Project Capital Needs Assessments and HUD 232 Loans

If you want to get approved for a HUD 232 loan, third-party reports like Appraisals/Market Studies and Environmental Assessments are essential, but most properties will also need another third-party report, a Project Capital Needs Assessment, also known as a PCNA. PCNAs are intended to determine how much it will cost to maintain and repair a project over time, by examining each of a building’s major systems, determining their likely lifetimes, and estimating when they’ll need to be replaced.

PCNAs Affect Replacement Reserve Requirements

One of the most important functions of a PCNA is to determine the amount of required annual replacement reserves a borrower will need to set aside for each unit. Typically, HUD 232 and HUD 232/223(f) loans have a minimum replacement reserve requirement of $1,000/unit per year, though a PCNA report could lead to a higher requirement.

10-Year Updates Are Required for HUD 232 PCNAs

HUD 232 and 232/223(f) loans require PCNAs to be updated every 10 years, in order to determine if any major changes have occurred in regards to the condition of the property. This helps HUD ensure that nothing has occurred that will substantially increase its risk as a mortgage insurer. Since November 2017, all HUD multifamily and healthcare borrowers have been required to use the CNA e-tool, an online submission system, in order to prepare and submit their PCNAs.