Rents, income limits, and the operating pro forma — Puerto Rico

The minimum set-aside and income averaging: federal defaults, no PRHFA overlay

A full-text search of the 2025-QAP turns up no PR-specific minimum-set-aside election requirement -- no "20-50," "40-60," or "average income" language appears anywhere in the plan -- and no mention of income averaging at all. Every application still implicitly makes the ordinary federal IRC Section 42(g) minimum-set-aside election (20% of units at 50% AMI or less, 40% at 60% AMI or less, or the average-income test electing a project average at or below 60% AMI with individual unit designations from 20%-80% AMI); PRHFA's underwriting simply applies the standard Section 42 rent/income limits via Annex C to whatever designations the applicant elects, without a stated PRHFA preference or narrower rule of its own.

Flag: because the QAP provides no PRHFA-specific procedural mechanism -- no form, checkbox, or election statement -- for the income-averaging test the way many mainland QAPs now do, a developer electing average income should confirm directly with PRHFA how that election is documented and monitored under Annex O's compliance procedures. This research found no PR-specific compliance guidance for income averaging distinct from the general federal rules.

Income and rent limits: HUD's Puerto Rico-specific methodology, not a mainland MSA

PRHFA underwrites every project's rents to "the basic income and rent restrictions of Section 42 of the Code (See Annex C, Low-Income Housing Tax Credits Program Maximum Rents)" (Section 5.1.1). Annex C -- PRHFA's own annually republished "2025 LIHTC Rent Restrictions and Income Limits" -- in turn tracks HUD's own annual Multifamily Tax Subsidy Project (MTSP) income limits. Unlike the mainland, where HUD derives most areas' median family income from the American Community Survey (ACS) tied to OMB-defined Metropolitan Statistical Areas, Puerto Rico's median family income is calculated from the Puerto Rico Community Survey -- a separate, Puerto Rico-specific Census Bureau survey instrument, used because the standard nationwide ACS does not sample Puerto Rico the same way it samples the states.

Flag: the exact current-year detail behind this methodology -- the base survey data year and the specific number and names of Puerto Rico's HUD income-limit areas -- could not be independently confirmed against HUD's primary MTSP briefing document in this research (the source PDF could not be retrieved intact in this environment). Confirm the current year's Puerto Rico income-limit-area boundaries and base data year directly against HUD's published MTSP Income Limits dataset for the specific municipio before underwriting, rather than assuming mainland-style MSA logic applies.

For projects with project-based rental assistance (e.g., Section 8, RAD), PRHFA underwrites to the higher of the Tax Credit limit or the actual assisted rent, provided the applicant submits valid, unexpired evidence -- an award letter showing approved gross rents, a notice of anticipated RAD rent, or an executed rental subsidy agreement (Section 5.2.3.6). "If Section 8 HAP contracts, or relevant legislation, allows rents above those limits, a project may be credited for the additional revenue based on such higher rents."

Underwriting minimums: DSCR, vacancy, escalation, profit cap

The profit cap's mechanic is worth modeling explicitly: it isn't a return-on-equity or IRR ceiling -- it's expressed as a ceiling on net cash flow as a percentage of operating expenses. That means a leaner opex assumption doesn't just help a project clear DSCR; it also shrinks the absolute dollar ceiling on distributable cash flow, since 10% of a smaller opex number is a smaller cap. A pro forma that trims opex purely to boost DSCR can end up boxing itself into a tighter cash-flow ceiling than a comparable project with more realistic expenses.

Reserves: rent-up, operating, replacement -- and what can't fund them

HOME, HTF, and CDBG-MIT funds cannot be used to fund any project reserve -- the QAP states this restriction directly. That's a meaningful constraint given how much of PRHFA's own gap-financing toolkit is federal or disaster-recovery money (HOME $10,492,002, Housing Trust Fund $619,615, CDBG-MIT/LIHTC-MIT $83,797,630 in the 2025 NOFA, per the Foreword) -- reserves have to come from equity, deferred developer fee, or other unrestricted sources instead.

Deferred developer fee may fund the Operating Reserve, but only on specific terms: it can be repaid solely from cash flow, only after all required replacement-reserve deposits have been made, must be projected to be repaid within 10 years, must meet IRS standards, and a statement of those terms must be filed with the application (Sections 5.2.3.5, 5.1.5.12). PRHFA separately reserves discretion, at any time, to adjust the timing of developer fee payment to preserve the project's feasibility.

No minimum opex floor -- just an escalation rate and a profit ceiling

PRHFA does not publish a minimum operating-expense-per-unit floor, unlike some mainland agencies that set a $/unit opex floor specifically to prevent underwriting a project with implausibly low expenses in order to inflate the supportable debt or credit amount. The only PRHFA-set expense assumption is the 3.5% annual escalation rate (Section 5.2.3.3), backstopped indirectly by the 10%-of-operating-expenses cash-flow cap (Section 5.2.3.7) described above. Absent an explicit floor, PRHFA's discretionary Per-Unit Cost Review (Section 5.2.2.5) -- which can appoint an independent consultant to validate costs after Basic Threshold clears -- is the practical check against an unrealistically thin operating budget.

Utility allowances: five federal methods, no PRHFA schedule of its own

The QAP body itself is almost silent on utility allowances -- the phrase "utility allowance(s)" appears exactly once in the entire 65-page document, in the market-study documentation checklist (Section 5.1). The actual procedure lives in Annex O, PRHFA's Compliance Monitoring Plan (Revised July 2016), which Section 10.1 expressly states "is hereby incorporated and made a part of this 2025-QAP." This agent fetched Annex O directly and confirmed its Section E, "Utility Allowance" (pp. 32-36), tracks the federal Treas. Reg. Section 1.42-10 menu with no PR-specific narrowing: for ordinary Section 42 units, an owner may choose -- and mix by utility type -- among a local PHA schedule, a utility-company estimate, an Owner's Average of Actual Consumption study, the HUD Utility Schedule Model, or an engineer-certified Energy Consumption Model. There is no sixth "or other method" catch-all; those five are the complete list.

Mandatory carve-outs override the owner's choice: USDA Rural-financed/assisted units must use the Rural utility allowance; HUD-regulated project-based buildings must use the HUD utility allowance; and any individual apartment occupied by a tenant receiving Section 8 or other HUD/PHA rental assistance must use that program's own utility allowance for that unit specifically.

PRHFA "does not collect or maintain the various utility allowances" itself (Annex O, Section E) -- there is no CTCAC-style published calculator or schedule. For any self-determined method (a utility-company estimate, an actual-consumption study, the HUD model, or an engineer's energy consumption model), the owner must submit supporting documentation, including Form PRHFA-12, at the beginning of a 90-day period before the allowance can be used to set gross rent, and PRHFA reviews it before it takes effect.

Credit sizing is a three-way minimum, not a scoring bonus

Regardless of Point Ranking score, no project receives more Tax Credits than the lesser of: (a) the maximum allowable under the Code given the project's eligible basis and affordability level, (b) the project's underwritten current necessity (a sources-and-uses/equity-gap analysis), or (c) the amount of Tax Credits actually requested (Section 5.3.1). PRHFA prepares its own pro forma statements -- recommended sources and uses, projected operating income for the full affordability term, the Tax Credit amount, and the amount of permanent financing -- independent of the applicant's own submitted pro forma (Section 5.3.2), and "reserves the right, in its sole discretion, to vary the above-described methodology... in order to comply with Section 42 requirements or any state law requirements, or to further the public policy set forth in this 2025-QAP."