[Federal Register Volume 68, Number 230 (Monday, December 1, 2003)]
[Rules and Regulations]
[Pages 67316-67327]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-29749]



[[Page 67315]]

-----------------------------------------------------------------------

Part III





Department of Housing and Urban Development





-----------------------------------------------------------------------



24 CFR Part 891



Mixed-Finance Development for Supportive Housing for the Elderly or 
Persons With Disabilities and Other Changes to 24 CFR Part 891; Interim 
Rule

  Federal Register / Vol. 68, No. 230 / Monday, December 1, 2003 / 
Rules and Regulations  

[[Page 67316]]


-----------------------------------------------------------------------

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 891

[Docket No. FR-4725-I-01]
RIN 2502-AH83


Mixed-Finance Development for Supportive Housing for the Elderly 
or Persons With Disabilities and Other Changes to 24 CFR Part 891

AGENCY: Office of the Assistant Secretary for Housing-Federal Housing 
Commissioner, HUD.

ACTION: Interim rule.

-----------------------------------------------------------------------

SUMMARY: This interim rule implements statutory changes that enable the 
use of mixed-finance and for-profit participation in the Section 202 
supportive housing programs for the elderly and the Section 811 
supportive housing program for persons with disabilities, as well as 
makes other changes to those programs. The rule uses the mixed-finance 
development model to leverage the capital and expertise of the private 
developer community to create attractive and affordable supportive 
housing developments for the elderly or persons with disabilities. In 
addition, the rule is structured so that tax credits can be used to 
provide additional units as well as supplement capital advance funds 
for the Section 202 or 811 project. The rule sets standards for the 
participation of limited partner investors (who may be for-profit 
entities) in partnership with a sole-purpose nonprofit general partner; 
development proposals and supporting documents; eligible fees and 
expenses; the use of capital advances in the mixed-finance context; and 
other matters relevant to mixed-finance development of these types of 
projects.
    The public should note that the effective date of the information 
collection requirements in this rule is delayed, as stated in the 
``Effective Date'' section below, pending approval of the information 
collections required by this rule under the Paperwork Reduction Act. 
HUD will publish a notice when paperwork approval for this rule is 
obtained.

DATES: Comment Due Date: January 30, 2004.
    Effective Date: December 31, 2003. The portions of this rule 
requiring information collection are not effective until OMB approval 
of the information collection requirements of this rule. The sections 
requiring information collection are: Sec. Sec.  891.820(a), 
891.820(b), 891.820(c), 891.820(d), 891.820(e), 891.820(g), 891.820(h) 
891.820(i), 891.820(j), 891.820(k), 891.820(l), 891.820(m), 891.820(n), 
and 891.825. HUD will publish a document in the Federal Register 
announcing the effective date of these sections.

ADDRESSES: Interested persons are invited to submit comments regarding 
this rule to the Regulations Division, Office of General Counsel, Room 
10276, Department of Housing and Urban Development, 451 Seventh Street 
SW., Washington, DC 20410-0500. 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. Facsimile (FAX) comments 
are not acceptable.

FOR FURTHER INFORMATION CONTACT: Willie Spearmon, Director, Office of 
Housing Assistance and Grant Administration, Department of Housing and 
Urban Development, 451 Seventh Street SW., Washington, DC 20410-8000; 
telephone (202) 708-3000 (this is not a toll-free number). Hearing- or 
speech-impaired individuals may access this number via TTY by calling 
the toll-free Federal Information Relay Service at (800) 877-8339.

SUPPLEMENTARY INFORMATION:

I. Legislative Background

    The American Homeownership and Economic Opportunity Act of 2000, 
Pub. L. 106-569 (AHEO Act), amended both the Section 202 supportive 
housing program for the elderly and the Section 811 supportive housing 
program for persons with disabilities. These amendments allow the 
participation of for-profit limited partnerships and the use of mixed-
finance development methods. Section 831 of the AHEO Act, 114 Stat. 
3021, further amended section 202(k)(4) of the Housing Act of 1959, 12 
U.S.C 1701q(k)(4), to add to the existing statutory definition of 
``private nonprofit organization'' a for-profit limited partnership the 
sole general partner of which is a nonprofit organization meeting the 
requirements under 12 U.S.C. 1701q(k)(4)(A)-(C), or a nonprofit 
corporation wholly owned and controlled by a nonprofit organization 
meeting those requirements. Section 841 of the AHEO Act, 114 Stat. 
3022, amended section 811(k)(6) of the National Affordable Housing Act, 
42 U.S.C. 8013(k)(6), to add to the definition of ``nonprofit 
organization'' a for-profit limited partnership, the sole general 
partner of which is a nonprofit organization meeting the requirements 
of 42 U.S.C. 8013(k)(6)(A)-(D), or a nonprofit corporation wholly owned 
and controlled by a nonprofit organization meeting those requirements. 
In both cases, the statutory requirements for the nonprofit 
organization include a nonprofit organizational structure, a governing 
board that includes the representation of the views of the community 
and is responsible for operating the development, and approval as to 
financial responsibility by HUD. (See 12 U.S.C. 1701q(k)(4) and 42 
U.S.C. 8013(k)(6), as amended.) For purposes of subpart F of this rule, 
both types of organizations are referred to as Nonprofit Organizations.
    Sections 832 and 842 of the AHEO Act, 114 Stat. 3021 and 3022, 
broadened the funding sources that may be used for amenities and design 
and construction suitable for supportive housing for the elderly or 
persons with disabilities. Excess amenities may not be funded with the 
capital advance under either program, and, if other funds are used, the 
cost of such amenities is not taken into account in determining the 
amount of Federal assistance or the rent contribution of tenants. Under 
the statute as amended, an owner may now treat funds from other Federal 
and non-federal sources as amounts not derived from a Federal grant. 
Sections 834 and 844 of the AHEO Act, 114 Stat. 3021-22 and 3023, 
respectively, amended 12 U.S.C. 1701q(j) and 42 U.S.C. 8013(j) to add a 
new paragraph to each statute relating to the use of project reserve 
accounts under the existing supportive housing for the elderly and 
persons with disabilities programs. Under these new sections, project 
reserves may be used to reduce the number of units by combining and 
retrofitting units that are obsolete or unmarketable. HUD approval is 
required to ensure that reduction of units is for appropriate purposes.
    Sections 835 and 845 of the AHEO Act amended section 202(h)(1) of 
the Housing Act of 1959, 12 U.S.C. 1701q(h)(1), and section 811(h)(1) 
of the National Affordable Housing Act, 42 U.S.C. 8031(h)(1), 
respectively, to clarify that commercial facilities for the benefit of 
residents of the project and the community in which the project is 
located, may be located and operated in a supportive housing project 
for the elderly or persons with disabilities. Such commercial 
facilities cannot be subsidized with 202 or 811 funds.
    Section 833 of the AHEO Act amended sections 202(b) and 202(h)(2) 
of the Housing Act of 1959, 12 U.S.C. 1701q(b) and 1701q(h)(2), to 
remove the limitation in the Section 202 program that existing housing 
be acquired only from the Resolution Trust Corporation

[[Page 67317]]

(RTC). Section 202 owners may now acquire property without the need for 
rehabilitation for use in supportive housing from other sources. In the 
case of section 811, the statute does not limit acquisition to RTC 
properties (see 42 U.S.C. 8013(b)(2)).

