Overview of RAD –How did we get here?

Overview of RAD – How did we get here?

The Evolution of RAD

The Rental Assistance Demonstration (“RAD”) is a demonstration program that was created in 2012 by the Department of Housing and Urban Development (“HUD”) to give Public Housing Agencies (“PHA’s”) a powerful tool to preserve and improve public housing properties.

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The Evolution of RAD ‐ The Problem in Public Housing

• 1.2 million public housing units across the country

• 3,100 public housing authorities• Serve our lowest income citizens• Capital backlog $26 billion (average

of $45K per unit) • Losing 10,000 to 15,000 public

housing units per year• Cannot borrow against public

housing funds to complete repairs 2

The Evolution of RAD ‐ Four Cornerstones of RAD

1. Physical Condition of the Property• RAD allows PHAs to leverage public and private debt and equity in order to reinvest in the public housing stock.

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The Evolution of RAD ‐ Four Cornerstones of RAD continued

2. Resident Rights• Current and future residents are provided a robust set of rights and protections

– Required resident notices, consultation, and discussion in the PHA plan

– A right‐to‐return to the property following any temporary relocation and prohibition against any rescreening

– Relocation assistance and benefits in accordance with the Uniform Relocation Act (URA)

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– Grievance and termination procedures– Resident organizing rights and resident organization funding

– A right to request a tenant‐basedvoucher after a period of residencyat the converted property(“choice‐mobility”)

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3. RAD maintains the public stewardship of the converted property through clear rules on ongoing ownership and use.

• Public or nonprofit entity must always maintain a controlling interest

– Through a wholly owned affiliate– Lessor under a ground lease– 51% of GP interests or managing member interests– Other ways

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• For Profit can have ownership to facilitate the use of tax credits or through a Control Agreement

• RAD Use Agreement– Requires the owner to renew the Section 8 HAP contract

– Runs with the land: remains permanently affordable

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4. In RAD, units move to a Section 8 platform with a long‐term (20‐year) housing assistance payment (“HAP”) contract.

– Subsidy Swap– Funding Neutral: does not increase HUD’s budget

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The Evolution of RAD ‐ Results of the RAD Demonstration So Far

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• Significant Growth and Investment – 113,000 have completed conversion in 5 years– Securing approximately $5.75 billion of construction investment– On average $57,000 per unit of physical improvements– Made homes and common areas more accessible, increasing the

number of homes designed for residents with disabilities– Addressed lead and other environmental hazards to ensure residents

live in healthy homes

The Evolution of RAD ‐ Results of the RAD Demonstration So Far continued

– Generated over 108,000 jobs, often employing low‐income residents through Section 3 hiring initiatives

– Installed energy efficient systems and appliances to reduce costs

– The FY18 HUD appropriations law recently authorized another 230,000 public housing units to convert under RAD: going from 225,000 to 455,000

– 350,000 units already reserved – reach the cap in the next 18 months

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Key Considerations of RAD

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• Bringing in a Development Partner and Investor – Some properties require a significant amount of repairs– Tax credit equity is one way to pay for those repairs– If a PHA does not have development experience, this will

require partnering with a developer– Lots of fear around tax credits – and even debt– Hire a great RAD attorney who can help negotiate on

Behalf of the PHA– Remember Cornerstone #3: the PHA must maintain control/interest in the property– There are many ways of Master Development Agreement that gives the PHA lots of $$ and

rights

Key Considerations of RAD

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• Self‐Development vs Development Partners– Advantages of Self Development

• More PHA control• You get to keep all of the developer fee

– Disadvantages of Self Development• Requires much more staff time• You have to provide the guarantees• You have to provide all of the pre‐development funding

Key Considerations of RAD continued

• Project‐Based Rental Assistance (“PBRA”) vs Project‐Based Vouchers (“PBV”)– PBV Regulations at 24 CFR Part 983 with some exceptions– PBV Advantages

• Remain under HUD’s Office of Public and Indian Housing (PIH)• Most PHAs already operate a Housing Choice Voucher Program and many operate a PBV program

• Tenant Certifications and Waitlist Management remain with the PHA• PHA earns a PUPM Administrative Fee

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– PBV Disadvantages• Congressional Appropriations: HCV renewal funding is often pro‐rated

– Not a direct impact on the RAD projects, but how will the rest of the HCV program absorb the impact?

• Funding is an estimate based on current tenant data• Capped by the lower of reasonable rent, RAD Rent or 110% of FMR.• Choice Mobility provision caps turnover vouchers to RAD residents to ¾ of turnover voucher inventory ‐ if because of RAD, the PBV program exceeds 20% of authorized units

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– PBRA Regulations at 24 CRF Part 880 with some exceptions– PBRA Advantages

• Congressional Appropriations viewed as a more stable funding source. HUD has never failed to fully fund or renew a PBRA HAP Contract.

• Rent cap is the lower of current funding and FMR rent cap – 120% of FMR. This can go up to 150% of FMR if supported with a rent comp study.

