HUD Issues Policy on Owner Requests for Conversions of Efficiencies

By A. J. Johnson & Caitlin Jones
July 24, 2008 3 min read

THE U.S. DEPARTMENT OF HOUSING and Urban Development (HUD) has issued a policy memorandum setting out uniform requirements and processing procedures for requests by owners of certain HUD-assisted and/or ““insured multifamily housing projects to convert efficiency apartments to one-bedroom units.
         The memo, dated 2/1/08 and issued to HUD staff, could expedite more housing preservation projects by eliminating the need by owners to obtain a waiver from HUD Headquarters for efficiency conversions that meet the new uniform standards. Likely candidates are many seniors rental projects, such as those financed under HUD’s Section 202 supportive housing for the elderly program, which tend to have many small efficiency units.
         The memo lists the particular HUD programs covered by the new policy, general programmatic requirements that must be met by owners and their projects in conversion requests, additional requirements under various individual HUD programs (including with Section 236 “decouplings”), tenant notification requirements, the format and content of owner requests, and procedures for HUD to review and act on owner requests.
         HUD HUB offices or Program Centers are to review owner requests, and may issue denials without concurrence by HUD Headquarters. HUBs can recommend approval of an owner’s request or approval with conditions, but HUD Headquarters will decide whether to approve or deny.
         The requirements and procedures in the new memo apply to HUD-assisted and/or ““insured projects under the following HUD programs: Section 202 Direct Loan with or without Rental Assistance; Section 202 Capital Advance with Project Rental Assistance Contracts (PRAC and PAC); Section 811 (Supportive Housing for the Disabled) Capital Advance with PRAC; Section 236 insured and non-insured with or without Rental Assistance; Section 8 Project-Based Rental Assistance with or without FHA Insurance; Rent Assistance Payment (RAP); Rent Supplement; and Properties subject to a HUD Use Agreement or Deed Restriction.
         Among the memo’s general requirements are a minimum 25% vacancy rate for a project’s efficiency units during at least 24 of the past 36 months, owner evidence of a local demand for local affordable housing of the proposed post-conversion unit type, project debt service coverage of 1.1 or greater after conversion, and conversions only of units of the same subsidy type.
         For Section 8 projects, according to the memo, if low-income housing tax credits are involved, the rents can’t exceed the lesser of use restricted rents or comparable market rents.
         HUD’s memo says owners have indicated conversions of efficiencies to one-bedroom units “will better serve resident needs, alleviate recurring vacancies, and provide the financial relief necessary to avoid default. The Department understands that conversions may be necessary to ensure that projects are preserved and resident needs are adequately met.”
         (Memo: http://www.housingonline.com/Portals/0/conversionmemo.pdf)

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