Up-Front Grants and Loans in the Disposition of Multifamily Projects

Part V

Department of Housing and Urban Development

_______________________________________________________________________

24 CFR Part 290

Multi-Family Housing; Up-Front Grants and Loans in the Disposition;

Proposed Rulemaking

Proposed Rules

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 290

[Docket No. FR-4310-P-01]

RIN 2502-AH12

Up-Front Grants and Loans in the Disposition of Multifamily

Projects

AGENCY: Office of the Assistant Secretary for Housing--Federal Housing

Commissioner, HUD.

ACTION: Proposed rule.

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SUMMARY: This proposed rule would establish generally applicable

requirements to govern the use of up-front grants and loans in the

disposition of HUD-owned multifamily properties by defining the

projects, sales, and purchasers eligible for up-front grants and loans,

and setting both a maximum per-unit and overall cap for up-front grant

amounts. This proposed rule would promote the affordability and

viability of multifamily housing projects.

DATES: Comments Due Date: September 13, 1999.

ADDRESSES: Interested persons are invited to submit comments regarding

this proposed rule to the Rules Docket Clerk, Office of General

Counsel, Room 10278, Department of Housing and Urban Development, 451

Seventh Street, SW, Washington, DC 20410. Communications should refer

to the above docket number and title. A copy of each communication

submitted will be available for public inspection and copying between

7:30 a.m. and 5:30 p.m. weekdays at the above address. FAXED comments

will not be accepted.

Clerk, Office of General

Counsel, Room 10278, Department of Housing and Urban Development, 451

Seventh Street, SW, Washington, DC 20410. Communications should refer

to the above docket number and title. A copy of each communication

submitted will be available for public inspection and copying between

7:30 a.m. and 5:30 p.m. weekdays at the above address. FAXED comments

will not be accepted.

FOR FURTHER INFORMATION CONTACT: Marc Harris, Supervisory Project

Manager, Office of Portfolio Management in Multifamily Housing,

Department of Housing and Urban Development, Room 6164, 451 7th Street

SW, Washington, DC 20410, telephone (202) 708-2654. Hearing or speech-

impaired individuals may call 1-800-877-8339 (Federal Information Relay

Service TTY). (Other than the ``800'' number, these are not toll-free

numbers.)

SUPPLEMENTARY INFORMATION:

I. Background

HUD's statutory authority to manage and dispose of HUD-held

multifamily housing projects is contained in section 207(k) and (l) of

the National Housing Act, in section 203 of the Housing and Community

Development Amendments of 1978 (HCDA 1978) and in section 204 of the

Departments of Veterans Affairs and Housing and Urban Development, and

Independent Agencies Appropriations Act, 1997 (approved September 26,

1996, Public Law 104-204), (FY 1997 Appropriations Act). HCDA 1978

section 203 was amended by the Multifamily Housing Property Disposition

Reform Act of 1994 (MHPDRA) (Public Law 102-233, approved April 11,

1994) which authorized the use of up-front grants for the necessary

cost of rehabilitation and other related development costs at section

203(f)(4). This section also authorizes project-based assistance under

section 8 of the United States Housing Act of 1937 as the source of

funding for the up-front grants

perty Disposition

Reform Act of 1994 (MHPDRA) (Public Law 102-233, approved April 11,

1994) which authorized the use of up-front grants for the necessary

cost of rehabilitation and other related development costs at section

203(f)(4). This section also authorizes project-based assistance under

section 8 of the United States Housing Act of 1937 as the source of

funding for the up-front grants.

The Department's authority and discretion in matters relating to

the disposition of multifamily housing projects was expanded by section

204 which permits HUD to manage and dispose of multifamily properties

owned by the Secretary, ``on such terms and conditions as the Secretary

may determine''. Section 204 was amended by section 213 of the

Departments of Veterans Affairs and Housing and Urban Development, and

Independent Agencies Appropriations Act, 1998 (approved October 27,

1997, Public Law 105-65) (FY 1998 Appropriations Act). Section 213

clarified that the General Insurance Fund could be used to provide

grants and loans for the necessary costs of rehabilitation or

demolition, but limited this authority to FYs 1997 and 1998. Section

206 of the Departments of Veterans Affairs and Housing and Urban

Development, and Independent Agencies Appropriations Act, 1999,

(approved October 21, 1998, Pub.L. 105-276) (FY 1999 Appropriations

Act) extends this authority for an additional year, through FY 1999.

The use of the General Insurance Fund as authorized in these

appropriations Acts, however, is limited to grants and loans for

rehabilitation or demolition activities. Section 8 project-based

assistance is the only source of up-front grant funding for total

rebuilding. The FY 1999 Appropriations Act, however, did not provide

any Section 8 project-based funds for property disposition

FY 1999.