• Choice Mobility: PHA can request a good cause exemption. Voucher turnover cap for RAD projects can be 1/3 of turnover voucher inventory. Project turnover cap can be limited to 15% of total units a year.

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– PBRA Disadvantages• Switching from PIH to Multifamily Housing is a significant commitment of time and resources and involves a greater level of organizational change.

• Onboarding to Multifamily Secure Systems, particularly converting from PIC to TRACS – Tenant Rental Assistance Certification System can be challenging.

• PHA must master new Management and Occupancy policies –lots of new HUD Handbooks.

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• PHA Identity Post‐RAD– What will be the function/role of the PHA and Board post‐

conversion?– Consider some Strategic Planning– Create a Vision Statement, a Mission Statement, and a Strategic

Plan• Increase your footprint in the community• Partner with service agencies• Focus on a particular group of people like kids aging out of foster care or transitional housing 17

The Benefits of RAD

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• RAD’s Positive Impact on Public Housing Residents discussed previously• The long‐term preservation of affordable housing• Increases property cash flow that is unrestricted because it is de‐federalized• RAD Rents adjusted upward annually by HUD’s published Operating Cost

Adjustment Factor (“OCAF”): rents never go down.• Reduces HUD field office oversight• Eliminates public housing procurement rules and Davis Bacon Requirements

after initial rehab• Provides regulatory flexibility for future transactions

RAD Program Challenges

• RAD is revenue neutral to the federal government – No new money and the rents are typically low

• Public Housing expenses are typically higher than in the Section 8 properties– If the PHA will be securing debt:

• Expenses need to be reduced• Shift to private sector mentality

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RAD Program Challenges continued

• Wrapping head around the E‐Tool and 20‐year needs– The significant level of capital needs for projects may require more than

existing reserves or new debt to make the transaction work– Low Income Housing Tax Credit (“LIHTC”) equity may be needed

• 4% LIHTC and 9% LIHTC (a very scarce resource)• PHAs lacking tax credit experience often need a developer partner that understands the LIHTC program

• Equity investors require financial guarantees. PHAs often don’t have the financials to back the guarantees.

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RAD Program Challenges continued

• A developer partner often wants property management oversight if it is signing an operating deficit guarantee.

– HAI can assist housing authorities provide guarantees for a better position at the bargaining table

• Capacity: the volume of transactions that need to be closed within the prescribed time lines often require PHA’s to partner with developers.

• Subsidy Flow– The transition from public housing to Section 8 can be bumpy and the

funding may not flow immediately. 21

Other Public Housing Repositioning Options

• Section 18 Demolition/Disposition– PIH Notice 2018‐04 released March 22, 2018

• Outlines the requirements to request HUD approval to demolish or dispose of public housing property under Section 18 of the Housing Act

– Applications processed through the Special Applications Center (“SAC”)

• Eligibility for Tenant Protection Vouchers– Application processed through the Field Office

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Other Public Housing Repositioning Options continued

– Historically most commonly used options under the notice• Unit obsolescence

– Units are obsolete as to physical condition and meet threshold criteria for replacement cost

• Surrounding Area: retention of the units is not in the best interest so the residents or the PHA

– Surrounding area adversely affects the health or safety of the residents» Flood Zone & places Surrounded by industrial sites

– Or the feasible operations of the project by the PHA» Lack of demand for units 23


• Very small PHAs– The PHA owns and operates 50 or fewer public housing units under its ACC and has determined that it is in the best interests of the residents and PHA to close out its Section 9 public housing program in accordance with PIH Notice 2016‐23. 24

– Added options under new Notice


• Comprehensive Rehabilitation through RAD– In recognition that 9% LIHTC awards are competitive and 4% LIHTC transactions most often have a gap in funding

– To qualify, must be newly constructed or substantially rehabilitated housing (hard construction costs in excess of 60% of the Housing Construction Costs) without using 9% Low Income Housing Tax Credits.

– Tenant Protection Vouchers on 25% of the units at typically higher rents: payment standard or reasonable rent

– RAD Rents on 75% of the units25


• Scattered Site Units– Due to distance between units and lack of uniformity of systems (e.g. HVAC, utilities) the PHA demonstrates an unsustainability to operate and/or maintain the units as public housing. For purposes of this notice, scattered site units generally mean units in non‐contiguous buildings with four or fewer total units.

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– Application Requirements• Environmental Review• Included in Annual Plan• Resident Consultation• Board Resolution• Proof of Commensurate Public Benefit

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• Streamlined RAD Conversion– RAD Supplemental Notice –

July 2018 – PIH 2012‐32 REV 3– Less than 50 units– No rehab– No PCNA\modified Tiered ER– Benefits over Section 18

• Streamlined application• Could do PBRA

• Don’t have to apply for TPV funding

• Perhaps politically more acceptable

– Downside is the low rent levels

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• Streamlined Voluntary Conversion– PIH Notice 2019‐05, March 21, 2019– 250 or fewer units

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Questions and Answers

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Thank you for your time!

Overview of RAD –How did we get here?

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