A project rental assistance contract, or PRAC, is an agreement between the Department of Housing and Urban Development and the owner of a property operating under HUD’s Section 202 program for the elderly. This contract enables the owner to receive project rental assistance funds, which make up the difference between a community’s approved operating costs and rents received from the property’s residents. These agreements typically span three years, and may be renewed depending on the availability of funding.

Toward the end of 2019, HUD announced the creation of a program to convert properties operating under PRACs into RAD — or rental assistance demonstration — communities. Converting an asset through RAD can be a critical component in addressing capital improvements needed at a senior housing community and can ensure the financial stability of the property through the remainder of its HAP contract.

In order to qualify for a HUD PRAC, properties must typically meet several criteria. In addition to maintaining compliance with fair housing standards, assets must have:

• An active PRAC agreement
• Operating reserves of at least $250 per unit (this requirement can be met via funding from a lender or equity investor)
• A physical inspection score from HUD of at least 60 prior to applying
• Evidence that supportive services are accessible to residents

Another requirement for the process is the involvement and engagement of a property’s residents. A property owner is required to hold, at minimum, two meetings with residents to discuss any rehabilitation plans, relocations (if applicable), any policy changes, etc.

One of these meetings must happen more than 30 days prior to submitting a final conversion plan, while another must occur after the plan is submitted to HUD but before conversion begins. During the approval process, additional meetings are also required if the conversion plan is revised in any significant, material way.

The benefits of a HUD PRAC include the ability to receive project rental assistance funds, which make up the difference between a community’s approved operating costs and rents received from the property’s residents. Additionally, converting an asset through RAD (Rental Assistance Demonstration) can be a critical component in addressing capital improvements needed at a senior housing community and can ensure the financial stability of the property through the remainder of its HAP contract.

You can apply for a HUD PRAC by submitting an application to the Department of Housing and Urban Development. The application process includes providing information about the property, such as its location, size, and number of units, as well as financial information about the owner. The application must also include a detailed business plan outlining the proposed use of the PRAC funds. Once the application is approved, the owner will enter into a contract with HUD that outlines the terms of the PRAC, including the amount of funding, the length of the contract, and the conditions of the agreement. For more information, please visit HUD's website.

The costs associated with a HUD PRAC depend on the specific agreement between the Department of Housing and Urban Development and the owner of the property. Generally, the owner will receive project rental assistance funds, which make up the difference between a community’s approved operating costs and rents received from the property’s residents. Additionally, converting an asset through RAD can be a critical component in addressing capital improvements needed at a senior housing community and can ensure the financial stability of the property through the remainder of its HAP contract.

The risks of a HUD PRAC include the potential for reduced funding, the need for additional capital improvements, and the potential for the contract to not be renewed.

Reduced funding is a risk because HUD's budget is subject to change, and the amount of funding available for PRACs may be reduced. This could lead to a decrease in the amount of rental assistance available to the property.

Additional capital improvements may be needed to ensure the property meets HUD's standards. This could lead to additional costs for the owner.

The PRAC contract may not be renewed if the property does not meet HUD's standards or if funding is not available. This could lead to the property losing its rental assistance and potentially going into foreclosure.

Converting an asset through RAD can be a critical component in addressing these risks and can ensure the financial stability of the property through the remainder of its HAP contract. HAP contracts provide long-term rental assistance to eligible low-income families.