term extension contract may be terminated early if the RAD conversion occurs prior to the short-term extension contract expiration. If a Rent Supp or RAP contract extension is not provided, the Rent Supp or RAP contract will expire, and the provision of TPVs will occur. The owner may, subject still to the final date of conversion in Sectin 3.2, then proceed with a retroactive conversion.

   In accordance with HUD policy and subject to the availability of appropriations, special administrative fees will be provided to PHAs in connection with the administration of TPVs for a Housing Conversion Action, (e.g., mortgage prepayment, or expiration of a Rent Supp or RAP contract). In order to obtain such fees, the PHA must submit the information requested in Notice PIH 2015-03 or any successor notice regarding the implementation of funding provisions for the Housing Choice Voucher program.

   At the closing of the conversion of assistance: the Rent Supp or RAP contract will be terminated (due to prepayment or expiration), the PHA that has agreed to administer the PBV HAP Contract will have the vouchers added to its Annual Contribution Contract (ACC), and the PBV HAP Contract will be executed.

2. Retroactive Conversions. Where contract expiration has occurred and TPVs or EVs have already been issued to project residents or where TPVs or EVs have been requested and processed for project residents (i.e., the PHA’s ACC has been amended reflecting the new increment of TPVs or EVs), projects may be eligible for a retroactive conversion to PBV assistance. The contract expiration and issuance of EVs or TPVs must have occurred on or after October 1, 2006.

   As described above, HUD will not process prospective conversions in projects where the contract termination will occur in fewer than 60 days following the owner's initial submission to HUD. If the contract termination will be fewer than 60 days from the owner’s initial submission, or if TPV funding has been requested by the Office of Public and Indian Housing on behalf of eligible project residents and processed, (i.e., the PHA’s ACC has been amended reflecting the new increment of TPVs) TPVs will be issued to the eligible residents, and the conversion request will be processed as a retroactive conversion to PBVs.

   Only the units occupied by eligible low-income residents who either are receiving TPV or EV assistance at the time of contract expiration or termination, who continue to reside in the project, and who consent to the conversion, may be assisted under the PBV HAP Contract. For retroactive conversions, as required under the RAD Statute, the “Administering PHA” must approve a request for retroactive conversion to a PBV HAP Contract. If the actively Administering PHA does not consent to long-term conversion of the contract to PBV assistance, the project is not eligible for retroactive conversion. 

   The table below summarizes key characteristics of prospective and retroactive conversions.

   Conversion Type	Characteristics Determining Conversion Type
   Prospective	Termination or expiration occurs at least 60 days after the owner’s request; or Termination or expiration occurs less than 60 days after the owner’s request, but the owner receives a short-term extension from the Office of Recapitalization and the new expiration date is 60 days or more after the owner’s request.
   Retroactive	Termination or expiration occurred on or after 10/1/2006 and TPVs were issued to eligible project residents; Termination or expiration occurs within 60 days of the owner’s request for conversion, and the owner does not receive a short-term contract extension to pursue a prospective conversion; or Funding for TPVs has been requested on behalf of eligible project residents and processed by the Office of Public and Indian Housing.

2. PBRA Conversions.  An owner may request to enter into a 20-year Section 8 PBRA HAP Contract (subject to annual appropriations); the HAP Contract will be executed by HUD’s Office of Housing. Initial contract rents will be determined by an RCS and be limited to 110% of FMR (unless a higher limitation not exceeding any applicable statutory maximum is approved by HUD pursuant to Section 3.6.C) and will be adjusted only by an OCAF at each anniversary of the HAP Contract, subject to the availability of appropriations for each year of the contract term and the requirements of section 3.6.D. At expiration of the initial contract, the owner is eligible to renew the contract under section 524 of MAHRAA, subject to the terms and conditions applicable at the time of renewal and to the availability of appropriations for each year of such renewal. Regulatory and statutory requirements of the PBRA program in 24 CFR Part 880, with the exception of provisions identified in this Notice, the site and neighborhood standards in Appendix III of this Notice, and applicable standing and subsequent Office of Housing guidance, including handbooks, shall apply. Retroactive conversions are not permitted under PBRA.

3. Relocation and Right to Return. Any person who is legally on the lease or otherwise in lawful occupancy at the Converting Project at or after the time of submission of the Conversion Plan has a right to remain in, or, in the event that rehabilitation will result in the relocation of residents, a right to return to an assisted unit at the Covered Project. Any relocation as a direct result of acquisition, demolition, or rehabilitation is subject to requirements of the Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970 (URA) which are found at 49 CFR part 24. Proper notices inlcuding the General Information Notice (GIN), when applicable, must be sent in accordance with URA regulations and other applicable relocation regulations. Additionally, relocation and one-for-one replacement requirements under Section 104(d) of the Housing and Community Development Act of 1974 may apply when CDBG or HOME funds are used in connection with a RAD conversion. Section 104(d) requirements are found at 24 CFR part 42, subpart C, and program-specific relocation requirements for CDBG and HOME projects are found at 24 CFR 570.606 and 24 CFR 92.353, respectively. The applicability of URA or Section 104(d) requirements to a RAD conversion is fact-specific and must be determined in accordance with the applicbable URA and Section 104(d) regulations. Permanent involuntary displacement of residents may not occur as a result of a Project’s conversion of assistance. If proposed plans for a Project would preclude a resident from returning to the Covered Project, the resident must be given an opportunity to comment and/or object to such plans. If the resident objects to such plans, the Project Owner must alter the project plans in order to house the resident in the Covered Project. If a resident agrees to the plans which would preclude the resident's return, the Project Owner must ensure that the resident's decision is fully informed, voluntary, and well documented. To be fully informed, at a minimum the resident must be notified in writing of a) his or her right to return; b) his or her right to object to plans which would preclude the resident from returning; c) the Project Owner's obligation to accommodate the resident's right to return; and d) a description of the short and long-term implications of both the right to return arrangements (e.g., temporary relocation and the resident's options if the resident agrees to such plans. The resident must be provided counseling regarding the resident's rights and options. To be voluntary, a resident must be informed of their right to return, potential for relocation, and temporary and permanent housing options 30 days before making a decision. In addition, residents must be provided notice of relocation at least 90 days before the relocation. The projet Owner cannot employ any tactics to pressure resident into relinquishing his or her right to return or accepting permanent relocation assistance and payments. To be well documented, evidence of a resident's decision must be retained by the Project Owner. At a minimum, such evidence must include copies of notices informing the resident of their options, records of any counseling or assistance provided, and the resident's informed written consent, including an acknowledgement that acceptance of such assistance terminate the resident's right to return to the Covered Porject. If the resident agrees to the Projet Owner's plans, the permanent relocation is consdiered voluntary but must include, at a minimum, any relocation assistance and payments required under the URA and Section 104(d), as applicable. The Project Owner may not propose or request that residents waive their rights or entitlements to relocation assistance under the URA or Section 104(d).

Owners of Rent Supp and RAP projects that meet all eligibility requirements described below may submit a request to convert under the Second Component of RAD.

3.4.1 Eligible Owners

1. Compliance with HUD and the PHA. For prospective conversions, the owner must either demonstrate a rating of Satisfactory or higher on the most recent Management and Occupancy Review or certify that the management company is being replaced by a management agent with a record of successful operation of HUD-assisted multifamily housing. The HUD Departmental Enforcement Center must have no active referrals attributable to the owner. If a contract terminates due to an enforcement action, then the project is ineligible, unless the request is in the context of an acquisition. If the request to enter into a PBV or PBRA contract is in the context of an acquisition, the purchaser must provide evidence of successful experience owning and operating HUD-assisted or other affordable multifamily housing properties. Examples of the standard for this review may be found in HUD Handbook 4350.1, Chapter 13 Transfer of Physical Assets.

   For retroactive conversions, the owner must be in good standing with the PHA administering the TPVs at the project and must receive the consent of the PHA and affected residents to convert the TPV assistance to PBV.

2. Fair Housing Compliance for PBV and PBRA Conversions.

   An owner must be in compliance with all fair housing and civil rights requirements at 24 CFR §5.105(a). An owner will not be eligible to participate in RAD if it has any of the charges, cause determinations, lawsuits, or letters of findings referenced in sub-paragraphs (1)-(5) below against the owner, its transferees, proposed development partners, or sub- recipients, unless they have been resolved to HUD’s satisfaction.:

   1. A charge from HUD concerning a systemic violation of the Fair Housing Act or a cause determination from a substantially equivalent state or local fair housing agency concerning a systemic violation of a substantially equivalent state or local fair housing law proscribing discrimination because of race, color, religion, sex, national origin, disability or familial status;
   2. A Fair Housing Act lawsuit filed by the Department of Justice (DOJ) alleging a pattern or practice of discrimination or denial of rights to a group of persons raising an issue of general public interest pursuant to 42 U.S.C. § 3614(a);
   3. A letter of findings or lawsuit filed by DOJ identifying systemic noncompliance under Title VI of the Civil Rights Act of 1964, section 504 of the Rehabilitation Act of 1973, or section 109 of the Housing and Community Development Act of 1974;
   4. A cause determination from a substantially equivalent state or local fair housing agency concerning a systemic violation of provisions of a state or local law proscribing discrimination in housing based on sexual orientation or gender identity; or
   5. A cause determination from a substantially equivalent state or local fair housing agency concerning a systemic violation of a state or local law proscribing discrimination in housing based on lawful source of income.

   Applicants may still be eligible for conversion under RAD if such a charge, cause determination, lawsuit, or letter of findings referenced in subparagraphs 1, 2, 3, 4, or 5 above has been resolved to HUD’s satisfaction. However, if the matter has not been so resolved, then the applicant is ineligible to participate in RAD.

   HUD will determine if actions to resolve the charge, cause determination, lawsuit, or letter of findings are sufficient to resolve the matter. Examples of actions that would normally be considered sufficient to resolve the matter include, but are not limited to current compliance with a:

   • Voluntary compliance agreement (VCA) signed by all the parties;
   • HUD-approved conciliation agreement signed by all the parties;
   • Conciliation agreement signed by all the parties and approved by the state governmental or local administrative agency with jurisdiction over the matter;
   • Consent order or consent decree; or
   • Final judicial ruling or administrative ruling or decision.

   Additionally, an owner may be required to demonstrate that its proposed activities under RAD are consistent with any applicable VCA, conciliation agreement, consent order or consent decree, final judicial ruling, or administrative ruling or decision. HUD may terminate an approval if it determines that the terms of the conversion would be inconsistent with fair housing or civil rights laws or a fair housing or civil rights court order, settlement agreement, or VCA. Furthermore, if a project is subject to a VCA, conciliation agreement, consent order or consent decree, or final judicial ruling or administrative ruling or decision, it must ensure that the ownership agreement or other appropriate document makes the new owner subject to the remedial provisions contained in such documents. It is the owner’s obligation to disclose such documents, to the prospective owner. The extent of the owner’s responsibilities, including whether the responsibilities are appropriately limited to the development, maintenance, or operation of the particular RAD project, must be appropriately documented. The owner will follow any requirements for the modification of such VCA, conciliation agreement, consent order or consent decree, or final judicial ruling or administrative ruling or decision, etc. If HUD is a party to such a document, the RAD project will not close without HUD’s express approval of the transfer of obligations to the new owner.

3.4.2 Eligible Properties and Units

1. Eligible Properties for PBV and PBRA Conversions. Eligible properties are those with an active Rent Supp or RAP assistance contract at the project, or for retroactive conversions the project must have previously received Rent Supp or RAP assistance that expired or terminated within two years of the request. In addition, the project must have experienced (on or after October 1, 2006) an event that triggered the provision of TPVs, or anticipate a triggering event that would provide TPVs to eligible residents at the project. Under RAD, a triggering event is defined as the termination (or expiration) of a Rent Supp or RAP contract, at which time regular Housing Choice Vouchers will be or have been provided, or in some cases Evs will be or have been provided in the context of certain prepayments (discussed in Section 3.4.2.D.2, below).

   Typically, when the underlying mortgage on a Rent Supp or RAP project is prepaid, the prepayment terminates the Rent Supp or RAP contract. In some cases, however, the underlying mortgage may have been prepaid, but the contract may not have been terminated. This happens, for example, when an owner intends to undertake an Interest Reduction Payment (IRP) decoupling and requests a waiver from HUD to leave the Rent Supp or RAP contract in place. Otherwise-eligible projects that have received such a waiver are eligible for RAD, but only if HUD and the owner agree to terminate the existing Rent Supp or RAP contract, thereby triggering issuance of TPVs.

2. Physical Conditions for PBV Conversions.  The owner must provide evidence that the project meets one of the following standards:
   1. For prospective conversions, the most recent Real Estate Assessment Center (REAC) score at the project must be 60 or above.

      Unless provided explicit approval by HUD, the converting units must qualify as existing housing in order be selected for conversion under Second Component of RAD. The PHA must ensure that the units substantially meet HQS, as defined in the PHA’s Section 8 administrative plan, prior to project selection. Prior to entering into a PBV HAP Contract, the Administering PHA will inspect the units proposed for conversion to ensure that the units fully comply with HQS. The HAP Contract will not be executed until and unless the converting units fully meet HQS unless the PHA is using HOTMA non-life threatening and alternative inspection provisions.¹⁸³ 

   2. For retroactive conversions, units to be converted must meet HUD’s HQS as determined by the PHA. The PBV contract will not be executed until and unless the units meet HQS.

3. Physical Conditions for PBRA Conversions. The owner must provide evidence that the project has received a score of 60 or above on the most recent Real Estate Assessment Center (REAC) inspection at the project. Those properties that do not meet this minimum threshold will not be eligible to convert under this notice.

4. Eligible Units for PBV Conversion. Units eligible for conversion may include a combination of units under a Rent Supp or RAP contract and other (i.e., unassisted) units at the project. Eligibility of Rent Supp or RAP contract units and other units is discussed below. All owners who wish to include other units at the project within their RAD conversion will receive a determination from OGC to ensure that the prepayment at the project will trigger the issuance of Enhanced Vouchers.
   1. Rent Supp and RAP contract units. For prospective conversions, all units on the original Rent Supp or RAP contract that are eligible for TPVs at expiration or termination of the contract under PIH's HCV funding Appropriations Act notices (or successor PIH notices regarding TPV allocations) are eligible for conversion to PBV under RAD. Note that the number of units on the original contract may be higher than the number of units “actively billing” at the project.¹⁸⁵

   For retroactive conversions, eligible Rent Supp or RAP contract units are those that are occupied at the time of the RAD conversion by households who received TPV assistance as the result of the expiration or termination of the contract.

   2. Other Units at the Rent Supp or RAP project. In certain cases, the prepayment of a mortgage on a project with a Rent Supp or RAP contract may trigger the provision of EVs to assisted (in the case of HCV participants) and unassisted project residents. Conversions of assistance under the Second Component may not be the basis of re-screening or termination of assistance or eviction of any tenant family in a property participating in the demonstration and such a family shall not be considered a new admission for any purpose, including compliance with income targeting. Other units occupied by such residents qualify for conversion to PBV under RAD. These units are eligible to include in the PBV conversion only if the prepayment meets all conditions of Notice PIH 2001-41, Section 8 Tenant Based Assistance (Enhanced and Regular Housing Choice Vouchers) for Housing Conversion Actions – Policy and Processing Guidance, and if the project falls within the definition of “eligible low-income housing” set out in section 229 of the Low Income Housing Preservation and Resident Homeownership Act (LIHPRHA), or is treated as such under Section 201(p) of the Housing and Community Development Amendments of 1978 as discussed below, which means that the prepayment or other transaction triggers provision of EVs to eligible families residing in the unassisted units at the project. This includes units that are not assisted by a Section 8 HAP contract, or a Rent Supp or RAP contract. To be included as eligible units in the RAD conversion, the EVs must be provided or already have been provided in the context of a qualifying preservation-eligible prepayment.

      Qualifying preservation-eligible transactions in eligible low-income housing, for the purposes of Rent Supp and RAP properties, include only the following cases:

      • Prepayment of an underlying FHA-insured mortgage at a RAP project;
      • Prepayment of a mortgage held by a state agency as a result of a sale by HUD without insurance, which immediately before the sale would have been eligible for low-income housing under LIHPRHA; which mortgage (1) for LIHPRHA projects is, or is within 2 years of being, eligible for prepayment by contract or regulation in effect before February 5, 1988 without HUD’s prior approval; or (2) for Emergency Low Income Housing Preservation Act (ELIHPA) projects is, or is within 1 year of being, eligible for prepayment under regulation or contract in effect before February 5, 1988;
      • Prepayment of a mortgage for a state-assisted project that is eligible for preservation assistance under LIHPRHA or ELIHPA; or
      • A project that has received a Flexible Subsidy Loan and is the subject of a transaction under which the project is preserved as affordable housing as determined by the Secretary under Section 201(p) of the Housing and Community Development Amendments of 1978.
   3. Timing concerning the issuance of EVs. In the case of a retroactive conversion, the PBV contract may include those units occupied at the time of the RAD conversion by families that received EV assistance as the result of a preservation eligible prepayment in eligible low-income housing described in paragraph 2.i above. These families must have accepted the EVs at the time of the mortgage prepayment, and the families must be in residence at the project and receiving the EV assistance at the time of the RAD conversion. However, the conversion may also include units occupied by residents who have been offered and accepted vouchers, have not leased up with such vouchers, and the PHA has not used the allocated funds to assist other applicants on the PHA’s HCV waiting list.
   4. Housing Choice Voucher (HCV) program participant residing at the project. A resident who is already receiving housing choice voucher assistance on the date of the eligibility event may be included in the PBV contract, but only if the triggering event for the RAD conversion provides the opportunity for the HCV assistance to become enhanced (e.g. a prepayment) and if the resident consents to convert their assistance to PBV assistance.  In the case of a RAD conversion where a prepayment occurs, the resident has several options.  The resident may accept the enhanced voucher protections (See Part II, Paragraph D of Notice PIH 2001-41); the resident may choose to reject the enhanced voucher protections and retain its regular HCV assistance, or the resident may agree to relinquish their voucher after being briefed by the PHA and only if they provide written consent to convert their HCV assistance to PBV assistance under RAD.  Notice PIH 2001–41 addresses circumstances under which an HCV program participant residing in a project undergoing a preservation prepayment may remain in the project and receive enhanced voucher assistance.

5. Eligible Units for PBRA Conversion. All units that are currently covered by a Rent Supp or RAP contract may be included in the PBRA conversion. Additionally, all units that would receive TPVs in the form of EVs after a qualifying prepayment, as discussed in Section 3.4.2.D.2 above, may also be included in the PBRA conversion. HCV holders at the project will be allowed to be included in the PBRA contract, but only if the triggering event for the RAD conversion provides the opportunity for the HCV assistance to become enhanced (e.g. a qualifying prepayment) and if the resident consents to convert their assistance to PBRA assistance. Owners should follow the procedures discussed in Section 3.4.2.D.4 above in order to include HCV assistance on their PBRA contract.

As discussed above in Section 3.3 of this Notice, certain PBV statutory provisions have been waived or altered consistent with the authority Congress has provided for Second Component conversions. In these cases, HUD also notes the corresponding regulatory provisions that are waived or altered. Additionally, HUD has waived certain regulatory provisions (that are not statutorily based) and established alternative requirements in order to prevent displacement of certain residents and otherwise serve the purposes of this Demonstration. All other regulatory and statutory requirements of the PBV program in 24 CFR Part 983 and section 8(o)(13) of the Act shall apply, including resident choice, environmental review, Davis-Bacon and fair housing requirements.