II. This Interim Rule

    This rulemaking amends 24 CFR part 891, which regulates HUD-
assisted supportive housing for the elderly and persons with 
disabilities. Most importantly, this rule establishes a mixed-finance 
program under which partnerships with for-profit limited partners could 
participate as mixed-finance owners in the development and management 
of supportive housing under part 891, if they partner with a nonprofit 
general partner meeting the requirements of the statute and this rule. 
Such general partner must have been created by a sponsor that has 
received a Section 202 or Section 811 fund reservation. In addition, 
this rule makes changes to other portions of part 891 to conform to 
recent changes in law, and to include additional provisions applicable 
to the existing Section 202 and 811 programs.
    This rule revises 24 CFR 891.120 and 891.405, two cross-cutting 
sections that govern both supportive housing for elderly persons and 
persons with disabilities. As to 891.120, the rule adds a new paragraph 
(e) to permit commercial facilities for the benefit of residents in 
supportive housing developments under part 891, as long as the 
commercial facilities are not funded with the supportive housing 
program funds. Such commercial facilities are considered public 
accommodations under Title III of the Americans with Disabilities Act 
and must be accessible under the requirements of that Act. Section 
891.405 of this interim rule adds a new paragraph (d) permitting 
project reserves to be used to reduce the number of units for the 
purpose of retrofitting obsolete or unmarketable units; for example, 
two efficiencies (0 bedroom) could be combined to form a one-bedroom 
unit. Retrofitting must be consistent with the applicable accessibility 
requirements of Section 504 of the Rehabilitation Act of 1973. HUD 
approval would be required for any such change. The definition of 
``replacement reserve account'' in 891.105 is revised to be consistent 
with the new paragraph.
    This rule adds material regarding the developer's fee in the 
context of this program in Sec.  891.815. This section establishes the 
appropriate amount of the developer's fee and the eligible and 
ineligible uses of the fee. Previously, this material was found in 
handbook publications (see Notice H 96-102, as extended by Notice H 03-
08). Eligible uses of the developer's fee are both to fund eligible 
costs and to contribute to the general partner's share of the 
partnership assets. The total fee is capped at the amount stated in 
Sec.  891.815(a), and the amount that may be taken out of the capital 
advance to pay the developer's fee is capped in Sec.  891.815(b).
    The rule also revises the definition of ``acquisition'' in 24 CFR 
891.205 and 891.305. Since the RTC is no longer in existence, the rule 
removes the regulatory requirement that acquisition of properties for 
the supportive housing program under part 891 be purchased from the 
RTC. The rule also makes Sec.  891.205 parallel to Sec.  891.305 by 
restricting capital advances for developments owned and operated by the 
sponsor, except in connection with rehabilitation. Capital advance 
funds may not be provided to refinance a federally assisted or insured 
project.
    The rule creates a new subpart F to 24 CFR part 891, to state the 
rules governing the mixed-finance program for supportive housing for 
the elderly and persons with disabilities. The new subpart states the 
basic rules for participation in the program. Except where specifically 
stated otherwise, this subpart includes by cross-reference the basic 
regulations of the Section 202 and 811 supportive housing programs and 
adds additional requirements related to mixed-finance developments.
    Sections 891.800, 891.802, and 891.805 state the purpose, 
applicability of other provisions, and definitions, respectively. The 
overall purpose of the legislation and rule is to create more 
supportive housing for elderly persons and persons with disabilities. 
The means of doing so is to bring in for-profit entities, in 
partnership with nonprofit general partners, thus leveraging private 
capital for developing additional units. In turn, limited partnerships 
can apply for and utilize Federal low-income housing tax credits, 
assuming that their developments meet all the requirements of IRS rules 
for tax credits. The Department has determined that all mixed-finance 
developments must meet the civil rights nondiscrimination statutes and 
all of the implementing regulations and Section 504 requirements and 
that these requirements apply to all of the development's units 
regardless of funding source. The Civil Rights Restoration Act of 1991 
amended the nondiscrimination requirements of Title VI of the Civil 
Rights Act of 1964 and Section 504 of the Rehabilitation Act of 1973 to 
state that their nondiscrimination provisions applied to ``all of the 
operations of an entire corporation, partnership, or other private 
organization or entire sole proprietorship if assistance is extended to 
such corporation, partnership, private organization, or sole 
proprietorship as a whole; or which is principally engaged in the 
business of providing housing.''
    This interim rule, in section 891.805, creates additional 
definitions pertinent to the mixed-finance supportive housing program 
only. These include a definition of a ``mixed-finance owner,'' which 
must include a single-purpose Nonprofit Organization (in the case of 
supportive housing for the elderly, a private Nonprofit Organization, 
and, in the case of housing for the disabled, a Nonprofit Organization 
with a section 501(c)(3) IRS tax exemption), which must be the sole 
general partner. For-profit limited partners may be included where the 
Nonprofit Organization is the sole general partner. The ``Single-
Purpose Nonprofit Organization'' (for 811 projects) or ``Single-Purpose 
Private Nonprofit Organization'' (for 202 projects) also must meet the 
requirements of the definition, which includes the statutory 
requirements that the organization have the appropriate tax-exempt 
status; that its net earnings do not go to profit any particular 
individual; that the governing board includes representation of the 
views of the community and is responsible for the operation of the part 
891 supportive housing; and that it is approved as to financial 
responsibility by HUD. In addition, the Nonprofit Organization meeting 
these requirements can be the general partner of a partnership with 
for-profit limited partners, as long as it owns at least one-hundredth 
of one percent of the partnership assets, or is a nonprofit corporation 
wholly owned by an organization meeting those requirements. The 
Nonprofit Organization must be formed by a sponsor receiving a Section 
202 or 811 fund reservation.
    Sections 891.808 and 891.810 address capital advance funds and 
project rental assistance in the mixed-finance context. Capital advance 
funds are provided as in accordance with the regular Section 202 and 
811 programs, except that the mechanism for providing the funding is 
somewhat more complex in a mixed-finance arrangement. HUD will 
initially provide the fund reservation to the project sponsor (the term 
is defined in sections 891.205 and 891.305), which will then transfer 
the fund reservation to the single-purpose Nonprofit Organization. HUD 
then will provide the capital advance funds to the

[[Page 67318]]

Nonprofit Organization, which will deposit the funds in a disbursement 
escrow account to be loaned to the mixed-finance owner only upon HUD 
approval of the drawdown. The loan will be non-amortizing and at the 
interest rate for the 202 or 811 program in effect at the time of the 
closing of the capital advance, and is not repayable if the project 
remains available for very low income elderly or disabled persons for 
40 years. Finally, paragraphs (b) and (c) of Sec.  891.808 ensure that 
the proper number of units are built with the capital advance funds, 
and that the capital advance funds are not used improperly in the 
mixed-finance context (for example, to support the development of non-
202 or -811 units).
    Project rental assistance is covered in section 891.810 and is 
essentially the same as for the 202 and 811 programs generally, and is 
defined in section 891.105. Project rental assistance can only be paid 
for 202 and 811 units. Any necessary funds for the non-202 or -811 
units must be obtained from another source.
    Section 891.813 deals with the eligible uses of assistance under 
this proposed subpart. Paragraph (a) reiterates the statutory 
standards. Paragraph (b) deals with excess amenities. Such amenities 
may not be funded with capital advance funds. The main concern here is 
that amenities be provided in a manner that makes them available to all 
residents, assisted and unassisted alike. To that end, the amenities 
cannot be made mandatory for the assisted residents, although they are 
permitted to participate in or use the amenities voluntarily. Any fee 
charged for the amenities must be reasonable, so that assisted 
residents who want to do so can use the amenities.
    Section 891.815 includes material on developer's fees. This section 
sets limitations on the total developer's fee and the amount of the 
capital advance that may be paid toward the developer's fee. In 
addition, the section provides that the developer's fee may be used for 
the general partner's contribution to the partnership assets, as well 
as listing other eligible and ineligible uses for the developer's fee.
    Section 891.818 states the contents of the firm commitment 
application for 202 or 811 units in mixed-finance projects. The 
application requirements in this interim rule closely follow the 
guidelines on firm commitment applications (see Notice H 96-102, as 
extended by Notice H 03-08). In the mixed-finance context, the 
partnership structure involves additional parties in the application 
process, such as the general partner and the for-profit limited 
partners.
    Additionally, in the mixed-finance program, there will be a mixed-
finance proposal addressing the total mixed-finance project, including 
non-202 or -811 units and any commercial space, submitted at the time 
of the application for the firm commitment of capital advance funds 
under Sec.  891.820. The mixed-finance proposal must include a 
description of the proposed project; financing documents, including any 
firm commitments; a statement of sources and uses of funds; site 
information; construction cost estimates; a systems life cycle 
analysis; any relocation plan, if the development will cause 
displacement; the relationship among participating parties; a 
demonstration of the operating feasibility of the project for the 
entire 40-year period of the very-low income restriction on the 
assisted units; a market analysis; a summary of the proposed management 
and occupancy policies; a statement regarding existing facilities; any 
additional environmental information HUD deems necessary in completing 
its environmental review; and required certifications and assurances.
    HUD will review the firm commitment application and mixed-finance 
proposal under the standards provided in Sec.  891.823. This section 
requires an initial review for technical deficiencies with an 
opportunity to supply any missing materials by a date certain, followed 
by firm commitment and proposal technical processing. The purpose of 
technical processing is to determine that the project is financially 
feasible, that the supportive housing funds provided are used in an 
appropriate manner, that the mixed-finance owner has the legal capacity 
and experience to develop and operate the project, that the proper 
zoning is in place, that there are restrictive covenants running with 
the land guaranteeing that the assisted units will remain available to 
very-low income elderly persons or very-low income persons with 
disabilities for a 40-year period, and that other legal and regulatory 
requirements pertaining to the program are in fact met by the project 
as proposed in the firm commitment application/mixed-finance proposal.
    Once the firm commitment application/mixed-finance proposal is 
approved, but prior to HUD approval of the release of capital advance 
funds, Sec.  891.825 requires the sponsor to submit for HUD approval 
evidentiary materials consisting of the actual documents to support the 
statements and certifications in the firm commitment application/mixed-
finance proposal and other required documents. For example, all the 
organizational documents of the mixed-finance owner and the general 
partner, the actual covenants running with the land or deed restriction 
guaranteeing the availability of the supportive housing units to very-
low income eligible persons for 40 years, any zoning documents, any 
updates to financing documents submitted as part of the proposal, the 
management contract, evidence of site control, and various required 
certifications. This section also makes clear that no third-party 
beneficiary, principal-agent, or other legal relationship (beyond the 
duty to fulfill the explicit contractual and regulatory requirements) 
is created with HUD by any of the agreements entered into by the 
parties to the mixed-finance transaction.
    Section 891.830 regulates the drawdown of capital advance funds 
after all HUD approvals are obtained. Capital advance funds may only be 
drawn down pursuant to a HUD-approved drawdown schedule, and only in 
the appropriate amount pro-rated according to the development costs of 
only the supportive housing units. Each drawdown of funds constitutes a 
certification by the mixed-finance owner and Nonprofit Organization 
that all representations and warranties they have made are true, valid 
and in full force and effect, and all conditions precedent to the 
drawdown have been satisfied. Such funds may only be used for eligible 
costs.
    Section 891.833 requires HUD to monitor and review all phases of 
construction and operation to ensure continued compliance with the 
mixed-finance amendment to the capital advance agreement and all other 
contractual, legal, and regulatory requirements. Notwithstanding HUD's 
monitoring role, compliance ultimately is the responsibility of the 
mixed-finance owner and sponsor.
    Section 891.835 states the eligible and ineligible uses of the 
project rental assistance provided once the project is operating. 
Importantly for the mixed-finance context, eligible operating costs 
attributable to the project as a whole, such as for common areas, may 
be paid from project rental assistance on a pro rata basis, based on 
the ratio of 202 or 811 units to the total units in the project.
    Sections 891.840--891.853 of this interim rule make, respectively, 
site and neighborhood standards, environmental review, Uniform 
Relocation Act requirements, design and cost standards (except for the 
paragraph on amenities,

