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Prior to closing, how are my CHAP rents increased by OCAF?

HUD will increase the RAD contract rents included in the CHAP each year by the published OCAF. For properties awarded under the original 60,000 unit cap with initial contract rents based on FY 2012 funding levels (“FY 12 RAD rent base year”), the first OCAF adjustment occurred in 2014 and will occur each year thereafter until closing. Thus, for a project in this category that closes with a HAP effective date of January 1, 2017, the initial contract rents are based on 2012 funding, increased by the 2014, 2015, 2016, and 2017 OCAFs. For properties awarded above HUD’s original 60,000 unit cap but subject to the increased 185,000 cap with initial contract rents based on FY 2014 funding levels (“FY 14 RAD rent base year”), the first OCAF adjustment occurred in 2015 and will occur each year thereafter until closing. Thus, for a project in this category that closes with a HAP effective date of January 1, 2017, the initial contract rents will be based on 2014 funding, increased by the 2015, 2016, and 2017 OCAF.

Note: Because the OCAF adjustments are generally published in October for the following calendar year, beginning in CY 2017 HUD plans to update all CHAP rents by the applicable OCAF adjustments before the start of the calendar year.

Is choice mobility only available to residents who were in place at conversion, or can new residents eventually qualify for it too?

For covered projects, the Choice-Mobility option is available to all existing and future residents. Note, however, that there may be limits on the number of residents in a covered project who might receive a Choice-Mobility option in any given year. See Notice PIH-2032 REV-2 for additional information on the Choice-Mobility requirement (see in particular section 1.6.D.9 for PBV conversions and section 1.7.C.5 for PBRA conversions). Some RAD PBRA conversions received an exemption from the Choice-Mobility requirement at the time of the initial RAD application and approval, as discussed on Section 2.3.6.C.3 of the Notice.

For a PBV conversion, where the property is undergoing initial repairs, the RAD Notice requires that all units meet HQS no later than the date of completion of initial repairs as indicated in the RAD Conversion Commitment, rather than prior to entering into the HAP contract. If an HQS inspection does not occur until the initial repairs are completed, what dates should be entered into the Form-50058 for the date of last inspection for residents that are residing in the units while the repairs occur?

In such cases, the PHA should carry over the date that the unit was last inspected as a public housing unit.

Can the PBRA HAP contract be executed by an entity other than the new project owner?

No. The PBRA HAP contract must be executed by the project owner.

Are the existing EPC incentives maintained under the new RAD Section 8 rent?

Yes. The RAD rents for each public housing project incorporate any existing Frozen Rolling Base (FRB), Add-On Subisdy (AOS), and Rate Reduction Incentive associated with an existing EPC that were in place at the time of each project’s “RAD rent base year” – FY 2012 for properties awarded under the original 60,000 unit cap or FY 2014 for properties awarded as a result of the increase of the cap to 185,000 units. The methodology for calculating RAD rents includes the Operating Subsidy Utility Expense Level (UEL) and Energy Add-on so that projects retain the value of existing EPC incentives when they convert through RAD. The PHA should consider the impact of essentially switching from the AOS to the Frozen Rolling Base incentive as part of its RAD conversion. However, due to incomplete administrative data, HUD did not incorporate the Resident Paid Utility Incentive (RPU) into the rent levels posted in the RAD Application and Tool. As a result, for projects proposed for RAD conversion with an existing EPC using the RPU, HUD will allow an amendment to the posted RAD rent to add the Per Unit Month (PUM) EPC Resident Paid Utility Incentive. If the PHA has the RPU incentive, they should notify their Transaction Manager who will work with PIH to determine an accurate incentive amount. For additional details on the specific line items utilized in calculating the posted RAD rents, see Attachment 1C in PIH Notice 2012-32 REV 2.

How is the ESCo guarantee impacted when an EPC is amended as a result of a conversion of a portion of units covered under an EPC?

Any changes to an ESCo guarantee are to be determined between the PHA and their ESCo. ESCO guarantees are not required for an EPC so if changes to it do occur they do not affect the conversion process. HUD is committed to providing PHAs with ongoing assistance in understanding RAD’s intersection with green and energy efficiency objectives. As additional best practices, success stories, and helpful decision frameworks are identified, HUD will maintain those resources on the RAD web site for interested parties. HUD also strongly encourages PHAs and partners to discuss creative ideas around maximizing energy and water efficient improvements through RAD. We look forward to continued dialogue with partners around this and other related issues. For questions or additional feedback, please contact us at the RAD mailbox at RAD@hud.gov, or at the EPC Policy mailbox at PHI_EPC_Policy@hud.gov.

How long will it take to process the amended approval letter?

The length of time depends on what kind of conversion the PHA is envisioning and over what timeframe. HUD anticipates that, once a PHA has provided complete documentation, the Energy Center will generally need between 30 and 45 business days depending on the complexity of the conversion. PHAs should begin preparing their submission as soon as a CHAP is awarded.

If I am converting multiple properties over time, do I need an amended approval letter?

