On Feb. 22, the Department of Housing and Urban Development (HUD) announced that while it is considering changes to the Sec. 8 regulations and the Sec. 8 Renewal Policy Guide, all Multifamily HUB and Program Centers are allowed to recommend waivers of certain portions of the regulations and the guide to headquarters.
Through this announcement, it is clear that HUD intends that these waivers will support its commitment to preserve the existing stock of affordable housing. Headquarters will entertain such requests on a case-by-case basis, specifically:
- Nonprofit owners with “new regulation” new construction or substantial rehabilitation Sec. 8 Housing Assistance Payment (HAP) contracts may request a regulatory waiver to receive a distribution of 6 percent on initial equity investment for projects for elderly families, a 10 percent distribution for projects for non-elderly families, or unlimited distributions for Chapter 15 preservation renewals. The last revisions to Chapter 15 occurred in September 2008 and deleted the distributions provisions for nonprofits generally providing that these guidelines would be issued later. The return to nonprofit owners based upon initial equity would only be applicable for properties originally developed by a for-profit entity that made an initial equity contribution.
- For Option 1 discretionary Mark-Up-To-Market renewals, owners may request a waiver of the requirement in the guide that allows rents to be increased up to, but not exceeding, the use restricted level.
- For Chapter 15 preservation renewals:
- Owners may request a waiver of the cap on market rents in order to allow rents to go up to market level, as determined by the rent comparability study;
- Owners may request a waiver of the requirement that a project have a Real Estate Assessment Center score greater than 30; and
- Owners may request a waiver of the prohibition against for-profit owners who wish to comply with the requirements of Chapter 15 from obtaining benefits under Chapter 15 so that the owner will know the rents permitted after the rehabilitation is complete. For-profit owners can seek to renew under Option 2 using the provisions of Chapter 15. With a 20-year HAP under Option 2, the limitation on distributions is eliminated.
The HUBs and Program Centers are also reminded that once a budget-based rent increase application for capital repairs under Chapter 15 is completed, the owner must be informed of the new rents in order to facilitate the new financing. Post-rehab rents would become effective after the rehabilitation is completed, unless the amount of the rehab is $6,500 per unit or less, in which case the rents can go into effect at renewal. Detailed information regarding the application requirements for waivers is provided. All waiver requests must be reviewed and approved by the HUB director before a recommendation is made to headquarters. Waiver requests may be denied by the HUB director without headquarter concurrence.
Monica H. Sussman is a partner in Nixon Peabody, LLP’s Affordable Housing Practice, and Tatiana Gutierrez Abendschein is an associate with the group. Both attorneys are based in the firm’s Washington, D.C., office.