7/3/2014

What is RAD? HUD’s  Rental Assistance Demonstration  Program SW NAHRO Annual Conference Tulsa, OK June 24, 2014

Rental Assistance Demonstration A HUD pilot program A voluntary program* A program like Section 8

Why RAD?

What does RAD do?

Public Housing subsidy is unstable

It converts Public Housing units to a RAD (HAP) contract (PBRA or PBV)

Administrative burden is too large

Allows a PHA to finance property without Mixed Finance process;  specifically, it RAD converts PH subsidy into something that banks can  understand more easily

Capital Funds aren’t sufficient‐$25 billion backlog

Removes some HUD administrative burden (UPCS/REAC, PHAS, Annual  Plan, 5‐Year Plan, Federal Procurement, …)

RAD provides solutions for units that can’t be  maintained or improved under current public  housing program

Turns property income into unrestricted/de‐federalized money Helps PHAs take necessary steps to improve their units

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PUBLIC HOUSING CONVERSION RENT LEVELS

How does RAD help PHAs?

Sample Public Housing Conversion   Per Unit Monthly (PUM) 

RAD provides a source of income that is more stable than PH Operating Fund  and Capital Fund subsidies

 $900    $800    $700    $600  

Operating Fund   $330  

Housing  Assistance  Payment  $474  

 $500    $400  

Capital Fund   $144  

$792 

 $300    $200    $100  

Tenant  Payment  $318  

Tenant  Payment  $318  

Pre‐Conversion 

Post‐Conversion 

ACC 

Section 8 

At conversion,  PHAs will  convert   funding to a   Section 8  contract rent. 

RAD HAP rents are subject to OCAF (Operating Cost Adjustment Factor),  typically 2‐3% annual increase PHAs spend less time with HUD reporting RAD allows streamlined HUD review Results in a Financial Plan for redevelopment and 20 years’ operations PHAs are free to pursue their own financing

 $‐     12

Public Housing Operating Funds Appropriations 2003 ‐ 2014

Public Housing Capital Funds Appropriations 2003 ‐ 2014

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TALE OF THE CURVES—SECTION 8 Billions

Billions

TALE OF THE CURVES—SECTION 9 $6

$5

$18

$16

$14

$12

$4

$10

PBRA OCAF ~4% per year PBRA

PIH Capital Fund

$3

PIH Operating Fund

$2

TBRA

$8

$6 Graph does not include $4billion in 2009 to Cap Fund through ARRA

$1

Graph does not include $2billion in 2009 to PBRA through ARRA

$4

$2 $0 2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

$0

2012

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

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Again, why RAD?

8

What is the current status of RAD?

Public Housing subsidy is unstable and the administrative burden is too large

RAD has been approved for 60,000 units

Capital Funds aren’t sufficient‐$25 billion backlog

Through 12/31/2013 HUD received applications for approximately 180,000 units (the  waiting list holds ~120,000 units)

HUD has no answer for units that can’t be maintained or improved translation =

HUD would like add even more units, pending legislative approval, and is still  accepting applications

RAD is an opportunity for PHAs to find the money for capital improvements that HUD  is unable to provide

The President’s FY2015 budget requests that the cap be eliminated and applications  be accepted through 2018 

RAD is an opportunity for PHAs to transform operations to that like a private landlord,  requiring less direct HUD oversight 

The Senate has requested the RAD cap to 185,000; it remains to be seen when and by  how much the RAD authorization is changed

RAD application is not a commitment by a PHA, and any application can withdraw  their interest at any time prior to signing the RAD HAP

RAD conversion continues on a first‐come, first‐serve basis

http://www.whitehouse.gov/sites/default/files/omb/budget/fy2015/assets/hud.pdf

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7/3/2014

PERCENTAGE OF CURRENT PH UNITS BY HUD REGION THAT HAVE APPLIED FOR RAD

RAD Next Steps? 15% 6%

7%

3%

7%

ADDRESSING RANGE OF CHALLENGES

Indicated PHA Objectives

18%

• Modernize aging family & elderly properties 16%

21%

• Sub rehab of deteriorated properties • Thin densities/mix‐incomes via PBVs & transfer

authority

22%

• Demolish/replace severely distressed/obsolete

21%

properties • Portfolio streamlining

Note: This data reflects the percentage of PH units in each HUD region that have applied for RAD; note that units are considered public housing until the RAD closing is complete.