The use of the General Insurance Fund as authorized in these

appropriations Acts, however, is limited to grants and loans for

rehabilitation or demolition activities. Section 8 project-based

assistance is the only source of up-front grant funding for total

rebuilding. The FY 1999 Appropriations Act, however, did not provide

any Section 8 project-based funds for property disposition.

The discretion conferred under section 204 of the FY 1997

Appropriations Act, as amended by the FYs 1998 and 1999 Appropriations

Acts, is very broad, and HUD is, therefore, proposing this rule to

implement generally applicable requirements for up-front grants and

loans. The procedures in this rule would be followed for all up-front

grants and loans made with whatever funds are authorized and available.

If Section 8 project-based assistance is not available, or if the

authorization to use the General Insurance Fund is not extended beyond

FY 1999, up-front grants and loans will not be available as an option

in the disposition of multifamily projects.

This rule would add a new Sec. 290.27 to part 290 to implement

generally applicable requirements for eligible projects, sales and

purchasers, and for a maximum grant or loan amount on a per-unit basis.

Until the regulation takes effect, those portions of the Guidance

Memorandum issued February 27, 1997, which conform with applicable

statutes and regulations, may be used on a case-by-case basis.

HUD's goal in promulgating generally applicable eligibility

requirements for up-front grants and loans is to promote the

affordability and viability of multifamily housing projects

a per-unit basis.

Until the regulation takes effect, those portions of the Guidance

Memorandum issued February 27, 1997, which conform with applicable

statutes and regulations, may be used on a case-by-case basis.

HUD's goal in promulgating generally applicable eligibility

requirements for up-front grants and loans is to promote the

affordability and viability of multifamily housing projects. Under this

proposed rule, to be eligible for an up-front grant or loan, a project

would have to be currently serving very low-income residents (at least

50% of units occupied by very low-income residents at the time HUD

approves a Disposition Program); be located in a housing market with a

need for affordable housing (vacancy rate of habitable, affordable,

multifamily housing is 4% or less); and generate sufficient income

after rehabilitation or rebuilding to be viable and provide affordable

housing for at least 20 years or the term of the loan, whichever is

shorter.

The rule would also limit the use of up-front grants or loans in

negotiated sales, which involve no competitive bidding among

prospective purchasers, to three categories of purchasers: (1) the unit

of general local government, including a public housing agency in the

area in which the project is located, (2) the State in which the

project is located, or (3) an agency of the federal government.

Otherwise, an up-front grant or loan will only be considered as a

possible option in a competitive sale. HUD has determined that these

general limitations are appropriate measures to limit its exposure to

loss and conserve housing resources. Making an up-front grant or loan

an option in a negotiated sale with a unit of government is consistent

with the statutory right, under HCDA 1974 section 203, of first refusal

accorded such entities

be considered as a

possible option in a competitive sale. HUD has determined that these

general limitations are appropriate measures to limit its exposure to

loss and conserve housing resources. Making an up-front grant or loan

an option in a negotiated sale with a unit of government is consistent

with the statutory right, under HCDA 1974 section 203, of first refusal

accorded such entities. State and local governments would also be more

familiar and involved with local plans and needs, and would have

greater authority and capacity to control local factors that could

affect the viability and affordability of the project. In all other

cases, a competitive sale is more appropriate to permit choice among a

range of plans and ensure the best use of up-front grant or loan

amounts.

This rule would also provide for a grant or loan limit of 50

percent of the total development cost (TDC) per project, which may not

exceed $40,000 per affordable, finished unit. The actual grant or loan

amount provided within these limits will be determined on a case-by-

case basis depending upon rehabilitation, demolition, rebuilding, and

other development costs approved by HUD. It will be the responsibility

of the purchaser to obtain funds for the remaining rehabilitation,

demolition or development costs. HUD has determined that it is

appropriate to give the purchaser this responsibility because the

purchaser's ability to raise the balance of funds necessary to complete

the project provides assurance that other lenders or contributors have

made an independent determination that the proposed plan for the

project is viable, and that they are willing to commit to its success.

II. Findings and Certifications

Paperwork Reduction Act Statement

eview'') and determined

that this rule is a ``significant regulatory action'' as defined in

section 3(f) of the Order (although not economically significant

regulatory action under the Order). Any changes made to this rule as a

result of that review are available for public inspection between 7:30

a.m. and 5:30 p.m. weekdays in the Office of the Rules Docket Clerk.

Regulatory Flexibility Act

The Secretary, in accordance with provisions of the Regulatory

Flexibility Act (5 U.S.C. 605(b)), has reviewed this rule before

publication and by approving it certifies that it will not have a

significant economic impact on a substantial number of small entities.

These requirements address only one aspect (up-front grants) of the

requirements governing the management and disposition of HUD-owned

multifamily housing projects, and should not affect the ability of

small entities, relative to larger entities, to bid for and acquire

projects that HUD determines to sell. Nevertheless, HUD is soliciting

comment specifically to elicit issues of importance to small entities.

