Preserving Multifamily HousingHUD Policy Update

Los Angeles Preservation SummitMay 10, 2011Margaret Salazar, Senior Housing Program SpecialistOffice of Multifamily Housing, Washington DC

Maintaining the affordability, rental assistance (if applicable) and physical

viability of Multifamily and public housing properties, and protecting tenants

from displacement.

In the last 15 years we have lost nearly 170,000 Section 8 units due

to opt-out, foreclosure or abatement. Another 450,000 units are “at risk.”

Major risks include:• Opt-Outs and other contract terminations (Rent Supplement and RAP)• Maturing mortgages and expiring Use Agreements• Physical deterioration• Financial trouble/default

WHAT DO WE MEAN BY “PRESERVATION”?

HUD’s Office of Multifamily Housing has a comprehensive agenda to

preserve properties and address these issues.

Major areas include:

• New flexibilities for Nonprofit owners

• Updated guidance for prepayment and refinance of 202s

• Pairing HUD programs with LIHTC and secondary financing

• Freeing up resources under Section 8 HAP Contracts

• Improving awareness of Owners, tenants and stakeholders

THE MULTIFAMILY PRESERVATION AGENDA

Proposed Regulation change allowing distributions to Nonprofits

• Interim rule strikes clause restricting Nonprofits from receiving distributions

• Creates procedure to re-calculate “initial equity”

• Owners may today receive a waiver under Section 8 Renewal Guide to receive

distributions as part of a mark-up-to-budget request.

Incentives to sell and preserve properties prior to mortgage maturity

• Notice will authorize Nonprofit Owners to receive proceeds from the sale of a

property to an experienced owner and operator of assisted housing.

• Sale must involve execution of 20 year Use Agreement and HAP Contract

renewal, rents capped at market.

• Applies to Section 221(d)(3), Section 236 and Section 231 properties

PARTNERING WITH NONPROFIT OWNERS

FLEXIBILITIES WITH PROJECT RESOURCES

Freeing up access to Residual Receipts when affordability is extended

• Change to Chapter 25 of HUD Handbook 4350.1 forthcoming

• Allows “new reg” owners (post-1979) to access Residual Receipts with Hub

approval for project improvements including energy efficiency.

• Residual Receipts may also pay the transaction costs on an acquisition

• Owner/purchaser must sign a 20 year HAP Contract renewal

Deferral of Flexible Subsidy Debt• Notice 11-05 allows Owners to defer Flexible Subsidy Debt as part of a

preservation transaction.

• Applies to Operating Loans which unlike Capital Loans may be deferred to

the term of the new financing.

SECTION 202 PREPAYMENT AND REFINANCE

New Guidance on the prepayment and refinance of Section 202 properties.

1. Notice 11-03 allows conversion of efficiency units to one-bedrooms to address

obsolete housing and reduce vacancies.

2. Notice 10-14 allows for the refinance of pre-1975 properties with interest rates of

6% or less to complete needed repairs. Enhanced Vouchers may be provided to

unassisted residents. This notice in effect until Notice implementing 118 is issued.

3. Notice 10-26 allows for the subordination of Section 202 loans when required for a

preservation transaction.

4. Implementing S. 118, Supportive Housing for the Elderly Act of 2010.

• Under S. 118, rental assistance contracts are authorized but no appropriations.

• Proceeds from refinance may be used in other HUD-assisted senior projects.

PRESERVING HUD-ASSISTED PROPERTIES WITH TAX CREDITS AND SECONDARY FINANCINGAssisting Owners to use LIHTCs and other secondary financing

1. Section 8 Renewal Policy Guide

• Tax Credit expenses may be included in project budgets

• Projects may be underwritten using Section 8 market rents rather than

restricted LIHTC rents

• HUD may approve “post-rehab” rents for rehab transactions

2. Revised HUD Closing Documents facilitate approval of subordinate financing.

3. FHA Tax Credit Pilot will expedite the review and approval of preservation transactions using FHA insurance and LIHTCs.

BUILDING THE TOOLBOX: ENGAGING PARTNERS

Working with Owners, tenants and stakeholders

1. Multifamily Preservation Training. Comprehensive 3-day training for Owners in

8 cities nationwide. Nuts and bolts of HUD programs including refinance, IRP

decoupling, HAP Contract renewals, financing options. Launching Fall 2011.

2. Making information available for local partners. Updated Multifamily Portfolio data now posted monthly. http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/mfh/preservation/mfhpreservation

3. Making tenants and Owners aware of potential for Tenant Protection Vouchers. Outreach to Owners to encourage them to prepay prior to maturity.

4. Preservation goals in place for field to offer 20 year HAP contracts, execute FHA loans on affordable properties, and track the loss of affordable units.

PRESERVATION IN ACTION: LOS ANGELES

740 South Olive, senior and disabled property with 100% of the units assisted under a Section 8 contract.

Completed Substantial rehab using $52.45 million of tax-exempt bond financing, FHA 221d4 mortgage insurance and $15.4 million of LIHTC equity

Margaret Salazar, Senior Housing Program SpecialistOffice of Multifamily Housing ProgramsUS Department of Housing and Urban Development

Margaret.s.salazar@hud.gov(202) 402-2423

Updated Handbooks and Notices available online: http://portal.hud.gov/hudportal/HUD?src=/program_offices/administration/hudclips/notices/hsg

CONTACT INFORMATION