15-6. RENT INCREASES

• A. If the owner/purchaser intends to renew the Section 8 contract under Option One then they must submit:

  1. A rent comparability study that contains a determination of the “as is” market rents and the “after rehab” market rents that assumes all repairs and/or rehabilitation work was completed as of the date of the rent comparability study.

  2. A detailed description of the proposed transaction including but not limited to:

     • a. For the Transfer Program:

       • 1. A letter of intent to sell the project to an eligible nonprofit or eligible for profit; and
       • 2. Cost of recapitalizing the reserve for replacement account.

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• b. For the Capital Repairs Program the cost of:

  • 1. Modest repairs and rehabilitation (e.g., lead-based paint, energy efficient equipment, repairs, etc.) and recapitalizing the reserve for replacement account, or
  • 2. Substantial rehabilitation (defined as hard costs exceeding $6,500 (or subsequent threshold established by HUD) per unit times the High Cost Percentage for that area).

3. A Project Capital Needs Assessment (PCNA) or Comprehensive Needs Assessment (CNA) as discussed in Section 15-9.

4. A detailed sources and uses funding statement.

• B. If the owner/purchaser intends to renew the Section 8 contract under Option Two then the owner/purchaser must, in addition to all the items listed in Section 15-6A, submit a request for a budget-based rent increase not to exceed comparable market rents to pay for costs associated with the transaction including new debt and debt service coverage. (See Note after Section 2-15 B.)

• C. For either renewal option, upon receiving the owner/purchaser’s submission, the AE undertakes the initial screening of the owner/purchaser’s RCS. The CA is responsible for the substantive review of the RCS.

• D. The AE must notify the owner/purchaser of the maximum new rent levels when the AE completes processing the renewal request.

• E.

• Effective Date of the New Rents.

1. For the Capital Repairs Program involving a loan program:

   • a. That does not require full debt service at closing, the final “after rehab” rents will not be effective until the PCNA is completed, financing is approved and, if applicable, the critical repairs are complete. The owner must agree to sign HUD-93181 Addendum to Renewal Contract under Option One or Option Two for Capital Repairs and/or Acquisition Costs.

   • b. That requires full debt service at closing (such as the Fannie Mae or Freddie Mac Mod Rehab Programs or the FHA 223(f) programs) the Regional Center/Satellite Office can allow the rents, that would otherwise not go into effect until after the rehabilitation is completed, to go into effect at closing. The owner must agree to sign HUD-93182 Addendum to Renewal Contract under Option One or Option Two for Capital Repairs and/or Acquisition-Post-Rehabilitation Rents at Closing.

2. For the Transfer Program, the final new rents will be effective once the transfer is approved and completed.

3. In the case of a blended transaction, involving both a transfer and capital repairs, the rents will be adjusted after the strictest requirement in 1 or 2 above has been met.

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Chapter Fifteen – Published March 2023