RAD requires that prior to conversion, a property must demonstrate appropriate resources to meet the 20-year capital needs outlined in the Capital Needs Assessment. For mixed-finance projects, it can be difficult to refinance a property prior to the expiration of the tax credit compliance period. With this in mind, HUD’s Office of Recapitalization has adopted alternative underwriting criteria for these properties, which are summarized below:
- The replacement reserve balance may show a negative balance after 10 years provided that the negative balance does not exceed 50% of the principal amortization.
- The project can demonstrate that it has the capacity to refinance (and meet all 20‐year needs) once the initial 15 year LIHTC compliance period ends
