Reacting to REAC

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8 min read

Preparing For Your Inspection 

REAC inspections, the means by which the Department of Housing and Urban Development’s Real Estate Assessment Center evaluates the fitness of HUD-subsidized housing, is being overhauled after 20-odd years. The new incarnation, NSPIRE—National Standards for the Physical Inspection of Real Estate—is intended to modernize HUD’s physical inspection model, prioritize health, safety, operational and functional defects over cosmetic or appearance matters and focus on the areas that most impact residents. Most of the reaction to REAC changes has been positive so far, but there is also little doubt the changes will require some readjustment from private owners and public housing authorities (PHAs).

“Why do we need to change? It’s a 20-plus year-old program that may be misaligned with the way real estate is managed today,” says Daniel R. Williams, who leads the REAC team and the NSPIRE protocol. “We want to ensure that what we’re doing aligns to people. We want to focus on residents and expand outward from there. We want to make sure families are living in decent, safe housing. That is our mission; that is what we want to achieve, first and foremost.”

In that regard, Williams delineates three levels of a building’s possible deficiencies and wants to acknowledge the distinctions between them. Anything having to do with safety and health will be considered Urgent. Function and Operability—in other words, is it serving its intended purpose?—will fall under the heading of Planned and can be undertaken through routine work orders. The third category, relating to condition and appearance, will be considered subjective, so there will be much greater discretion in that area. Williams believes this will make the entire inspection process more rational.

Demonstration Phase    
HUD will launch the new NSPIRE model with a voluntary demonstration phase involving 4,500 participating properties that will go through October. PHAs and private owners are encouraged to register one or more of their properties in the demonstration, from which the final selections will be made. The HUD website lists benefits to volunteering as having a property only having to go through one inspection, of which scores are only advisory; being able to participate in focus groups, conference calls and training sessions on policies and procedures; having influence on the final inspection model; and taking advantage of training on how to use the inspection software and other tools.

Two of the main goals are to streamline the inspection process and refocus the standards on areas that directly affect the residents. To that end, NSPIRE has reduced the current five inspectable areas – Dwelling Units; Building Systems; Common Areas; Building Exterior; and Site—down to three—Dwelling Units; Inside; and Outside. The weight given the Dwelling Units is up from 35 percent of the overall score to 50 percent, and therefore the property won’t pass inspection if the Dwelling Unit section fails. Inside and Outside are now weighted at 25 percent each. Williams says that some items could fall into either Inside or Outside depending on the particular situation, though he labels it a more simplified, intuitive approach. “There will be some edge cases we have to work out. But we’re trying to reduce the complexity of the process and well-managed properties aren’t going to have any trouble complying with this.”

New Challenges
“There will be some challenges,” says Silvia Rimolo, a director of TCAM Asset Management of Boston. “The big one is the reduction of the notice, now 14 days, which used to be up to 120 days and normally at least 60 to 90, as well as the reduced ability to reschedule.” This was changed under NSPIRE, according to HUD, to encourage year-round maintenance rather than preparing specifically for inspections.

“Management companies will have to develop in-house standards to deal with the new protocols,” Rimolo elaborates. “They will have to be incorporated into the maintenance staff’s work orders and mindset. And they will have to include more inspections inside [residential] units, which can be intrusive to tenants. And for smaller housing authorities and self-managed properties, [the new standards] are going to be an issue: Where are they going to get the money to put new practices in place?”

She lists other challenges as a potentially steep learning curve to change behaviors; how to maintain a sense of urgency for property managers when there is a long lag time between inspections; and what is going to happen to older assets with deferred maintenance?

On the whole, though, Rimolo sees the 14-day notice as a positive, encouraging owners and managers to be proactive rather than reactive and to implement regular upkeep protocols. There should be less inconsistency with better guidelines and evaluation and scoring transparency, as well as with the new standards that are being implemented in the hiring and training of contract inspectors. The most important change should be better service and protection for residents, based on the fact that half the evaluation score will be based directly on the apartments themselves.

Resident Participation
Gary Jennison, Jr. is president of Corcoran Jennison Management of Boston, which oversees a portfolio of more than 14,000 residential units and 500,000 square feet of commercial property. He is also focused on a more direct relationship with residents. “From an ownership standpoint, we’re continually [stating] that we like the REAC test because that’s the time the property is held accountable. I think the number one change is going to be dealing with the shift in emphasis to areas where we don’t have control – inside the units. You can’t get to 14 days before an inspection to get into a unit and reasonably expect to be able to fix everything. Management companies will need regular access.

“The biggest challenge is going to be interacting with residents. We’re looking forward to working with HUD on the best way to manage that; to make sure we’re creating safe homes and being graded appropriately for that.” The solution, he sees, is establishing an ongoing dialogue with tenants so that they feel part of the team. “We’ve been emphasizing communication and having regular coffee hours with residents and pushing the idea that they have to call in work orders on a real-time basis. The more it’s collaborative between management and residents, the easier it is.” And he wants the entire staffs of his properties to be able to recognize and deal with maintenance issues.

“We’ve now cross-trained all of the employees who work at our sites on the rules of REAC. It shouldn’t just be left to the manager or maintenance supervisor. There’s no reason an administrative assistant who walks from her car across the property shouldn’t be able to identify and report REAC issues. As many eyes as we can have on the property, the better for all involved.” Jennison believes NSPIRE’s deemphasis on mainly cosmetic issues that don’t have to be taken care of immediately for the safety and comfort of residents will encourage “a more thoughtful, long-term replacement process through capital planning.”

Finally, Jennison sees indirect benefits to ongoing attention to his physical plants. “We have a pretty active safety program, mostly for the exterior and common areas, aimed at reducing insurance costs. We’ve added a number of REAC items to our safety inspections.”

Richard Price, a national expert on HUD issues and a partner in the Nixon Peabody law firm in Washington, DC, agrees that any good system should be reexamined from time to time, and while conceding that, “This will require some retraining of residents,” believes that always having a project ready for a REAC inspection will be beneficial. He says, “I am encouraging a lot of our clients to sign up for the demonstration project.”

Under the new system, one of Price’s major recommendations is communication with HUD. For example, “If we’re talking about a major rehab, tell HUD up front. You should be able to delay a reasonable amount of time or eliminate certain areas under rehab from the inspection. There is a lot of flexibility if you talk to [HUD officials]. Even if a rehab is taking a couple of months longer than expected, tell HUD. If you’ve kept them up-to-date, adjustments are possible. And that tends to save a lot of heartache when you have a property that otherwise is in good shape but you’re in the middle of construction.”

Williams stresses that he wants finalizing NSPIRE to be a two-way process, and that HUD welcomes suggestions from the industry, and especially from owners who register for participation in the demonstration phase.

“It is still early in the process as we recalibrate the scoring model,” he notes. “We want to run the standards and get them down in the first couple of months. We want to make sure we have standards that make sense. Then we want to know if we’ve weighted each standard correctly. Please help us validate them. If we’re talking about whether window condensation is a health or safety concern or not, show us industry research on the subject. If you have suggestions, write them up and send them to us!”

Story Contacts:
Gary Jennison, Jr., [email protected]
Richard Price, [email protected]
Silvia Rimolo, [email protected]
Daniel Williams, [email protected]