[[Page 67319]]

which are governed for the mixed-finance program by proposed Sec.  
891.813(b)), Davis-Bacon labor standards, and development cost limits 
from the regular 202 or 811 programs applicable in the mixed-finance 
context. Sections 891.855 and 891.860 of this interim rule, 
respectively, govern replacement reserve accounts and operating 
reserves.
    Section 891.863 of this interim rule requires that the development 
maintain the same number of supportive housing units as stated in the 
capital advance agreement for a 40-year period. This requirement will 
be enforced by deed restrictions or covenants that will continue to 
apply regardless of any change in ownership of the development. Section 
891.865 of this rule, entitled ``Sanctions,'' provides that HUD may 
impose sanctions or seek legal and equitable relief in the event that 
the mixed-finance units are not developed and operated in accordance 
with all applicable requirements.

III. Findings and Certifications

Public Reporting Burden

    To ensure that only feasible proposals for mixed-financing will be 
developed, HUD is collecting information to assist the agency in 
determining whether the owner has the financial and administrative 
capacity needed to develop and manage a mixed-finance project, all 
funding commitments are in place, the proposed site and supportive 
services are suitable for the intended residents, the project design 
meets the physical needs of the residents, and the estimated income can 
support the operation and maintenance of the project, when built. The 
regulations will require the mixed-finance owner to submit a full 
proposal and evidentiary materials for mixed-finance development.
    Section 891.818 covers the submission of the firm commitment 
application and the mixed-finance proposal. This section requires that 
the Firm Commitment Application be submitted by both the mixed-finance 
owner and the Nonprofit Organization. However, the documents required 
for submission with the Firm Commitment Application (as well as the 
documents required from initial closing through final closing) have not 
changed from what is required under the regular Section 202 and Section 
811 programs. The OMB clearance for the Section 202 and Section 811 
Firm Commitment through Final Closing documents are covered under OMB 
Control No. 2502-0470.
    Section 891.820 provides the documentation that Section 202 and 
Section 811 owners must submit if they are proposing mixed-finance 
projects pursuant to the AHEOA. If this collection of information were 
not made, HUD would not be able to ensure that owners are eligible and 
financially capable of developing mixed-finance developments of Section 
202 supportive housing for the elderly or Section 811 supportive 
housing for persons with disabilities, or otherwise meet other HUD and 
federal requirements for acceptability. The collection of this 
information is not currently accounted for under any previous OMB 
clearance and, therefore, a request for their approval is being made 
herein.
    For mixed-finance proposals, the total estimated paperwork burden 
is 1,350 hours. The burden of information collection in this proposed 
rule is estimated as follows:

 
----------------------------------------------------------------------------------------------------------------
                                                                                   Estimated
                                                                   Number of      average time      Estimated
               Section reference                   Number of     responses per        for         annual burden
                                                    parties       respondent      requirement       (in hours)
                                                                                   (in hours)
----------------------------------------------------------------------------------------------------------------
Sec.   891.820(a), Development Description....              15               1               .5              7.5
Sec.   891.820(b), Financing Description......              15               1              1               15
Sec.   891.820(c), Sources and Uses of                      15               1              8              120
 Financing....................................
Sec.   891.820(d), Site Information...........              15               1              2               30
Sec.   891.820(e), Development Construction                 15               1              4               60
 Cost Estimate................................
Sec.   891.820(g), Relocation Plan............              15               1              2               30
Sec.   891.820(h) Statement of Activities and               15               1              1               15
 Relationship of Parties......................
Sec.   891.820(i), Documents Showing Operating              15               1              4               60
 Feasibility..................................
Sec.   891.820(j), Market Analysis............              15               1              2               30
Sec.   891.820(k), Summary of Proposed                      15               1               .5              7.5
 Management and Occupancy Policies............
Sec.   891.820(l), Statement Addressing                     15               1               .5              7.5
 Facilities and Services......................
Sec.   891.820(m), Environmental Information..              15               1              4               60
Sec.   891.820(n), Certifications and                       15               1               .5              7.5
 Assurances...................................
Sec.   891.825, Evidentiary Materials.........              15               1             60              900
----------------------------------------------------------------------------------------------------------------

    Total Reporting and Recordkeeping Burden (Hours): 1,350.
    In accordance with 5 CFR 1320.8(d)(1), HUD is soliciting comments 
from members of the public and affected agencies concerning this 
collection of information to:
    (1) Evaluate whether the proposed collection of information is 
necessary for the proper performance of the functions of the agency, 
including whether the information will have practical utility;
    (2) Evaluate the accuracy of the agency's estimate of the burden of 
the proposed collection of information;
    (3) Enhance the quality, utility, and clarity of the information to 
be collected; and
    (4) Minimize the burden of the collection of information on those 
who are to respond including through the use of appropriate automated 
collection techniques or other forms of information technology, e.g., 
permitting electronic submission of responses.
    Interested persons are invited to submit comments regarding the 
information collection requirements in this proposal. Comments must be 
received within 30 days from the date of this proposal. Comments must 
refer to the proposal by name and docket number (FR-4725-I-01) and must 
be sent to:

Lauren Wittenberg, HUD Desk Officer, Office of Management and Budget, 
New Executive Office Building, Washington, DC 20503-0009; and

[[Page 67320]]

Gloria S. Diggs, Reports Liaison Officer, Office of the Assistant 
Secretary for Housing-Federal Housing Commissioner, Department of 
Housing and Urban Development, 451 7th Street SW., Room 9116, 
Washington, DC 20410-8000.

Justification for Interim Rulemaking

    In general, the Department publishes a rule for public comment 
before issuing a rule for effect, in accordance with its own 
regulations on rulemaking, 24 CFR part 10. However, part 10 does 
provide for exceptions from that general rule where the agency finds 
good cause to omit advance notice and public participation. The good 
cause requirement is satisfied when prior public procedure is 
``impracticable, unnecessary, or contrary to the public interest.'' (24 
CFR 10.1) The Department finds that good cause exists to publish this 
rule for effect at the same time as it solicits public comment, because 
waiting for the completion of public comments prior to making the rule 
effective would be contrary to the public interest. The public has 
already expressed interest in going forward with mixed-finance 
proposals for supportive housing for the elderly or persons with 
disabilities, and there are already proposals pending that are ready to 
proceed. No purpose would be served by making those who are prepared to 
proceed wait for the receipt of public comments, the consideration of 
those comments by agency decision makers, and the subsequent 
publication of a final rule. In addition, the rule would provide a 
significant public benefit, in the form of increased housing 
opportunities for the elderly and disabled, while, through the 
leveraging of private resources and state and local tax credits, 
reducing the amount of Federal expenditure. Therefore, it is in the 
public interest to issue this rule for effect so that these proposals 
can go forward expeditiously and the public can have the benefit of the 
increased development of supportive housing that the rule intends to 
foster. The Department invites public comment on the rule to assure 
that consideration is given to the full range of views that may be 
presented in the development of a final rule that will supersede this 
interim rule.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 
1531-1538) (UMRA) establishes requirements for Federal agencies to 
assess the effects of their regulatory actions on State, local, and 
tribal governments and the private sector. This rule does not impose 
any Federal mandate on any state, local, or tribal government or the 
private sector within the meaning of the UMRA.