The modified or alternative requirements that pertain solely to PBV conversions under the Demonstration are described below.

1. Length of Contract. Secton 8(o)(13)(F) of the Act provides, in part, that the HAP Contract may have an initial term of up to 20 years. In addition, 24 CFR § 983.205(a) provides the PHA with discretion to set the contract term for a minimum period of one year and a maximum period of twenty years. By choosing to participate in the RAD program, the PHA and owner agree to a minimum 15-year initial term for the HAP. A PHA may agree to enter into an extension of the initial HAP Contract term with the Owner at any time during the initial term. The PBV HAP Contract during the initial and any extended term is subject to the requirement for sufficient annual appropriated funding.

2. PBV Percentage Limitation. Per the RAD statute, Section 8(o)(13)(B) of the Act (and, by extension, 24 CFR § 983.6) does not apply and covered projects do not count against the percentage limitation applicable to the PBV program. As a result, a PHA that is administering RAD PBV assistance does not take =the RAD PBV into consideration when calculating the percent limitation for any non-RAD PBV actions. In other words, RAD PBV is excluded from both the numerator and the denominator when calculating the percent that may be project-based for non-RAD PBV.

3. Cap on the Number of PBV Units in Each Project. There is no cap on the number of units that may receive RAD PBV assistance in each project. Under the HOTMA Implementation Notice, certain formerly assisted properties are excepted from the project cap. For any Covered Projects not covered under the HOTMA Implementation Notice, HUD is waiving section 8(o)(13)(D) of the Act, as well as related provisions of 24 CFR §§ 983.56, 983.257(b), 983.262(a) and (d).

4. Site selection –Compliance with PBV Goals, section 8(o)(13)(C)(ii) of the Act and 24 CFR § 983.57(b)(1) and (c)(2). HUD waives these provisions having to do with deconcentration of poverty and expanding housing and economic opportunity, for the existing site. However, HUD reserves the right to assess and consider as part of the RAD request the impact of the proposed RAD conversion on deconcentration of poverty or concentration of assistance in properties where the RAD conversion would result in an increase in the number of units at the project receiving project-based rental assistance.

5. Owner Proposal Selection Procedures, 24 CFR § 983.51. Projects are selected in accordance with program requirements detailed in this Notice. HUD is waiving 24 CFR § 983.51. With respect to site selection standards, HUD requires compliance with the site selection standards as set forth in this Notice.

6. Adding contract units. 24 CFR § 983.207(b) does not apply. A PHA may only add units to the converted project as described in Section 3.4D.

7. No Screening of Residents upon conversion. Pursuant to the RAD Statute, at conversion, current households cannot be excluded from occupancy at the Covered Project based on any rescreening, income eligibility, or income targeting. With respect to occupancy in the Covered Project, current households in the Converting Project will be grandfathered for application of any eligibility criteria to conditions that occurred prior to conversion, but will be subject to any ongoing eligibility requirements for actions that occur after conversion.147 Post-conversion, the tenure of all residents of the Covered Project is protected pursuant to PBV requirements regarding continued occupancy. A unit with a household that was overincome at time of conversion would continue to be treated as an assisted unit. Thus, 24 CFR § 982.201, concerning income eligibility and income targeting of tenants at initial occupancy, will not apply for current households. Once the grandfathered household moves out, the unit must be leased to an eligible family. Income eligibility requirements associated with new sources of financing, such as Low-Income Housing Tax Credits, do not supersede this prohibition on rescreening, and the Project Owner may be required to exclude Section 8 units occupied by ineligible households from being covered by the new financing’s restrictions. Additionally, any owner-adopted preference shall not apply to any current resident.

8. Initial Rents. Initial rents for PBV contracts are determined by the PHA, in accordance with 24 CFR Part 983 Subpart G. Such rents generally cannot exceed the lowest of: (i) an amount determined by the PHA, not to exceed 110 percent of the applicable fair market rent (or any exception payment standard approved by the Secretary) for the unit bedroom size minus any utility allowance; (ii) the reasonable rent; or (iii) the rent requested by the owner. (See 24 CFR § 983.301 for program requirements on establishing initial rents).

9. Re-Determined Rents. The rent to owner will be redetermined in accordance with 24 CFR § 983.302.

10. Decoupled Projects and PBV Rents. Many owners who pursue a RAD Second Component conversion also prepay and decouple their underlying 236 mortgage in conjunction with their RAD Second Component conversion. To facilitate a prepayment of their 236 mortgage, owners obtain new financing to pay off their 236 mortgage and to rehabilitate the project. The increased debt service often necessitates an increase in the 236 rents at the project, which are determined by a budget-based calculation. Section 219(b) of the 1999 Appropriations Act (the Wellstone Amendment) prohibits rent increases on a prepaid 236 mortgage for 60 days following prepayment.

    24 CFR § 983.304(c) prohibits the PBV contract rent from exceeding the 236 basic rent at the project in decoupled projects. This causes an inherent conflict when owners convert to a PBV contract in a RAD Second Component conversion. Owners are expected to execute their PBV HAP at the time of the triggering event, but at the time of the triggering event basic rents cannot yet be increased.

    The procedures described above create a special problem for projects subject to a Rent Supp or RAP contract, which would terminate at the time of the prepayment of the 236 mortgage, and owners of these projects would not be able to sign a PBV HAP with the appropriate rents for the transaction. To address this situation, HUD is waiving 24 CFR § 236.725 for all projects with Rent Supp or RAP that are pursuing a decoupling in conjunction with their RAD Second Component conversion. This waiver will allow the Rent Supp or RAP contract to remain in place after prepayment during the 60 days following prepayment. The PBV HAP must be signed when the basic rent increase goes into effect, and the Rent Supp or RAP contract will be terminated at the time of PBV HAP execution. Note: The PBV contract rents will still be subject to the initial determination of rents as described above.

11. Under-Occupied Units Converting to PBV. . If a family is in an under-occupied unit under 24 CFR § 983.260 at the time of conversion, the family may remain in the unit until an appropriate-sized unit becomes available in the Covered Project.¹⁹⁰ When an appropriate sized unit becomes available in the Covered Project, the family living in the under-occupied unit must move to the appropriate-sized unit within a reasonable period of time, as determined by the PHA. In order to allow the family to remain in the under-occupied unit until an appropriate-sized unit becomes available in the Covered Project, 24 CFR § 983.260 is waived.

12. Davis-Bacon Prevailing Wages. Execution of a PBV contract through RAD that provides rental assistance to previously-assisted units does not trigger Davis-Bacon prevailing wage requirements (prevailing wages, the Contract Work Hours and Safety Standards Act, and implementing regulations, rules, and requirements). However, to the extent that construction or rehabilitation is performed on nine or more units that were not previously rent assisted or rent restricted and will be newly assisted as a result of the conversion transaction (including, without limitation, through transfer of assistance), such construction or rehabilitation is subject to Davis-Bacon prevailing wage requirements.

13. Transfers after conversion. After initial conversion, in general, a Project Owner may only request a transfer of assistance to HUD after 10 years from the effective date of the initial HAP Contract. A Project Owner may submit a transfer request sooner if it is needed as a result of eminent domain proceedings, natural disasters, unforeseen events, or as otherwise approved by HUD (for example, if HUD provided approval of a future transfer prior to conversion). Absent compelling circumstances, HUD will assess that the transfer does not occur in neighborhoods with highly concentrated poverty based on the criteria formulated for transfers under 8(bb) of the Act and how the transfer would affect project residents. HUD may consider, and approve with such conditions as HUD determines appropriate, a partial or complete transfer of assistance to a new location if the new location complies with applicable site selection standards. If applicable, any lender to and/or investor in the Covered Project must also approve the transfer of the assistance. Substantially all units covered by the initial HAP Contract must remain or be replaced as a result of the transfer. Residents of the original location at the time of the transfer request shall not experience a loss of rental assistance. PBV-assisted families living at the property upon termination of a PBV HAP Contract have a statutory right to receive a tenant-based voucher and to certain tenancy protections.150 (A family may voluntarily decline the tenant-based voucher and accept a PBV unit at the new location but may not be required to do so.) Termination of a PBV contract is not cause for issuance of additional tenant-based voucher assistance from HUD. PHAs and owners contemplating RAD PBV transfers after conversion must take the PBV families’ right to tenant-based voucher assistance into consideration and ensure that there will be sufficient resources available to the PHA to both effectuate the transfer and meet the PHA’s obligation to provide tenant-based vouchers to those families that wish to receive them.

For Rent Supp and RAP projects converting assistance to PBRA under the Second Component of RAD, 24 CFR Part 880, Section 8 Housing Assistance Payments Program for New Construction (and applicable standing and subsequent Office of Housing guidance) will apply, except for the provisions listed below. , Where applicable, reference is made to the affected statute and/or regulation. For additional background purposes, HUD has provided Appendix I, which is a copy of the existing Part 880 regulation with the provisions stricken that will not apply to covered projects. Appendix III provides the site and neighborhood standards applicable to RAD conversions to PBRA.

1. Length of Contract. Pursuant to the RAD Statute, covered projects shall have an initial HAP term of 20 years. Additionally, 24 CFR § 880.502, which imposes maximum contract terms for New Construction projects consistent with statutory authority that was repealed in 1983, will not apply.

2. Contract Renewal. Pursuant to the RAD Statute, after the initial term of the HAP Contract, the owner is eligible for renewal of the contract under section 524 of MAHRAA, subject to the terms and conditions applicable at the time of renewal and the availability of appropriations each year of such renewal.

3. Initial contract rent setting. Initial rent levels for the PBRA contract are subject to section 8(c)(1) of the Act. For projects that will not undergo Work, the initial contract rents will be established at the lesser of the following rent levels: (1) the comparable market rent, as determined by a Rent Comparability Study (RCS), which must be prepared in accordance with the requirements of Chapter Nine of the Section 8 Renewal Policy Guidebook and submitted with the request for prospective conversion; and (2) 110 percent of the applicable fair market rent (FMR), less utility allowances or 120 percent of the applicable FMR, less utility allowances, in the case of projects that (i) preserve project-based rental assistance in communities with high percentages of rent-burdened households and where it is particularly hard to utilize tenant-based assistance, (ii) serve to expand housing opportunities in communities with poverty rates less than 30%, and/or (iii) support revitalization activities that are resulting in material private investment in the surrounding neighborhoods. With HUD approval, the Project Owner may use the Small Area FMR in place of the FMR in the computation of rents. To implement this provision HUD is implementing an alternative requirement to 24 CFR §888.113(h) so as to permit the use of a Small Area FMR by project for initial contract rent setting and when adjusting contract rents. Properties that are located in High Cost Areas as identified in Notice H 2017-06 shall have initial rents set at comparable market rents, without regard to any Fair Market Rent (FMR) cap.

   For projects with units that will be undergoing Work, the contract rents will be established at the lesser of the following rent levels: (1) the “post-rehabilitation” rents, as determined by an RCS; and (2) unless located in a High Cost Area, 110 percent of the applicable FMR, less utility allowances. For owners who wish to establish rents using this method, the owner must submit the following: (1) An RCS that includes both “as-is” rents at the project and “post-rehab” rents at the project and (2) A proposed scope of work. The contract will include both an “as-is” rent schedule and a “post-rehabilitation” rent schedule in one or more exhibits to the PBRA contract. The HAP Contract will reflect a date for the completion of the repairs. The owner will be required to submit for HUD approval a cost-certification prepared for the third-party financing source once the repairs have been completed.

   If the repairs are not completed by the date reflected in the HAP Contract, unless HUD agrees to extend the deadline for completion of repairs, on the first day of the month following the date for the completion of repairs as reflected in the HAP Contract, HUD will reduce the rents to those reflected in the “as-is” rent schedule starting on the first day of the month when the repairs were to have been completed. Further, HUD will consider the difference between the “as-is” and the “post-rehab” rents from the date of the effective date of the HAP Contract until the date by which the repairs were to have been completed as an overpayment and will offset future HAP payments until the overpayment has been repaid. Effective on the date repairs are completed, HUD will resume providing the rents that are reflected in the “post-rehab” rent schedule. For transactions where initial rents will be set at the “post-rehab” rents, the PBRA HAP Contract will be effective on the first day of the month following the closing on the construction financing. Owners will be required to submit evidence that they have successfully closed on the construction financing to their transaction manager.

4. Method of Adjusting Contract Rents. For properties located in a High Cost Area, over the 20-year term of the HAP contract, contract rents will be adjusted using the processes described in the HUD Section 8 Renewal Policy Guidebook under Option 1A: Mark-Up-To-Market.

   Othewrise, contract rents will be adjusted by HUD’s OCAF at each Anniversary of the HAP Contract, subject to (a) the availability of appropriations for each year of the initial term of the HAP Contract and (b) the Maximum Rent, as defined below.

   The Maximum Rent is the higher of 110% of FMR (or 120% if approved at initial rent-setting), less utility allowances, or the market rents, as demonstrated by an RCS procured and paid for by the Project Owner. Where an RCS has been used to establish initial rents or to justify an OCAF adjusted rent that exceeds 110% of the FMR (or 120% as applicable), the RCS will remain valid for five years, the Maximum Rent will not apply for the next four annual rent adjustments, and rents will be adjusted only by the OCAF. Where HUD has approved the use of Small Area FMR by project, the Small Area FMR will continue to serve as the applicable FMR when determining the rent cap.

5. Distributions. Covered Projects will not be subject to any limitation on distributions of Surplus Cash, contingent on the availability of Surplus Cash as determined by year-end audited or certified financial statements. To implement this provision, HUD will not apply 24 CFR § 880.205, which, among other provisions, establishes certain limitations on distributions for profit-motivated owners and authorizes HUD to require not-for-profit and certain for-profit owners to establish a residual receipts account. Note: Although the PBRA contract will have no limits on distributions, owners will still be subject to any limits on distributions that are established in other governing documents at the project (e.g. a 236(e)(2) Use Agreement).

6. No Rescreening of Residents upon conversion. Pursuant to the RAD Statute, at conversion, current households cannot be excluded from occupancy at the Covered Project based on any rescreening, income eligibility, or income targeting. With respect to occupancy in the Covered Project, current households in the Converting Project will be grandfathered for application of any eligibility criteria to conditions that occurred prior to conversion, but will be subject to any ongoing eligibility requirements for actions that occur after conversion.¹⁹⁸ Post-conversion, the tenure of all residents of the Covered Project is protected pursuant to PBRA requirements regarding continued occupancy. A household that would not be income eligible for initial occupancy of a Section 8 unit at the time of conversion would still be placed on a Section 8 lease and eligible for assistance under the provisions governing continued occupancy. Thus, the first clause of section 8(c)(4) of the Act and 24 CFR § 880.603(b), concerning determination of eligibility and selection of tenants for initial occupancy, will not apply for current households. Once the grandfathered household moves out, the unit must be leased to an eligible family. Income eligibility requirements associated with new sources of financing, such as Low-Income Housing Tax Credits, do not supersede this prohibition on rescreening, and the Project Owner may be required to exclude Section 8 units occupied by ineligible households from being covered by the new financing’s restrictions. Additionally, any owner-adopted preference shall not apply to any current resident.

7. Davis Bacon Prevailing Wages. Execution of a PBRA contract through RAD that provides rental assistance to previously-assisted units does not trigger Davis-Bacon prevailing wage requirements (prevailing wages, the Contract Work Hours and Safety Standards Act, and implementing regulations, rules, and requirements). However, to the extent that construction or rehabilitation is performed on nine or more units that were not previously rent assisted or rent restricted and will be newly assisted as a result of the conversion transaction (including, without limitation, through transfer of assistance), such construction or rehabilitation is subject to Davis-Bacon prevailing wage requirements. In such cases, Davis-Bacon applies to a PBRA conversion to the same extent it would apply if the conversion were a PBV conversion.

8. Under-occupied Units Converting to PBRA. If at the time of conversion, an eligible family assisted under the Rent Supp or RAP (and if applicable Section 236) is occupying a unit that is larger than appropriate because of the family’s composition, the family may remain in the unit until an appropriate-sized unit becomes available in the Covered Project.¹⁹⁹ When an appropriate-sized unit becomes available in the Covered Project, the family living in the under-occupied unit must move to the appropriate-sized unit within a reasonable period of time. In order to allow the family to remain in the under-occupied unit until an appropriate-sized unit becomes available in the Covered Project, HUD is waiving the portion of 24 CFR § 880.605 that assumes the unit has become under-occupied as the result of a change in family size.²⁰⁰

9. Transfers after conversion. After initial conversion, in general, a Project Owner may only request a transfer of assistance to HUD after 10 years from the effective date of the initial HAP Contract. A Project Owner may submit a transfer request sooner if it is needed as a result of eminent domain proceedings, natural disasters, unforeseen events, or as otherwise approved by HUD (for example, if HUD provided approval of a future transfer prior to conversion). Absent compelling circumstances, HUD will assess that the transfer does not occur in neighborhoods with highly concentrated poverty based on the criteria formulated for transfers under 8(bb) of the Act and how the transfer would affect project residents. HUD may consider, and approve with such conditions as HUD determines appropriate, a partial or complete transfer of assistance to a new location if the new location complies with applicable site selection standards. If applicable, any lender to and/or investor in the Covered Project must also approve the transfer of the assistance. Substantially all units covered by the initial HAP Contract must remain or be replaced as a result of the transfer. Residents of the original location at the time of the transfer request shall not experience a loss of rental assistance. Subject to the availability of appropriations, PBRA-assisted families living at the property upon termination of a PBRA HAP Contract that meet the eligibility requirements for voucher assistance may receive tenant-based TPVs in the event the termination of the original PBRA HAP Contract qualifies for issuance of such vouchers.

Prospective Conversions generally entail the following steps, described in further detail below (see Section 3.8 for Retroactive Conversions):

• Initial contact with HUD
• Resident consultation and notification
• Selection of PHA (PBV conversions only)
• Conversion request submission and approval
• Funding request and reservation
• Verification of expiration or termination of Rent Supp/RAP contract and HAP Contract execution

1. Initial Contact with HUD. For conversions to PBRA and prospective conversions to PBV, the first step is for the owner to contact HUD’s Office of Recapitalization to express interest in a RAD conversion by registering an account on the RAD Resource Desk at www.radresource.net, and submitting your initial interest. For PBV conversions, the owner is not responsible for locating a PHA to administer the PBV contract. Upon initial contact with HUD’s Office of Recapitalization, the transaction manager will work with the local Public Housing field office to identify an appropriate PHA to administer the PBV assistance.

   In the owner’s initial contact, the owner or owner’s representative will discuss the RAD conversion with a member of HUD’s Office of Recapitalization’s staff and will develop a strategy for a successful conversion at the project.

