value add on a HAP property

[Allen L.]

Hi all,

I just signed an LOI on a 36 unit property where 2/3 of the units are under HAP contract. I read about HAP online, and what I can find is that I can request annual rent increases but HUD will only pay 30% of the max rent, and in addition, HAP is a program that has been discontinued, but properties under HAP can still renew contract, but I wonder if this creates gov risk if one day they just cancel the legacy HAP program outright, and replace it with something less favorable. Also, this property won't qualify for agency so local banks are the most likely financing partner, however they may view affordable housing properties slightly worse, since rent isn't free to be pegged to market value.

Does anyone have more info on HAP and success stories to add value to a HAP property? According to the rent roll that I see, units under HAP are rented at a 8-10% premium to non HAP unit, so this is desirable and I would like to convert the remaining 1/3 units to HAP. Does anyone also have experience additional hurdles dealing with properties under HAP contracts?