Each conversion to RAD necessitates an amended approval letter. However, for properties that will convert together (i.e. within the same month), a PHA may request that HUD calculate the amount of debt that must be addressed for the bundle of properties and perform a single amended approval letter that reflects all bundled units. Further, for PHAs that will convert multiple properties over time, HUD strongly recommends that the PHA submit the documents outlined in Appendix A for all of the properties. HUD will perform a single consolidated approval and produce a schedule of the amounts that must be addressed as part of each individual conversion. As each property converts, HUD will amend the approval letter in accordance with that schedule. Where a PHA is planning to address all of the debt associated with an EPC, there is no need for an amended approval letter. (The purpose of the amended approval letter is to allow the PHA to continue to receive public housing EPC incentives in the public housing program). A PHA may decide it makes business sense to lower risk by foregoing the complex EPC amendment process and focus on the RAD transactions. However, in doing so, the PHA would forego any future EPC incentives following the payoff of the debt. The EPC benefits would still be part of the RAD rents provided that the funding year for which the calculation was based on still had an active EPC.

If I have a RAD award and my project is covered under an existing EPC, what are the options available in terms of satisfying that EPC obligation?

Essentially, there are two basic options: Option A: Pay off the EPC debt, either with proceeds from the RAD conversion (say, mortgage proceeds or tax credit equity) or through other eligible uses, e.g., existing Operating or Capital Fund accounts. Some EPC contracts require EPC lender approval to pay off (or pay down) any debt. Or Option B: Assume the debt and continue to make the EPC debt payments post-conversion with projects or other proceeds. If the converting project will assume the debt, the lender will have to agree to subordinate all interests to the RAD Use Agreement. Further, if, in addition to assuming the EPC debt, you plan on taking on new debt as part of the RAD conversion, the EPC lender and the non-EPC lender will need to negotiate over which position each will take, which often pushes the PHA towards paying off the EPC debt. Sometimes, a PHA will assume the obligation of the existing EPC debt but with non-program and non-project funds, depending on the existing EPC contractual provisions, Either of these options must be reflected in a PHA’s Financing Plan submission. Where the debt will be paid down or paid off, the debt would be included in the development budget. Where the debt will be assumed, HUD will underwrite the transaction to ensure there is adequate cash flow to continue debt service payments. HUD recommends a PHA consult with legal and financial advisors, the EPC lender and the new first mortgage lender (if applicable), to determine which approach will work best for the PHA and the project. HUD also encourages PHAs to work with ESCos ealy in the process to develop options and reach out to the OFO Energy Center at OFOEnergyCenter@hud.gov for comment.

What do I need to submit to HUD if I am converting a property covered under an EPC?

Where the PHA will pay-off or assume all of the EPC debt as part of the conversion, the PHA will need to notify of its intent. The PHA will draft a letter from the Executive Director to the Field Office (copying the Transaction Manager and Energy Center) formally requesting HUD to end the EPC incentives at the time of conversion and describing the PHA plan to address EPC debt (i.e. Pay off or assume). After conversion, the Field Office will finanlize the cessation of EPC incentives through a letter to the PHA Executive Director. However, where a portion of the EPC will remain following the conversion, HUD will need to amend the EPC approval letter. To do this, the PHA must propose the amount to be paid off or assumed so as to ensure that the project’s conversion does not increase the risk of default on the remaining EPC loan and, for partial AMP conversions, determine the appropriate updates to the project’s Operating Subsidy forms (HUD 52722, 52723). This information will be submitted to the Energy Center, in the format requested, along with the supporting documents delineated in Appendix A, the PHA is highly encouraged to engage their ESCo in developing this submission. The Energy Center will review the submission and if it determines the PHA proposal to be accurate, the Energy Center will create a draft approval letter, which PHAs must submit with their Financing Plan. After closing, HUD will finalize the amendment to the EPC approval letter.

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

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

Are the existing EPC incentives maintained under the new RAD Section 8 rent?

Yes. The RAD rents for each public housing project incorporate any existing Frozen Rolling Base (FRB), Add-On Subisdy (AOS), and Rate Reduction Incentive associated with an existing EPC that were in place at the time of each project’s “RAD rent base year” – FY 2012 for properties awarded under the original 60,000 unit cap or FY 2014 for properties awarded as a result of the increase of the cap to 185,000 units. The methodology for calculating RAD rents includes the Operating Subsidy Utility Expense Level (UEL) and Energy Add-on so that projects retain the value of existing EPC incentives when they convert through RAD. The PHA should consider the impact of essentially switching from the AOS to the Frozen Rolling Base incentive as part of its RAD conversion. However, due to incomplete administrative data, HUD did not incorporate the Resident Paid Utility Incentive (RPU) into the rent levels posted in the RAD Application and Tool. As a result, for projects proposed for RAD conversion with an existing EPC using the RPU, HUD will allow an amendment to the posted RAD rent to add the Per Unit Month (PUM) EPC Resident Paid Utility Incentive. If the PHA has the RPU incentive, they should notify their Transaction Manager who will work with PIH to determine an accurate incentive amount. For additional details on the specific line items utilized in calculating the posted RAD rents, see Attachment 1C in PIH Notice 2012-32 REV 2.

Can I convert a property that is covered under an EPC to RAD?

Yes. PHAs may convert some or all of the public housing properties covered under an EPC. PHAs doing so should become familiar with how existing EPC incentives have or have not been included in their contract rents, the required submission requirements, and other considerations, which are covered in the questions below.

These are Frequently Asked Questions and Answers as found on HUD’s RAD Resource Desk.