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How does RAD affect residents?

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Choice Mobility

Residents’ rights are protected; residents have choice mobility

Residents are not required to participate in the RAD program

Residents may not be permanently displaced; may not be  rescreened before returning

Residents who participate are allowed Choice Mobility, which provides  a TBV (first available) to the resident after a year in the program (PBV‐ RAD)

Temporary relocation is covered by URA

The TBV is within the area of the agency administering the PBV  contract

Rent calculation remains 30% income; ceiling rents go away,  but increase can be phased in over 5 years (PHA choice) *Some RAD provisions may conflict with other programs,  especially LIHTCs

Residents of PBRA‐RAD programs are eligible for Choice Mobility after  two years in the program, but the PBRA provider can limit annual  participation PBRA‐RAD agencies can apply for exemption from Choice Mobility 

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Program Conflicts

A Louisiana Housing Authority Projected Residents Rent Payments under Public Housing and RAD

RAD is designed to coordinate with other affordable housing programs, but programs  do not always coordinate seamlessly

Example #1 Household Size 1‐Bedroom

$

Rents under Public Housing Income 30% Calculation Utility Allowance Rent 44.73 $ 33.00 $ 1,789 $

Rents under RAD 30% Calculation Utility Allowance 12 $ 44.73 $ 74.00 $ Change in Rent $

Example #2 Household Size 3‐Bedroom

$

Rents under Public Housing Income 30% Calculation Utility Allowance Rent 224.70 $ 38.00 $ 187 8,988 $

Rents under RAD 30% Calculation Utility Allowance $ 224.70 $ 110.00 $ Change in Rent $

These income limits can be very specific, and change based on county, household, and  even project type; further, IRS rules for income calculation can differ from HUD rules

Example #3 Household Size 1‐Bedroom

$

Rents under Public Housing Income 30% Calculation Utility Allowance Ceiling Rent 431.40 $ 33.00 $ 261 17,256 $

Rents under RAD 30% Calculation Utility Allowance $ 431.40 $ 74.00 $ Change in Rent $

RAD residents may not be displaced, but you can move them to another PH or RAD  property that does not use LIHTCs

*If RAD causes a resident's rent to increase by the greater of 10% or $25, the PHA can elect to phase the rent increase over 3 or 5 years

Rent (29) (41)

Income qualification in LIHTC properties is an area that requires close monitoring A resident in a RAD property that is also a LIHTC property may have an income that  exceeds the maximum allowable income for residents in the LIHTC program

Example #3 1‐Bedroom

$

Rent 115 (72)

Rent* 357 96

Income PHA Rent RAD Rent Year 1 RAD Rent Year 2 RAD Rent Year 3 RAD Rent Year 4 RAD Rent Year 5 261 $ 280 $ 299 $ 319 $ 338 $ 96 17,256 $

You can also structure your LIHTC property with less than 100% LIHTC units 

Financing with RAD One of the major goals of RAD is to give PHAs freedom to take  mortgages on their property But mortgages may not be enough to fund improvements or new  development; other sources include: 9% tax credits; very competitive, can support $90,000 to  $120,000/unit in work, good for new construction or rehab 4% tax credits; non‐competitive, may only support $30,000/unit,  good for moderate rehab (unless you have additional sources) Affordable Housing Program, HOME Program, CDBG, PHA self‐ financing

Benefits of LIHTC Low Income Housing Tax Credits have been used since 1986 to develop affordable  housing LIHTCs are considered by many within the industry to be one of the most successful  government programs LIHTCs may be used to build new units or redevelop existing units and has produced  almost 1.5 million units, with over 100,000 new units per year nationally LIHTCs may be used to build the housing you already provide (elderly, family,  accessible, etc) as well as community space and other supportive spaces. In a LIHTC transaction, a PHA would partner with an investor that would provide  funding (equity) in exchange for the tax credits and other tax benefits from the  property In return, your PHA should receive funding for development, a better space to house  your Public Housing or Section 8 residents, and some developer fee or cash flow from  the property

