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?
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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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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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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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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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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.
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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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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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