2. Resident Notification. After making contact with HUD’s Office of Recapitalization, the owner must complete the following: resident briefing, resident notification and resident comment activities prior to submission of the RAD conversion request. The owner is required to notify all project households and legitimate resident organizations (as defined in Section 1B.2 of this Notice) of the owner’s request to provide PBV or PBRA assistance in lieu of TPV assistance. This notification must be done through a notification letter that meets all of the following requirements²⁰¹:
   1. The notification letter must offer the residents a description of the anticipated contract termination, the date of the termination, the units that are affected by the termination of the Rent Supp or RAP contract, and the units that would receive PBV (or PBRA) assistance in lieu of TPV assistance. The notification letter must also include a description of the different rights under the affected programs (Rent Supp or RAP, TPVs, and PBVs (or PBRA)) and how these programs impact resident rent payments and resident mobility.
   2. The notification letter must provide a 30-day comment period, during which time residents and legitimate resident organizations will have the opportunity to comment. The letter must contain instructions on how to submit written comments (by email, in person etc.) and to whom to submit the comments. This 30-day comment period must begin within 5 days following the resident briefing. 
   3. The notification letter must specify which units are proposed for conversion and must be delivered to each unit in the project, with a copy to all legitimate resident organizations; it must also be posted in the project office and at least three prominent locations on the project site. 
   4. If relocation of households will be required due to rehabilitation, the notification letter must state the owner’s plan for relocation, including the expected length of the relocation, and it must specify that all relocation costs will be the responsibility of the owner. All relocating households will have a right of first return.
   5. The notification letter must indicate a date and time for the required residents’ briefing and provide a contact name and method of contact for questions and comments.

   The owner or owner’s representative is also required to schedule two residents’ briefings; the first will involve HUD staff and the second can be held only by the owner. For PBV conversions, the resident briefing will be held by Public Housing field office staff with participation from HUD Multifamily field office staff. For PBRA conversions, the briefing will be held by HUD Multifamily field office staff. The briefing is designed to fully inform residents and legitimate resident organizations of the features of TPV and PBV (or PBRA) assistance. The briefing will include information on the anticipated contract termination, the date of the termination, the units that are affected by the termination of the Rent Supp or RAP contract, and the units that would receive PBV (or PBRA) assistance in lieu of TPV assistance. The owner or owner’s representative must attend the briefing and be available to respond to residents’ questions and comments.

   When providing resident notification and meetings, an Owner must use effective communication for persons with hearing, visual, and other communication-related disabilities consistent with Section 504 of the Rehabilitation Act of 1973 and, as applicable, the Americans with Disabilities Act of 1990. Effective communication includes, but is not limited to, providing written materials in appropriate alternative formats (e.g., Braille, large type), as needed, and providing sign language interpreters and assistive listening devices at resident meetings, as needed (24 CFR Part 8.6). Additionally, resident meetings must be held in facilities that are physically accessible to persons with disabilities. Where physical accessibility is not achievable, an Owner must use alternative methods to meet with qualified individuals with disabilities, such as holding meetings at an alternate accessible site or offering in-home meetings. Such meetings must be provided in the most integrated setting appropriate to the needs of qualified individuals with disabilities. The most integrated setting appropriate to the needs of qualified individuals with disabilities is a setting that enables individuals with disabilities to interact with nondisabled persons to the fullest extent possible (28 CFR part 35, Appendix B).

   Additionally, an Owner must provide meaningful access to its programs and activities for persons who have a limited ability to read, speak, or understand English. For projects undergoing RAD conversion, an Owner must provide language assistance to residents of the project who are Limited English Proficient (LEP) to ensure that they have meaningful access to RAD resident notifications and meetings. Such language assistance may include, but is not limited to, providing written translation of notices regarding the plans for the project and relocation and oral interpretation at resident meetings. For guidance on providing language assistance to persons with LEP, please see Final Guidance to Federal Financial Assistance Recipients Regarding Title VI Prohibition Against National Origin Discrimination Affecting Limited English Proficient Persons (72  FR 2732).

3.7.1 Owner Submissions for Prospective Conversions

The owner must submit the items listed below to the RAD Resource Desk at www.radresource.net at least 60 days, but no more than 12 months, prior to the anticipated termination of the Rent Supp or RAP Contract. The owner is advised that early planning is critical to ensure the PBV or PBRA contract is effective upon termination of the Rent Supp or RAP Contract. If the Rent Supp or RAP contract is anticipated to expire or terminate fewer than 60 days following the date of application for the RAD conversion, the owner may request a short-term extension of the contract.

HUD will carefully review the owner’s request to ensure it is eligible under the Notice and complies with RAD requirements. The owner’s electronic application must include the following information:

1. Statement Requesting PBV or PBRA Assistance in lieu of TPV Assistance.This narrative statement must include:
   1. Project Information. The Owner’s submission request must contain a general project description (e.g. project name, project address, date project was built, total number of units)
   2. Transaction Description. The owner’s submission request must contain a description of the overall transaction for the PBV or PBRA Conversion that includes the information listed below:
      1. Triggering Event.  Description of the event that will trigger the termination of the Rent Supp or RAP contract (contract expiration, contract termination, or mortgage prepayment) including the Rent Supp or RAP contract number, expiration date, number of units on the original contract, and the number of actively billing units under the Rent Supp or RAP contract; as well as mortgage information, such as whether the existing mortgage is FHA insured or state-financed, and the mortgage maturity date.
      2. If the owner is prepaying the underlying mortgage, the statement must provide detail on the anticipated prepayment, including proposed closing date of the transaction, whether the transaction is an acquisition or a refinance, a summary of the proposed financing plan and must identify any external financing deadlines, for example Low Income Housing Tax Credit (LIHTC) bond closing or placed-in-service deadlines.
      3. HUD Approvals Needed.  If the RAD conversion is part of a larger preservation transaction – i.e. the prepayment of a Section 236 mortgage in conjunction with a Decoupling, the 236 application must be submitted electronically via www.hudmfpreservation.net, with an indication on their 236 application that the owner is pursuing RAD. The RAD application should also indicate the nature of the preservation transaction and any anticipated approvals from HUD’s Office of Recapitalization that will be needed in order to trigger the termination of the Rent Supp or RAP contract at the project.
      4. LIHTC Award or Allocation Information - If the proposed conversion request will involve LIHTC equity investment, the owner must submit with the RAD conversion request scanned, PDF copies of all award or allocation letters from the state LIHTC allocating agency evidencing the award/allocation, and information on related LIHTC deadlines affecting the project.
      5. Rehabilitation Information. If any Rehabilitation will occur in conjunction with the site’s proposed RAD conversion request, the following information must be provided:  Per unit cost of rehabilitation, scope of work, relocation plan. If rehabilitation will occur on nine or more units that were not previously rent assisted or rent restricted and will be newly assisted as a result of the conversion transaction, the project description must include a certification by the Owner that Davis-Bacon wages will be paid on rehabilitation of such units.
   3. Number of Units Proposed for the Conversion. The statement must identify the number of units proposed for the RAD conversion. This includes project residents that would be eligible for TPVs due to a termination of the Rent Supp or RAP contract. To correctly identify the units eligible for conversion to PBV or PBRA assistance, the owner should refer to the following points:
      1. Number of Rent Supp or RAP contract units. The owner should review the original Rent Supp or RAP contract to obtain the correct number of TPVs that would be provided. This is the total number of Rent Supp or RAP units on the original rental assistance contract that are currently occupied by income-eligible (low-income) households. The final determination of income eligibility will be performed by the PHA. If the Rent Supp or RAP contract provides assistance to a project, it is likely that the number of actively billing Rent Supp or RAP units is less than the total number of Rent Supp or RAP units authorized in the original assistance contract. This is because, over time, the amount of Rent Supp or RAP funding has stayed constant while costs have increased, so the owner has reduced the number of units actively billing under the Rent Supp or RAP program.  
      2. Number of non-Rent Supp/RAP units at the project. If the conversion involves a qualifying prepayment in an eligible low-income housing project, as defined above in Section 3.4(C), "Eligible Units," the RAD request may include units occupied at the time of the RAD conversion by residents who would otherwise receive EVs as a result of the mortgage prepayment. The request must list the total number of units proposed for conversion. 
      3. Number of Housing Choice Voucher (HCV) Units at the project.  If the conversion request involves units occupied by HCV holders, PBV assistance may  be attached to units in the project only when the triggering event is an eligible prepayment and the conditions outlined in Notice PIH 2013-27: Voluntary Relinquishment of Enhanced or Regular Voucher in Exchange for PBV in Multifamily Conversion Actions are followed.

2. Resident Notification and Comment. The owner must provide evidence that resident notification and comment procedures described in 3.7.B, above, have been met. The RAD conversion request must include a copy of the notification letter, the date of the resident briefing and the names and titles of participating HUD staff, copies of all comments received, and a description of how the owner has considered the comments and addressed them in the plan for the conversion of TPV assistance to PBV assistance. HUD will carefully consider the comments from residents and legitimate resident organizations as part of the review of the proposal, as discussed below.

3. Statement of Compliance. A statement of compliance with business practices detailed in Section 3.4(A) of this Notice for owner eligibility, along with evidence of the most recent REAC score and Management and Occupancy Review ratings that comply with Sections 3.4(E) and 3.4(A) of this Notice must be included in the materials as part of the conversion request to HUD. If the project does not meet the required Management and Occupancy Review standards, the statement should provide evidence that the transaction will put in place a qualified owner and management entity to successfully operate the project as affordable housing. If the project does not meet the required REAC score standards, the project will not be eligible for conversion.

4. Project Agreements and Contracts. Scanned, PDF copies of all relevant and applicable project legal agreements and documents, including: Rent Support RAP original contract documents; mortgage note; Use and/or Regulatory Agreement; IRP Agreement; and, other information necessary to evaluate the application that HUD may request at its discretion.

5. Environmental Review. HUD cannot issue an approval to convert assistance until and unless an environmental review has been completed and found to meet environmental review requirements. The following describes the submission and approval steps for securing a completed environmental review.

   A RAD transaction will either be reviewed under 24 CFR Part 50 (“Part 50 Reviews”) or 24 CFR Part 58 (“Part 58 Reviews”). Part 50 applies when HUD conducts the environmental review, and Part 58 applies when an RE conducts the environmental review. The following table shows which review protocol a transaction will follow, along with who will conduct the review:

   Description	Type of Environmental Review	Reviewer
   PBRA Non-FHA	Part 50	RAD Transaction Manager
   PBRA FHA Non-Risk Share168	Part 50	FHA Production
   PBRA FHA Risk-Share	Part 50	Transaction Manager
   PBV FHA Non-Risk Share	Part 50	FHA Production
   PBV Non-FHA	Part 58	Responsible Entity (RE)
   PBV FHA Risk-Share	Part 58	State Housing Finance Agency or Responsible Entity, as applicable169

   Under limited circumstances, per 24 CFR 58.11(c), an Awardee with a non-FHA PBV transaction may request HUD to undertake the environmental review under Part 50 if a suitable RE cannot be found or if the local government was not a direct recipient of the funds and refuses to accept responsibility or when HUD determines the local government does not have capacity to act as an RE.²⁰⁵ This request must be made in writing and submitted to HUD no later than at the time of the conversion plan request.

   For transactions receiving funding from other HUD programs (i.e. HOME, CDBG, non-RAD PBV), HUD encourages all parties to complete one review for all programs, even if these programs’ environmental reviews are conducted under a different review protocol (Part 50, Part 58). In cases where two Part 58 programs are combined, HUD encourages applicants to work with the Responsible Entity to see if environmental reviews can be combined. However, this is solely the Responsible Entity’s determination. In cases where a Part 50 program and a Part 58 program are combined, HUD may determine that it will perform one Part 50 environmental review for both programs under 24 CFR 58.11 if performing an additional Part 58 environmental review is not feasible in the time allotted. HUD must ensure that the Part 50 review considers the full scope of all activities and funding associated with all programs. When one review is used for both programs, the Approving Officials for both programs must certify the review.

   For all Part 50 reviews, the applicant must submit reports and documentation to HUD in accordance with 24 CFR Part 50, as discussed in Chapter 9 of the MAP Guide, except as follows:²⁰⁶

   1. For PBRA conversions (or where HUD has determined to conduct the PBV environmental review under Part 50) without FHA insurance and without any rehabilitation, construction, or demolition,²⁰⁸ HUD conducted a tiered review of program-wide and site-specific compliance. HUD has made program-wide compliance determinations for most of the applicable environmental laws and authorities, and will complete a site-specific compliance review of the following:
      1. Coastal protection pursuant to the Coastal Barrier Resources Act, as amended by the Coastal Barrier Improvement Act of 1990 (16 U.S.C. 3501);
      2. Flood insurance and floodplain management pursuant to the Flood Disaster Protection Act of 1973, the National Flood Insurance Reform Act of 1994 (42 U.S.C. 4001-4128 and 42 U.S.C. 5154a), Executive Order 11988, particularly section 2(a), and 24 C.F.R. Part 55;
      3. Contamination pursuant to 24 C.F.R. 50.3(i) (HUD Standard).

      Additionally, while Historic Preservation (National Historic Preservation Act of 1966, particularly sections 106 & 110; 36 CFR Part 800) is not included in the tiered review, for conversions that entail no physical activities or only activities that are limited to maintenance as defined in HUD Notice CPD-16-02, HUD has no further obligations under Section 106. HUD is not required to contact SHPO, THPO, and/or other interested parties or the public.²⁰⁹

      PHAs will be required to submit documentation to facilitate HUD’s site-specific review.

      For Environmental Reviews under 24 CFR Part 58, PHAs and/or proposed Owners should reach out to the responsible entity.

   2. For all non-FHA PBRA conversions (or where HUD has determined to conduct the PBV environmental review under Part 50) that do not meet the requirements under paragraph 1 above, the awardee will follow the guidelines in Chapter 9 of the MAP guide. Awardees will upload all applicable documentation directly into HEROS at the time of conversion plan request. The following exceptions to the MAP Guide apply:
      • In lieu of a Phase I Environmental Site Assessment (ESA) in accordance with ASTM E 1527-13 (or the most recent edition)²¹⁰, except for conversions involving substantial rehabilitation or new construction activities, Awardees may submit a more limited report on potential sources of contamination. Where a Phase I ESA is not required (i.e., projects without any associated substantial rehabilitation166 or new construction), the Awardees can submit a “transaction screen” in accordance with ASTM E 1528-14 (or the most recent edition) . A transaction screen will identify potential environmental concerns based on questionnaires, owner/occupant inquiry, site visit, government records inquiry and historical sources inquiry. The transaction screen must be prepared by a qualified professional, in accordance with 24 CFR 50.3(i)(4). As the definition of preparer in ASTM E 1528-14 does not meet this requirement, the professional must have either (a) a science degree and at least one year of practical environmental assessment experience in the field, or (b) three years of practical environmental assessment experience in the field performing site assessments for site contamination. If any potential environmental concerns are identified, an ASTM Phase I ESA in accordance with ASTM E 1527-13 (or the most recent edition) must be provided.
      • Awardees may submit a Phase I ESA that is up to 5 years old upon submission; however, it must be updated by a Transaction Screen that is up to 1 year old upon submission.
   3. For all PBRA conversions (or where HUD has determined to conduct the PBV conversion review under Part 50), PHAs are not required to follow the radon testing requirements of HN 2013-03. However, HUD strongly recommends radon testing for all projects and mitigation of any structures with elevated levels of radon (4 pCi/L or above).

   When HUD conducts the environmental review under Part 50, PHAs (or their vendors) must submit environmental reports and documentation167 for HUD review into the HUD Environmental Review Online System (HEROS), where HUD will complete its review.

   HUD staff will review the submissions and may require additional information in order to complete their review. HUD’s review will result in a determination, which may stipulate the rejection of the site for this demonstration or may require the completion of mitigation measures. The RCC will include any conditions required to carry out any and all mitigation measures as may result from the environmental review. Any conditions or mitigation that cannot be satisfied before Closing will survive Closing.

   When a Responsible Entity (RE) completes an environmental review under Part 58, the Conversion Plan must include either Form 7015.16 or a letter with the Responsible Entity’s (RE’s) finding of exempt activity in order to consider the environmental review to be complete. The RE should use HUD recommended formats to document the environmental review record.²¹³ The PHA should submit an environmental report to the RE, in such form as prescribed by the RE, to enable the RE to complete their analysis. Once the review is completed, the PHA must submit either:

   • Form HUD-7015.15, Request for Release of Funds (RROF), to their local PIH field staff.²¹⁵ After the PIH Field Director approves the RROF, the Director sends a completed HUD Form 7015.16 to the PHA, approving the release of funds. The PHA must submit proof of the completed Form 7015.16 (either a copy of the paper form or a screenshot of the completed screen in HEROS) to HUD; or
   • If form HUD-7015.15 is not required because the project converts to Exempt under 24 CFR § 58.34(a)(12), the PHA must submit the RE’s finding of exempt activity with their RAD Conversion Plan. A finding of exempt activity is a statement of the result of the RE’s environmental review, and is required even when form HUD7015.15 is not required. A letter from the RE indicating that the project converts to Exempt under 24 CFR § 58.34(a)(12) is sufficient.
6. Rent Comparability Study. In order to establish initial rents for a PBRA contract a Rent Comparability Study will be required.

7. Capital Needs Assessment (CNA). Except as noted below, each project that is applying for a PBRA conversion will be required to undergo a detailed physical inspection to determine short-term rehabilitation needs and long-term capital needs to be addressed through a Reserve for Replacement Account. A CNA must be submitted with the conversion request. The assessment will be used to size ongoing reserve deposits and may inform the timeline for any future refinancing.
   1. Transition to CNA eTool. HUD is in the process of developing a standardized CNA eTool for multifamily housing that will also be required of all PBRA RAD conversions under this section. This new CNA eTool will be required as part of any prospective conversion request that wishes to convert to PBRA that is submitted six months after publication of the CNA eTool. Prior to the publication of the CNA eTool, an owner may submit any alternative form of CNA completed by a qualified, independent third-party professional.
   2. Exemptions. HUD will exempt the following transaction types from completion of a Capital Needs Assessment described in Paragraph 1:
      1. For non-FHA transactions:
      1. Projects that are undergoing rehabilitation and are providing a scope of work and an RCS to establish PBRA contract rents. The Project Owner must provide a copy of the CNA used to develop the Scope of Work, which HUD will use to establish reserve for replacement requirements.
      2. Projects that have had a PCA or CNA done in the last ten years will not have to produce a new CNA. However, the existing CNA should be included with their conversion request, which HUD will use to establish reserve for replacement requirements;
      3. Projects where the total assisted units (e.g., RAD units and other PBV units) at the project will constitute less than 20% of the total units at the project (or a higher percentage at HUD’s discretion).
      2. For FHA transactions, owners should follow applicable requirements in the MAP Guide governing exemptions.
   3. Expiring Rent Supplement or RAP contracts. For owners where the Rent Supp or RAP contract is expiring within six months of the RAD conversion request, there is no requirement to complete the CNA prior to conversion. However, HUD will require a rider to the PBRA contract that indicates that the owner must procure and submit a CNA within six months of the execution of the PBRA HAP Contract.