Environmental Impact

    A Finding of No Significant Impact with respect to the environment 
has been made in accordance with HUD regulations at 24 CFR part 50, 
which implement section 102(2)(C) of the National Environmental Policy 
Act of 1969 (42 U.S.C. 4332). The Finding of No Significant Impact is 
available for public inspection between the hours of 8 a.m. and 5 p.m. 
weekdays in the Office of Regulations, Office of General Counsel, Room 
10276, Department of Housing and Urban Development, 451 Seventh Street 
SW., Washington, DC 20410-0500.

Impact on Small Entities

    The Secretary, in accordance with the Regulatory Flexibility Act (5 
U.S.C. 605(b)), has reviewed and approved this rule and in so doing 
certifies that this rule would not have a significant economic impact 
on a substantial number of small entities. The program will provide 
capital advances to private Nonprofit Organizations and nonprofit 
consumer cooperatives to expand the supply of supportive housing for 
the elderly and to Nonprofit Organizations to expand the supply of 
supportive housing for persons with disabilities. Private for-profit 
entities may also participate in the mixed-finance aspect of producing 
such housing. Although small and private entities may participate in 
the program, the rule does not impose any legal requirement or mandate 
upon them and accordingly, will not have a significant impact on them.
    Although HUD has determined that this rule would not have a 
significant economic impact on a substantial number of small entities, 
HUD welcomes comments regarding any less burdensome alternatives to 
this rule that will meet HUD's objectives as described in this 
preamble.

Federalism Impact

    Executive Order 13132 (entitled ``Federalism'') prohibits, to the 
extent practicable and permitted by law, an agency from promulgating a 
regulation that has federalism implications and either imposes 
substantial direct compliance costs on state and local governments and 
is not required by statute, or preempts state law, unless the relevant 
requirements of section 6 of the Executive Order are met. This rule 
does not have federalism implications and does not impose substantial 
direct compliance costs on state and local governments or preempt state 
law within the meaning of the Executive Order.

Executive Order 12866, Regulatory Planning and Review

    The Office of Management and Budget (OMB) reviewed this rule under 
Executive Order 12866 (entitled ``Regulatory Planning and Review''). 
OMB determined that this rule is a ``significant regulatory action,'' 
as defined in section 3(f) of the Order (although not economically 
significant, as provided in section 3(f)(1) of the Order). Any changes 
made to the rule subsequent to its submission to OMB are identified in 
the docket file, which is available for public inspection in the office 
of the Rules Docket Clerk, Room 10276, U.S. Department of Housing and 
Urban Development, 451 Seventh Street SW., Washington, DC 20410-0500.

List of Subjects in 24 CFR Part 891

    Aged, Civil rights, Grant programs--housing and community 
development, Individuals with disabilities, Loan programs--housing and 
community development, Low and moderate income housing, Mental health 
programs, Rent subsidies, Reporting and recordkeeping requirements.

(The catalogue of Federal domestic assistance numbers for the 
programs in this rule are: 14.157 and 14.181.)

0
For the reasons discussed in this preamble, HUD amends 24 CFR part 891 
as follows:

PART 891--SUPPORTIVE HOUSING FOR THE ELDERLY AND PERSONS WITH 
DISABILITIES

0
1. The authority citation for part 891 continues to read as follows:

    Authority: 12 U.S.C. 1701q; 42 U.S.C. 1437f, 3535(d), and 8013.

Subpart A--General Program Requirements

0
2. Amend 24 CFR 891.105 by revising the definition of ``Replacement 
reserve account'' to read as follows:


Sec.  891.105  Definitions.

* * * * *
    Replacement reserve account means a project account into which 
funds are deposited, which may be used only with the approval of the 
Secretary for repairs, replacement, capital improvements to the 
project, and retrofitting to reduce the number of units as provided by 
24 CFR 891.405(d).

0
3. Amend 24 CFR 891.120 by adding a new paragraph 891.120(e) to read as 
follows:

[[Page 67321]]

Sec.  891.120  Project design and cost standards.

* * * * *
    (e) Projects under this part may have on their sites commercial 
facilities for the benefit of residents of the project and of the 
community in which the project is located, so long as the commercial 
facilities are not subsidized with funding under the supportive housing 
programs for the elderly or persons with disabilities. Such commercial 
facilities are considered public accommodations under Title III of the 
Americans with Disabilities Act and must be accessible under the 
requirements of that Act.

Subpart B--202 Supportive Housing for the Elderly

0
4. Amend 24 CFR 891.205 by revising the definition of ``acquisition'' 
in Sec.  891.205 to read as follows:


Sec.  891.205  Definitions.

* * * * *
    Acquisition means the purchase of (or otherwise obtaining title to) 
existing housing and related facilities.

Subpart C--Section 811 Supportive Housing for Persons With 
Disabilities

0
5. Amend 24 CFR 891.305 by revising the definition of ``acquisition'' 
in Sec.  891.305 to read as follows:


Sec.  891.305  Definitions.

* * * * *
    Acquisition means the purchase of (or otherwise obtaining title to) 
existing structures to be used as housing for persons with 
disabilities.
* * * * *

Subpart D--Project Management

0
6. Amend 24 CFR 891.405 by adding a sentence to the end of paragraph 
891.405(d) to read as follows:


Sec.  891.405  Replacement reserve.

* * * * *
    (d) * * * With HUD approval, reserves may be used to reduce the 
number of dwelling units, provided that the purpose for the reduction 
is the retrofitting of obsolete or unmarketable units.

0
7. Add a new subpart F to read as follows:
Subpart F--For-Profit Limited Partnerships and Mixed-Finance 
Development for Supportive Housing for the Elderly or Persons With 
Disabilities
Sec.
891.800 Purpose.
891.802 Applicability of other provisions.
891.805 Definitions.
891.808 Capital advance funds.
891.809 Limitations on capital advance funds.
891.810 Project rental assistance.
891.813 Eligible uses for assistance provided under this subpart.
891.815 Developer's fee.
891.818 Firm commitment application.
891.820 Mixed-finance proposal.
891.823 HUD review and approval.
891.825 Evidentiary materials.
891.828 Loan of capital advance funds to mixed-finance owner.
891.830 Drawdown.
891.833 Monitoring and review.
891.835 Eligible uses of project rental assistance.
891.840 Site and neighborhood standards.
891.843 Environmental review and approval.
891.845 Relocation requirements.
891.848 Project design and cost standards.
891.850 Labor standards.
891.853 Development cost limits.
891.855 Replacement reserves.
891.860 Operating reserves.
891.863 Maintenance as supportive housing units.
891.865 Sanctions.


Sec.  891.800  Purpose.

    The purpose of this subpart is to establish rules allowing for, and 
regulating the participation of, for-profit limited partnerships, of 
which the sole general partner is a Nonprofit Organization meeting the 
requirements of 12 U.S.C. 1701q(k)(4) or 42 U.S.C. 8032(k)(6), in the 
development of supportive housing for the elderly and persons with 
disabilities using mixed-finance development methods. These rules are 
intended to develop more supportive housing for the elderly and persons 
with disabilities by using Federal assistance, private capital and 
expertise, and tax credits.


Sec.  891.802  Applicability of other provisions.

    The provisions of 24 CFR part 891, subparts A-D, apply to this 
subpart F unless otherwise stated.


Sec.  891.805  Definitions.

