Financing a Section 202 PRAC conversion under RAD

A Section 202 PRAC property converting under RAD keeps its PRAC rents at conversion, so taking on new debt usually depends on HUD’s Preservation Rent Increase. Under Housing Notice H-2025-04 (September 19, 2025), a conversion to project-based rental assistance (PBRA) that takes new third-party debt can add up to $300 per unit per month for deep rehab, $200 for moderate rehab, and up to $50 more for broadband.

Those increments are the whole financing story for most PRAC conversions. A PRAC contract pays the operating cost gap and nothing for debt, and the Section 202 capital advance never needed repayment. RAD replaces the PRAC with a 20-year Section 8 contract a lender can underwrite, and the rent increase creates the income to carry a loan.

How RAD for PRAC works

Section 202 PRAC is part of RAD’s second component, for privately owned HUD-assisted properties. Unlike public housing conversions, Component 2 has had standing authority since fiscal year 2012 with no unit cap; the 555,000 cap that Public Law 119-101 set applies to public housing.

The rules are in section 4 of the RAD notice (Revision 4, as amended through Supplemental 4C):

Item	Rule
Eligible contracts	A PRAC in its renewal term (an initial-term PRAC depends on funding timing), with the owner in good standing
Contract type	Owner’s choice of PBRA or PBV; either initial contract is 20 years
Physical condition	PBRA needs a REAC score of 60 or more unless the plan cures the deficiencies; PBV must meet existing housing standards
Initial rents	The approved PRAC rents (operating expense amounts); 120% of FMR cap applies only with the rent increase authority
Small area FMR	May be used on request (Supplemental 4B section I)
Use restriction	Capital advance documents released, replaced by an Elderly Housing Use Agreement in first position, for 20 years plus the remaining capital advance use term
Process	Owner submits interest through the RAD Resource Desk; HUD assigns a transaction manager

The capital advance release is what makes debt possible. A capital advance is structured as a forgivable obligation tied to the use agreement; RAD swaps that agreement for the Elderly Housing Use Agreement, which keeps the property elderly housing and leaves room for a new first mortgage behind it.

The Preservation Rent Increase

Housing Notice H-2025-04 superseded the rent increase in Supplemental 4B, which had been $250 and $100. It is funded from $12 million in FY2022 and FY2023 appropriations, reserved first come, first served through the RAD Resource Desk.

Scope	Increase per unit per month
New construction or substantial rehab, hard costs above 60% of HUD Housing Construction Costs	Up to $300
Rehab with hard costs between 30% and 60% of HCC	Up to $200
Broadband infrastructure	Up to an additional $50
Alternative for projects of 20 units or fewer	Rent up to 120% of FMR instead

Conditions: the property converts to PBRA, takes new third-party debt, and includes aging-in-place or broadband scope. When the increase is used, the resulting rent is subject to the 120% of FMR cap.

How much debt the increase supports

Worked example (illustrative)

A 60-unit Section 202 PRAC property converting to PBRA with a rehab above 60% of HCC and a broadband upgrade. It takes the full $300 plus $50, assuming the resulting rent stays under 120% of FMR and the existing PRAC rent covers operating costs.

Line	Amount
Rent increase, $350 × 60 units × 12	$252,000 a year
Less 3% vacancy	$244,440
Debt service at 1.11 coverage	$220,216
Supportable loan at an assumed 5.5% rate, 0.25% MIP, 35 years	about $3.29 million
Per unit	about $54,800

At $200 plus $50 the same property supports about $2.35 million; at $200 alone, about $1.88 million. If the property’s PRAC rent already sits near 120% of FMR, the cap cuts the usable increase and the loan with it. These figures use assumed rates and costs, not a quote.

That loan, plus any existing replacement reserves and residual receipts HUD lets the deal use, funds the rehab. Bigger scopes add 4% credits and bonds (4% credits and bonds). The RAD debt sizer runs the same math on your own figures.

Which lenders’ rules fit

• FHA. The MAP Guide allows a mortgageable developer fee for “Section 202 refinancing” and RAD when BSPRA or SPRA is not also used (section 3.1.29). Under the LIHTC Pilot in chapter 14, Criterion 3 stays value-based on market rents unless the project is a first-time refinance of a 202 or a RAD transaction. For properties with 90% or more of units assisted, ML 2025-03 allows 90% and 1.11 on 223(f) (FHA 223(f) for RAD).
• Freddie Mac. Its HUD Section 8 execution treats a new 20-year contract as long-term assistance, with a 1.20x minimum DCR where at least 50% of units are HUD project-based Section 8 and 1.15x with new LIHTC.
• Small properties. Section 241 of the FY2026 appropriations act (Public Law 119-75) lets HUD fund MAHRAA participating administrative entities to do due diligence, underwriting and technical assistance for small properties and owners converting under either RAD component.

The pool of PRAC properties

HUD’s Multifamily Assistance and Section 8 Contracts database, current as of October 6, 2026, lists:

Program type	Contracts	Assisted units
Section 202 PRAC	2,761	118,942
RAD PRAC conversions (already converted, PBRA)	115	7,496
Section 811 PRAC	2,922	32,720
Senior PRAC (SPRAC)	14	1,657

The database covers HUD-administered contracts only; PRAC conversions that chose PBV are not in it. HUD’s August 2026 RAD overview counts 155,000 units in Section 202 and 811 properties and dates the first PRAC conversion to 2020. HUD’s Component 2 closed list, last updated June 1, 2024, shows 82 PRAC conversions.

PBV or PBRA for a PRAC

The owner may choose either contract, but the choice is not neutral for financing. The H-2025-04 increase is available only to PBRA conversions, and PBRA contracts are administered by HUD Multifamily, which many senior housing owners already work with. A PBV conversion requires the local voucher agency’s agreement and is administered by that agency. An owner who needs new debt to fund the rehab will usually find the numbers only work with the PBRA increase.

Before applying

The order matters. The rent increase is first come, first served, and it requires a PBRA conversion with new debt, so the lender’s sizing and the scope (above 30% or 60% of HCC, aging-in-place items, broadband) should be settled before the reservation. The PBV vs PBRA guide covers the contract choice, the financing guide the other executions, and the Financing Plan checklist the documents.

Sizing a PRAC conversion

To size the debt on a specific 202 property, send the PRAC contract, unit count and scope to Janover Capital LLC, a commercial mortgage advisor, not a lender. Get a financing quote to compare FHA, agency and bank terms against the increased rents.

HUD’s notices control; nothing here is legal advice.

Sources

• HUD, Housing Notice H-2025-04, Section 202 PRAC Preservation Rent Increase, September 19, 2025.
• HUD, RAD Notice Revision 4 as amended by Supplementals 4B and 4C, section 4; Supplemental Notice 4B, H-2023-08 / PIH-2023-19, section I.
• HUD, RAD for Section 202 PRAC program page.
• HUD, Multifamily Assistance and Section 8 Contracts database, current as of October 6, 2026 (program type tabulation).
• HUD, RAD Overview, August 2026.
• HUD OGC, RAD statute, comprehensive Ramseyer, March 19, 2024.
• Public Law 119-75, Division D, section 241, February 3, 2026: govinfo.
• HUD, MAP Guide, sections 3.1.29 and chapter 14; Mortgagee Letter 2025-03.
• Freddie Mac, Optigo HUD Section 8 Financing.
• HUD, RAD Multifamily closings list, June 1, 2024.