RAD for PRAC Advisory Services

Dominion Due Diligence Group (D3G) is a full-service real estate due diligence company with an in-house team of experts helping to shape the affordable housing preservation industry by presenting housing solutions to Nonprofit Entities, Public Housing Agencies, Municipalities, Developers, Borrowers, Lenders, Equity Investors, General Contractors, and Design Professionals. Our 30 years of applying a multidisciplinary approach to housing allow us to serve clients at all stages, from initial conceptual design to development and construction, as well as the ongoing maintenance, optimization, and preservation of a real estate asset. D3G has a multitude of affordable housing subject matter experts that focus on HUD Section 8 regulations as they pertain to capital needs, environmental compliance, accessibility-handicap compliance, energy, climate resiliency, building codes, and green building standards.

D3G’s Housing Preservation Services (HPS) team combines early planning services and transactional expertise to assist with the preservation and recapitalization of affordable and senior housing. We have vast experience assisting owners and operators with budget-based rent adjustments. The budget-based rent adjustment process is a great way for properties to increase their rent levels to support property expenses. A budget-based rent increase (BBRI) request should be prepared in accordance with the requirements of HUD Handbook 4350.1, Chapter 7. BBRI submission requirements often require a capital needs assessment using HUD’s CNA e-Tool and a HUD utility allowance (U/A) analysis in order to maximize rental increases.

The rent-setting language within the original RAD for PRAC guidance (HUD Housing Notice 2012-32
Revision 4, dated September 05, 2019); and the more recent RAD Supplemental Notice 4B, H–2023–08, presents opportunities to increase rents prior to conversion and issuance of long-term rental assistance contracts. D3G has a long understanding of the interaction between a property’s replacement for reserve (R4R) schedule and annual deposits to replacement reserve (ADRR), especially for PRAC conversions seeking rehabilitation and recapitalization. Because of our creative ability of connecting future capital needs to increase NOI and access to capital, D3G was selected to work on senior housing pilot programs involving renewal of long-term Section 8 contracts on the early PRAC deals.

D3G is adept at working with Nonprofit Owners to structure budget-based rental increases (BBRI) that can maximize rents, provide opportunities to increase efficiency, decrease expenses and increase supportive services for residents. We have found the process for a BBRI Capital Needs Assessment (CNA) compliant with HUD OAMPO and Office Recapitalization is as much engineering as it is artistry in painting a picture of the property justifying the needed reserve to replacement values. Our “RAD for PRAC” best practices for Capital Needs Assessment (CNA) are:

1. Completion of a physical needs assessment and reporting in the HUD CNA e-Tool Platform.

2. Completion of an ASHRAE Level 1 Energy Audit, to obtain values necessary for the CNA e-Tool.

3. Completion of a Property inspection, followed by a bifurcated reporting process is recommended to optimize future net operating income (NOI). Step 1 of the process consists of a typical Section 8 capital needs assessment report, followed by discussion with the Owner/Operator of the property. Step 2 involves revisiting the original CNA e-Tool 20-year schedule, and in particular the early years of the reserves to accelerate any planned renovation repairs. This staged process, prior to HUD OAMPO or Office of Recapitalization submission, is highly recommended to increase projected rents.

4. Energy data should be used to address Utility Allowance and capture projected utility savings.