3.7.2 PBV: HUD Review of Prospective Conversion Request, Selection of PHA, and funding and Execution of HAP Contract

1. HUD Review. HUD will review the owner's request to verify that the conditions of this Notice are met. Specifically, the review will verify the following:
   1. The owner has correctly identified the number of eligible units proposed for conversion and inclusion in the HAP Contract to be executed by the PHA and the owner. This includes verifying that the owner has correctly identified all units that are currently covered by a Rent Supp or RAP contract, as well as any other units that may be eligible to convert their assistance following the requirements of Section 3.4(C) “Eligible Units for PBV Conversion;”
   2. The owner has complied with the resident notice and briefing requirements in this Notice, and satisfactorily addressed resident comments;
   3. The project and owner meet all eligibility requirements listed in Section 3.4 of this Notice;
   4. If more than 50 percent of written comments from unique residents express disapproval for the conversion of assistance, HUD must contact the owner to discuss options for proceeding with the conversion request.
   5. HUD reserves the right to deny the conversion request if the conditions of this Notice are not met, or if the owner does not satisfactorily address concerns raised in residents’ comments.
2. Selection of PHA. Once a transaction manager determines that the project meets all requirements outlined in this notice and that the project is eligible for conversion, HUD will forward the RAD project request to the HUD Public Housing Field Office Director. The field office will determine the appropriate PHA to administer the PBVs in accordance with established criteria for selection of PHA administration of TPVs, including, but not limited to, jurisdiction to administer the voucher program in the area where the project is located and PHA administrative capacity (including any experience with operating a PBV program). The PHA will have the opportunity to accept or reject the offer to enter into a PBV HAP Contract for eligible units at the project. In the case that the initially-selected PHA does not wish to enter into a PBV HAP Contract, the HUD Public Housing Field Office Director will make a reasonable effort to find a PHA willing to enter into a PBV HAP Contract with the owner for eligible units at the project. If no PHA consents to enter into the PBV HAP Contract, the owner’s conversion request will not be approved. The selected PHA must inform the local HUD Public Housing Field Office within 30 days of the date of its selection whether the PHA consents or does not consent to enter into the PBV contract at the Rent Supp or RAP project. Once a PHA has consented to administer the PBV contract, the local HUD Public Housing Field Office will inform the transaction manager in HUD’s Office of Recapitalization that a PHA has been identified.

3. Funding and Execution of the PBV HAP Contract. Once the transaction manager has received confirmation that there is a PHA willing to administer the PBV HAP Contract at the project, the transaction manager will begin the process of finalizing the PBV HAP Contract at the project.

   The transaction manager will also be responsible for identifying the anticipated number of converting units at the project and preparing the Housing Conversion Action worksheet to send to the Financial Management Division (FMD) to request funding for the conversion. The transaction manager will use the anticipated date of the triggering event as the anticipated effective date for the funding request. Once the funding request has been made, the FMD will work closely with the transaction manager to ensure that the correct number of vouchers has been requested before approving the funding request. Once the funding request has been approved, HUD will then amend the PHA’s ACC, to provide tenant-protection funding for the conversion.

   The PHA will also determine which units will be included in the PBV contract. In some cases, the number of actively billing Rent Supp or RAP units has reduced over time, so the number of units on the contract exceeds the number of actively billing units. The original contract specified the number of units to receive Rent Supp or RAP assistance, but did not specify which units were covered by the contract. This can create confusion in determining which families may receive assistance. For example, a 100-unit project may have a Rent Supp contract that covers 50 units, but may have only 30 actively billing units. The 30 families that reside in the actively billing units will receive PBV assistance (provided they are income-eligible), and an additional 20 households at the project would be eligible for PBV assistance (provided there are 20 income- eligible families). Once the Owner’s submission is accepted by HUD and a PHA is selected to administer the PBV HAP Contract, the PHA must determine which 20 families of the 70 families residing in units not actively billing under the Rent Supp contract will receive voucher assistance. To determine which households will receive assistance, the PHA will perform income verification on all households that do not reside in the actively billing Rent Supp or RAP units, and will then hold a lottery among the income-eligible residents to select the families who will receive the vouchers. Subsequent to conversion, the PHA administering the contract shall enter data into the Form HUD-50058, in accordance with Notice PIH 2011-065 and Appendix IV.

   For PBV conversions with environmental reviews conducted under 24 CFR Part 58, the Transaction Manager will ensure that either Form 7015.16 or a letter with the Responsible Entity’s finding of exempt activity has been submitted with the application for prospective conversion. If the PBV conversion is FHA-financed or HUD has determined to conduct the environmental review under 24 CFR Part 50, the Transaction Manager will conduct the environmental review utilizing the environmental reports and analyses submitted as part of the application for prospective conversion and ensure the environmental review meets the standards of Part 50. ²¹⁶

   Subsequent to the amendment of the PHA’s ACC, confirmation of the environmental review being completed, and confirmation that the Rent Supp or RAP contract has been terminated or has expired, the PHA and owner will enter into a PBV HAP Contract for projects that qualify as existing housing under the PBV program.²¹⁷ However, prior to the execution of the HAP Contract, the units proposed for conversion must meet HQS (unless the PHA is using HOTMA non-life threatening and alternative inspection provisions²¹⁸, all income certifications must have been made, and the triggering event must have occurred. If the units do not meet HQS, the project will not be able to execute HAP until the units substantially comply with HQS.

3.7.3 PBRA: HUD Review of PBRA Request and Execution of Contract

HUD will review the owner's request to verify that the conditions of this Notice are met. Specifically, the review will verify the following:

• The owner has correctly identified the number of units proposed for conversion and inclusion in the PBRA HAP Contract to be executed by HUD and the owner. This includes verifying that the owner has correctly identified all units that are currently covered by a Rent Supp or RAP contract and all unassisted project units following the requirements of Section 3.4(D), “Eligible Units for PBRA Conversion”.
• The owner has complied with the resident notice and briefing requirements in this Notice, and satisfactorily addressed resident comments;
• The project and owner meet all eligibility requirements listed in Section 3.4 of this Notice; and
• If more than 50 percent of written comments from unique residents express disapproval for the conversion of assistance, HUD must contact the owner to discuss options for proceeding with the conversion request.
• The RCS meets the standards set forth in Chapter 9 of the Section 8 Renewal Guide.
• If “post-rehab” rents are being utilized, evidence that the Owner has secured sources to finance the scope of work that would result in post-rehab rents.
• The Transaction Manager will conduct the environmental review utilizing the environmental reports and analyses submitted as part of the application for prospective conversion and ensure the environmental review meets the standards of 24 CFR Part 50.
• Certification of Davis-Bacon wages if rehabilitation is being carried out on nine or more units that were not previously rent assisted or rent restricted nad will be newly assisted as a resultof the conversion transaction.
• HUD reserves the right to deny the conversion request if the conditions of this Notice are not met, or if the owner does not satisfactorily address concerns raised in residents’ comments.

After reviewing the Owner’s submission, the Office of Recapitalization will send a letter to the owner informing them of its initial approval to convert assistance under PBRA. Recap staff will then begin the process of reserving funding for the PBRA contract. Conversion of assistance under PBRA will be conditioned on expiration or termination of the Rent Supp or RAP contract at the project. Once funds have reserved for the PBRA contract and the expiration or termination of the Rent Supp or RAP contract has occurred, the PBRA contract will be executed by the owner and the local HUD multifamily office.

Retroactive conversions are conversions of TPVs that have already been issued to project residents as a result of a Rent Supp or RAP contract expiration or the termination of a Rent Supp or RAP contract due to prepayment of a mortgage. Retroactive conversions will be limited to PBV Conversions only. The contract expiration or termination must have occurred on or after October 1, 2006. These TPVs may include EVs provided to eligible residents at the Rent Supp or RAP-assisted project as the result of a mortgage prepayment, as detailed in Section 3.4(C). In such cases, EVs provided to all project residents as part of the mortgage prepayment may be converted to PBV assistance as part of the RAD proposal, provided that households that received these EVs are still residing at the project and are eligible for PBV assistance. To be eligible for the PBV program, project residents with EV assistance must be very low income (or low-income if the PHA allows admission of low-income tenants in accordance with their administrative plan) as described in 24 CFR § 982.201, and meet all program eligibility requirements of the PBV program.

For retroactive conversions, the owner will submit a conversion request directly to the PHA that administers the TPVs that were issued in response to the Rent Supp or RAP contract termination, with a complete copy to HUD Headquarters through the RAD Resource Desk at www.radresource.net. Only the TPVs originally provided to eligible residents at the time of contract termination, expiration, or prepayment are eligible for conversion to PBV assistance, and only the units occupied by households that received TPVs and are still residing at the project are eligible to have their assistance converted to PBV assistance.

As described in Section 3.3 A.1 General Program Description-Prospective Conversions, an owner may not submit a request for a prospective conversion if the Rent Supp or RAP contract is anticipated to expire or terminate fewer than 60 days following the date of application for the RAD conversion. If the Rent Supp or RAP contract is expected to expire or terminate within 60 days, the owner must pursue a retroactive conversion unless a short-term extension is approved. In these instances, eligible residents will receive TPVs in accordance with current practice described in Notice PIH 2001-41 or any subsequent guidance issued by the Office of Public and Indian Housing governing Multifamily Housing Conversion Actions. After the TPVs are issued to eligible residents, the owner may apply for a retroactive conversion of assistance.

Residents that were previously issued TPVs will be considered continuing participants and no re-certification must be done at the time of conversion, provided that the PHA has completed an income re-certification within the past 12 months from the date of conversion. However, if the assistance was provided as EVs due to a preservation-eligible mortgage prepayment, the PHA will perform income verification to determine whether the families that received EV assistance meet the low-income requirements for the PBV program. /p>

The owner is advised that the final number of units where assistance is converted is determined after the receipt of resident consent and/ or non-consent, resident move out, or where voucher holders have decided not to relinquish their vouchers. Any household that has consented must relinquish its voucher at the time of conversion. However, residents retain the right to move from the project with voucher assistance or remain with EV assistance, up until the time the PBV HAP Contract is executed. If a household with a TPV moves from the project prior to the execution of the PBV HAP Contract, the unit that was occupied by that household will not be included in the PBV HAP Contract. Only income-eligible households that consent to the conversion and who reside in the project at the time of PBV HAP Contract execution will receive assistance PBV assistance.

3.8.1 Submission of Requests for Retroactive Conversions

A Rent Supp or RAP project owner must submit their request to the PHA administering the TPVs to convert such assistance to PBV assistance, and submit a complete copy to HUD Headquarters through the RAD Resource Desk at www.radresource.net. Owners are strongly encouraged to contact the PHA early in the process to determine if the PHA administering the TPVs is interested in approving the PBV RAD request. The owner may request conversion of TPVs that were issued to residents of the project following a contract termination that occurred on or after October 1, 2006, or expires within 60 days of an owner’s RAD conversion request, but did not receive an extension. The owner’s request must include the following information:
1. Statement Requesting Conversion of TPV Assistance to PBV Assistance. This narrative statement must:
   1. Identify the households for which a conversion of TPVs to PBV assistance is requested. The owner must list the specific households, by name and unit number, that received or will have received TPVs because of a contract termination due to prepayment or contract expiration that occurred on or after October 30, 2006 and who still reside at the project with HCV assistance. The PHA will verify the owner’s list against the PHA’s records.  Additionally, the owner must supply supporting documentation that these households have consented to conversion of the TPV assistance to PBV assistance, as described below. 
   2. A statement verifying that the date of the contract termination/expiration was no earlier than October 1, 2006.

2. Documentation of Resident Consent. The owner is required to notify affected households of its plans to request conversion of TPV assistance to PBV assistance.²²⁰Additionally, the activities below must be documented and submitted with the owner’s request: 
   1. The notification letter must be delivered to all project residents and legitimate resident organizations, including each eligible unit occupied by an eligible household; it must also be posted in the project office, the PHA office, and at least three prominent locations on the project site. 
   2. The notification letter must include a list of the potentially-affected units and must indicate that consent by each affected household must be obtained prior to any such conversion. The notification letter must also indicate that the administering PHA will schedule and hold resident briefings; the time and date of such briefings must be stated in the letter.
   3. The administering PHA must conduct a briefing for affected residents and legitimate resident organizations, during which the PHA must explain and provide written documentation that completely and accurately describes the different rights under the affected programs, TPVs and PBV assistance, and the impact each type of assistance may have on the tenant portion of the rent and resident mobility. Households must be made aware that they may remain in the unit with the voucher assistance, and, if a household does not consent to the conversion of their voucher assistance to PBV assistance, they must not be made to move out of the unit. The owner cannot employ any tactics to pressure the household into relinquishing its HCV and may not terminate a household’s lease on such a basis.
   4. If relocation of households will be required due to rehabilitation, the notification letter and briefing must state the owner’s plan for relocation, including the expected length of the relocation, and must specify that all relocation costs will be the responsibility of the owner. All relocating households will have a right of first return.
   5. During the briefing, each affected household must be provided with a form to complete and return to the PHA to acknowledge their consent or non-consent; each household must be provided at least 30 days from the date of the PHA briefing to make the decision. The form must be signed by the head of household and returned to the PHA, with a copy to the owner.
   6. TPV assistance will be converted to PBV assistance only for units where the household has signed a document consenting to the conversion of assistance. Households that do not provide consent will continue to receive HCV assistance and shall not be forced to relocate. Non-consent to the conversion is not grounds for lease termination by the owner.

3. Statement of Compliance. A statement of compliance with business practices for owner eligibility detailed in paragraph Section 3.4(A) of this Notice must be submitted, along with evidence that the project meets HQS. Note: if TPVs have not been issued, HQS inspections will be included in the TPV issuance process.

4. Environmental Review. See Section 3.7.1.E for the Environmental Review submission requirements applicable to PBV.

3.8.2 Review and Consent of PHA and Execution of PBV HAP Contract

The PHA will review the request of the owner and decide whether it is interested in participating in RAD and a retroactive conversion. The PHA must inform HUD within 15 days of the date of the owner’s request to the PHA if the agency does not consent to the conversion. The consent or non-consent must be submitted to the RAD Resource Desk at www.radresource.net. If the PHA determines it will participate, the PHA will review the request of the owner to verify whether or not the owner has complied with all required resident notification and consent procedures, and to ensure that the PBV contract will only cover those units where residents have consented to the conversion.

Upon receipt of the PHA’s consent, HUD will review the owner’s submission as required under section 3.7.1 to ensure that it meets all Notice requirements and will notify the owner and the PHA within 15 calendar days whether the conversion request is approved.  If the PHA does not consent, the conversion of assistance will not be authorized, and a rejection will be sent. Per the RAD Statute, the PHA that is actively administering the TPVs for the project must consent to the conversion.

Following HUD approval, the PHA and owner will enter into a PBV HAP Contract if the units meet the PBV regulatory requirements for existing housing. The term of the HAP Contract is 15 years; by choosing to participate in the RAD program, the PHA agrees to enter into 15-year HAP Contract.  The owner is advised that the PBV HAP Contract will only cover eligible units as described in Section 3.4. A PBV HAP Contract will not be entered into unless the units substantially meet HQS.

Subsequent to conversion, the PHA administering the contract shall enter data into the Form HUD-50058, in accordance with PIH Notice 2011-65 and Appendix IV.

For additional information on this Section of the Notice, please check www.hud.gov/rad or email questions to RAD2@hud.gov.

Section 237 of the General Provisions – Department of Housing and Urban Development in the Consolidated Appropriations Act, 2018 (Pub. L. No. 115-141) authorized RAD conversion of Project Rental Assistance Contracts (PRACs) under Section 202(c)(2) of the Housing Act of 1959. This Section provides RAD program instructions to owners of these Section 202 Housing for the Elderly Capital Advance properties with PRACs. These properties are referred to as “202 PRAC Projects” unless otherwise noted.

While the Second Component of RAD does not have the broad statutory waiver authority that the First Component does, the Second Component does provide that participation is subject to “requirements established by the Secretary.” HUD has used this authority and standard regulatory waiver authority to develop alternative requirements, and to waive purely regulatory provisions where necessary in order to fulfill the purposes of the Demonstration.

General Program Description Description Under the Second Component of RAD, a 202 PRAC Project Owner may convert an eligible PRAC to one of two forms of long-term Section 8 Housing Assistance Payment (HAP) Contracts: project-based vouchers (PBVs) or project-based rental assistance (PBRA). The selection is the Project Owner’s choice. At the time of conversion, Converting Projects will be released from any outstanding obligations under the Capital Advance Agreement, the Capital Advance Mortgage Note, the Capital Advance Program Regulatory Agreement, the Capital Advance Program Use Agreement, and related or collateral documents associated with the PRAC and the foregoing documents and will enter into an Elderly Housing Use Agreement, which will be recorded as a restrictive covenant in first position on the Covered Project. The Elderly Housing Use Agreement, described in more detail in Section 4.4.J, will restate any PRAC obligations that survive the conversion. The Elderly Housing Use Agreement will have a term of 20 years plus the balance of the term left on the Capital Advance Program Use Agreement at the time of conversion. Any PRAC documents still in effect at the time of conversion will be terminated immediately prior to execution of a new PBV or PBRA HAP Contract and the Elderly Housing Use Agreement.

1. PBV Conversions. If the Project Owner requests to enter into a Section 8 PBV HAP Contract, HUD will make a reasonable effort to find an eligible PHA with a Housing Choice Voucher Program and with operational jurisdiction, that is willing to enter into and administer the PBV HAP Contract with the Project Owner. After HUD determines that the requirements of this Notice have been satisfied, the PHA that has agreed to administer the PBV HAP Contract will have the resulting vouchers and budget authority added to its Annual Contributions Contract (ACC). Contract rents will be established and adjusted according to the terms described in this Notice. Project Owner and the PHA will execute the HAP Contract effective at the expiration of the PRAC. The initial contract must be for a term of 20 years (i.e., the maximum allowable initial term under section 8(o)(13)(F) of the Act). Mandatory contract extensions of the initial term are governed by section 4.5.B. of this Notice. Unless specifically identified in this Notice, all regulatory and statutory requirements of the PBV program in 24 CFR part 983, and applicable standing and subsequent Office of Public and Indian Housing guidance, including related notices and handbooks, shall apply.
2. PBRA Conversions. If a Project Owner requests to enter into a Section 8 PBRA HAP Contract (subject to annual appropriations), the HAP Contract will be executed by HUD’s Office of Housing. After HUD determines that the requirements of this Notice have been satisfied, the Project Owner and HUD will execute the HAP Contract to finalize the conversion. Contract rents will be established and adjusted according to the terms described in this Notice. The initial contract must be for a period of 20 years and will be subject to annual appropriations. At expiration, the initial contract shall be eligible for renewal under the Multifamily Assisted Housing Reform and Affordability Act of 1997 (MAHRAA). Mandatory contract renewals are governed by section 4.6.C. of this Notice. The Covered Project shall be governed by 24 CFR part 880, as modified and as published in Appendix I of this Notice, the site and neighborhood standards in Appendix III of this Notice, as well as by applicable standing and subsequent Office of Housing guidance, including notices and handbooks.

Owners of 202 PRAC Projects that meet all eligibility requirements described below may request to convert assistance under the Second Component of RAD. HUD may, at its discretion and subject to the availability of staffing resources, prioritize processing and approval of conversions for projects that have immediate capital needs; funding from a 3rd party source; and/or are PBRA conversions.

4.3.1 Eligible Owners
1. Compliance with HUD Requirements. The Project Owner must be in good standing with HUD. If the current Project Owner is anticipated to remain in the ownership structure, the Project Owner must not have a history of non-compliance with program and contractual requirements, including maintaining units in a decent, safe, and sanitary condition. If a proposed conversion is in the context of an acquisition simultaneous with the conversion, the purchaser must provide evidence of successful experience owning and operating HUD or other multifamily housing properties. Any change in Ownership will require Form HUD-2530 Previous Participation approval as described in Attachment 4A.

2. Fair Housing and Civil Rights Compliance. A Project Owner must certify it will comply with all fair housing and civil rights requirements including but not limited to those at 24 CFR § 5.105(a). Any outstanding fair housing or civil rights matters arising prior to conversion must be resolved to HUD’s satisfaction prior to conversion, provided that all applicable legal processes have been satisfied. If HUD determines a conversion would fail to meet this standard, HUD will notify the Project Owner of its determination and any necessary actions. Fair housing or civil rights matters that arise after conversion will be addressed in accordance with applicable authorities.