    In addition to the definitions at Sec.  891.105, the following 
definitions apply to this subpart:
    Mixed-finance owner, for the purpose of the mixed-finance 
development of supportive housing under this subpart, means a for-
profit limited partnership of which a Single-Purpose Private Nonprofit 
Organization (in the case of supportive housing for the elderly), or a 
Single-Purpose Nonprofit Organization with a 501(c)(3) tax exemption 
(in the case of supportive housing for the disabled) is the sole 
general partner. The purpose of the mixed-finance owner must include 
the promotion of the welfare of the elderly or persons with 
disabilities, as appropriate.
    Single-Purpose Private Nonprofit Organization (in the case of 
supportive housing for the elderly) or Single-Purpose Nonprofit 
Organization (in the case of supportive housing for persons with 
disabilities) (for the purposes of this subpart, both types of 
organization are referred to as ``Nonprofit Organization''), for the 
purpose of this subpart, means any institution or foundation:
    (1) In the case of supportive housing for the elderly, that meets 
the requirements of the definition of ``private nonprofit 
organization'' found in Sec.  891.205 of this title; or
    (2) In the case of supportive housing for persons with 
disabilities, that meets the requirements of the definition of 
``nonprofit organization'' in Sec.  891.305 of this title; and that
    (3) Is the general partner of a for-profit limited partnership, if 
the Nonprofit Organization meets the requirements of this definition 
and owns at least one-hundredth of one percent of the partnership 
assets, or is a nonprofit corporation wholly owned and controlled by a 
Nonprofit Organization meeting those requirements. If the project will 
include units financed with the use of Federal Low-Income Housing Tax 
Credits and the organization is a limited partnership, the limited 
partnership must meet the requirements of section 42 of the IRS code, 
including the requirements of section 42(h)(5).


Sec.  891.808  Capital advance funds.

    (a) HUD is authorized to provide capital advance funds to expand 
the supply of housing for the elderly and persons with disabilities in 
accordance with the rules and regulations of the Section 202 and 811 
supportive housing programs. For mixed-finance projects, HUD provides a 
capital advance funds reservation to the sponsor, which transfers the 
fund reservation to the Nonprofit Organization, which is general 
partner of a for-profit limited partnership meeting the requirements of 
this subpart. HUD then provides the capital advance funds to the 
Nonprofit Organization, which makes a non-amortizing loan to the mixed-
finance owner to be repaid within 40 years at the 202 or 811 interest 
rate in effect on the date of the closing of the capital advance. The 
capital advance funds may be provided as a loan in the case of a mixed-
finance project using a nine percent tax credit, and as a pass-through 
to the limited partnership in the case of mixed-finance projects using 
tax-exempt bonds with four percent tax credit. The capital advance 
funds will be disbursed under a disbursement escrow agreement

[[Page 67322]]

upon HUD approval of the mixed-finance draw down.
    (b) Developments built with mixed-finance funds may combine 
assisted supportive housing units with market rate units. However, the 
number of Section 202 or 811 units in the development funded with the 
capital advance must be not less than the number of units that could 
have been developed with the capital advance without the use of mixed 
funding sources. In the case of a Section 811 mixed-finance project, 
the additional units cannot cause the project to exceed the applicable 
Section 811 project size limit if they will also house persons with 
disabilities.


Sec.  891.809  Limitations on capital advance funds.

    Capital advances are not available in connection with:
    (a) Acquisition of facilities currently owned and operated by the 
sponsor as housing for the elderly, except with rehabilitation as 
defined in 24 CFR 891.105;
    (b) The financing or refinancing of federally assisted or insured 
projects;
    (c) Facilities currently owned and operated by the sponsor as 
housing for persons with disabilities, except with rehabilitation as 
defined in 24 CFR 891.105; or
    (d) Units in Section 202 direct loan projects previously refinanced 
under the provisions of Section 811 of the American Homeownership and 
Economic Opportunity Act of 2000, 12 U.S.C. 1701q note.


Sec.  891.810  Project rental assistance.

    Project Rental Assistance is defined in Sec.  891.105. Project 
Rental Assistance is provided for operating costs, not covered by 
tenant contributions, attributable to the number of units funded by 
capital advances under the Section 202 and 811 supportive housing 
programs, subject to the provisions of 24 CFR 891.445. The sponsor of a 
mixed-finance development must obtain the necessary funds from a source 
other than project rental assistance funds for operating costs related 
to non-202 or -811 units.


Sec.  891.813  Eligible uses for assistance provided under this 
subpart.

    (a) Assistance under this subpart may be used to finance the 
construction, reconstruction, or rehabilitation of a structure or a 
portion of a structure; or the acquisition of a structure to be used as 
supportive housing for the elderly; or the acquisition of housing to be 
used as supportive housing for persons with disabilities. Such 
assistance may also cover the cost of real property acquisition, site 
improvement, conversion, demolition, relocation, and other expenses 
that the Secretary determines are necessary to expand the supply of 
supportive housing for the elderly and persons with disabilities.
    (b) Assistance under this subpart may not be used for excess 
amenities, as stated in 24 CFR 891.120(c). Such amenities may be 
included in a mixed-finance development only if:
    (1) The amenities are not financed with funds provided under the 
section 202 or 811 program;
    (2) The amenities are not maintained and operated with section 202 
or 811 funds;
    (3) The amenities are designed with appropriate safeguards for the 
residents' health and safety; and
    (4) The assisted residents are not required to use, participate in, 
or pay a fee for the use or maintenance of the amenities, although they 
are permitted to do so voluntarily. Any fee charged for the use, 
maintenance, or access to amenities by residents must be reasonable and 
affordable for all residents of the development.
    (c) Notwithstanding any other provision of this section, Sec. Sec.  
891.220 and 891.315 on ``prohibited facilities'' apply to mixed-finance 
projects containing units assisted under section 202 or 811.


Sec.  891.815  Developer's fee.

    (a) Developer's fee cap. No developer's fee shall be paid in excess 
of nine percent of the total project replacement costs.
    (b) Use of capital advance towards developer's fee. A maximum of 
eight percent of the capital advance may be used towards payment of the 
developer's fee.
    (c) Eligible and ineligible uses of developer's fee. (1) a 
developer's fee may be used to pay costs associated with developing the 
mixed-finance project, including, but not limited to:
    (A) Reasonable profit and overhead of up to six percent of the 
total construction cost;
    (B) The costs of necessary change orders approved by HUD prior to 
final project completion;
    (C) Housing consultant services;
    (D) Organizational expenses;
    (E) The owner's cash requirement prior to initial closing, except 
as stated in paragraph (c)(2) of this section;
    (F) Increased taxes and insurance caused by unavoidable delays in 
construction;
    (G) Increases in otherwise eligible non-construction line items;
    (H) Environmental studies;
    (I) Appraisal costs;
    (J) Capital expenditures, such as major moveable furnishings and 
equipment, including, but not limited to, office and maintenance 
equipment and furnishings for the public areas;
    (K) Costs directly related to the rent-up of the project, such as 
advertisement;
    (L) Accruals for taxes and insurance after completion of 
construction if current income from the project is insufficient to meet 
such accruals;
    (M) Project contingency items for which two percent of the 
developer's fee is withheld at HUD approval of the capital advance; and
    (N) Cost of obtaining a project cost estimate.
    (2) A developer's fee may not be used for the following:
    (A) Excess amenities;
    (B) Fees to the architect and attorney above those contractually 
agreed to;
    (C) Non-major equipment and furnishings;
    (D) Items with short life cycles, such as office and maintenance 
supplies;
    (E) Furnishings within the residential units; and
    (F) Motor vehicles.
    (d) Unused developer's fee. Amounts set aside from the 202 or 811 
capital advance funds for the developer's fee that remain unused after 
the completion of construction are deposited in the project's 
replacement reserve account at project completion.


Sec.  891.818  Firm commitment application.

    (a) New construction. The mixed-finance owner and the Nonprofit 
Organization shall submit an application for a firm commitment for 
capital advance funding. The application shall consist of the required 
application form HUD 92013 and additional materials, including:
    (1) Form HUD 92013-Supp, and any other supplementary forms or 
attachments to the application form that HUD requires;
    (2) Organizational documents of the mixed-finance owner, including 
the partnership documents and organizational documents of the Nonprofit 
Organization that will receive the capital advance, together with an 
incumbency certificate listing all duly qualified and sitting officers 
and directors by title and the beginning and ending dates of each 
person's term;
    (3) The name and address of the mixed-finance owner and the 
Nonprofit Organization, and the name, title, address, and telephone 
number of the respective officers to whom communications should be 
addressed;
    (4) A balance sheet showing that the mixed-finance owner is 
adequately capitalized;

[[Page 67323]]

