lis 217 stemming the tide - LISC

Over the past few years, new federal tools andprograms have emerged to help advocates preserveHUD-subsidized properties. Theseinclude:• Mark-Up-to-Market• Mark-Up-to-Budget• IRP Decoupling• IRP Pooled Loans and Grants• Enhanced Vouchers• Mark to Market Incentives; and• Technical Assistance Grants(ITAG and OTAG)These tools are designed to address differentaspects of the preservation problem and aretailored to different market circumstances. Theymay have overlapping applications, as well asconflicting regulatory requirements. The precedingchart outlines each program’s goal, itsprogrammatic and regulatory structure, itsutility for housing preservation, and itssuitability to market conditions.This chapter will discuss the structure andrequirements of each program and outline theassociated transaction issues. 10 Proforma examplesillustrate how the tools can be used tofacilitate a preservation purchase transaction.1. MARK-UP-TO-MARKET: FOR-PROFITAND LIMITED DIVIDEND OWNERS 11This program provides incentives to for-profitowners with below-market rents to remain inthe Section 8 program. It is a preservation toolfor properties in strong or rising markets. Underthe terms of the Mark-Up-to-Market program,rents may be marked up to comparable marketrents, which are capped at 150 percent of theSection 8 Fair Market Rent (FMR) but can behigher with a HUD waiver.Mark-Up-to-Market is available only after theproject's original pre-MAHRA subsidy contracthas expired. 12 Once the owner has renewedunder MAHRA, the owner may seek to mark uprents at any time, even during the term of thenew post-MAHRA contract. If a pre-MAHRA contractis still in effect, the owner must wait untilthe end of the contract term. Mark-Up-to-Market is one of six options available to ownersof projects with expiring Section 8 contracts, asdescribed in Chapter 3 of HUD’s "Section 8Renewal Policy" guidebook. 13EligibilityA project is automatically eligible for Mark-Upto-Marketif it meets all of the followingconditions:• It has comparable market rents at or above100 percent of FMR;• It has a HUD REAC 14 score of at least 60, withno urgent health and safety violations; and• It has no low- or moderate-income use restrictionsthat cannot be unilaterally terminatedby the owner. Examples include HUD FlexibleSubsidy 15restrictions, ELIHPA or LIHPRHA use restrictions,and local zoning or urban renewalrestrictions. The owner must certify that nosuch restrictions exist.A property that does not qualify automatically,or needs rents beyond the 150 percent FMR cap,may be eligible for Mark-Up-to-Market on a discretionarybasis, with approval from HUD headquarters.The property may qualify if it meetsany one of the following conditions:• It has a vulnerable tenant population—atleast 50 percent elderly, disabled, or large(five-plus person) families;• It is located in an area with a vacancy ratebelow three percent, where vouchers are difficultto use; or• It constitutes a high priority for the local community,as demonstrated by a contribution ofstate or local funds, such as tax abatementsor rehab grants.For projects with low- or moderate-income userestrictions, HUD will permit rents to be markedup only to the use-restricted level and will typicallyrenew the contract for the remaining termof the use restriction. In a Section 236 projectwith Flexible Subsidy, for example, the maximumrents would be 30 percent of 80 percent of thearea median income, adjusted for family size.If a Section 236 or 221(d)(3) BMIR project is noteligible for prepayment, then it is not eligiblefor Mark-Up-to-Market. Ineligible projectsinclude properties with original nonprofit ownersand some Flexible Subsidy projects which9chapter two: Federal Preservation Tools 9