Next Gen SEC 202 PRAC Recap Moves Fwd. What?

By Anthony Luzzi, President, Sims Mortgage Funding
Published July 10, 2018

Regular visitors to this space know that Sims Mortgage Funding has written periodically about HUD’s efforts to develop a new recapitalization program for its “second generation” Section 202 elderly housing projects. HUD moved closer to this goal earlier this month when it sponsored an online conference titled “RAD for PRAC Projects Listening Session”.

Some acronym assistance (AA) is in order:  PRAC stands for Project Rental Assistance Contract, a common term to describe approximately 2,800 Section 202 elderly projects built since 1990 and funded with capital advances instead of HUD Direct Loans.  RAD is Rental Assistance Demonstration. More on the latter, later.

HUD did not propose any policy matters during the ninety-minute session – their goal was to gather input from Section 202 PRAC stakeholders and other interested parties on the issues they should consider when developing the program.  Topics raised during the session included:

  • Will a developer fee be permitted, as is the case with the Section 202 Direct Loan recapitalization program?
  • Given that a large number of Section 223(f)/202 PRAC projects contain a small number of units, will HUD permit consolidation of these properties into a single transaction?
  • What will be the eligible uses of funds in a recapitalization?
  • What will be the basic loan underwriting parameters – loan-to-value; debt service coverage; vacancy and collection loss factors?
  • Can the capital advance used to initially fund the PRAC be used to create a basis for a recapitalization using low-income housing tax credits?

Section 202 PRAC recapitalizations are expected be structured like HUD’s very successful Rental Assistance Demonstration (RAD) program. RAD allows public housing agencies to recapitalize its housing stock by attracting public and private debt and equity via the use of long-term Section 8 contracts. HUD expects similar results for PRAC projects once a long-term, stable Section 8 revenue stream can be established.

More to come, most likely in the fall, when HUD is expected to issue a notice on RAD that will include a provision for PRACs!

For additional information, please contact Anthony Luzzi at aluzzi@nullsimsmortgage.com.

The material presented here is for information purposes only and is not to be considered an offer to buy or sell any security. This report was prepared from sources believed to be reliable but it is not guaranteed as to accuracy and it is not a complete summary of statement of all available data. Information and opinions are current up to the date of publication and are subject to change without notice. The purchase and sale of securities should be conducted on an individual basis considering the risk tolerance and investment objective of each investor and with the advice and counsel of a professional advisor.

The opinions expressed by Mr. Luzzi are strictly his own and do not necessarily reflect those of Herbert J. Sims & Co., Inc. or their affiliates. Sims Mortgage Funding is a wholly owned subsidiary of  Herbert J. Sims & Co., Inc.This is not a solicitation to buy or an offer to sell any particular investment.

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