    (5) Evidence that the sponsor, mixed-finance owner, or the 
Nonprofit Organization has control of the site of the proposed mixed-
finance development, along with a legal description of the proposed 
site and a title report covering the site;
    (6) The mixed-finance owner's submission showing proposed amounts 
and uses of the developer's fee, demonstrating compliance with 24 CFR 
891.823;
    (7) Evidence that the zoning for the site of the proposed mixed-
finance project complies with existing zoning, or that any necessary 
zoning approvals or variances have been obtained;
    (8) Number of units (with bedroom count) for which funds have been 
reserved under section 202 or 811, and, in the case of section 811 
units, the population to be served in those units; the number of units 
(with bedroom count) funded or financed from sources other than section 
202 or 811, if any (if 811, the population to be served in the non-811 
units including the number of persons with disabilities, if 
applicable); the types and amounts of non-dwelling space to be 
provided; whether the assisted units will be floating or designated 
fixed units (Uniform Federal Accessibility Standards (UFAS) accessible 
units must always be designated fixed units); evidence demonstrating 
that the development will comply with all fair housing and 
accessibility requirements, including the design and construction 
requirements of the Fair Housing Act; evidence demonstrating that units 
serving persons with disabilities will be dispersed throughout the 
development in the most integrated environment possible and other 
requirements of section 504 of the Rehabilitation Act of 1973; evidence 
demonstrating that the project will comply with accessibility 
requirements, project standards, and site and neighborhood standards 
under 24 CFR 891.120, 891.125, 891.210, 891.310, and 891.320, as 
applicable; and evidence demonstrating that the project will comply 
with 24 CFR 8.4(b)(5), which prohibits the selection of a site or 
location which has the purpose or effect of excluding persons with 
disabilities from federally-assisted programs or activities;
    (9) The proposed development schedule for completion of the mixed-
finance development, including the estimated time to complete each 
major development stage. If a mixed-finance development proposal will 
be implemented in phases, the mixed-finance owner must include in its 
proposal a general description of each planned phase of development, 
including:
    (A) The overall number of phases;
    (B) The intended scope of each phase (including number of units);
    (C) The anticipated sources and uses of financing for each phase; 
and
    (D) A schedule (to be approved by HUD) for submission of a 
supplementary proposal for each phase;
    (10) A previous participation certificate for all officers and 
directors of the sponsor, mixed-finance owner, Nonprofit Organization, 
developer, housing consultant, general contractor, and management 
agent;
    (11) Identification of the housing consultant, if one is employed;
    (12) A mixed-finance owner-Architect Agreement;
    (13) Final Working drawings and specifications with the architect's 
certificate that the project design has been reviewed and approved by 
the local Building Department;
    (14) Topographic survey, surveyor's report, and soil test borings;
    (15) Life Cycle cost analysis of utility combinations;
    (16) Affirmative Fair Housing Marketing Plan;
    (17) Current resumes of general contractor's development experience 
and general contractor's financial statements for the last three years;
    (18) Contractor's cost breakdown and cost analysis;
    (19) Resume of resident manager or management agent, which includes 
qualifications and experience;
    (20) Schedule of capital expenditures such as furniture, supplies, 
equipment, and other items necessary to the basic operation of the 
project that will not be covered by proceeds from the capital advance, 
and a description of how the development will meet these costs;
    (21) Certification/disclosure of lobbying activities by the mixed-
finance owner and the Single-Purpose Nonprofit Organization;
    (22) Consolidated owner certifications for the mixed-finance owner, 
including the certification required by OMB circular A-129; Equal 
Employment Opportunity certification; certification of drug-free 
workplace; certification of compliance with design and cost standards; 
the Uniform Federal Accessibility Standards, section 504 of the 
Rehabilitation Act of 1973; and, for covered multifamily dwellings 
designed and constructed for first occupancy after March 13, 1991, the 
design and construction requirements of the Fair Housing Act and the 
Americans with Disabilities Act where applicable, and HUD's 
implementing regulations;
    (23) Certification of Compliance with Davis-Bacon prevailing wage 
requirements and related labor standards;
    (24) Flood Disaster Protection Act of 1973 Certification;
    (25) Certification of compliance with the National Environmental 
Policy Act and related environmental laws and authorities; and
    (26) Certification that the information in the firm commitment 
application is true and accurate.
    (b) Acquisition with rehabilitation. In the case of acquisition 
with rehabilitation, the mixed-finance owner must submit the 
documentation required in paragraph (a) of this section, as well as:
    (1) An authorization to inspect the project;
    (2) A description of the proposed rehabilitation and a description 
of any steps to be taken to make the development accessible to persons 
with disabilities;
    (3) Final drawings and specifications of the units as proposed to 
be rehabilitated, including any structural changes, changes in floor 
plans, locations of the fixed UFAS accessible units and other units 
serving persons with disabilities dispersed within the project, or 
other significant alterations;
    (4) A survey or site plan drawing of the development as built; and
    (5) Drawings and specifications of the existing facilities, if such 
drawings can be obtained.
    (c) Acquisition without rehabilitation. In the case of acquisition 
without rehabilitation, the mixed-finance owner must submit the 
documentation required in paragraph (a) of this section (except for 
paragraphs (a)(13) and (23)), as well as:
    (1) An authorization to inspect the project;
    (2) A narrative description of any repair work proposed, and the 
manner in which the project will be made accessible to persons with 
disabilities;
    (3) A survey or site plan drawing of the development as built;
    (4) Drawings and specifications of the existing facilities, if such 
drawings can be obtained.
    (d) Lead-based paint certification. In the case of acquired 
developments constructed before 1978 in which any child under six years 
of age resides or is expected to reside, the mixed-finance owner must 
also submit a certification of compliance with the Lead-Based Paint 
Poisoning Prevention Act and the Residential Lead-Based Paint Hazard 
Reduction Act of 1992.


Sec.  891.820  Mixed-finance proposal.

    The mixed-finance owner must submit a mixed-finance proposal along

[[Page 67324]]

with the firm commitment application. Each mixed-finance development 
proposal shall be in the form prescribed by HUD and must contain the 
following information:
    (a) Development description. A description of the proposed project 
including: the number and types of units with bedroom count; the number 
of 202 or 811 units and the number of units to be financed from funds 
other than 202 or 811 funds; the types and amounts of non-dwelling 
space to be provided; schematic drawings and designs; the proposed 
building and unit plans including the location of the fixed UFAS 
accessible units and other units serving persons with disabilities 
dispersed within the project; and final plans and specifications.
    (b) Financing. A detailed description of all financing necessary 
for the implementation of the proposal, specifying the sources, 
together with a 5-year operating performance projection, known as a 
``pro forma'' (pro forma), for the development, including all 
underlying assumptions. In addition, the mixed-finance owner is 
required to submit to HUD for approval all documents relating to the 
financing of the proposal, including, but not limited to, any loan 
agreements, financing commitments, notes, mortgages, or deeds of trust, 
use restrictions, operating pro formas relating to the viability of the 
development, and other agreements or documents pertaining to the 
financing of the proposal. If tax credits are being used, the mixed-
finance owner must submit official confirmation of the award of tax 
credits from the State allocating agency. Any financing commitments 
must be firm and irrevocable in order to be approved by HUD.
    (c) Sources and uses. A statement of the sources and uses of 
financing; if a project is to be developed in phases, the sources and 
uses of financing for each phase;
    (d) Site information. An identification and description of the 
proposed site, site plan, and neighborhood.
    (e) Development construction cost estimate. A development 
construction cost estimate based on the schematic drawings and 
specifications and current construction costs prevailing in the area. 
In addition, a copy of the development schedule, including the 
architect or contractor estimate of the time required to complete each 
major development stage.
    (f) Life cycle analysis. For mixed-finance projects with new 
construction or rehabilitation, the criteria to be used in equipping 
the proposed development with heating and cooling systems, which shall 
include a life-cycle cost analysis of the installation, maintenance, 
and operating costs of such systems.
    (g) Relocation plan. Information concerning any displacement of 
current site occupants, including identification of each displacee, the 
distribution plan for notices, the anticipated cost and source for 
funding of relocation benefits, and compliance with 24 CFR 891.155(e).
    (h) Activities and relationship of participating parties. 
Identification of: (1) The participating parties, together with full 
information as to any conflict-of-interest or identity-of-interest 
between any of the parties, including the general partner, limited 
partners, mixed-finance owner, Nonprofit Organization, 202 or 811 
sponsors, and development team members;
    (2) The activities to be undertaken by each of the participating 
parties; the legal and business relationships among the participating 
parties; and
    (3) The rights and liabilities (financial and otherwise) and 
respective commitments of the parties with respect to the development;
    (i) Operating feasibility. A demonstration of the operating 
feasibility of the development, which must be accomplished by:
    (1) Showing that the estimated operating expenses of the 
development will not exceed its estimated operating income; and
    (2) Submitting a 5-year operating pro forma for the development, 
and including all underlying assumptions and, if the project is a tax-
credit project, a pro forma showing how the project will continue to 
operate for the required period after the end of the tax-credit period;
    (j) Market analysis. An analysis of the projected market for the 
proposed mixed-finance development;
    (k) Management and occupancy policies. A summary of the proposed 
management and occupancy policies to be implemented for the assisted 
units at the development, consistent with Sec.  891.410, and a 
description of application and tenant selection procedures for the 
units without HUD funding;
    (l) Facilities. A statement addressing the adequacy of existing 
facilities and services for the prospective occupants of the 
development and a description of public improvements needed to ensure 
the viability of the proposed development with a description of the 
sources of funds available to carry out such improvements;
    (m) Environmental review. Any additional environmental information 
HUD deems necessary in completing its environmental review;
    (n) Certifications and assurances. (1) Certificates and assurances 
that the mixed-finance owner has authority under State and local law to 
develop housing for elderly persons or persons with disabilities and to 
enter into all agreements and provide all assurances required under 
this subpart. In addition, the Nonprofit Organization must certify that 
it has the legal authority to enter into the partnership agreement 
under which it acts as the sole general partner with for-profit limited 
partners and to fulfill all its obligations as partner. The Nonprofit 
Organization must also certify that it has obtained all necessary 
approvals for this purpose. The mixed-finance owner will be responsible 
to HUD for ensuring that the 202 or 811 units are developed and 
operated in accordance with all applicable HUD requirements. The mixed-
finance owner must also warrant that it will provide for a mechanism to 
assure, to HUD's satisfaction, that the 202 or 811 units will remain 
available for use by very low-income families for 40 years;
    (2) A certification of the mixed-finance owner's previous 
participation as stated in 24 CFR part 200, subpart H, and shall ensure 
that all participating parties submit a similar certification to HUD.
    (o) Other. The mixed-finance owner must provide any other materials 
or information that HUD may from time to time require.