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7/3/2014

Typical LIHTC Organizational Chart ABC Development I, LP

Limited Partner

Owner

Investors (99.9%)

DEVELOPMENT MODELS

Project Name GP, LLC General Partner (0.1%) (Executive Director, President)

HA Development Corporation (non‐ profit)

Development Partner Member

Member

Same as PHA Board 

Executive Director Secretary/Treasurer

48

Financing a successful development

Financing a successful development

New Construction with 9% LIHTCs – Three Cases (units)

Rehabilitation 9% LIHTCs – Three Cases (units)

42

119 30

82

36 49

Baton Rouge, LA

Lake Charles, LA

Baytown, TX

Lake Charles, LA

Baton Rouge, LA

Clay Center, KS

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7/3/2014

RAD / LIHTC Project Example: Magnolia Crossing, Yazoo City, MS

Example Project: Magnolia Crossing

Yazoo City Housing Authority has 288 units Magnolia Crossing is 86 units Rehab will improve structures, update appliances, replace major finishes  (kitchen/bath), and reconfigure some units First substantial updates since new construction in 1979/1981 Awarded $714,000 in tax credits from MHC YCHA will lease buildings to partnership for $2,000,000 but loan $1,250,000 back  to project YCHA should earn more than $1,000,000 in unrestricted/de‐federalized money Would take 15 years to complete the same work with Capital Funds

Example Sources: Magnolia Crossing Limited Partner Equity (CREA‐$0.85) Perm Loan (HOPE Enterprise) Soft Loan (YCHA)

5,430,000 885,300 1,250,000

Example Uses: Magnolia Crossing Acquisition

2,000,000

Construction Costs

4,561,840

Architecture & Engineering

334,980

Legal & Accounting

245,000

3rd Party Costs

137,000

AHP Grant (FHLB of Dallas)

460,000

Tax Credit costs

154,465

HOME Funds (MHC)

750,000

Interim Loan Costs & Interest

220,746

Income during construction

50,000

Perm Loan Costs

Deferred Developer Fee

64,441

Reserves

Total Uses

$8,929,116

Relocation, Lease‐up & Marketing Miscellaneous Costs Developer Fee Total Uses

32,706 288,379 93,000 50,000 811,000 $8,929,116

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Options: Mixed Finance or RAD? Mixed Finance • • • • • •

Leverages private & public funds Federal procurement rules apply Uses multiple offices (SAC, Mixed  Finance) for project approval Lengthy HUD review process (can  be 12 months) CFFP 33% limit on leveraging Subject to appropriations

RAD • • •

• • • •

Leverages private & public funds No additional Federal  procurement  One HUD office for entire  transaction, one transaction  manager Streamlined HUD review process 100% of portfolio can be leveraged Financial community prefers PBV OCAF protection for rental income

Every rose… Developing or redeveloping your units is a time‐consuming, high‐workload,  stressful process RAD program requirements can conflict with LIHTC program requirements;  specifically income limits for residents Mortgages for your RAD property have to be paid from available income; you  will need to be creative in your financial plan Freedom to make good decisions for your residents implies freedom to make  poor decisions as well RAD may provide a better to solution to your needs, but it is not a magic  bullet; it’s still up to you to make good decisions and provide good housing for  your residents

In Summary Public Housing is broken and RAD is HUD’s solution RAD can stabilize income to PHAs RAD frees PHAs to pursue financing required to develop RAD generates unrestricted/de‐federalized income for PHAs RAD frees PHAs to a better business model RAD helps relieve regulatory burden on PHAs RAD frees PHAs to make decisions that better help residents

RAD Next Steps? RAD Application Requires board resolution Requires 2 resident meetings per site “Portfolio” application may present 51% of your units May need to procure a consultant for the application Application demonstrates RAD is conceptually feasible HUD will provide a CHAP for successful application Physical Conditions Assessment In‐depth review of every site in application Will create a model for improvements required for RAD conversion Also requires: energy audit, utility consumption baseline, pest inspection Financial Plan Includes all improvements required by the PCA Also includes any other desired improvements Demonstrates that RAD conversion is feasible  Creates a 15‐year proforma for all property expenses

