How to Request 'Add-On' Management Fees for Demanding Long-Term Site Conditions
Are you dealing with unusual long-term management problems or extra administrative burdens at your site? For instance, do you have unusually high maintenance and security costs because you’re managing a site in a deteriorated area with a high incidence of crime and vandalism? Or are you managing a site with a complicated structure of financing and subsidies, which requires sophisticated—and expensive—oversight?
If you’re dealing with site conditions that make management more difficult or expensive than normal, you may be able to get an additional management fee, what HUD calls an “add-on” fee, to reimburse you for your extra time and effort. This is a flat per-unit fee paid in addition to the percentage-based, standard residential management fee the owner pays you for managing the site.
To get an add-on fee, you must first apply for and get approval from your local HUD office. We’ll tell you more about add-on fees and when HUD permits you to get them. And we’ll tell you how to make your request and what information to include.
What Are Add-On Fees?
If you manage a Section 221(d)(3), Section 221(d)(3) BMIR, Section 221(d)(4), Section 207, Section 220, Section 231, Section 236, Section 8 Multifamily (except Mod Rehab), Rent Supplement, RAP, Section 202, Section 202/8, or Section 811 site, you may be able to get an add-on fee. Add-ons are additions to management fees, designed to give incentives and compensation to managing agents who can show that site conditions make management of a property more demanding than normal [HUD Handbook 4381.5, par. 3.7]. Add-ons are intended only to compensate agents who are dealing with long-term site conditions. And it’s in addition to the percentage-based, standard management fees an owner pays an agent.
“Special fees” are different from add-on fees. They are intended to compensate agents for dealing with short-term site conditions and correcting a specific problem or handling a specific task over a set period of time.
HUD doesn’t have a single, nationwide list of HUD-approved add-ons. Instead, it requires each area Hub office to issue its own list of permissible add-ons with flat dollar amounts per unit per month (PUPM) for its area. As a result, what may qualify for an add-on in one area may not qualify for an add-on in another area.
As guidance to the Hubs, HUD includes a list of “Examples of Long-Term Project Conditions That Could Justify Add-On Fees” in Handbook 4381.5, fig. 3-4. Here are examples of conditions from that list:
High-density sites. HUD may approve add-on fees for managing high-density sites. Specifically, HUD says, if you manage a site that has a high percentage of units with three or more bedrooms, you’re likely to manage more residents than at other sites with the same number of units. So it may cost you more to manage the site, which would justify a higher management fee.
Scattered sites. Managing scattered sites usually means you’re managing several small properties in different locations—for example, five or six properties with three or four units each. HUD says that to get an add-on for managing scattered sites, you must show that you’re managing more than one site and that the sites aren’t adjacent.
Remote location. HUD may approve an add-on fee for managing sites in remote locations if there’s no local management available and traveling to the site will be unusually costly (for example, a day’s drive or a plane trip); or you’ll need to do special outreach to attract residents.
Adverse neighborhood conditions. Sites in areas with a lot of deteriorated or substandard housing or that are affected by a high incidence of crime or vandalism have much higher maintenance and repair costs, resident turnover costs, vacancies, and rent collection problems than sites in less troubled areas. According to HUD, for rent collection problems, you won’t be able to get an add-on fee for collection losses that result from being in an adverse neighborhood if your original collections base for your residential management fee was less than 95 percent of your gross rent potential.
Getting add-ons for adverse neighborhood conditions is usually cut-and-dried if your site is in the inner city. But what if your site is in a suburb that has a crime problem? You can still get add-on fees by submitting crime reports to show how many police calls are made to your site, how many shootings occur each day in the area around your site, or other relevant crime statistics. Evidence that you’re taking additional security measures can also help you persuade HUD to consider the additional fees.
Sites owned by nonprofits or cooperatives. HUD may give an add-on fee to agents that manage sites owned by a nonprofit or a cooperative. Because some nonprofit owners of assisted sites may be less experienced in property management, and cooperative-owned units have additional legal and administrative responsibilities, HUD acknowledges that managing these sites requires more sophisticated knowledge and effort, and should get a higher fee.
Subsidy/program mix. HUD may give you an add-on fee if the site gets more than one type of subsidy; and because of the combination of subsidies, it requires more “administrative oversight” than the sites the HUD office used to establish the residential fee range.