   Additionally, a Project Owner may be required to demonstrate that its proposed activities under RAD are consistent with any applicable VCA, conciliation agreement, consent order or consent decree, final judicial ruling, or administrative ruling or decision. HUD may terminate an approval if it determines that the terms of the conversion would be inconsistent with fair housing or civil rights laws or a fair housing or civil rights court order, settlement agreement, or VCA. Furthermore, if a project is subject to a VCA, conciliation agreement, consent order Section IV: Section 202 Project Rental Assistance Contract (PRAC) Projects 237 or consent decree, or final judicial ruling or administrative ruling or decision, it must ensure that the ownership agreement or other appropriate document makes the new Project Owner subject to the remedial provisions contained in such documents. It is the Project Owner’s obligation to disclose such documents, etc., to the prospective Project Owner. The extent of the Project Owner’s responsibilities, including whether the responsibilities are appropriately limited to the development, maintenance, or operation of the particular RAD project, must be appropriately documented. The Project Owner will follow any requirements for the modification of such VCA, conciliation agreement, consent order or consent decree, or final judicial ruling or administrative ruling or decision. If HUD is a party to such document, the RAD project will not close without HUD’s express approval of the transfer of obligations to the new Project Owner.

   4.3.2 Eligible Properties and Units.
   1. Eligible Properties and Units. A property is eligible for conversion if the property is currently receiving assistance through a PRAC that is in its renewal term. A property assisted by a PRAC in its initial term is also eligible for conversion but, depending on the age of the funds HUD has obligated to the contract, may have to time the conversion based on when funding can be transferred to support a conversion to a Section 8 contract. For a property assisted by a PRAC in its initial term, the Project Owner should confirm with HUD the necessary timing of its conversion. Properties that were previously assisted under a PRAC which has been terminated due to noncompliance are ineligible to participate under this Notice. A Project Owner may include under the subsequent Section 8 HAP Contract no more than the number of units covered under the PRAC.
   2. Physical Condition. For PBRA conversions, unless project plans address (or obviate, through transfer of assistance) all physical deficiencies identified in the most recent REAC Inspection report, the project must have a REAC score of 60 or above.

      For PBV conversions, the Converting Project must qualify as “existing housing” in order to be eligible for conversion. This means that the PHA must ensure that the Converting Project’s units substantially comply with HQS, as defined in the PHA’s Section 8 administrative plan, prior to submission of the Conversion Plan (see Section 4.7.4 for more information on the Conversion Plan). Prior to entering into a PBV HAP Contract, the PHA must inspect the Converting Project proposed for conversion to ensure that the units fully comply with HQS, unless the PHA is using HOTMA non-life threatening and alternative inspection provisions.¹⁷⁵

1. Applicability of PRAC Requirements. Until conversion and the effective date of a HAP Contract, properties continue to be subject to the requirements of the PRAC. Owners of 202 PRAC Projects are required to submit a project budget and any accompanying request for a Budget Based Rent Increase annually for renewal of the PRAC. HUD requires that Project Owners analyze project operating and capital needs as well as the efficacy of resident services at each renewal and request adjustments to the Operating Expense Amount accordingly.

2. Capital Needs Assessment (CNA). Each Converting Project is required to have a CNA and to demonstrate that both short-term and long-term capital needs can be addressed through the replacement reserve account (see paragraph C) and/or through financing (see paragraph D) as appropriate. The CNA contains two major components – the narrative (the description of each component and its age and condition) and the financial model (the 20-year schedule and associated determination of the Initial Deposit to Replacement Reserve, or IDRR, and the Annual Deposit to Replacement Reserve, or ADRR). The CNA must be completed or updated within 12 months of the submission of the Conversion Plan, except with HUD approval. Further, the CNA must be performed by a qualified, independent third-party professional as defined in Section 5.2.B.2 of the MAP Guide. The CNA must be prepared in accordance with the instructions at Appendix 5G of the MAP Guide although the use of a specific format is not required unless HUD requires a specific format for 202 PRAC budget-based rent increase requests. The CNA submitted for RAD must be consistent with any CNA submitted to a Multifamily Regional Center as part of the demonstration of project expenses for the most recent annual rent adjustment under the 202 PRAC, although it may include additional discretionary items. (As such, the CNA submitted for the purposes of demonstrating project expenses must meet the aforementioned standards.) The CNA will identify certain improvements for physical accessibility for persons with disabilities as well as design considerations that promote housing stability for an aging population. In further developing the scope of work, refer to Paragraphs E, F, and G regarding Accessibility Requirements, Design Considerations for Elderly Housing, and Healthy Housing and Energy Efficiency, respectively.

3. Replacement Reserve. The Project Owner shall establish and maintain a replacement reserve in an interest-bearing account to aid in funding extraordinary maintenance and repair and replacement of capital items. The reserve must be built up to and maintained at a level determined by HUD to be sufficient to meet projected needs as identified in the CNA 20-year replacement schedule. The Project Owner must commit to repairing and replacing components generally in accordance with the schedule set forth in the CNA. HUD encourages Project Owners to evaluate the 20-year replacement needs of the property at the time of their annual PRAC renewal, prior to submitting a Conversion Plan.
   • For PBRA, 24 CFR § 880.602 applies, as amended (see Appendix I).
   • For PBV, replacement reserves shall be maintained in a bank account or similar instrument, as approved by HUD, where funds will be held by the mortgagee or, where there is no financing, by the Project Owner and may be drawn from the reserve account and used subject to HUD guidelines.

4. Financing and Repairs. If the CNA identifies repairs as critical, immediate or required within the first two years following conversion and the total of such repairs exceeds an average of $5,000 per unit, if HUD determines that immediate repairs are necessary based on REAC scores of 59 or less or referrals to the Department Enforcement Center (DEC) related to physical conditions, or if there is outstanding noncompliance with accessibility requirements identified by the CNA, the Project Owner must demonstrate as a condition of closing that it has secured financing sources to address such needs and must agree to address such needs within a prescribed period following the conversion as part of the Work. Following conversion and the completion of any immediate repairs, HUD requires all Projects to either utilize available capital replacement reserves to address ongoing capital repair and replacement needs generally consistent with the CNA, or to periodically recapitalize as lifecycle improvements become necessary.

5. Accessibility Requirements. Federal accessibility requirements apply to all conversions. The laws that most typically apply to HUD-assisted housing undergoing rehabilitation include Section 504 of the Rehabilitation Act of 1973 (Section 504), the Fair Housing Act, and, in some cases, the Americans with Disabilities Act (ADA). Although the requirements of each of these laws are somewhat different, Project Owners must comply with each law that applies. Section 504 and the ADA apply to new construction and additions as defined in 24 CFR § 8.22, substantial alterations and other alterations as defined in 24 CFR § 8.23 and to existing, unaltered facilities (24 CFR § 8.24), as well as any combination thereof. See also 28 CFR § 35.151(b) and 28 CFR § 36.402. Section 504 and the ADA also require structural modifications as reasonable accommodations. The Fair Housing Act applies to the design and construction of multifamily dwellings built for first occupancy after March 13, 1991. It also requires that Project Owners allow for structural alterations in housing generally as reasonable modifications when necessary for an individual with a disability to use and enjoy a dwelling, and under these authorities, Project Owners must ensure that reasonable modifications remain available to the resident after construction or alteration (e.g., accommodations are preserved through the course of the construction work or, if the resident is moved to a different unit as a result of construction, are installed in the new unit).

   When a Project’s rehabilitation meets the definition of a “substantial alteration” under 24 CFR § 8.23, the Project Owner must comply with all applicable accessibility requirements for new construction at 24 CFR § 8.22 under HUD’s Section 504 regulations as well as the ADA. For some Projects, “other alterations” are made over time. If other alterations, considered together, amount to an alteration of an entire dwelling unit, the entire dwelling unit shall be made accessible, until five percent of the dwelling units in a project are readily accessible to and usable by individuals with mobility impairments (see 24 CFR § 8.23).

   Project Owners are encouraged to use universal design principles, visitability principles, and active design guidelines in planning any construction. However, adherence to any of these principles or guidelines does not replace compliance with the accessibility requirements of Section 504, the ADA, and the Fair Housing Act.

6. Design Considerations for Elderly Housing. Quality housing is a platform for health and wellness. Health can be promoted through both supportive services (as described below) and through a physical living environment suitable for the needs of the anticipated residents. In the context of housing for the elderly, enhanced livability of the physical environment promotes housing stability and may prevent premature institutionalization in assisted living or nursing homes. A well-situated, well-designed physical space at the unit and building level can help seniors maintain independence and age in place longer. In addition to any required accessibility features under Section 504 of the Rehabilitation Act of 1973, the design and construction requirements of the Fair Housing Act, or Title II of the Americans with Disabilities Act, the Department strongly encourages Project Owners to incorporate design standards that address fall prevention, visitability, universal design, and electronic communication mechanisms when developing or rehabilitating housing and community facilities. Project Owners are expected to consider access to transportation and walkability to the surrounding community and neighborhood services when selecting sites for a transfer of assistance. These design elements and siting decisions all serve to enhance the livability of housing for older adults and promote housing stability.

7. Healthy Housing and Energy Efficiency. If systems and appliances are being replaced as part of the Work identified in the approved Conversion Plan, the Project Owner shall utilize the most energy- and water-efficient options that are financially feasible and that are found to be cost-effective. The use of Energy Star®, WaterSense® or Federal Energy Management Program (FEMP)-designated products and appliances, if any such designation is available for the applicable system or appliance, is presumed to be the minimum threshold for meeting such requirement.¹⁷⁶ Project Owners are strongly encouraged, for all Converting Projects, to scope rehabilitation and ongoing replacements that utilize the components that the CNA indicates will improve indoor air quality, prepare the property for known or anticipated natural hazards, generate utility cost savings for residents or common areas, and/or reduce overall environmental impact, where those components are determined to be cost-effective and consistent with healthy housing and energy efficiency principles and best practices.

8. Existing Residual Receipts Balance. Project Owners may apply any balance in the Converting Project’s residual receipts as a source in the development budget to support conversion. Eligible conversion-related uses for these funds include pre-development, development, or rehabilitation costs of the Covered Project, or establishment of the replacement reserve or operating reserve.

9. Operating Reserve. The Project Owner shall establish and maintain a Project operating reserve account in an interest-bearing account to be used for project purposes, consistent with this paragraph. Withdrawals from the operating reserve do not require HUD approval. However, surplus cash distributions are prohibited during any period when the balance in the operating reserve is less than $250 per unit. The Project operating reserve is separate and apart from the replacement reserve. The operating reserve must be used for the benefit of the project, including to provide working capital, to cover unexpected operating or capital expenses, to bridge periods of financial instability, to cover budget deficiencies arising from time to time as a result of delinquent receivables or other contingencies, or for other similar purposes determined by the Project Owner as beneficial to preserve the financial or physical stability of the Project. HUD will monitor the balance in the operating reserve when reviewing the Project Owner’s annual financial statements. An operating reserve required by a third-party source of financing (e.g., a lender or a LIHTC-motivated equity investor) that meets or exceeds $250 per unit satisfies the requirements of this Section and the Project Owner is not required to maintain a distinct operating reserve for this purpose.

10. Ownership and Control. Through the term of the Converting Project’s Capital Advance Use Agreement, HUD will require ownership or control of the Covered Project by a nonprofit entity. A non-profit entity is an organization that has tax-exempt status under Section 501(c)(3) or Section 501(c)(4) of the Internal Revenue Code of 1986 or that is a non-profit consumer cooperative and includes a non-profit entity that is affiliated with a public agency. Subject to HUD review, non-profit entity ownership or control requirements may be satisfied if a non-profit entity (or entities), directly or through an entity wholly owned by the nonprofit entity (or entities) meets one or more of the following: (1) holds a fee simple interest in the real property of the Covered Project; (2) is the lessor under a ground lease with the Project Owner; (3) has the direct or indirect legal authority (via contract, partnership share, agreement of an equity partnership, voting rights, or otherwise) to direct the financial and legal interests of the Project Owner with respect to the RAD units; (4) owns 51 percent or more of the general partner interests in a limited partnership or 51 percent or more of the managing member interests in a limited liability company with all powers of a general partner or managing member, as applicable; (5) owns a lesser percentage of the general partner or managing member interests and holds certain control rights as approved by HUD; (6) owns 51 percent or more of all ownership interests in a limited partnership or limited liability company and holds certain control rights as approved by HUD; or (7) other Section IV: Section 202 Project Rental Assistance Contract (PRAC) Projects 242 ownership and control arrangements approved by HUD. Note however, that prior to conversion, the Converting Project must continue to meet the ownership requirements set forth in the Housing Act of 1959, as amended.

11. Elderly Housing Use Agreement. A Covered Project shall have an Elderly Housing Use Agreement. The Elderly Housing Use Agreement will:
    • Restrict the units covered under the HAP Contract, but not govern any other units at the Covered Project;
    • Be recorded in a superior position to all other liens on the property that HUD determines could compromise the applicability or enforceability of the Elderly Housing Use Agreement. The Elderly Housing Use Agreement shall be recorded prior to any mortgage or security instrument, including an FHA-insured loan or a Risk-Share loan;
    • Have a term equal to the remaining term of the Capital Advance Use Agreement plus 20 years but not to exceed 60 years from the commencement of the Capital Advance Use Agreement;
    • Remain in effect even in the case of abatement or termination of the HAP Contract, although the Secretary may approve a modification or termination of the Elderly Housing Use Agreement to facilitate a transfer of assistance or if HUD determines it is necessary in order to address a demonstrated financial burden caused by insufficient Federal appropriations;
    • Provide that, if the HAP Contract is terminated due to breach or non-compliance by the Project Owner, for all units previously covered under the HAP Contract, new tenants must meet the definition of “elderly family” in 24 CFR 5.403; and
    1. Through the period equal to the remaining term of the Capital Advance Use Agreement, must have incomes at or below fifty percent (50%) of the area median income (AMI) at the time of admission and rents may not exceed thirty percent (30%) of fifty percent (50%) of AMI for an appropriate-size unit for the remainder of the term of the Elderly Housing Use Agreement; and
    2. Thereafter and through the remainder of the Elderly Housing Use Agreement, must have incomes at or below eighty percent (80%) of the area median income (AMI) at the time of admission and rents may not exceed thirty percent (30%) of eighty percent (80%) of AMI for an appropriate-size unit for the remainder of the term of the Elderly Housing Use Agreement;
    • Require compliance with all applicable fair housing and civil rights requirements, including the obligation to affirmatively further fair housing; and
    • Prescribe potential remedies in the event of default, which remedies may include, without limitation, civil money penalties, injunctive relief, specific performance, the right to take possession subject to non-disturbance of subordinate lienholders, the right to appointment of a receiver, the right to require a transfer of the Covered Section IV: Section 202 Project Rental Assistance Contract (PRAC) Projects 243 Project with consent of mortgage lienholders, the right to transfer the HAP Contract, and any other remedy available at law or in equity.

12. Restriction on Net Proceeds from Refinance or Sale. The proceeds from any refinance or sale of the Covered Project, net of funds described below, that occurs during the period equal to the remaining term of the original Capital Advance Use Agreement will be restricted to benefit the Covered Project or residents at the Covered Project (e.g., capital improvements, service delivery, or any uses set forth in a HUD-approved sources and uses statement other than acquisition) or to other Affordable Housing Purposes. For purposes of this paragraph, proceeds of a refinancing include all commercial or subsidized loan proceeds, equity investments and grants received by or invested in the Project Owner after deduction of funds used for repayment of commercial first mortgage debt secured by the Covered Project. For purposes of this paragraph, proceeds of a sale include all cash or other direct or indirect consideration paid to or on behalf of the seller of a Covered Project after deduction of funds used for repayment of commercial first mortgage debt secured by the Covered Project. In addition, in the context of an arms-length sale to an unrelated third party, net proceeds of a sale shall be determined after deduction of the following:
    • The seller’s payment of real estate or transfer taxes and fees, recording fees, real estate brokerage fees, and reasonable third-party transaction costs associated with the sale;
    • Any unrecovered (i.e., not previously drawn) seller equity in the Covered Project. Seller equity shall be calculated as a pro-rata portion of the original Capital Advance Note corresponding to the term of the Capital Advance Use Agreement that has elapsed;177 and
    • Paydown of any Identity of Interest (IOI) loans or advances that were used to address the needs of the project or residents of the project.

13. Environmental Reviews. Under Federal environmental review requirements, proposed RAD Projects are subject to environmental review. Environmental documents are required to be submitted as part of the applicant’s overall Conversion Plan. A Conversion Plan cannot be approved by HUD if the Project plan does not meet environmental review requirements. Please see Attachment 4A for a discussion of the environmental review requirements applicable to PRAC conversions, including conversion transactions that will not result in the alteration of the physical condition of the Project.

14. Relocation and Right to Return. Any person who is legally on the lease or otherwise in lawful occupancy at the Converting Project at or after the time of submission of the Conversion Plan has a right to remain in or, in the event that rehabilitation will result in the relocation of residents, a right to return to an assisted unit at the Covered Project. Any relocation as a direct result of acquisition, demolition, or rehabilitation is subject to requirements of the Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970 (URA) which are found at 49 CFR part 24. Proper notices including the General Information Notice (GIN), when applicable, must be sent in accordance with URA regulations and other applicable relocation regulations. Additionally, relocation and one-for-one replacement requirements under section 104(d) of the Housing and Community Development Act of 1974 may apply when CDBG or HOME funds are used in connection with a RAD conversion. Section 104(d) requirements are found at 24 CFR part 42, subpart C, and program-specific relocation requirements for CDBG and HOME projects are found at 24 CFR 570.606 and 24 CFR 92.353, respectively. The applicability of URA or section 104(d) requirements to a RAD conversion is fact-specific and must be determined in accordance with the applicable URA and section 104(d) regulations. Permanent involuntary displacement of residents may not occur as a result of a Project’s conversion of assistance. If proposed plans for a Project would preclude a resident from returning to the Covered Project, the resident must be given an opportunity to comment and/or object to such plans. If the resident objects to such plans, the Project Owner must alter the Project plans in order to house the resident in the Covered Project. If a resident agrees to the plans which would preclude the resident’s return, the Project Owner must ensure that the resident’s decision is fully informed, voluntary, and well documented. To be fully informed, at a minimum the resident must be notified in writing of a) his or her right to return; b) his or her right to object to plans which would preclude the resident from returning; c) the Project Owner’s obligation to accommodate the resident’s right to return; and d) a description of the short and long-term implications of both the right to return arrangements (e.g., temporary relocation) and the resident’s options if the resident agrees to such plans. The resident must be provided counseling regarding the resident’s rights and options. To be voluntary, a resident must be informed of their right to return, potential for relocation, and temporary and permanent housing options 30 days before making a decision. In addition, under the URA regulation, residents must be provided notice of relocation at least 90 days before the relocation. The Project Owner cannot employ any tactics to pressure the resident into relinquishing his or her right to return or accepting permanent relocation assistance and payments. To be well documented, evidence of a resident’s decision must be retained by the Project Owner. At a minimum such evidence must include copies of notices informing the resident of their options, records of any counseling or assistance provided, and the resident’s informed, written consent, including an acknowledgement that acceptance of such assistance terminates the resident’s right to return to the Covered Project. If the resident agrees to the Project Section IV: Section 202 Project Rental Assistance Contract (PRAC) Projects 245 Owner’s plans, the permanent relocation is considered voluntary, but must include, at a minimum, any relocation assistance and payments required under the URA and Section 104(d), as applicable. The Project Owner may not propose or request that residents waive their rights or entitlements to relocation assistance under the URA or Section 104(d).