Sec.  891.823  HUD review and approval.

    HUD will review the firm commitment application and mixed-finance 
proposal as follows.
    (a) Initial screening. HUD will perform an initial screening of the 
firm commitment application/mixed-finance proposal to determine that 
all required documentation and evidentiary materials have been 
submitted. HUD will advise the mixed-finance owner and Nonprofit 
Organization of any technical deficiencies in the application and 
proposal and indicate a date certain by which the remaining information 
must be submitted.
    (b) Firm commitment and proposal technical processing and approval. 
Upon determining that the firm commitment and proposal are complete, 
HUD will process the firm commitment application and mixed-finance 
proposal for approval. The firm commitment application will be reviewed 
in accordance with applicable firm commitment and technical review 
guidelines. Upon determining that a proposal is acceptable for 
technical

[[Page 67325]]

processing, HUD will evaluate the proposal to determine:
    (1) Whether the mixed-finance owner has the legal capacity to enter 
into all necessary contracts and agreements to complete the 
development;
    (2) Whether the proposed sources and uses of funds are eligible and 
reasonable, and show an appropriate proration of supportive housing 
funds and funds from other sources, and whether the project, including 
the market-rate units, is financially feasible and is projected to 
remain feasible for the 40-year term of the very low-income use 
restrictions, given the available financing structure, firm financing 
commitments, and market for the project;
    (3) Whether the mixed-finance owner has the resources and capacity 
to develop and operate the project for the required time period;
    (4) Whether the HUD-assisted units are comparable in size, 
location, appearance, and design to any units without HUD assistance;
    (5) Whether the mixed-finance owner will develop and operate the 
Section 202 or 811 assisted units in accordance with all HUD program 
requirements, including program regulations governing those units;
    (6) Whether the documents include the required covenants and use 
restrictions, which must be recorded prior to release of HUD funds;
    (7) Whether the mixed-finance owner has obtained all necessary 
State, local, and Federal approvals, zoning changes, or variances;
    (8) Whether the design of the development meets applicable 
accessibility requirements;
    (9) Whether the supportive services to be provided for the Section 
202 or 811 units are at least equal to the services the sponsor 
proposed to provide in its 202 or 811 application for funding;
    (10) Whether the assistance to be provided under this part, taking 
into account all assistance to be received by the project, is no more 
than necessary to provide affordable housing, as required by section 
102(d) of the Department of Housing and Urban Development Reform Act of 
1989, 42 U.S.C. 3545(d);
    (11) Whether any other processing criteria that HUD may prescribe 
from time to time are satisfied;
    (12) Whether the mixed-finance owner has certified to compliance:
    (i) With all applicable Federal, State, or local civil rights laws 
and regulations;
    (ii) With all environmental regulations;
    (iii) With applicable wage rates determined in accordance with the 
Davis-Bacon Act and with related labor standards.


Sec.  891.825  Evidentiary materials.

    Any updates or amendments to materials submitted at the firm 
commitment/mixed-finance proposal stage must be submitted as part of 
the evidentiary materials, even if not specifically requested.
    (a) General. Except as otherwise expressly provided, a mixed-
finance owner is required to submit for HUD review and approval prior 
to HUD's approval of the release or drawdown of capital advance funds 
all evidentiary materials required by HUD. Upon HUD approval of 
evidentiary materials, the evidentiary materials will be executed and 
recorded in the order required by HUD, along with other required 
documents. All the executed documents for the mixed-finance project 
will be made available for HUD's final review before drawdown of funds. 
The evidentiary materials must include:
    (1) Organizational documents. Updated organizational documents of 
the mixed-finance owner, nonprofit organization, and all participating 
parties in the partnership showing that:
    (i) One of the purposes of the mixed-finance owner is the promotion 
of the welfare of elderly persons or persons with disabilities;
    (ii) There is no prohibited conflict of interest or prohibited 
identity of interest involving the sponsor, the nonprofit organization, 
or the mixed-finance owner, and the mixed-finance owner is not 
controlled by or under the direction of persons or firms seeking to 
derive profit or gain from the mixed-finance owner. Individual conflict 
of interest and identity of interest and disclosure certifications must 
be submitted by all directors, officers, shareholders, trustees, and 
agents of the mixed-finance owner and the nonprofit organization and 
all development team members; and
    (iii) A partnership agreement has been entered into between the 
mixed-finance owner, its general partner, and any other participating 
entities that establishes the relationship of the partners with respect 
to implementation of the proposal.
    (2) Amendment to capital advance. A mixed-finance amendment to the 
capital advance agreement.
    (3) Deed; declaration of covenants or deed restriction. A deed or 
ground lease to the mixed-finance owner with a declaration of covenants 
or deed restriction, and a pro forma title policy. The first recorded 
document must be a covenant running with the land, deed restriction, 
Use Agreement, or other document of public record in the form 
prescribed by HUD that will assure to HUD's satisfaction that the HUD-
assisted units will be available for use by eligible very low-income 
elderly or disabled families in accordance with all applicable 
requirements for no less than 40 years, and that any party that 
subsequently acquires the mixed-finance development will be fully bound 
under these covenants and deed restrictions;
    (4) Zoning. Evidence that the zoning of the site permits 
construction of the mixed-finance development;
    (5) Site control. Evidence that the sponsor, nonprofit 
organization, or mixed-finance owner has control of the site for such 
period of time as may be required by HUD, and a title policy or report 
evidencing that the site is free of any encumbrances, restrictions, or 
reverters that could adversely affect use of the site for the proposed 
project;
    (6) Development agreement. Any development agreement or agreements, 
or other document showing the proposed development schedule; the 
respective responsibilities of each party for each development phase; 
the expected costs and financing for those costs; the allocation of 
risk of loss as between or among the parties; and guarantees of 
completion, insurance, and bonding requirements as applicable to 
regular 202 and 811 projects;
    (7) Regulatory agreement. A regulatory or operating agreement that 
provides binding assurance that operation of the 202 or 811 units will 
be in accordance with the applicable Section 202 or 811 requirements;
    (8) Management agreement. Any agreement relating to management of 
the Section 202 or 811 development by an entity other than the mixed-
finance owner or the nonprofit organization, requiring that the 
management of the project will be in accordance with Section 202 or 811 
requirements;
    (9) Financing documents. Any updates to the financing and firm 
commitment documents required under the mixed-Finance Proposal;
    (10) Federal subsidies. A description of the amount and source of 
any housing assistance that the project will receive from a state, unit 
of local government, or the Federal government, as required by section 
102(d) of the HUD Reform Act of 1989, 42 U.S.C. 3545(d);
    (11) Certification of compliance with approved proposal. The mixed-
finance owner's certification that it will develop and operate the 
number of 202 or 811 units approved by HUD, in the configuration and 
with the bedroom sizes approved by HUD, within the approved cost 
limits; and comply with