Sites predominantly catering to disabled residents. Some Hubs give an add-on fee for managing sites with predominantly “special clientele,” usually residents with some kind of disability. These add-ons apply, for example, to Section 202 sites designed exclusively for the chronically mentally ill or disabled. Your regulatory agreement should state whether your site was designed primarily for one of these groups.
Sites committed to the Multifamily Better Buildings Challenge. In 2014, HUD expanded the list of allowable management add-on fees for Better Buildings Challenge (BBC) program participants. BBC participants have made a public commitment to reduce their portfolio energy and water usage by 20 percent in 10 years; take action by showcasing energy-efficiency projects; and report results by sharing whole-building energy performance data. The add-on fee incentive is intended to help pay for the additional cost of best practices in energy and water management. The four categories of BBC-eligible management add-on fees include site-specific green operations and maintenance; tenant engagement and education; utility data collection; and installation and use of energy data benchmarking and/or reporting software.
How to Request Add-On Fees
Handbook 4381.5, par. 3.7, says that HUD won’t consider add-on fees until after it has approved your fee percentages for residential, commercial, and miscellaneous income. If after getting your other fees approved, you still need add-on fees for long-term problems, here’s what to do to apply.
1. Get copy of fee schedule. To determine which add-ons are available in your area, call your loan servicer, asset manager, or loan management branch chief at your local HUD office and ask for the latest add-ons list issued by the Hub. Point out that HUD Handbook 4381.5, par. 3.7, says they’re supposed to issue one and send it out on request. If you have a copy of a fee schedule that’s over two years old, ask for an updated schedule. HUD requires area Hubs to review and publish fee schedules every two years.
If your area has an add-ons list, look it over. Decide which add-ons you might be eligible for. Eligibility criteria for some add-ons (for example, managing under multiple programs) may be clear. But eligibility for others (for example, managing sites in suburban areas with adverse conditions) may not be as clear.
2. Use management certification form to apply. To request add-on fees, list each add-on and give required additional information about it on attachment 1, section 4, of your management certification form. Use either the “Project Owner’s Certification for Owner-Managed Multifamily Housing Projects” (HUD Form 9839-a), or the “Project Owner’s and Management Agent’s Certification for Multifamily Housing Projects for Identity-of-Interest or Independent Management Agents” (HUD Form 9839-b), depending on which one applies to you.
3. Distinguish add-ons from special fees and justify your entitlement. In section 4, you’ll list both the special fees and the add-ons you’re claiming. According to HUD, don’t worry that section 4 says nothing about add-ons. If you’re also requesting special fees, list them first; you may want to group them under a “Special Fees” heading. Then skip a space before listing your proposed add-ons. Again, you may want to group them under an “Add-Ons” heading to distinguish them from the special fees you’re claiming. If you run out of room on the form, type the rest of your list on a separate piece of paper.
For each add-on you’re seeking:
1. State the reason you’re entitled to it and how the add-on compensates for management of difficult long-term site conditions.
2. State that the condition for which you need the add-on is a long-term condition that doesn’t have a beginning and ending date, as special fees do.
3. List the dollar amount you’re seeking. Use the fee schedule with the add-on list issued by your Hub and don’t exceed the amounts on it.
4. Attach backup documents to the form to prove you’re entitled to the add-ons you’re claiming. Although this isn’t required, it’s a good idea because otherwise, HUD may deny your request for add-ons. Here are a few examples of documents to attach:
- Copies of regulatory agreements to support add-on fees for managing sites designed primarily for special clientele or sites with multiple subsidies;
- Copies of police reports, local crime statistics, photos of graffiti or other maintenance problems, and time sheets of security guards, to support add-on fees for managing sites with adverse neighborhood conditions;
- Copies of time sheets listing time spent in meetings with tenants, notices or letters you circulated to schedule meetings, and/or rent records during a rent strike, to support an add-on fee for managing sites with tenant unrest; or
- Travel and long-distance phone records to support an add-on fee for managing sites in remote locations or scattered sites.
What HUD Will Do
After you submit the management certification form, HUD will review it to determine whether your site qualifies for the add-ons, and whether the dollar amount of the proposed add-ons is reasonable and doesn’t exceed the amounts stated in the schedule. Some areas may set a cap PUPM amount that your total management fees can’t exceed; if the amount you request in add-on fees causes your total PUPM fee to exceed the cap, HUD may deny your request.
Most HUD offices will send a letter explaining the decision on your add-on fees. Even if HUD rejects an add-on, it may indicate that you could get a smaller amount than you requested. Or it may tell you to apply instead for a special fee, addressing short-term site conditions.