15. Site Selection and Neighborhood Standards. Where a Project Owner is planning to convert assistance under RAD, the Project Owner must comply with all applicable site selection requirements, including those of 24 CFR § 983.57 for PBV (except as waived in Section 4.5.E) and Appendix III of this Notice for PBRA, and of the Fair Housing Act and Title VI of the Civil Rights Act of 1964, including implementing regulations at 24 CFR § 1.4(b)(3), and of Section 504 of the Rehabilitation Act of 1973, including implementing regulations at 24 CFR § 8.4(b)(5).

16. Change in Unit Configuration. Project Owners may change the unit configuration in conjunction with conversion (e.g., converting efficiency units to one-bedroom units). However, the Project Owner must ensure that the change in bedroom distribution will not result in the involuntary permanent displacement of any resident (see Section 4.4.M on Relocation and Right to Return), will not result in a reduction in accessible units below the minimum percentage, and will not, except with HUD approval, result in a reduction in the number of assisted units by the greater of 5% or five units. The Project Owner must also ensure that a change in unit configuration does not result in discrimination based on race, color, national origin, religion, sex, disability, or familial status.

17. Transfer of Assistance (TOA). In order to facilitate the financing, development, and preservation of decent, safe, and sanitary affordable housing, there are three scenarios under which assistance converted pursuant to RAD may be transferred from the existing Project (for the purposes of this paragraph, transfer of assistance does not include transfers to an adjacent site): (1) the Project Owner requests assistance to be transferred as part of the conversion from a Converting Project to another Project; (2) post-conversion, the Project Owner requests a partial or full transfer of assistance to another Project; or (3) as a result of a default of the HAP Contract, HUD terminates the HAP Contract but seeks to preserve the assistance at another Project with another Project Owner.

    HUD will ascertain that assistance does not transfer to neighborhoods with highly concentrated poverty based on the criteria formulated for transfers under section 8(bb) of the Section IV: Section 202 Project Rental Assistance Contract (PRAC) Projects 246 Act.¹⁷⁸ Further, HUD will consider whether conversion on-site is economically non-viable; whether the Converting Project is physically obsolete or severely distressed; how the transfer would affect the Converting Project’s residents; and all applicable fair housing and civil rights requirements.¹⁷⁹ Project Owners are strongly encouraged to request HUD approval of the proposed site prior to submission of the Conversion Plan.

    For PBV transfers of assistance to a new site, the PRAC contract will remain in effect at the original site and will not be terminated until the units at the new site are ready for occupancy and the HAP Contract is executed. For PBRA transfers of assistance, the HAP Contract can be executed at the closing of the construction financing and the Project Owner may use the Section 8 Pass-Through to provide for the continued flow of subsidy during the construction period.¹⁸⁰

    After initial conversion, in general, a Project Owner may only request a transfer of assistance after 10 years from the effective date of the initial HAP Contract. A Project Owner may submit a transfer request sooner if it is needed as a result of eminent domain proceedings, natural disasters, unforeseen events, or as otherwise approved by HUD (for example, if HUD provided approval of a future transfer prior to conversion). HUD may consider, and approve with such conditions as HUD determines appropriate, a partial or complete transfer of assistance to a new location if the new location complies with applicable site selection standards. If applicable, any lender to and/or investor in the Covered Project must also approve the transfer of the assistance. Substantially all units covered by the initial HAP Contract must remain or be replaced as a result of the transfer. Residents of the original location at the time of the transfer request shall not experience a loss of rental assistance. PBV-assisted families living at the property upon termination of a PBV HAP Contract have a statutory right to receive a tenant-based voucher and to certain tenancy protections.¹⁸¹ (A family may voluntarily decline the tenant-based voucher and accept a PBV unit at the new location but may not be required to do so.) Termination of a PBV contract is not cause for issuance of additional tenant-based voucher assistance from HUD. PHAs and owners contemplating RAD PBV transfers after conversion must take the PBV families’ right to tenant-based voucher assistance into consideration and ensure that there will be sufficient resources available to the PHA to both effectuate the transfer and meet the PHA’s obligation to provide tenant-based vouchers to those families that wish to receive them. Subject to the availability of appropriations, PBRA-assisted families living at the property upon termination of a PBRA HAP Contract that meet the eligibility requirements for voucher assistance may receive tenant-based tenant protection vouchers (TPVs) in the event the termination of the original PBRA HAP Contract qualifies for issuance of such vouchers.

    In the event that a transfer of assistance is approved, the underlying Elderly Housing Use Agreement will be transferred to the new Project and HUD will release the Elderly Housing Use Agreement on the original site corresponding to the units transferred.

18. Davis-Bacon prevailing wages. Execution of a HAP Contract through RAD that provides rental assistance to previously-assisted units does not trigger Davis-Bacon prevailing wage requirements (prevailing wages, the Contract Work Hours and Safety Standards Act, and implementing regulations, rules, and requirements). However, to the extent that construction or rehabilitation is performed on nine or more units that were not previously rent assisted or rent restricted and will be newly assisted as a result of the conversion transaction (including, without limitation, through transfer of assistance), such construction or rehabilitation is subject to Davis-Bacon prevailing wage requirements. In such cases, Davis-Bacon applies to a PBRA conversion to the same extent it would apply if the conversion were a PBV conversion.

19. Supportive Services for the Elderly. A Service Coordinator and/or the availability of Supportive Services for the elderly plays a critical role supporting the physical and mental health and wellness of residents and the delivery of cost-effective long-term community-based housing for this population. HUD encourages Project Owners to evaluate the service provision at the time of their annual PRAC renewal, prior to submitting a Conversion Plan. Each project will be required to demonstrate that the needs of residents are adequately met either through a Service Coordinator (full-time or part-time) funded through the annual project budget or through another service coordination/service provision arrangement. Project Owners must describe how the proposed supportive services provided by the Project technical correction and clarification notice, 82 Fed. Reg. 32461." Also see Notice PIH 2017-21. Pursuant to applicable Housing Choice Voucher program requirements, upon PBV HAP Contract termination the family must be given the option to remain in their unit with HCV assistance if the unit remains rental housing, the rent is reasonable, and the unit meets housing quality standards. Section IV: Section 202 Project Rental Assistance Contract (PRAC) Projects 248 or otherwise available to residents will meet the identified needs of the anticipated residents as they age. Project Owners must further describe how the identified supportive services will be provided or otherwise made available on a consistent, long-term basis to support residents. These commitments will be incorporated into terms of the Elderly Housing Use Agreement and/or HAP Contract at closing.

20. Provision of Services. For properties that have submitted an Initial Submission of Interest to HUD (i.e., prior to conversion), HUD may approve service costs to be paid from Section 202 project rental assistance up to $27 per unit per month if it is necessary to provide effective supportive services for the elderly. This adjustment to the PRAC contract shall be subject to the availability of funding in the Housing for the Elderly account.182 Accordingly, conditioned on the project’s successful conversion, HUD is waiving and providing an alternative requirement to 24 § CFR 891.225, which limits the eligible service costs that can be paid from project rental assistance to $15 per unit per month. This rent adjustment would become effective immediately prior to the conversion (following Conversion Plan Approval and following release of all Closing documents from escrow to permit the Closing) and would be rescinded if the conversion does not occur. Following conversion, the Project Owner is required to maintain provision of services in accordance with this paragraph.

21. Lead Based Paint Hazards. For properties built before 1978 and in the infrequent case that a child under age 6 resides in one or more units:
    • The Lead Disclosure Rule and the Lead Safe Housing Rule (specifically, 24 CFR part 35, subparts A, B, H, and R) apply to each such unit, any common areas servicing such units, and exterior painted surfaces associated with such units or common areas. (These covered areas must have a risk assessment conducted and any lead-based paint hazards identified controlled and cleared, with affected tenants getting disclosure and/or notification of these activities, as applicable; see also the MAP Guide section 9.5.A, Lead-Based Paint.)
    • If occupancy rule exceptions are made to allow children under age 6 to reside (such as in accordance with the Living Equitably: Grandparents Aiding Children and Youth Act of 2003, P.L. 108-186), the general exemption of the property from the lead safety rules is not available and they apply to the entire property.

22. Completion Certification. HUD may require a certification or evidence of completion of any requirements the Project Owner is required to complete following the conversion of assistance. 182 PRAC renewals and rent adjustments are funded from the Housing for the Elderly account. Renewal of ongoing PRAC contracts including inflationary adjustments to core operating expenses will be prioritized over mid-cycle rent increases that enhance services and replacement reserves for converting properties.

Certain PBV statutory provisions have been waived or altered consistent with the authority Congress has provided for Second Component conversions. In these cases, HUD also notes the corresponding regulatory provisions that are waived or altered. Additionally, HUD has waived certain regulatory provisions (that are not statutorily based) and established alternative requirements in order to prevent displacement of certain residents and otherwise serve the purposes of this Demonstration. All other regulatory and statutory requirements of the PBV program in 24 CFR part 983 and section 8(o)(13) of the Act and applicable standing and subsequent Office of Public and Indian Housing guidance, including related notices and handbooks shall apply, including resident choice, environmental review, and non-discrimination and equal opportunity requirements.

The modified or alternative requirements that pertain solely to 202 PRAC Projects converting assistance to PBV under the Demonstration are described below.

Please note that while in this Notice HUD prescribes requirements for converting 202 PRAC Projects to PBV, the conversion of project subsidy from its current PRAC account to a PBV contract will result in added complexity to the closing of the transaction (as compared to PRAC conversions to PBRA) and may cause unforeseen delays.

1. Initiation of Contract. The HAP may only be effective at the expiration of the PRAC. Further in order to provide sufficient time for HUD to transfer funds across appropriated accounts and then to subsequently obligate new funding to a PHA’s Housing Choice Voucher ACC, all closing conditions must be satisfied, and all transaction documents executed and held in escrow, 90 days before the PRAC expiration. ¹⁸³

2. Length of Contract. Section 8(o)(13)(F) of the Act provides, in part, that the HAP Contract may have an initial term of up to 20 years. In addition, 24 CFR § 983.205(a) provides the PHA with discretion to set the contract term, for a minimum period of one year and a maximum period of twenty years. By choosing to participate in RAD, the PHA and the Project Owner agree to an initial HAP Contract term of 20 years. A PHA may enter into an extension of the initial HAP Contract term with the Project Owner at any time during the initial term. The PBV HAP Contract during the initial and any extended term is subject to the requirement for sufficient annual appropriated funding.

3. Mandatory Contract Extension. Section 8(o)(13)(G) of the Act provides, in part, that the extension of any PBV HAP Contract is at the discretion of the PHA. The regulatory provisions governing PBV HAP Contract extensions are contained in 24 CFR § 983.205(b). By choosing to participate in RAD, the PHA agrees to offer, and the Project Owner agrees to accept, each extension of the initial HAP Contract term during the term of the Elderly Housing Use Agreement so that the contract could expire no earlier than the expiration date of the Elderly Housing Use Agreement.¹⁸⁴ As indicated in Section 4.5.A, the PBV HAP Contract during the initial and any extended term is subject to the requirement for sufficient annual appropriated funding. The contract extension(s) shall be for the prescribed number and mix of units but may, upon request of the Project Owner and subject to HUD approval, be on one or more transfer of assistance sites in lieu of the project site subject to the expiring contract.

4. PBV Percentage Limitation. Per the RAD statute, Section 8(o)(13)(B) of the Act (and, by extension, 24 CFR § 983.6) does not apply and Covered Projects do not count against the percentage limitation applicable to the PBV program. As a result, a PHA that is administering RAD PBV assistance does not take the RAD PBV into consideration when calculating the percent limitation for any non-RAD PBV actions that are subject to the percent limitation. In other words, RAD PBV is excluded from both the numerator and the denominator when calculating the percent that may be project-based for non-RAD PBV.

5. Cap on the Number of PBV Units in Each Project. There is no cap on the number of units that may receive RAD PBV assistance in each project because under the HOTMA Implementation Notice, units exclusively serving elderly families are excepted from the project cap.

6. Site Selection –Compliance with PBV Goals, section 8(o)(13)(C)(ii) of the Act and 24 CFR § 983.57(b)(1) and (c)(2). HUD waives these provisions having to do with deconcentration of poverty and expanding housing and economic opportunity, for the existing site.

7. Owner Proposal Selection Procedures, 24 CFR § 983.51. Projects are selected in accordance with program requirements detailed in this Notice. HUD is waiving 24 CFR § 983.51. For purposes of RAD, the date of PBV proposal selection shall be the date on which the Project Owner submits a Conversion Plan. With respect to site selection standards, HUD requires compliance with the site selection standards as set forth in this Notice.

8. Initial Contract Rent Setting. Consistent with the requirements of section 8(o)(13)(H) of the 1937 Act and 24 CFR part 983, Subpart G, the initial contract rents will be the lower of: (a) the approved PRAC rents determined by HUD;185 (b) the reasonable rent (as defined under 24 CFR § 983.303); (c) an amount determined by the PHA, not to exceed 110 percent of the applicable FMR (or applicable exception payment standard, or rent cap approved in an MTW Plan), minus any utility allowance; or (d) the rent requested by the Project Owner.

   With HUD approval, Project Owners and the PHA administering the contract may adjust subsidy amounts across multiple Projects proposed for conversion in order to modify initial contract rents that would be established in the HAP Contracts, as long as the subsidy adjustments do not exceed the aggregate subsidy for all of the Projects that the Project Owners has submitted for conversion under RAD and as long as the rents do not exceed applicable rent limits described in 24 CFR part 983 subpart G. This use, which HUD refers to as “bundled” rents, is permissible when multiple Project Owners in mutual agreement submit Conversion Plans for two or more Projects. There is no limit to the number of Projects that Project Owners may bundle. The conversion of the donor Project must close prior to or simultaneous with the conversion of the recipient Project. For example, assume that when Project Owners are considering bundling two identical Projects, both consisting of 100 units. In Project A, the contract rent is $500; and in Project B, the contract rent is $600. The Project Owners could bundle the two projects such that the initial contract rents for both projects will be $550.

9. Re-Determined Rents. The Project Owner may request an increase in rent at the anniversary date of the HAP contract by written notice to the PHA in accordance with 24 CFR § 983.301(b)(2). Under the PBV regulations, a Project Owner may request an adjusted rent level below the PBV rent caps. As a condition of converting to PBV under RAD, the Project Owner agrees to never request a rent increase in excess of the OCAF-adjusted rent.186 This OCAF limitation is in addition to the existing PBV rent limitations in 24 CFR § 983.301(b) more generally. All other PBV provisions governing the redetermination of rent to the Project Owner apply.

10. Distributions. As an alternative requirement, distribution of surplus cash is prohibited unless the Project operating reserve is funded at no less than $250 per unit and the replacement reserve is funded at a level prescribed by any conversion agreements.

11. No Rescreening of Tenants upon Conversion. Pursuant to the RAD Statute, at conversion, current households cannot be excluded from occupancy at the Covered Project based on any rescreening, income eligibility, or income targeting. With respect to occupancy in the Covered Project, current households in the Converting Project will be grandfathered for application of any eligibility criteria to conditions that occurred prior to conversion but will be subject to any ongoing eligibility requirements for actions that occur after conversion.¹⁸⁷ Post-conversion, the tenure of all residents of the Covered Project is protected pursuant to PBV requirements regarding continued occupancy. For example, a unit with a household that was over-income at time of conversion would continue to be treated as an assisted unit. Thus, 24 CFR § 982.201, concerning income eligibility and income targeting of tenants at initial occupancy, will not apply for current households. Once the grandfathered household moves out, the unit must be leased to an eligible family. Income eligibility requirements associated with new sources of financing, such as Low-Income Housing Tax Credits, do not supersede this prohibition on rescreening, and the Project Owner may be required to exclude Section 8 units occupied by ineligible households from being covered by the new financing’s restrictions.

12. Under-Occupied Units. If a family is in an under-occupied unit under 24 CFR § 983.260 at the time of conversion, the family may remain in the unit until an appropriate-sized unit becomes available in the Covered Project.¹⁸⁸ When an appropriate sized unit becomes available in the Covered Project, the family living in the under-occupied unit must move to the appropriate-sized unit within a reasonable period of time, as determined by the PHA. In order to allow the family to remain in the under-occupied unit until an appropriate-sized unit becomes available in the Covered Project, 24 CFR § 983.260 is waived.¹⁸⁹

13. Occupancy Requirements. In accordance with the RAD statute, as amended by the Consolidated Appropriations Act, 2018 (Pub. L. No. 115-141), Section 202 PRAC projects converting assistance under RAD must continue to serve elderly persons. Accordingly, in addition to income-eligibility and income targeting requirements in 24 CFR 982.201, new admissions must meet the definition of “elderly family” in 24 CFR 5.403. See Section 4.5.K regarding the treatment of current households.

For 202 PRAC Projects converting assistance to PBRA, 24 CFR part 880 (“Section 8 Housing Assistance Payments Program for New Construction”), as modified and as published in Appendix I of this Notice, the site and neighborhood standards in Appendix III of this Notice, and applicable standing and subsequent Office of Housing guidance190 will apply, except for the provisions listed below. Where applicable, reference is made to the affected statute and/or regulation.

1. Initiation of Contract. The HAP effective date will typically be the first day of the month, that begins at least 30 days after all closing conditions have been satisfied and documents executed and recorded, as applicable. For example, for a closing that occurs on May 28th, a HAP effective date will typically be July 1. This timing will enable a smooth transition from vouchering for payments under the PRAC to vouchering under the new HAP.

2. Length of Contract. Pursuant to the RAD statute, Covered Projects shall have an initial HAP Contract term of 20 years. Accordingly, section 8(d)(2)(A) of the Act, which establishes a maximum term of 15 years for “an existing structure,” does not apply. Additionally, 24 CFR § 880.502, which imposes maximum contract terms for New Construction Projects consistent with statutory authority that was repealed in 1983, does not apply.

3. Mandatory Contract Renewal. Pursuant to the RAD Statute, after the initial term of the HAP Contract, the HAP Contract is eligible for renewal under section 524 of MAHRAA, subject to the terms and conditions applicable at the time of renewal and the availability of appropriations for each year of such renewal. By choosing to participate in RAD, the Project Owner agrees to accept each offer to renew the HAP contract during the term of the Elderly Housing Use Agreement so that any renewal of the HAP contract could expire no earlier than the expiration of the Elderly Housing Use Agreement, but not to exceed a term of 20 years for any given renewal.¹⁹¹ The renewal contract(s) shall be for the prescribed number and mix of units but may, upon request of the Project Owner and subject to HUD approval, be on one or more transfer of assistance sites in lieu of the project site associated with the expiring contract.

4. Initial Contract Rent Setting. The initial contract rents will be set at the approved PRAC rents.192 Pursuant to authority provided in the RAD Statute, the limitation under Section 8(c)(1)(A) of the Act on setting initial contract rents no higher than 120% of FMR, less any utility allowances, shall not apply as necessary to ensure the ongoing provision and coordination of services or to avoid a reduction in project subsidy. The initial contract rents shall be capped at 120% of the applicable FMR, less any utility allowance, consistent with the requirements of Section 8(c)(1) of the Act, only in the event the Project Owner utilizes the authority in this Section to increase the initial contract rents above the approved PRAC rents. Furthermore, HUD is implementing an alternative requirement to 24 CFR §888.113(h) permitting the use of a Small Area FMR as the “applicable FMR” upon request of the Project Owner. 

