What Is 202 RAD for PRAC?
“202 RAD for PRAC” refers to a specialized track under the U.S. Department of Housing and Urban Development’s (HUD) Rental Assistance Demonstration (RAD) program. It enables the conversion of Section 202 housing developments—operating under Project Rental Assistance Contracts (PRACs)—to Section 8 assistance contracts. This pathway is intended to enhance long-term financial sustainability, support capital investment, and preserve affordable housing for elderly residents. How does it work?
- Section 202 provides capital advances and rental subsidies for supportive housing dedicated to very low-income seniors.
- PRAC is the operating subsidy contract tied to Section 202 developments, historically prohibiting debt financing or equity investment.
- RAD offers a means for these properties to convert to long-term Section 8 contracts, thereby unlocking access to traditional capital markets and tax credit equity.
Under the RAD for PRAC initiative, property owners—historically restricted from leveraging debt—are now empowered to recapitalize and preserve aging senior housing assets. The opportunity is substantial: there are approximately 2,800 Section 202 PRAC projects representing 117,000 units across the U.S., all serving a critical role in the nation’s affordable housing landscape.
Best Methods to Refinance and Recapitalize
- Use the RAD for PRAC Conversion Pathway
Because PRAC contracts do not support debt, conversion through RAD is essential to access financing tools. Between 2022 and 2024, HUD’s Office of Recapitalization issued guidance allowing for structured repositioning of these properties. The RAD for PRAC process permits rental increases that can underwrite debt and support LIHTC applications. - Structure a Multi-Layered Capital Stack: Given the age and capital needs of most PRAC properties (typically 20+ years old), owners often require multiple financing layers, such as:
– LIHTC (9% or 4%)
– Tax-exempt municipal bonds
– HUD-insured debt (Section 223(f) or 221(d)(4))
– HOME/CDBG/FHLB-AHP soft funds
– State Housing Finance Agency (SHFA) support
Additional creative financing may include:
– Philanthropic contributions
– Seller take-back financing
– Essential function bonds
– Local trust funds and housing initiatives - Maximize Rent Potential: BBRI + PRI Strategy: The most effective method to raise rents in support of recapitalization involves two distinct HUD-authorized increases:
– Step One: Budget-Based Rental Increase (BBRI) using HUD Form 92247 to justify increased operating costs and debt coverage.
– Step Two: Project Rental Increase (PRI): Authorized through the RAD for PRAC process, this Office of Recapitalization mechanism to greater align rent with Section 8 Fair Market Rents (FMRs).
Important: Always begin with the BBRI and follow with the PRI. Reversing the order is discouraged, as it can complicate the BBRI process and reduce effectiveness. And if only a modest rental increase is needed (e.g., $250/unit), it may be acceptable to skip the BBRI process and apply for the PRI alone. However, this should be determined based on the scale of recapitalization required.
Step-by-Step Conversion Framework
- Submit RAD Application to HUD
- Conduct a Capital Needs Assessment (CNA) — tailored for BBRI submission
- Secure Tenant Consent and Relocation Planning (if applicable)
- Select Rental Platform — PBRA (Project-Based Rental Assistance) or PBV (Project-Based Vouchers), depending on ownership goals and local PHA involvement
Key Considerations
The most effective strategy for refinancing and recapitalizing Section 202 PRAC properties integrates HUD’s RAD conversion framework with Low-Income Housing Tax Credit (LIHTC) equity, FHA-insured financing, and layered soft-source funding. Central to this approach is the ability to optimize rental income through HUD-approved Budget-Based Rental Increase (BBRI) and Project Rental Increase (PRI) mechanisms—both critical to achieving rents that support robust recapitalization. For nonprofit sponsors, this strategy offers a clear and practical pathway to attain or even exceed Fair Market Rents (FMR), enabling both immediate capital investment and long-term financial sustainability. Moreover, the RAD for PRAC platform includes an equity recovery provision, allowing repayment of prior owner cash contributions if capital needs are fully satisfied.
This model safeguards deeply affordable housing for seniors while modernizing properties to meet contemporary needs. As HUD finalizes guidance for extending similar preservation tools to Section 811 PRACs, stakeholders should prepare to leverage these processes to protect and enhance supportive housing for elderly and disabled Americans.
However, navigating the complexities of this process requires deep expertise. It is essential to engage qualified professionals and third-party specialists with proven experience in RAD and PRAC conversions to ensure compliance, maximize funding opportunities, and secure successful outcomes. To get started on your PRAC 202 preservation strategies, contact our team of subject matter experts, who can navigate the process for you.