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7/3/2014

RAD WEB PAGE

Various Considerations in Choosing PBRA vs. PBV

Item  1. Baseline Funding Levels 

 

PBRA  Based on 2012 levels, with Operating Fund Allocation Adjustment restored  20 years 

2. Initial Contract Term 

RAD Notice, application materials, and  additional resources can be found at   

3. Contract Renewals 

At end of contract term, Secretary must offer, and PHA must, accept renewal 

4. Rent Caps 

Current funding cannot exceed 120% of the FMR, unless the current funding is less than market, in which case the current funding cannot exceed 150% of FMR.   Based on Operating Cost Adjustment Factor (OCAF), i.e., the method used to adjust rents for Multifamily projects renewed under the Multifamily Assisted Housing Reform and Affordability Act (MAHRAA).  Resident may request next available voucher after two years; however, voucher agency may limit to not more than 15% of project in any year and not more than 33% of voucher turnover due to RAD.   N/A 

5. Annual Inflation Adjustment 

www.hud.gov/rad     

6. Choice Mobility  

7. Voucher Admin Fee 

Email questions to radresource.net 

 

PBV  Same  15 years (up to 20 at option of voucher agency); voucher agency may also automatically extend for another 15 years  Same  Current funding cannot exceed the lower of (1) reasonable rent or (2) 110% of FMR.  

Same 

Resident may request next available voucher after one year, with no limitations.  

PHA earns Section 8 voucher admin fee for all units converted to PBV. Note: for agencies that do not administer a voucher program, and that convert to PBVs, the voucher agency will be responsible for administration of the waiting list, eligibility, reexaminations, leading to substantial deregulation for the converting agency. 

74 84

WHERE’S THE MONEY?

Various Considerations in Choosing PBRA vs. PBV

8. REAC/UPCS Inspections 

Yes 

No (unless project receives FHA insurance) 

9. REAC/FASS-MF Annual Financial Statements 

Yes 

No (unless project receives FHA insurance) 

10. Management and Occupancy Reviews (MORs) 

Yes 

No (unless project receives FHA insurance) 

11. Cash Flow  12. Appropriations 

Unrestricted  Annual funding subject to appropriations; however, the Congress has never failed to renew a PBRA contract 

Same   Annual funding subject to appropriations. Because of the RAD Use Agreement, if Congress provides less than full funding for the Voucher program (i.e., proration), the PHA administering the voucher program may will likely need to absorb the cuts from its non-RAD voucher units.  

13. Rehab Requirements 

There is no required level of rehab under RAD (or requirement to leverage debt). The PHA must simply ensure that whatever needs are identified are addressed. 

Same 

14. FHEO Site/Neighborhood Standards 

Standard FHEO requirements not waived under RAD.  

Same 

• Annual and Five‐ Year Plans 

15. Income Mixing 

N/A 

Under normal PBV rules, not more than 25% of units in a project can be assisted, unless the units are elderly or disable, scattered site, or receiving supportive services. RAD increased the threshold to 50%, with the same exceptions. (see pages 30-41 PIH 201332 –REV. 1) 

• PHAS 

•

The RAD options:  • • •

Modest rehab with debt only  Moderate rehab with debt and 4% LIHTCs  Major rehab or replacement with debt and 9% LIHTCs 

 

•

These are funding sources that are not conveniently  available to small PHAs   

•

A conversion of all LIPH units eliminates the HUD  requirements for:  • Procurement 

• REAC (if…)  • 85

You Get to Keep the Money   

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7/3/2014

Contact us Micah Strange 1935 Airline Drive, #200 Bossier City, LA 71112 318‐226‐1411 [email protected]

Michael Bowen 8610 King George Dallas, TX 75235 214‐819‐3940 [email protected]

Dan Strange 1450 Blue Run Road Minden, LA 71055 318‐377‐9268 [email protected]

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