   With HUD approval, Project Owners may adjust subsidy across multiple Projects proposed for conversion in order to modify the initial contract rents that would be established in the HAP Contract, as long as the Project Owners do not exceed the aggregate subsidy for all of the Projects the Project Owners have submitted for conversion under RAD and the rents do not exceed 120% of FMR (or SAFMR, as applicable). This use, which HUD refers to as “bundled” rents, is permissible when Project Owners in mutual agreement submit Conversion Plans for two or more Projects. There is no limit to the number of Projects that Project Owners may rent bundle together. The conversion of the “donor” Project must close prior to or simultaneously with the conversion of the “recipient” Project. For example, assume that two Project Owners are considering bundling two identical Projects, both consisting of 100 units. In Project A, the contract rent is $500; and in Project B, the contract rent is $600. The Project Owners could bundle the two projects such that the initial contract rents for both Projects will be $550.

   HUD may, in limited circumstances, modify the PRAC Rents separate from the annual contract renewal process and prior to conversion, given the project budget, and subject to the availability of funding in the Housing for the Elderly account.193 For example, if a CNA was not available at the time of the most recent PRAC renewal, a rent adjustment to appropriately update reserve for replacement deposits could be requested in the middle of the contract year, ahead of conversion.
   
   In order to support preservation efforts that will enhance the resilience, energy and water efficiency, and design of housing appropriate for the elderly to age-in-place, for any transaction that is proposed in its Conversion Plan to undertake new construction or rehabilitation with debt financing, and subject to demonstrated need, HUD may provide an increase to the PRAC rent prior to conversion that will be incorporated in the initial Section 8 contract rent. Subject to the availability of funds,4B-1 HUD may provide:

   • An increase of up to $250 per unit per month (PUM) to the PRAC rent for any transaction that will undertake new construction or substantial rehabilitation (defined as hard construction costs, including general requirements, overhead and profit, and payment and performance bonds) over 60% of the Housing Construction Costs as published by HUD for a given market area.4B-2
   • An increase of up to $100 PUM to the PRAC rent for any transaction that will undertake rehabilitation (defined as hard construction costs, including general requirements, overhead and profit, and payment and performance bonds) in excess of 30% of the Housing Construction Costs as published by HUD for a given market area.

   To be eligible for such increase to the PRAC rent prior to conversion, the Project Owner must demonstrate that the construction or substantial rehabilitation will enhance climate resilience, energy and water efficiency, and/or appropriate design for the elderly residents to age-in-place.4B-3 Funds for this purpose shall be reserved on a first-come, first served basis based on the time of the request (communicated through the submission of a complete and acceptable Conversion Plan), subject to the availability of funds, and finalized when the Owner demonstrates the amount is necessary for the viability of the transaction.

   When conversion will result in the reduction of one or more utility components (e.g., gas, water & sewer, electric) used to establish the Utility Allowance, HUD will permit the RAD contract rent to be increased by a portion of the utility savings. Project Owners can submit utility allowance projections performed by a third-party professional engineer, based on the project’s plans and specifications that, at a minimum, take into account specific factors including, but not limited to, unit size, building orientation, design and materials, mechanical systems, appliances, and characteristics of the building location. For utilities that will remain tenant-paid, HUD will increase the contract rents by 75% of the approved reduction in Utility Allowance. The Utility Allowance shall be recalculated based on actual consumption within a reasonable period following completion of the work.

5. Method of Adjusting Contract Rents. Contract rents will be adjusted by an OCAF at each anniversary of the HAP Contract, subject to the availability of appropriations for each year of the initial term of the HAP Contract. 194

    

6. Distributions. Covered Projects will not be subject to any limitation on distributions, contingent on satisfaction of program requirements and the availability of surplus cash as determined by year-end audited or certified financial statements, and subject to the provisions of this paragraph. To implement this provision, HUD will not apply 24 CFR § 880.205, which, among other provisions, establishes certain limitations on distributions for profit-motivated owners and authorizes HUD to require not-for-profit and certain for-profit owners to establish a residual receipts account. As an alternative requirement, in addition to standard PBRA requirements that must be satisfied prior to calculating surplus cash, distribution of surplus cash is prohibited unless HUD is able to verify on the annual financial statement that the Project operating reserve is funded at no less than $250 per unit. HUD may also impose restrictions on distributions of surplus cash on a given project as a potential remedy if HUD determines the Project Owner is in violation of the HAP Contract or Elderly Housing Use Agreement.

7. No Rescreening of Tenants upon Conversion. Pursuant to the RAD Statute, at conversion, current households cannot be excluded from occupancy at the Covered Project based on any rescreening, income eligibility, or income targeting. With respect to occupancy in the Covered Project, current households in the Converting Project will be grandfathered for application of any eligibility criteria to conditions that occurred prior to conversion but will be subject to any ongoing eligibility requirements for actions that occur after conversion.¹⁹⁵ Post-conversion, the tenure of all residents of the Covered Project is protected pursuant to PBRA requirements regarding continued occupancy. For example, a household that would not be income eligible for initial occupancy of a Section 8 unit at the time of conversion would still be placed on a Section 8 lease and eligible for assistance under the provisions governing continued occupancy. Thus, the first clause of section 8(c)(4) of the Act and 24 CFR § 880.603(b), concerning determination of eligibility and selection of tenants for initial occupancy, will not apply for current households. Once the grandfathered household moves out, the unit must be leased to an eligible family. Income eligibility requirements associated with new sources of financing, such as Low-Income Housing Tax Credits, do not supersede this prohibition on rescreening, and the Project Owner may be required to exclude Section 8 units occupied by ineligible households from being covered by the new financing’s restrictions.

8. Under-Occupied Units. If at the time of conversion, an eligible family assisted under the PRAC is occupying a unit that is larger than appropriate because of the family’s composition, the family may remain in the unit until an appropriate-sized unit becomes available in the Covered Project.196 When an appropriate sized unit becomes available in the Covered Project, the family living in the under-occupied unit must move to the appropriate-sized within 30 days. In order to allow the family to remain in the under-occupied unit until an appropriate-sized unit becomes available in the Covered Project, HUD is waiving the portion of 24 CFR § 880.605 that assumes the unit has become under-occupied as the result of a change in family size.¹⁹⁷

9. Occupancy Requirements. In accordance with the RAD statute, as amended by the Consolidated Appropriations Act, 2018 (Pub. L. No. 115-141), Section 202 PRAC projects converting assistance under RAD must continue to serve elderly persons. Accordingly, in addition to income-eligibility and income targeting requirements in 24 CFR 5.653, new admissions must meet the definition of “elderly family” in 24 CFR 5.403. See Section 4.5.K regarding the treatment of current households.

10. UPCS (REAC) Inspections. Under current regulations at 24 CFR part 5, subpart G, a unit covered under a PBRA HAP Contract must meet the UPCS before assistance can be paid on behalf of a household. Under RAD, only after the PBRA HAP Contract is executed and any proposed Work is completed, HUD will order a REAC inspection of the Project to ensure conditions meet the UPCS. HUD is waiving and establishing this alternative requirement to 24 CFR part 5 subpart G.

As discussed in further detail below, the conversion of a PRAC Project will generally entail:

• An Initial Submission of Interest to HUD
• Resident Notification and Consultation
• Selection of PHA (PBV conversions only)
• Conversion Plan Submission, RAD Approval, and Closing
  1. 4.7.1 Initial Submission of Interest to HUD
     Prior to submitting a Conversion Plan, a Project Owner must make an initial submission to HUD indicating the Project Owner’s interest in conversion under this Notice. The submission must include:
     • Project name;
     • Project address;
     • Project Owner’s name;
     • Project Owner’s contact information;
     • The PRAC Contract number(s);
     • PRAC Contract expiration date(s);
     • Total number of units covered under the PRAC Contract(s), by bedroom size; and
     • Conversion Type (PBV or PBRA).

     HUD has developed an electronic form submission for Project Owners to make the initial submission. To access the electronic submission template, Project Owners must request access to the RAD Resource Desk at www.radresource.net where users will be prompted to provide the information listed above.

     HUD will provide the Project Owner a confirmation of successful submission. HUD will use the initial submission in order to:

     1. 1. Assign a Transaction Manager, who will make contact to discuss the conversion process and the Project Owner’s goals for the Project; and
     2. 2. For PBV conversion, initiate the process to identify a PHA willing to administer the new PBV contract.

     There is no fee associated with the initial submission. HUD will take no adverse action against a Project Owner who makes an initial submission but does not later submit a Conversion Plan.

     4.7.2 PHA Administration of the PBV Contract.
     1. A. Selection of a PHA. For PBV conversions only, HUD will need to identify a PHA able and willing to administer the PBV contract, and the PHA would need to agree to accept the responsibility. Within 30 days of the initial submission, HUD will identify an eligible PHA and request that the PHA provide written consent to administer the PBV contract or decline the request within 30 days of HUD’s request. HUD will communicate the PHA’s response to the Project Owner. Applicants must wait until a PBV HAP Contract administrator has been identified before submitting their Conversion Plan, as the PHA who will act in this capacity must be identified in that plan. If no PHA consents to enter into the PBV contract, the Project cannot convert to PBV, and the Project Owner may consider conversion to PBRA instead.
     2. B. Role of Administering PHA. The PHA that agrees to administer the PBV contract is responsible for administrative duties described in 24 CFR part 983 and this Notice. Prior to conversion, the PHA’s key roles include:
        1. 1. Pre-Selection Inspection. The PHA must ensure that the units substantially comply with HQS, as defined in the PHA’s Section 8 administrative plan, prior to submission of the Conversion Plan.
        2. 2. Initial Contract Rent Setting. The PHA will determine that the initial contract rents do not exceed the rent caps described in Section 4.5.G.
        3. 3. HQS Inspections. Prior to entering into a PBV HAP Contract, the PHA must inspect the Converting Project proposed for conversion to ensure that the units fully comply with HQS,¹⁹⁸ unless the PHA is using HOTMA non-life threatening and alternative inspection provisions.¹⁹⁹

  2. 4.7.3 Resident Notification and Consultation

     Resident Notification. For all conversions, a Project Owner is required to notify residents in writing of its intent to participate in RAD and is required to hold at least two meetings with residents.200 The Project Owner must have at least one resident meeting within 30 days prior to submission of the Conversion Plan and at least one resident meeting after submission of the Conversion Plan but prior to conversion. The Notification letter must:

     1. 1. Be delivered to all Converting Project residents, including each PRAC–assisted household, as well as posted in the Converting Project office or other common area, and at no fewer than three prominent locations on the Converting Project site;
     2. 2. Include the date and time of the resident briefings;
     3. 3. Include an estimated date of conversion to either a PBV or PBRA HAP Contract;
     4. 4. Include a description of any proposed change in ownership, rehabilitation, construction, or transfer of assistance associated with the conversion;
     5. 5. State the Project Owner’s plan for relocation, if applicable, as a result of rehabilitation or construction, including the expected length of the relocation, the temporary nature of the relocation, the household’s right to return, and the Project Owner’s responsibility for covering relocation costs; and
     6. 6. Supply information on the method to submit comments to the Project Owner and provide for a 30-day comment period.

     The Project Owner must conduct two resident meetings with all affected residents and provide the residents with an opportunity to comment on the conversion. The purpose of the resident meeting is to provide residents with greater detail related to the conversion, including rehabilitation plans (if applicable), relocation (if applicable), and PBV or PBRA program rules that may differ from PRAC rules. The Project Owner must hold an additional meeting when there has been a material change that was not already discussed in a previous meeting.

     When providing resident notifications and conducting resident meetings, the Project Owner must use effective communication for persons with hearing, visual, and other communication-related disabilities consistent with Section 504 of the Rehabilitation Act of 1973 and, as applicable, the Americans with Disabilities Act of 1990. Effective communication includes, but is not limited to, providing written materials in appropriate alternative formats (e.g., Braille, large type), as needed, and providing sign language interpreters and assistive listening devices at resident meetings, as needed (24 CFR § 8.6). Additionally, resident meetings must be held in facilities that are physically accessible to persons with disabilities. Where physical accessibility is not achievable, a Project Owner must use alternative methods to meet with qualified individuals with disabilities, such as holding meetings at an alternate accessible site or offering in-home meetings. Such meetings must be provided in the most integrated setting appropriate to the needs of 200 Sample resident notification letters are available at www.hud.gov/rad. Section IV: Section 202 Project Rental Assistance Contract (PRAC) Projects 260 qualified individuals with disabilities in a setting that enables individuals with disabilities to interact with nondisabled persons to the fullest extent possible (28 CFR part 35, Appendix B).

     Additionally, the Project Owner must provide meaningful access to its programs and activities for persons who have a limited ability to read, speak, or understand English. For Projects undergoing RAD conversion, the Project Owner must provide language assistance to residents of the Project who are Limited English Proficient (LEP) to ensure that they have meaningful access to RAD resident notifications and meetings. Such language assistance may include, but is not limited to, providing written translation of notices regarding the plans for the Project and relocation and oral interpretation at resident meetings. For guidance on providing language assistance to persons with LEP, please see Final Guidance to Federal Financial Assistance Recipients Regarding Title VI Prohibition Against National Origin Discrimination Affecting Limited English Proficient Persons (72 FR 2732).

     The Project Owner must submit a copy of all comments received with their Conversion Plan, along with a description of how the residents’ comments will be addressed in the conversion. HUD will consider all resident comments and the Project Owner’s plan to address the comments before approving the Conversion Plan. If more than 50 percent of written resident comments disapprove of the conversion of assistance, HUD will contact the Project Owner to discuss options for proceeding with the conversion request or may decline the request.

     Upon Conversion Plan approval, the Project Owner must notify each affected family that the Project has been approved.

  3. 4.7.4 Conversion Plan Submission, RAD Approval, and Closing
     1. A. Conversion Plan Submission. The Project Owner must submit to HUD through the RAD Resource Desk a complete Conversion Plan that satisfies all RAD program requirements. (See Attachment 4.A for Conversion Plan Requirements.)

        HUD will review the Conversion Plan and Notify the Project Owner of HUD’s determination to approve or reject the plan or to request additional information. HUD’s decisions regarding the acceptance of the Conversion Plan will be made in HUD’s sole discretion. If HUD determines that a Conversion Plan is not feasible or that the requirements of the Conversion Plan as set forth in Attachment 4A have not been met, then the Project Owner may either make corrections that satisfactorily address HUD’s concerns or appeal the decision. If a Conversion Plan is disapproved, HUD’s letter of disapproval will discuss changes, if any, that would result in an acceptable Conversion Plan.

     2. B. RAD Approval. If the Conversion Plan satisfies the requirements of this Notice, HUD will issue an approval letter to the Project Owner. The approval letter will outline the key components of the planned RAD conversion and will discuss the conditions that need to be satisfied in order to close the conversion. Once the approval letter is issued, HUD expects that the RAD conversion will close in a timely manner. The approval letter will allow 90 calendar days (from the date the approval letter is issued to the Project Owner) in which to close the RAD conversion transaction, unless extended by HUD. The Project Owner will need to work diligently to achieve closing within the timeframe required under this Notice in order to avoid rescission of the RAD approval.
     3. C. Closing. Upon conversion, units whose assistance has been converted pursuant to RAD will be removed from the 202 PRAC program. Converting Projects will be released from any outstanding obligations under the Capital Advance Agreement, the Capital Advance Mortgage Note, the Capital Advance Program Regulatory Agreement, the Capital Advance Program Use Agreement, and related or collateral documents associated with the PRAC and the foregoing documents. The 202 PRAC will be terminated (or for PBV conversions, the 202 PRAC will expire without renewal), the Section 8 HAP Contract will be executed and the Project Owner will enter into an Elderly Housing Use Agreement, which will be recorded as a restrictive covenant in first position on the Covered Project. The effective date identified in the HAP Contract is the date the Project will cease to operate as a 202 PRAC Project and begins to operate under Section 8 requirements.

4.8 Additional Information

For additional information on this section of the Notice, please check www.hud.gov/rad or email questions to RAD2@hud.gov.

Attachment 4A: Conversion Plan Requirements and Feasibility Benchmarks for PRAC Conversions

A Conversion Plan will not be reviewed until all required documentation is submitted electronically to the RAD Resource Desk at www.radresource.net. HUD will complete an initial review for document completeness within five business days of submission and will notify the Project Owner of deficiencies. Once HUD has determined that all required documents appear to have been received, HUD will review the submission.

HUD’s purpose in reviewing the Conversion Plan is to ensure the long-term physical and financial viability of the Covered Project in providing quality, supportive housing to elderly residents. HUD reserves the right to reject any Conversion Plan if the information provided is not complete, accurate, or in compliance with the submission requirements listed below. If a Conversion Plan fails one or more feasibility benchmarks, HUD may, in its sole discretion, still accept the Conversion Plan if HUD determines that the Conversion Plan is consistent with the long-term physical and financial viability of the Covered Project, and/or the Project Owner has demonstrated through historical data or other means that the Project Owner can satisfactorily maintain and manage the Covered Project as presented in the Conversion Plan. HUD will not accept the Conversion Plan if the Covered Project does not meet environmental review requirements, as described below.

Below are all the required components of a complete Conversion Plan and the requirements of each component. Additional guidance in preparing the Conversion Plan is available in the PRAC Processing Guide located at http://www.radresource.net/mf_library.cfm.

1. Conversion Overview. A narrative summary of the Covered Project and the Project Owner’s conversion goals. Include details such as a description of the physical Project, Project history, identification of immediate capital needs of the Project, identification of other properties to be held within the same ownership entity, anticipated financing that will be obtained to meet the capital needs, anticipated relocation, how the conversion of assistance will impact residents, and circumstances such as new construction, Transfer of Assistance, scattered site, and reconfiguration of units.

2. Proposed Units. The Project Owner must provide the number of units by bedroom size proposed to be covered by the HAP Contract. If a reconfiguration of units is proposed, the Project Owner must submit a narrative explanation of the proposal, including a description of the units to be removed and an explanation of why the Project can better serve assisted residents at the reduced number. Discussion of the proposed units can be included in the Conversion Overview.

3. PRAC Contract. Submit a copy of the fully executed current PRAC Contract including all exhibits.

4. Statement of Compliance with Fair Housing and Civil Rights. The Project Owner must submit a written statement certifying that it does not have any outstanding fair housing or civil right matters and that the proposed RAD conversion is consistent with any applicable remedial order or agreements, as described in section 4.3.1.B. of this Notice.

5. Resident Notification. The Project Owner must provide proof of written notification informing residents of the intent to participate in RAD. Include a PDF attachment of all comments received from residents as described in Section 4.7.3. Project Owners must provide a certification that they have held the required meetings with residents and have provided residents with a reasonable time period to submit comments on the conversion. The Project Owner must also provide a description of how the residents’ comments will be addressed in their plan for conversion.

6. Capital Needs Assessment. A CAN is required in order to identify the short-term and long-term capital needs of the property, which will factor into the Scope of Work and both the Initial and Annual Deposits to the Replacement Reserve. See Paragraph 4.4.A. for additional information on CAN requirements.

