California Code of Regulations › Title 25 - Housing and Community Development › Division 1 - Housing and Community Development › Chapter 7 - Department of Housing and Community Development Programs › Subchapter 19 - Uniform Multifamily Regulations › Section 8309 - Replacement Reserves

Current through Register 2024 Notice Reg. No. 28, July 12, 2024
The Sponsor shall establish a replacement reserve to repair
					 or replace failed or damaged capital items and to cover extraordinary
					 maintenance expenses, as approved by the Department. Extraordinary maintenance
					 expenses are expenses for infrequent major repairs and replacements of building
					 components too costly to be absorbed by the Project's annual operating budget.
					 In no event shall this reserve be used to fund limited partner exit
					 costs.
(a) Withdrawals from the
				  replacement reserve shall require prior written approval of the Department.
				  Should the Department fail to take action on a request for an eligible
				  withdrawal from the replacement reserve within 30 days of documented receipt of
				  the request, that request shall be deemed approved.
(b) The replacement reserve shall be funded
				  from Operating Income, development sources or a combination of Operating Income
				  and development sources.
(1) For new
				  construction or conversion Projects, the initial amount of annual deposits to
				  the replacement reserve account shall be equal to at least the lesser of 0.6%
				  of estimated construction costs associated with structures in the Project,
				  excluding construction contingency and general contractor profit, overhead and
				  general requirements, or $500 per unit. However, the Department may approve a
				  different amount based on the results of a third-party reserve analysis, which
				  it may require, or other reliable indicators of the need for replacement
				  reserve funds over the initial 20 years of operation, or, in the case of
				  transactions involving restructuring of existing Department loans, 20 years of
				  operations after the restructuring.
(2) For rehabilitation Projects, the initial
				  amount of annual deposits to the replacement reserve account shall be
				  determined by the Department based on the results of a third-party physical
				  needs assessment or other reliable indicators of the need for replacement
				  reserve funds over the initial 20 years of operation. In its initial
				  underwriting, in the absence of an approved physical needs assessment or other
				  reliable indicators of the need for replacement reserve funds, the Department
				  may assume that the initial amount of annual deposits shall be $500 per
				  unit.
(3) The Department may
				  periodically adjust the amount of required deposits to the replacement reserve
				  for a particular Project based on the results of reserve analysis or other
				  reliable indicators of the need for replacement reserve funds over
				  time.
(4) The Department may agree
				  with other financing sources to allocate authority regarding amounts deposited
				  into or withdrawn from the replacement reserve, where the Department determines
				  that such arrangement would not jeopardize the fiscal integrity of the Project
				  and the minimum reserve requirements would be maintained. For Projects subject
				  to direct federal loan or grant programs, including Native American Housing
				  Assistance and Self Determination Act programs, or receiving a permanent loan
				  from CalHFA, the Department may also defer to the replacement reserve
				  requirements of these agencies during the time such projects are regulated by a
				  federal agency or CalHFA.
(5) If
				  the Department requires a reserve analysis because the Department determines
				  the reserve is inadequate due to annual replacement costs exceeding or being
				  reasonably likely to exceed the amounts deposited to the reserve, or due to a
				  request by the Sponsor to adjust the required reserve amount, the analysis must
				  result in a due diligence report that examines the current physical conditions
				  at property(ies), specifies repairs or replacements needed immediately, and
				  budgets for the long-term capital repair and replacement needs during the life
				  of an asset, such as the results of using the Capital Needs Assessment eTool,
				  developed by the U.S. Department of Housing and Urban
				  Development.