Gates Dunaway provides the following analysis and insights:

In 2015, HUD published HUD Notice H 2015-03 regarding the transferring of budget authority of a Project-Based Section 8 HAP contract under what is known as “8bb” of the National Housing Act.  The 2015 Notice superseded the 8bb Notice published in 2014 (Notice H 2014-14).  Since then HUD has published updated FAQs including this one, dated March 14, 2016, which supersedes FAQs published on February 16, 2016.  

The intent of 8bb is to map out a path for owners to transfer their Section 8 contract to another owner.  

Throughout the Notice, the giver of the Section 8 is known as “Property A”, and the receiver is known as “Property B”.  HUD considers 8bb an important tool for facilitating the transfer and preservation of this valuable subsidy.  The program’s key assumption is that the owners of Property A and Property B are working together to transfer the contract, as opposed to HUD intervening to find an appropriate owner to take over a HAP contract from an owner that is interested in leaving the program.

Key things to know about 8bb are:

• Transfers much occur within the same state unless HUD approves an exception to this policy.
• The budget authority cannot be increased, so Property B’s total subsidy need must not exceed the budget authority under Property A.
• Property A’s HAP contract can be split among multiple Property B’s, as long as the budget authority cap is not exceeded. 
• Property B could be a property that already has a HAP contract for some units, or it could be a property that has no Section 8 at the time of transfer.
• The HAP contract rents at Property B will be determined by an RCS.
• HUD requires that the HAP unit count at Property B (or the total unit count at multiple Property Bs) be within the lesser of 5% or five units of the unit count at Property A.

Refer to the most recent FAQ for more details on the 8bb process. 

How do I become a recipient of transferred funds (a “Property B”)?  

Those interested in increasing Section 8 subsidy at their property, would be a perfect Property B for an owner that is interested in transferring their subsidy.  

• At the moment HUD does not have a database or clearing house set up for owners interested in receiving subsidy through 8bb.  
• However, you should contact your HUD Account Executive for each property that might be a good recipient, and let them know that if anyone contacts HUD interested in giving up their HAP contract, you would like to be put in contact with them.  

It is at best an informal process, but it is important that your HUD contacts know you are out there, familiar with 8bb, and in need of more subsidy. 

Another tactic is to start reaching out to owners with Section 8 in your state, and let them know that if they are interested in opting out of their subsidy, you would be willing to step in to “receive” their subsidy.

Contact Gates Dunaway and/or your HUD Account Executive to discuss the possibilities.   General policy questions can be sent to 8BBor214questions@hud.gov.  

BACKGROUND

On October 9, the U.S. Department of Housing and Urban Development (HUD) issued Housing Notice 2014-14, which explains how and when owners who find themselves with properties that are perhaps beyond repair, or for other reasons not suitable for continued Section 8 subsidy assistance may transfer the Section 8 contract, or a part of the contract, to another more suitable property.   

This Notice sets forth HUD’s policies and procedures for transferring all or a portion of any remaining budget authority of a project-based Section 8 Housing Assistance Payments (HAP) contract to one or more contracts under Section 8(bb)(1) of the United States Housing Act of 1937, where the existing HAP contract is terminated by mutual agreement.1 Section 8(bb)(1) of the Housing Act of 1937 shall be referred to throughout this Notice as “Section 8(bb).”

This long-awaited detailed explanation of this tool for preserving and transferring Section 8 contracts is a piece of the preservation puzzle, allowing owners who find themselves with properties that are perhaps beyond repair, or for other reasons not suitable for continued Section 8 subsidy assistance to transfer the Section 8 contract (or a part of the contract) to another more suitable property — either one that is already available and ready to accept the transfer or, in limited circumstances, one where new construction may be the goal. 

Applicable Projects for Section 8 Transfer

Here is what you need to know about eligibility around transferring a Section 8 contract:

• The authority under 8(bb) applies to all project-based Section 8 HAP contracts on existing multifamily projects administered by the Office of Multifamily Housing Programs.   
• The HUD notice applies only when the contract administrator and the owner mutually agree to terminate or sub-divide the HAP Contract so that the remaining budget authority can be transferred to another multifamily housing project.  
• The “receiving” project may be owned by the same owner transferring the HAP contract, or it can be owned by a different owner. 
• If the receiving project is owned by a different owner, than that different owner must also agree to accept the transferred Section 8 HAP budget authority.   
• The receiving project must already be constructed and ready for occupancy to receive the new budget authority.   
• The transferring and receiving projects must be in the same state, although HUD will approve exceptions to this policy on a case-by-case basis.   
• The budget authority can be split into more than one receiving project.

Projects Where Notice Does Not Apply 

There are a number of projects where this notice does not apply. Among them are projects with Section 8 project-based HAP contracts administered by PIH, which include Section 8 Moderate Rehabilitation properties and Section 8 PBV contracts.  

The notice also doesn’t apply to projects that are subject to Mark-to-Market Renewal contract authorized under section 514 or 515 of MAHRA.  

These latter projects are eligible for transfer or receipt of Section 8 budget authority under 8(bb), but will be handled on a case-by-case basis until new guidance is released. 

Change in Unit Count Through a Transfer 

In a transfer of a Section 8 contract budget authority under 8bb, the transferring and receiving projects do not have to have the same unit count or rents, but the overall budget authority cannot be increased.  

And, increase in unit count from the transferring property to the receiving property is allowed. 

In the case of a reduction in unit count, the transfer request must include evidence that the existing residents are protected from displacement by the unit decrease (through vouchers, or as evidenced by sustained vacancy as the transferring property). 

If the unit count decreases by more than 5%, the proposal must evidence that either the receiving project is located in a higher rent area (therefore fewer units are supported), or that the reconfiguration of unit mix is supported by a sustained vacancy in the unit type in the transferring property in accordance with Housing Notice 2011-03 (Policies and Procedures for the Conversion of Efficiency Units to One-Bedroom Units). 

Transferring to a Property that Hasn’t Been Built

A primary goal for the use of 8bb for many developers is to transfer Section 8 budget authority from a property that is obsolete and needs to be demolished, to a new property that is to be built based on leveraging the expected income from the transferred Section 8 contract.  To this end, this Notice has provisions to allow for this pathway to new construction using the 8(bb) transfer authority.  

There are a list of conditions that the receiving property to be built must meet, including locational and accessibility standards. 

If the project meets these standards by design, then it can receive a “conditional approval for transfer of budget authority”, understanding that the transfer cannot occur until the receiving project is completed and habitable, as evidenced by receipt of the Certificate of Occupancy.  

It is expected that this Conditional Approval letter can be used by the developer of the receiving property to secure development funding and to evidence the future rental subsidy the project will receive. 

Transfer Process

Owners wishing to use 8(bb) to transfer HAP budget authority must submit a request that indicates conformance to a list of standards and conditions for the transfer.  

The process includes a 30-day tenant notification and comment period.  

Requests are to be sent to the appropriate HUD Multifamily Hub/PC, who will send their recommendation for approval to the Policy Development and Research (PD&R) Field Economist for review and analysis, who will look specifically at the rents in the transferring and receiving properties. 

If both the Multifamily Hub and PD&R recommend approval, the Hub Director will submit a recommendation for approval to Headquarters, Director, Office of Asset Management and Portfolio Oversight.