7. Initial Contract Rent Setting.
   1. For PBV conversions, submit evidence that the Project Owner’s proposed rents are in accordance with the PHA’s rent setting. See Section 4.5.G for additional information on Initial Contract Rent Setting for PBV.
   2. For PBRA conversions, the rents cannot exceed the limits set forth in Section 4.6.C H.

8. Scope of Work. The Conversion Plan must include a Scope of Work that accompanies the CAN. The Scope of Work must:
   1. Identify and address all repairs identified in the CAN as critical, immediate or required within the first two years following conversion when the total of such repairs exceeds $5,000 per unit (including all items identified in the CAN as not functioning at the time of the CAN site visit). Briefly discuss any differences between the proposed Work and the conclusions and recommendations of the CAN provider; any additional scope items not identified in the CAN; and the Project Owner’s choices for replacement components.
   2. If the most recent REAC Inspection score is below 60, or the property has been referred to DEC due to physical deficiencies, the scope of work must address all physical deficiencies identified.
   3. Identify replacement quantities and costs. Rehabilitation estimates must be based on reasonable market estimates of actual costs, confirmed either by cost estimating completed by the architect/engineer, or through actual competitive bids for major rehabilitation or construction items, in compliance with HUD requirements.
   4. Include a summary of environmental issues and corresponding remediation activities known at that time, and a summary of accessibility features that are required pursuant to applicable accessibility standards and other accessibility requirements. Other accessibility requirements include, but are not limited to, physical features that need to be provided as reasonable accommodations for qualified persons with disabilities. The scope of work should also include design features necessary for elderly housing (see Section 4.4.F) and a description of how those features will promote housing stability for an aging population.
   5. Include a construction contingency of 10 percent (HUD may require a higher contingency on a case-by-case basis) if the Project Owner plans to obtain new financing simultaneous with the Conversion.
   6. Include a reasonable timeline for completion of all rehabilitation items acceptable to HUD, from the date of Conversion Closing and any financing, depending on the scope of rehabilitation needed.

   For Conversions using FHA financing, conventional debt, or equity sources of financing, submit a copy of the Scope of Work included with the FHA Application for Firm Commitment, or submitted to the lender, equity provider (including LIHTC, historic tax credit or Opportunity Zone equity providers), LIHTC allocating agency or comparable funding source.

9. Environmental Review. HUD cannot approve an applicant’s Conversion Plan submission unless and until the required environmental review has been completed for the applicant’s proposed conversion project and found to meet environmental review requirements. The following describes the submission and approval steps for securing a completed environmental review.

   A RAD transaction will either be reviewed under 24 CFR Part 50 (“Part 50 Reviews”) or 24 CFR Part 58 (“Part 58 Reviews”). Part 50 applies when HUD conducts the environmental review, and Part 58 applies when a Responsible Entity (RE) conducts the environmental review. The following table shows which review protocol a transaction will follow, along with who will conduct the review:

   DescriptionType of Environmental ReviewReviewer

   PBRA Non-FHAPart 50RAD Transaction Manager

   PBRA FHA Non-Risk Share201Part 50FHA Production

   PBRA FHA Risk-SharePart 50Transaction Manager

   PBV FHA Non-Risk SharePart 50FHA Production

   PBV Non-FHAPart 58Responsible Entity

   PBV FHA Risk-SharePart 58State Housing Finance Agency or Responsible Entity, as applicable202

    

   Under limited circumstances, per 24 CFR 58.11©, an Awardee with a non-FHA PBV transaction may request HUD to undertake the environmental review under Part 50 if a suitable RE cannot be found or if the local government was not a direct recipient of the funds and refuses to accept responsibility or when HUD determines the local government does not have capacity to act as an RE.203 This request must be made in writing and submitted to HUD no later than at the time of the Conversion Plan submission.

    

   For multi-phase developments, the environmental documents submitted with the Conversion Plan during the first phase must be submitted for the entire site (i.e. all of the phases of the multi-phase development) and the environmental review conducted during the first phase will cover the entire site.

    

   Requests to transfer assistance from the Converting Project to a new location are subject to environmental review.

    

   For transactions receiving funding from other HUD programs (i.e. HOME, CDBG, non-RAD PBV), HUD encourages all parties to complete and adopt one review for all programs, even if these programs’ environmental reviews are conducted under a different review protocol (Part 50, Part 58). In cases where two Part 58 programs are combined, HUD encourages applicants to work with the Responsible Entity or Entities to see if environmental reviews can be combined. However, this is solely the Responsible Entities’ determination. In cases where a Part 50 program and a Part 58 program are combined, HUD may determine that it will perform one Part 50 environmental review for both programs under 24 CFR 58.11 if performing an additional Part 58 environmental review is not feasible in the time allotted. HUD must ensure that the Part 50 review considers the full scope of all activities and funding associated with all programs. When one review is used for both programs, the Approving Officials for both programs must certify the review.

    

   For all Part 50 reviews, the applicant must submit reports and documentation to HUD in accordance with 24 CFR Part 50, as discussed in Chapter 9 of the MAP Guide, except as follows:204

    

   1. For PBRA conversions (or where HUD has determined to conduct the PBV environmental review under Part 50) without FHA insurance and without any rehabilitation, construction, or demolition,205 HUD conducted a tiered review of program-wide and site-specific compliance. HUD has made program-wide compliance determinations for most of the applicable environmental laws and authorities, and will complete a site-specific compliance review of the following:

       

       

       

      1. Coastal protection pursuant to the Coastal Barrier Resources Act, as amended by the Coastal Barrier Improvement Act of 1990 (16 U.S.C. 3501);
      2. Flood insurance and floodplain management pursuant to the Flood Disaster Protection Act of 1973, the National Flood Insurance Reform Act of 1994 (42 U.S.C. 4001-4128 and 42 U.S.C. 5154a), Executive Order 11988, particularly section 2(a), and 24 C.F.R. Part 55;
      3. Contamination pursuant to 24 C.F.R. 50.3(i) (HUD Standard).

         Additionally, while Historic Preservation (National Historic Preservation Act of 1966, particularly sections 106 & 110; 36 CFR Part 800) is not included in the tiered review, for conversions that entail no physical activities or only activities that are limited to maintenance as defined in HUD Notice CPD-16-02, HUD has no further obligations under Section 106. HUD is not required to contact SHPO, THPO, and/or other interested parties or the public.206

         Project Owners will be required to submit documentation to facilitate HUD’s site-specific review.

       

   2. For all non-FHA PBRA conversions (or where HUD has determined to conduct the PBV environmental review under Part 50) that do not meet the requirements under paragraph 1 above, the Project Owner or vendor will follow the guidelines in Chapter 9 of the MAP guide. Project Owners or vendors will upload all applicable documentation directly into HEROS at the time of Conversion Plan submission. The following exceptions to the MAP Guide apply:
      • In lieu of a Phase I Environmental Site Assessment (ESA) in accordance with ASTM E 1527-13 (or the most recent edition),207 except for conversions involving substantial rehabilitation or new construction activities. Awardees may submit a more limited report on potential sources of contamination. Where a Phase I ESA is not required (i.e., projects without any associated substantial rehabilitation208 or new construction), the Awardees can submit a “transaction screen” in accordance with ASTM E 1528-14 (or the most recent edition). A transaction screen will identify potential environmental concerns based on questionnaires, owner/occupant inquiry, site visit, government records inquiry and historical sources inquiry. The transaction screen must be prepared by a qualified professional, in accordance with 24 CFR 50.3(i)(4). As the definition of preparer in ASTM E 1528-14 does not meet this requirement, the professional must have either (a) a science degree and at least one year of practical environmental assessment experience in the field, or (b) three years of practical environmental assessment experience in the field performing site assessments for site contamination. If any potential environmental concerns are identified, an ASTM Phase ESA in accordance with ASTM E 1527-13 (or the most recent edition) must be provided.
      • Awardees may submit a Phase I ESA that is up to 5 years old upon submission; however, it must be updated by a Transaction Screen that is up to 1 year old upon submission.

    

   When HUD conducts the environmental review under Part 50, PHAs (or their vendors) must submit environmental reports and documentation209 for HUD review into the HUD Environmental Review Online System (HEROS), where HUD will complete its review.

    

   HUD staff will review the submissions and may require additional information in order to complete their review. HUD’s review will result in a determination, which may stipulate the rejection of the site for this demonstration or may require the completion of mitigation measures. The RAD approval will include any conditions required to carry out any and all mitigation measures as may result from the environmental review. Any conditions or mitigation that cannot be satisfied before Closing will survive Closing.

    

   When a Responsible Entity (RE) completes an environmental review under Part 58, the Conversion Plan must include either Form 7015.16 or a letter with the Responsible Entity’s (RE’s) finding of exempt activity in order to consider the environmental review to be complete. The RE should use HUD recommended formats to document the environmental review record.210 The PHA should submit an environmental report to the RE, in such form as prescribed by the RE, to enable the RE to complete their analysis. Once the review is completed, the PHA must submit either:

    

   • Form HUD-7015.15, Request for Release of Funds (RROF), to their local PIH field staff.211 After the PIH Field Director approves the RROF, the Director sends a completed HUD Form 7015.16 to the PHA, approving the release of funds. The PHA must submit proof of the completed Form 7015.16 (either a copy of the paper form or a screenshot of the completed screen in HEROS) to HUD; or
   • If form HUD-7015.15 is not required because the project converts to Exempt under 24 CFR § 58.34(a)(12), the PHA must submit the RE’s finding of exempt activity with their RAD Conversion Plan. A finding of exempt activity is a statement of the result of the RE’s environmental review and is required even when form HUD7015.15 is not required. A letter from the RE indicating that the project converts to Exempt under 24 CFR § 58.34(a)(12) is sufficient.

    

   Additionally, the PHA must submit a Radon Report consistent with the requirements of the Section 9.6.3 of the MAP Guide (or successor provision) for HUD to review

10. Accessibility and Relocation Plan Checklist. All Project Owners shall complete and submit the Accessibility and Relocation Plan Checklist provided by HUD on the RAD Resource Desk. The checklist shall include a certification that the relocation plan complies with all applicable HUD requirements, including the URA as well as applicable accessibility standards, including but not limited to those under Section 504 of the Rehabilitation Act of 1973 and its implementing regulations (24 CFR § 8.23). The cost of accessibility improvements and relocation must be fully funded in the Development Budget. Project Owners are encouraged to use HUD’s guidance on relocation planning for persons with disabilities in HUD Handbook 1378.0, Exhibit 3-1 and the RAD Fair Housing and Civil Rights Notice.

11. Proposed Financing
    1. For all conversions using financing, the following must be addressed:
       1. Provide a brief discussion of conditions/milestones to be satisfied prior to closing including any known impediments to closing within the timeframe required under the Notice;
       2. Estimated closing date(s) for all proposed financing;
       3. For each proposed loan, equity contribution, or grant, the Conversion Plan must include a recent lender, investor or grant commitment letter, dated no more than 60 days prior to Conversion Plan submission, with key terms identified (including amount, repayment terms, interest rate, amortization, maturity, prepayment restrictions, and pay-in schedule) from all financing provider(s);
    2. For conversions not using FHA financing or equity sources, the following requirements must be addressed in addition to the requirements set forth in Attachment 4A, Section K.1 above:
       1. Permanent debt financing with monthly payment amounts not conditioned on the availability of cash flow (i.e., “hard" debt) on Covered Projects must:
          1. Be at a fixed rate of interest, for a fixed term, fully amortized over no more than 40 years;
          2. Not have a balloon payment until after the earlier to occur of a) expiration of the term of the HAP Contract or b) 17 years from the date of the permanent debt financing; and
          3. Not have a debt service coverage less than the higher of 1.11 or lender requirements.
       2. All subordinate (or secondary) financing must be disclosed and then approved by the first-mortgage lender;
       3. The terms for all seller take-back financing must also be disclosed;
       4. If project revenue or existing reserves will be a source of funding, submit evidence of the current account balances.
12. Development Budget (Sources and Uses of Funds). All Project Owners must submit a Development Budget.
    1. For Conversions using FHA financing or equity sources of financing, submit a copy of the Development Budget included with the FHA Application for Firm Commitment, or submitted to the lender, equity provider (including LIHTC, historic tax credit or Opportunity Zone equity providers), LIHTC allocating agency or comparable funding source. The Project Owner must submit the FHA Application for Firm Commitment review before the RAD conversion is submitted to the Office of Recapitalization. Include a Subsidy Layering Review (SLR) if one has been performed by another agency. If no SLR is provided, HUD will complete an SLR whenever multiple federal sources are proposed.
    2. For all other Conversions with new financing:
       1. Include a reasonable, balanced, and comprehensive presentation of both construction period and permanent sources and uses of funds, which development budget must be consistent with the development budget submitted to the lender, equity provider (including LIHTC, historic tac credit or Opportunity Zone equity providers), LIHTC allocating agency or comparable funding source.
       2. Identify existing loans or debt that will be paid off at the closing, if applicable.
       3. Include a binding commitment letter with respect to any new source of financing or sources of equity.
       4. Include a construction contingency of 10 percent (HUD may require a higher contingency on a case-by-case basis) if the Project Owner plans to obtain new financing simultaneous with the Conversion.
       5. Demonstrate that any Identity of Interest (IOI) loans or advances will be converted to unsecured Surplus Cash Notes (Project’s cash remaining, after debt service, project operational costs and other permitted payments) unless otherwise approved by HUD.
       6. If applicable, identify the initial operating deficit during the construction period and how that deficit will be funded, such as an operating deficit escrow or similar fund.
       7. Include a Subsidy Layering Review (SLR) if one has been performed by another agency. If no SLR is provided, HUD will complete a SLR whenever multiple federal sources are proposed.
13. Proposed Development Team. The Project Owner must identify the proposed legal entity that will own the Covered Project following conversion, the proposed management agent following conversion, and the “principals” of both entities. In addition, the Project Owner shall provide the following:
    1. For all conversions with a proposed change in ownership entity, the new Project Owner must provide evidence of successful experience owning and operating HUD or other multifamily housing properties. New Project Owners may be required to demonstrate that the criteria specified in HUD Handbook 4350.1, Chapter 13, Change in Ownership: Transfer of Physical Assets have been met in part or in whole.
    2. For PBRA conversions with a proposed change in ownership entity or a material proposed change in ownership of the existing ownership entity, the new Project Owner must submit evidence that all new principals have a Previous Participation Certification in the Active Partners Performance System (APPS) (formerly referred to as Form HUD2530) and are not be debarred, suspended, or subject to a Limited Denial of Participation.
    3. For all conversions with a proposed change in management agent the new agent must provide evidence of successful experience managing and operating HUD or other multifamily housing properties.
    4. For all conversions in which Work is proposed, the Project Owner must submit the identity of the general contractor or construction manager or a statement that the Project Owner will be managing construction directly, together with evidence of the general contractor’s, construction manager’s or Project Owner’s recent and successful experience with similar rehabilitation or construction projects.

14. Operating Pro Forma. The Operating Pro-Forma must:
    1. For all FHA transactions or Conversions using equity sources of financing:
       1. Provide a copy of the Operating Pro Forma that was submitted with the FHA Application for Firm Commitment or submitted to the lender, equity provider (including LIHTC, historic tax credit or Opportunity Zone equity providers), LIHTC allocating agency or comparable funding source.
       2. For all other Conversions:
          1. Provide a 20-year Operating Pro Forma in an owner-provided template,
          3. Include an attached discussion of the extent of energy and water savings that are anticipated as a result of the rehabilitation or construction and the basis for those estimates. The discussion must explain to what extent anticipated savings in utility costs have been included in the pro forma operating expenses.
          4. Include columns capturing the average amount for the past three years for all line items listed in the Pro Forma. Provide explanations and/or supporting documentation for any major deviations of the historical average from the year 1 data entered on the Pro Forma.
          5. Ensure the Pro Forma complies with at least the following feasibility benchmarks unless otherwise approved by HUD:

             Revenue:

             1. Rents shall not exceed the amounts permitted under program rules;
             2. All other sources of income must not exceed the average for the last three years (other income should not include interest income on the replacement reserve account, which must remain in the reserve and is not available for other purposes);
             3. Vacancy loss shall be no less than the greater of the average over the past three years or 3 percent;
             4. Allowance for bad debt should be not less than the greater of the average over the past three years or 2 percent;

             Expenses:

             1. All operating expenses shall be reasonable, with decreases justified and generally no less than 85 percent of the average for the last three years;
             2. The ADRR should be equal to that amount which, if deposited annually, will be sufficient to fund all capital needs, as identified in the CAN, arising during the first 20 years and otherwise not addressed upfront in either the rehabilitation or an initial deposit to the replacement reserve account. The Project Owner should use reasonable estimates for inflation but in doing so the rate for escalating the increase in repair costs should not exceed the rate of interest on reserve deposits by more than 1%. HUD may consider alternative arrangements with respect to the Initial Deposit to the Replacement Reserve (IDRR) if risks to the Covered Project can be adequately mitigated. The ADRR must be sufficient to maintain a minimum balance at the end of each year during the initial 20-year HAP Contract term in accordance with the HUD MAP Guide Appendix 5g, Section VII.C.3D, Minimum Balances; and
             3. For non-leveraged transactions, the stabilized cash flow should not be less than $12 per unit monthly. For leveraged transactions, the debt-coverage ratio should not be less than 1.11 over a ten-year period using 2% growth in revenue and 3% growth in expenses.
15. Supportive Services and Design. Applicants must describe how the proposed supportive services meet the identified needs of the anticipated residents, both initially and as they age, and how the identified supportive services will be provided on a consistent, long-term basis to support residents. The conversion plan also must discuss how current property design features and/or modifications planned in conjunction with the conversion provide a physical living environment suitable for meeting the needs of elderly residents and facilitating prolonged independent living. Relevant building design features may include, but are not limited to, those focused on fall prevention and visitability, universal design, and electronic communication mechanisms.
16. Market Study. A market study or net demand analysis may be required if the project is currently experiencing a high vacancy rate or if the Project Owner is requesting a reconfiguration of units. The Project Owner should consult with the Transaction Manager to determine if a market study is necessary before procuring one.
17. Certification of Compliance with Site and Neighborhood Standards. The Project Owner (for PBRA) or the PHA (for PBV) shall evaluate and include a certification that the site complies with applicable Site and Neighborhood Standards (see Section 4.4.O.).
18. Affirmative Fair Housing Marketing Plan. For PBRA conversions, evidence that a completed AFHMP (Form HUD-935.2A) has been submitted for approval to the local Multifamily Regional Center. Typically, the management agent or the entity responsible for marketing (if different) is responsible for completing and submitting the AFHMP. If a Project Owner plans to adopt any tenant admission local or residency preferences, the Project Owner must submit its Tenant Selection Plan along with the AFHMP (see HUD Handbook 4350.3, page 4-4) for review. The AFHMP may not conflict with any special condition arising from the RAD conversion or provision in a remedial order or agreement. Each Covered Project must have a HUD-approved AFHMP prior to closing.

    The purpose of affirmative marketing is to ensure that individuals of similar income levels in the same housing market area have a like range of housing choices available to them regardless of their race, color, national origin, religion, sex, disability, or familial status.

19. Transfer of Assistance. For all conversions involving a transfer of assistance to a new site, the Project Owner must have secured HUD approval of the site (Covered Project). See Section 2.4.I.
20. Title Report. Submit a complete title report including information on whether the Converting Project is currently subject to any other liens, encroachments, easements or other encumbrances on the property.