HUD Notice H-2011-03, issued on February 1, 2011, outlines procedures for converting efficiency units to one-bedroom units in assisted projects when the demand for efficiencies is weak and the conversion will not increase subsidy costs. While the Notice addresses only conversions for efficiency units, HUD will consider requests for other types of unit conversions on a case-by-case basis.
The Notice applies to Section 202, 811, 236, 221(d)(3) BMIR, RAP, rent supplement projects, properties with Section 8 project-based assistance and properties subject to HUD use agreements or deed restrictions.
A conversion must be needed due to local demand issues and owners must show that they have attempted to market the existing units. Either the average vacancy rate for the efficiency units must have been at least 25% for at least 24 months or the owner must prove that the units proposed for conversion are functionally obsolete.
HUD has no authority to increase a projects budget authority for conversions, so no additional subsidy will be available.