Market rents have been rising steadily for the past 5 years. In its latest report, REIS shows a 1% quarterly increase in national average rents. A number of markets are experiencing double digit annual rent increases.

New rules related to HAP renewals and amendments reflect HUD’s understanding that, to keep affordable apartment owners in the Section 8 program with well-maintained properties, Section 8 rents need to keep up with rising market rents. These changes represent an opportunity that Section 8 apartment owners won’t want to miss.

What’s Changed?

The comprehensive new Section 8 Renewal Policy Guide[1] becomes effective for Housing Assistance Payments Contract (“HAP”) renewals and changes post-marked November 5, 2015 or later. The Guide consolidates and supersedes previous rule-making related to HAP renewals and amendments.

HUD wants qualified owners to commit to long-term HAP contracts. For that reason, owners are allowed to terminate many existing HAP contracts early if the owner is willing to exchange it for a new 20-year HAP contract. Where a project’s HAP rents are lagging the market, this is a good opportunity to bring HAP rents up. With long-term HAP contracts, HUD allows HAP rents to be reset to market every five years with annual operating cost adjustment factors (“OCAF’) or budget-based increases in the interim years.

When done in conjunction with a financing that involves moderate or substantial rehabilitation, the rent comparability study (“RCS”) can take planned project improvements into account when calculating comparable market rents. When the rehabilitation is done in the context of a 223(f) permanent loan, the new rents can take effect at closing. Higher rents equal more loan dollars for needed capital improvements and, in some cases, cash out.

Why Rockhall?

Rockhall has successfully completed refinances of Section 202 projects, USDA Section 515 projects, tax credit projects and other projects with project-based rental assistance. We have worked with borrowers on mark-up-to-market HAP rent increases and budget-based increases. A number of our refinancings of HAP projects have resulted in significant developer fees or cash out for borrowers.

Sample of Recent Rockhall Financings

• Booker T. Washington, OH; S.202 Elderly, $2,200,000, Refinance with Moderate Rehab
• Egida De La Conception, PR; PBRA Elderly, $2,877,400, Refinance with Moderate Rehab
• Flambouyant Gardens, VI; S.202 Elderly, $3,600,00, Refinance with Moderate Rehab
• Franklin Square, CT; PBRA Elderly, $2,523,000, Refinance with Moderate Rehab
• Greater Centennial, NY; PBRA Elderly, $13,847,000, Budget-Based Substantial Rehab
• NSA I, NY; PBRA Elderly, $18,668,000, Cash-Out Refinance
• Portola Vista, CA; PBRA Elderly, $3,919,000, Cash-Out Refinance
• Samaritan Village, OR; S.202 Elderly, $2,262,100, Refinance with Moderate Rehab
• San Simeon, NY; S.202 Elderly, $3,005,300, Refinance with Moderate Rehab
• West Park, TX; PBRA Elderly, $4,350,000, Refinance

[1] http://portal.hud.gov/hudportal/documents/huddoc?id=Section8_Renewal_Guide.pdf