Recent guidance issued by the U.S. Department of Housing and Urban Development (HUD) has the potential to dramatically expand private investment in affordable senior housing redevelopments. And HumanGood wants to come out of the gates strong, targeting a combination of private and public funding to overhaul communities in its portfolio wrapped for years in bureaucratic red tape.
As part of its FY 2018 omnibus spending bill, Congress extended the Rental Assistance Demonstration (RAD) for HUD-financed and insured affordable communities to include projects built as part of the agency’s Section 202 program with Project Rental Assistance Contracts (PRAC). But the guidance on how to proceed was stalled for over a year as HUD determined how it would be implemented, Ancel Romero, president of HumanGood’s affordable housing line, told Senior Housing News.
That guidance was issued earlier this month and, for the first time, opens up Section 202-financed PRACs to private equity sources, providing a much-needed revenue option for communities where maintenance has been deferred, because Section 202 requirements set base rents, as well as how much providers could increase rents over time.
There are over 150,000 PRAC units across the United States. Pleasanton, California-based HumanGood has over 30 PRACs in its portfolio, totaling 2,000 units. Romero estimates 25% of the properties in its PRAC holdings are at least 20 years old, and maintenance on those properties has been deferred because rents are effectively capped.
“You can only charge what is needed to run the property. And you can only go so high with regard to rent increases because [HUD guidelines] are stringent,” he said.
Extending RAD to Section 202 PRACs is a significant opportunity for nonprofit providers such as HumanGood to recapitalize these properties and address the deferred maintenance. Romero has identified two potential funding sources — one private, one public.
The latter is the Low Income Housing Tax Credit (LIHTC) program, which HumanGood has used effectively on non-Section 202 properties, and eliminates the challenge of refinancing properties with no debt attached.
HumanGood is also looking at philanthropic sources to recapitalize its Section 202 PRACs, as investors in these groups will not be looking at a quick return on investment.
HumanGood expects to start recapitalizing its Section 202 PRAC assets early next year, Romero told SHN.
HumanGood has spent the last several months upgrading its overall portfolio of 59 affordable communities, led by its development arm, Beacon Development Group. Last December, it opened the $40.5 million Rotary Terrace, an 81-unit residence for low-income seniors in San Francisco, in partnership with the South San Francisco Rotary Club.
In May, HumanGood debuted the newly renovated Park Paseo, an affordable senior community in Glendale, California. The renovations totaled $35 million. Mount Rubidoux Manor, a 188-unit HumanGood affordable community in Riverside, California, also recently completed a $35 million renovation plan.
HumanGood is also working with task forces made up of the provider’s affordable housing-focused board members, key operations, resident services and development team members in drafting three strategic plans focused on advocating for senior living causes that are important to low-income seniors such as enhanced services and funding; enhancing its capacity to raise funds from foundations to benefit residents and communities; and exploring ways to provide housing and services for homeless seniors and elderly homeless veterans.