[[Page 67326]]

all applicable statutory, regulatory, and Executive Order requirements 
for the 40-year period required by law and in accordance with the HUD-
approved proposal;
    (12) Legal opinion. A legal opinion supporting the legal capacity 
of the mixed-finance owner and its affiliates to enter into all 
necessary agreements to develop and operate the mixed-finance project, 
as well as the validity and priority of the covenants and restrictions 
of the mixed-finance documents. The legal opinion must attest that the 
counsel has examined the availability of the participating parties' 
financing, the amounts and sources of financing committed to the mixed-
finance project by the participating parties, and that such financing 
has been irrevocably committed for use in carrying out the project;
    (13) No assignment. A statement by the mixed-finance owner and the 
nonprofit organization, which must be included in all agreements and 
contracts with participating parties, that a transfer of 202 or 811 
capital advance funds or rental assistance to the mixed-finance owner 
shall not be deemed an assignment of the funds, and the transferee 
shall not succeed to any rights or benefits of the nonprofit 
organization under the capital advance agreement;
    (14) No third-party beneficiary relationship. A statement to be 
included in the capital advance agreement and the mixed-finance 
amendment to the capital advance agreement that nothing in the capital 
advance agreement or mixed-finance amendment to the capital advance 
agreement shall be deemed to create a relationship of third party 
beneficiary, principal-agent, or any relationship involving HUD.
    (15) Additional certifications. The owner's certification to:
    (i) Compliance with all applicable Federal, State, or local civil 
rights requirements;
    (ii) Compliance with all deed conditions and covenants running with 
the land, including the requirement not to dispose of the development 
without the prior written approval of HUD for the entire period that 
the use restrictions for the assisted housing remain in effect;
    (b) Other. The mixed-finance owner must submit such other 
evidentiary materials as HUD may require.


Sec.  891.828  Loan of capital advance funds to mixed-finance owner.

    Upon issuance of the firm commitment for capital advance financing, 
the nonprofit organization to which has been transferred the fund 
reservation by the sponsor, shall execute a capital advance agreement 
and an agreement to enter into a Project Rental Assistance Contract 
with HUD. Upon approval of the mixed-finance proposal and the 
evidentiary materials, the mixed-finance owner shall provide a Note 
evidencing a non-amortizing loan of the capital advance funds for a 
period of not less than 40 years at the program interest rate in effect 
on the date of the Note. The mixed-finance owner shall execute and 
record a use agreement, which shall include a complete legal 
description of the project site and which shall be accompanied by a 
title insurance policy or commitment insuring the validity and priority 
of the use agreement. Capital advance funds can be drawn down under a 
disbursement and escrow agreement in accordance with Sec.  891.830.


Sec.  891.830  Drawdown.

    (a) Upon its approval of the executed evidentiary materials and 
other documents submitted and upon determining that such documents are 
satisfactory, HUD may approve the drawdown of capital advance funds in 
accordance with the HUD-approved drawdown schedule.
    (b) The capital advance funds may only be drawn down in an approved 
ratio to other funds, in accordance with a drawdown schedule approved 
by HUD. The nonprofit organization and the mixed-finance owner shall 
certify, in a form prescribed by HUD, prior to the initial drawdown of 
capital advance funds, that they will not draw down more capital 
advance funds than necessary to meet the pro rata share of the 
development costs for the 202 or 811 units. The nonprofit organization 
and the mixed-finance owner shall draw down capital advance funds only 
when payment is due and after inspection and acceptance of work covered 
by the draw.
    (c) Each drawdown of funds constitutes a certification by the 
mixed-finance owner and the nonprofit organization that:
    (1) All the representations and warranties submitted in accordance 
with this subpart continue to be valid, true, and in full force and 
effect;
    (2) All parties are in compliance with their obligations pursuant 
to this subpart which, by their terms, are applicable at the time of 
the drawdown of funds;
    (3) All conditions precedent to the drawdown of the funds by the 
nonprofit organization and the mixed-finance owner have been satisfied;
    (4) The capital advance funds drawn down will be used only for 
eligible costs actually incurred in accordance with the provisions of 
this subpart and the approved proposal; and
    (5) The amount of the drawdown is consistent with the ratio of 202 
or 811 units to other units.


Sec.  891.833  Monitoring and review.

    HUD shall monitor and review the development during the 
construction and operational phases in accordance with the requirements 
that HUD prescribes in the mixed-finance amendment to the capital 
advance agreement. In order for units assisted under the 202 and 811 
programs to continue to receive project rental assistance, they must be 
operated in accordance with the mixed-finance amendment to the capital 
advance agreement and all other HUD regulations and requirements. It is 
the responsibility of the mixed-finance owner and nonprofit 
organization to ensure compliance with the preceding sentence.


Sec.  891.835  Eligible uses of project rental assistance.

    (a) Section 202 or 811 project rental assistance may be used to pay 
the necessary and reasonable operating costs, as defined in 24 CFR 
891.105 and approved by HUD, not met from project income and attributed 
to Section 202 or 811 units. Operating cost standards under 24 CFR 
891.150 apply to developments under this part.
    (b) Section 202 or 811 project rental assistance may not be used to 
pay for:
    (1) Debt service on construction or permanent financing, or any 
refinancing thereof, for any units in the development, including the 
202 or 811 units;
    (2) Cash flow distributions to owners; or
    (3) Creation of reserves for non-202 or -811 units.
    (c) HUD-approved operating costs attributable to common areas or to 
the development as a whole, such as groundskeeping costs and general 
administrative costs, may be paid from project rental assistance on a 
pro-rata basis according to the percentage of 202 or 811 assisted units 
as compared to the total number of units.


Sec.  891.840  Site and neighborhood standards.

    For Section 202 or 811 mixed-finance developments, the site and 
neighborhood standards described at Sec.  891.125 and Sec.  891.320 
apply to the entire mixed-finance development.

[[Page 67327]]

Sec.  891.848  Project design and cost standards.

    The project design and cost standards at Sec.  891.120, with the 
exception of sub-section (c), apply to mixed-finance developments under 
this subpart. Sections 891.220 and 891.315 on prohibited facilities 
shall apply to mixed-finance developments under this subpart.


Sec.  891.853  Development cost limits.

    The Development cost limits for development activities, as 
established at Sec.  891.140, apply to Section 202 or 811 units in 
mixed-finance developments under this subpart.


Sec.  891.855  Replacement reserves.

    (a) The mixed-finance owner shall establish and maintain a 
replacement reserve account for section 202 or 811 units. This account 
must meet all the requirements of 24 CFR 891.405.
    (b) The mixed-finance owner may obtain a disbursement from the 
reserve only if the funds will be used to pay for capital replacement 
costs for the Section 202 or 811 units in the mixed-finance development 
and in accordance with the terms of the regulatory and operating 
agreement. In the event of a disposition of the mixed-finance 
development, or the dissolution of the owner, any Section 202 or 811 
funds remaining in the replacement reserve account must remain 
dedicated to the Section 202 or 811 units to ensure their long-term 
viability, or as otherwise agreed by HUD.
    (c) Subject to HUD's approval, reserves may be used to reduce the 
number of dwelling units in the development for the purpose of 
retrofitting units that are obsolete or unmarketable.


Sec.  891.860  Operating reserves.

    (a) The mixed-finance owner shall maintain an operating reserve 
account in an amount sufficient to cover the operating expenses of the 
development for a three-month period.
    (b) Project income and tax credit equity may be used to fund the 
operating reserve account.


Sec.  891.863  Maintenance as supportive housing units for elderly 
persons and persons with disabilities.

    (a) The mixed-finance owner must develop and continue to operate 
the same number of supportive housing units for elderly persons or 
persons with disabilities, as stated in the mixed-finance amendment to 
the capital advance agreement, for a 40-year period.
    (b) If a mixed-finance development proposal provides that the 
Section 202 or 811 supportive housing units will be floating units, the 
mixed-finance owner must operate the HUD-approved percentage of Section 
202 or 811 supportive housing units, and maintain the percentage 
distribution of bedroom sizes of Section 202 or 811 supportive housing 
units, for the entire term of the very low-income use restrictions on 
the development. Any foreclosure, sale, or other transfer of the 
development must be subject to a covenant running with the land 
requiring the continued adherence to the very low-income use 
restrictions for the Section 202 or 811 supportive housing units.
    (c) The Owner must ensure that Section 202 or 811 units in the 
development are and continue to be comparable to unassisted units in 
terms of location, size, appearance, and amenities.


Sec.  891.865  Sanctions.

    In the event that Section 202 or 811 units are not developed and 
operated in accordance with all applicable Federal requirements, HUD 
may impose sanctions on the participating parties and seek legal or 
equitable relief in enforcing all requirements under section 202, the 
Housing Act of 1959, or section 811 of the National Affordable Housing 
Act, all implementing regulations and requirements and contractual 
obligations under the mixed-finance documents.

    Dated: November 3, 2003.
John C. Weicher,
Assistant Secretary for Housing-Federal Housing Commissioner.
[FR Doc. 03-29749 Filed 11-28-03; 8:45 am]
BILLING CODE 4210-27-P