On March 29, HUD published Housing Notice 2023-03: Capital Needs Assessment (CNA) eTool for Asset Management. The Notice provides guidance to lenders and servicers, third-party needs assessors, property owners, and HUD staff on the policy for submission and review of Capital Needs Assessments (CNAs) required for 10-year updates.

The Notice outlines the use of the CNA eTool, which automates the Assessments; the Notice applies to Federal Housing Administration (FHA) insured properties, Rental Assistance Demonstration (RAD) Conversions, and several eligible asset management milestones.

Starting June 27, 2023, 90 days from the date of publication of the notice, use of the CNA eTool is required for all CNA submissions, with a limited number of exceptions identified in the notice.

Capital Needs Assessments

CNAs describe the physical elements of a property and characterize the conditions and expected durability of those elements. The CNA projects the necessity and cost of future capital repairs and replacements for the property using estimated useful life calculations.

The CNA eTool, which automates CNAs, was jointly developed by the U.S. Department of Housing and Urban Development (HUD) and the U.S. Department of Agriculture (USDA) to align agency and industry practice for the preparation and standardization of required capital needs assessments.

The CNA eTool helps generate reports that can be used to:

• Identify and describe physical deficiencies of the property;
• Identify and describe immediate/short-term repair needs;
• Estimate long-term capital replacement costs; and
• Support a financing plan to source identified repairs and capital needs. 

Applicability

Notice 2023-03 applies to all FHA-insured properties that have a 10-year CNA update requirement.  Additionally, this notice applies to CNAs required for RAD Conversions, Housing Assistant Payment contract assignment requests where HUD has requested a CNA, and other eligible asset management milestones, such as Budget Based Rent Increase, for Sections 202 and 811 Project Rental Assistance Contracts, Partial Payment of Claims, or Transfer of Physical Assets.

The CNA eTool is required for all submissions except as indicated otherwise in this Housing Notice. The CNA eTool is not required for non-insured properties that have thirty (30) units or less. FHA-insured properties, regardless of size, are subject to the requirements in this notice.

Process

The launch of the CNA eTool was delayed several years and is set to begin on June 27, 2023. HUD’s Notice outlines the process for using the eTool.