Executive Order 12612, Federalism

HUD has determined, in accordance with Executive Order 12612,

Federalism, that this rule will not have a substantial, direct effect

on the States or on the relationship between the Federal government and

the States, or on the distribution of power or responsibilities among

the various levels of government. The specific requirements of this

rule do not impose any additional terms and conditions on States or

local governments that acquire projects under this rule, and therefore

no further review is necessary or appropriate.

Catalog of Federal Domestic Assistance

The Catalog of Federal Domestic Assistance Program number and title

is 14.156, Lower Income Housing Assistance Program (Section 8).

List of Subjects in 24 CFR Part 290

Low- and moderate-income housing, Mortgage insurance, Reporting and

recordkeeping requirements.

e projects under this rule, and therefore

no further review is necessary or appropriate.

Catalog of Federal Domestic Assistance

The Catalog of Federal Domestic Assistance Program number and title

is 14.156, Lower Income Housing Assistance Program (Section 8).

List of Subjects in 24 CFR Part 290

Low- and moderate-income housing, Mortgage insurance, Reporting and

recordkeeping requirements.

Accordingly, for the reasons stated in the preamble, part 290 of

title 24 of the Code of Federal Regulations is proposed to be amended

as follows:

PART 290--MANAGEMENT AND DISPOSITION OF HUD-OWNED MULTIFAMILY

PROJECTS AND CERTAIN MULTIFAMILY PROJECTS SUBJECT TO HUD-HELD

MORTGAGES

1. The authority citation for 24 CFR part 290 continues to read as

follows:

Authority: 12 U.S.C. 1701z-11, 1701z-12, 1713, 1715b, 1715z-1b;

42 U.S.C. 3535(d) and 3535(i).

2. A new Sec. 290.27 is added to subpart A to read as follows:

Sec. 290.27 Up-front grants and loans.

(a) General. HUD may provide up-front grants and loans for

rehabilitation, demolition, rebuilding and other related development

costs as part of the disposition of a multifamily housing project that

is HUD-owned, upon making a determination that such a grant or loan

would be more cost-effective than project-based rental assistance.

(b) Eligible projects. An up-front grant or loan can be made

available in the sale of a HUD-owned multifamily housing project that:

(1) Has more than 50% of the units in the project occupied by very

low-income residents at the time a disposition plan is approved by HUD;

(2) Is located in a housing market or submarket in which there is

not sufficient habitable, affordable, rental housing, as defined in

Sec. 290.3;

(3) Will generate, after rehabilitation or rebuilding, sufficient

rental income in a competitive market to cover all operating expenses,

meet after sale debt service requirements, fund required reserves and

throw-off positive cash flow;

ed by HUD;

(2) Is located in a housing market or submarket in which there is

not sufficient habitable, affordable, rental housing, as defined in

Sec. 290.3;

(3) Will generate, after rehabilitation or rebuilding, sufficient

rental income in a competitive market to cover all operating expenses,

meet after sale debt service requirements, fund required reserves and

throw-off positive cash flow;

(4) Will provide affordable housing for at least 20 years or the

term of the loan, whichever is shorter, after the rehabilitation and/or

rebuilding is completed; and

(5) Meets such other requirements, including deed restrictions,

loan provisions, and monetary penalties for non-performance, as HUD may

determine are appropriate on a case-by-case basis.

(c) Eligible sales and purchasers--(1) Negotiated sales to

governmental entities. A negotiated sale of a project with an up-front

grant or loan can only be made to the unit of general local government,

which includes public housing agencies, in the area in which the

project is located; or a State agency designated by the chief executive

officer of the State in which the project is located; or an agency of

the Federal government.

(2) Other sales and purchasers. All sales which provide up-front

grants or loans to entities other than those described in paragraph

(c)(1) of this section must be conducted through a competitive

selection process. All general and limited partnerships or their

nominees, joint ventures or other entities assembled for purposes of

purchasing the project and which have

a governmental entity as a partner or other participant are considered

profit motivated purchasers and not governmental entities, whether or

not there is a non-profit, public, corporate or individual general

partner.

tive

selection process. All general and limited partnerships or their

nominees, joint ventures or other entities assembled for purposes of

purchasing the project and which have

a governmental entity as a partner or other participant are considered

profit motivated purchasers and not governmental entities, whether or

not there is a non-profit, public, corporate or individual general

partner.

(d) Up-front grant or loan amount. The maximum that HUD will fund

per project in an up-front grant or loan is 50 percent of total

development cost (TDC), or $40,000 per affordable, finished unit,

whichever amount is less. TDC covers construction materials, artisan

services, professional services, developers services, and overhead,

relocation and operating losses that are incurred to plan, perform and

complete repairs or rebuilding.

Dated: March 25, 1999.

William Apgar,

Assistant Secretary for Housing-Federal Housing Commissioner.

[FR Doc. 99-18066 Filed 7-14-99; 8:45 am]

BILLING CODE 4210-27-P