What is the Preservation of Affordable Rents Covenant (PARC)?
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Preservation of Affordable Rents Covenant, or PARC, is an agreement designed to limit project rents and preserve the affordability of the property by maintaining or "setting aside" a number of units (at least 80% of all units) that will have reliably affordable rents. The rents of the set-aside units must not increase more than 2% each year or more than the annual increase in the Consumer Price Index (whichever is greater), plus 1%. The program makes allowances for uncontrollable expenses and one-time capital expenditures that extend the life and improve the marketability of the project.
PARC compliance must be certified by borrowers each year. Non-compliant borrowers are given a one-time, 30-day period in order to remediate the situation. After the 30-day period has passed, they will be charged 5% of the original Mezzanine Loan amount every 6 months until they become compliant. All fees are due immediately, and 2 years of PARC non-compliance will trigger a default of the Mezzanine Loan.
Related Questions
What is the purpose of the Preservation of Affordable Rents Covenant (PARC)?
The Preservation of Affordable Rents Covenant (PARC) is an agreement designed to limit project rents and preserve the affordability of the property by maintaining or "setting aside" a number of units (at least 80% of all units) that will have reliably affordable rents. The rents of the set-aside units must not increase more than 2% each year or more than the annual increase in the Consumer Price Index (whichever is greater), plus 1%. The program makes allowances for uncontrollable expenses and one-time capital expenditures that extend the life and improve the marketability of the project. Source
How does the Preservation of Affordable Rents Covenant (PARC) benefit apartment owners?
The Preservation of Affordable Rents Covenant (PARC) benefits apartment owners by limiting project rents and preserving the affordability of the property by maintaining or "setting aside" a number of units (at least 80% of all units) that will have reliably affordable rents. The rents of the set-aside units must not increase more than 2% each year or more than the annual increase in the Consumer Price Index (whichever is greater), plus 1%. The program also makes allowances for uncontrollable expenses and one-time capital expenditures that extend the life and improve the marketability of the project. Additionally, owners of Section 8 housing are provided with project rental assistance contracts (PRACs) to subsidize eligible properties’ operations, ensuring that owners do not take a loss.
What are the requirements for a Preservation of Affordable Rents Covenant (PARC)?
The Preservation of Affordable Rents Covenant (PARC) is an agreement designed to limit project rents and preserve the affordability of the property by maintaining or "setting aside" a number of units (at least 80% of all units) that will have reliably affordable rents. The rents of the set-aside units must not increase more than 2% each year or more than the annual increase in the Consumer Price Index (whichever is greater), plus 1%. The program makes allowances for uncontrollable expenses and one-time capital expenditures that extend the life and improve the marketability of the project.
PARC compliance must be certified by borrowers each year. Non-compliant borrowers are given a one-time, 30-day period in order to remediate the situation. After the 30-day period has passed, they will be charged 5% of the original Mezzanine Loan amount every 6 months until they become compliant. All fees are due immediately, and 2 years of PARC non-compliance will trigger a default of the Mezzanine Loan.
What are the risks associated with a Preservation of Affordable Rents Covenant (PARC)?
The risks associated with a Preservation of Affordable Rents Covenant (PARC) include non-compliance fees and potential default of the Mezzanine Loan. Non-compliant borrowers are given a one-time, 30-day period in order to remediate the situation. After the 30-day period has passed, they will be charged 5% of the original Mezzanine Loan amount every 6 months until they become compliant. All fees are due immediately, and 2 years of PARC non-compliance will trigger a default of the Mezzanine Loan.
How can apartment owners ensure compliance with the Preservation of Affordable Rents Covenant (PARC)?
Apartment owners can ensure compliance with the Preservation of Affordable Rents Covenant (PARC) by limiting project rents and preserving the affordability of the property by maintaining or "setting aside" a number of units (at least 80% of all units) that will have reliably affordable rents. The rents of the set-aside units must not increase more than 2% each year or more than the annual increase in the Consumer Price Index (whichever is greater), plus 1%. The program makes allowances for uncontrollable expenses and one-time capital expenditures that extend the life and improve the marketability of the project.
PARC compliance must be certified by borrowers each year. Non-compliant borrowers are given a one-time, 30-day period in order to remediate the situation. After the 30-day period has passed, they will be charged 5% of the original Mezzanine Loan amount every 6 months until they become compliant. All fees are due immediately, and 2 years of PARC non-compliance will trigger a default of the Mezzanine Loan.