Rental Assistance Demonstration (RAD) Update Presented by Thomas R. Davis Office of Recapitalization, HUD June 22, 2017

RAD Public Housing Conversions – Status* 63,765 Units converted from Public Housing to Section 8. $4.07 Billion (>$74K per unit) in construction investment** in RAD properties. It would have taken participating PHAs 46 years to accumulate enough public housing Capital Funds to complete a similar amount of construction. 39,000 Construction Trade Jobs generated and an additional 36,000 indirect jobs induced in the surrounding local economies. 25,047 Units in the final stages of the conversion pipeline – with RCCs issued or with Financing Plans submitted 225,000 Units authorized for conversion – an increase of 40,000 units from the previous 185,000 unit cap – but not enough to cover the ≈ 68,000 units that are on the waiting list. * Data through June 16, 2017. ** This figure doesn’t include items such as acquisition, soft costs, reserves & developer fee. PH RAD Status

PH Conversions – Financing* 44% of transactions involve significant work – from $25K to new construction 42% of transactions involve either 4% LIHTC or 9% LIHTC A major driver of the deeper-investment transactions, particularly those using 4% LIHTC, is accessing the value of the existing real estate (most significantly, by tapping into acquisition credits). * Data through June 16, 2017. PH RAD Status

PH Conversions – Program Growth Steady growth in conversions to Section 8 year to year Interim evaluation by Econometrica, published September 21, 2016, found: Proof of concept 9:1 leverage ratio Econometrica leverage ratio was from 2015 data. Updated figure indicates $19 in other funds for every $1 in PH funds Full evaluation in 2018 will address additional issues including residents’ experiences and satisfaction NOTE: FY2017 data from RAD 1 closed transactions only through June 15, 2017. FYE is September 30. Public Housing Conversions

PH Conversions – Where it works Note: This data reflects the inventory of RAD public housing applications (“projects”) received compared to the inventory of public housing projects existing in each region prior to any RAD conversions. Public Housing Conversions

Current Hot Topics in PH Conversions RAD Fair Housing, Civil Rights & Relocation Notice Front-end fair housing review is a risk-based analysis – not everything is reviewed by HUD Site and Neighborhood Standards continues to be an area of concern, particularly for new construction replacement units Relocation concerns seem to be somewhat eased, although the rules are complex RAD Notice Revision 3 Conforms with HOTMA (removes cap on the percentage of PBV units on a site) Eliminates need for a letter from the LIHTC Allocating Agency in the RAD application Revises the developer fee cap in LIHTC transactions Implementing the 40,000 Unit Increase in RAD Authority HUD is working on a Federal Register Notice which will set the rent levels Publication of the Federal Register Notice will start the 60-day clock to convert an LOI to a RAD application. Missing the 60-day deadline will mean losing one’s place on the waiting list Closing Deadlines Public Housing Conversions

2017 Closing Priorities & Deadlines Summary of Deadlines in RADBlast Issued March 15, 2017 HUD will prioritize transactions that met the applicable deadlines in managing workload RCCs issued by March 15, 2017 are expected to close by June 30, 2017 To be eligible to close by Nov. 30, 2017 transaction must meet the following To be eligible to close by Dec. 31, 2017 transaction must meet the following Upload all required Financing Plan documents* June 15 July 15 Receive a RAD Conversion Commitment (RCC) August 15 Sept. 15 Submit complete closing package Sept. 1 Oct. 1 All RAD documents approved and ready for HUD signatures June 22 Nov. 16 Dec. 14 *Note: For FHA-insured financing, the FHA application should also be submitted on or before the date associated with the Financing Plan submission. Make plans with your FHA lender to keep your financing on track.

Legacy Program Conversions – Status Conversions & Outstanding Pipeline Rent Supp/RAP Transactions: 33 properties remaining in portfolio 21 active transactions in the RAD 2 Pipeline 17 properties have contracts that expire in 2017 We hope to wind down the Rent Supp & RAP programs in the next few years Mod Rehab Transactions: 9 active transactions in the RAD 2 Pipeline 3 applications in process Substantial opportunities for Mod Rehab properties NOTE: Data derived from RAD 2 closed transactions only through June 15, 2017. Legacy Program Conversions

Thank You. For more information and case studies visit www.hud.gov/rad

5/24/17 Equity Market Status

Concerns for PHAs Equity market returns to basics – CRA need, developer strength, deal complexity, and return Limited federal resources & concerns regarding future availability -PHAs are already barely getting by and were able to do more given high equity pricing and low interest rates– they don’t have other tools. The strain on equity pricing hits them harder, as there’s no general partner equity they’re sitting on. What they have is what they have. -if we thought fed funding for PHAs was limited in 2008-2016, just wait until 2017 -I have the highest esteem for PHAs. Time and time again they do so much with so little. However, at the end of the day, they’re generally the ones working in rural counties, reliant on federal subsidy (not just to support this development, but to keep their own office lights on), and with limited capacity. As a result, in all honesty, PHAs are the most difficult to underwrite. They are most impacted by the tax code adjustments to price– especially 2016 and 2017 allocations.

Tools for PHAs Uptick in combination 4% and 9% transactions Increase transaction size = increase interest PHAs of all sizes using combo of public housing disposition and RAD in singular transaction Know your strengths and weaknesses – fill knowledge gaps -PHAs are already barely getting by and were able to do more given high equity pricing and low interest rates– they don’t have other tools. The strain on equity pricing hits them harder, as there’s no general partner equity they’re sitting on. What they have is what they have. -if we thought fed funding for PHAs was limited in 2008-2016, just wait until 2017 -I have the highest esteem for PHAs. Time and time again they do so much with so little. However, at the end of the day, they’re generally the ones working in rural counties, reliant on federal subsidy (not just to support this development, but to keep their own office lights on), and with limited capacity. As a result, in all honesty, PHAs are the most difficult to underwrite. They are most impacted by the tax code adjustments to price– especially 2016 and 2017 allocations.

Lessons Learned Worth repeating – estimate closing date and give yourself an additional month Especially true if complex Review HFA preferences/restrictions and compatibility with HUD requirements Be realistic about pricing and plan accordingly -PHAs are already barely getting by and were able to do more given high equity pricing and low interest rates– they don’t have other tools. The strain on equity pricing hits them harder, as there’s no general partner equity they’re sitting on. What they have is what they have. -if we thought fed funding for PHAs was limited in 2008-2016, just wait until 2017 -I have the highest esteem for PHAs. Time and time again they do so much with so little. However, at the end of the day, they’re generally the ones working in rural counties, reliant on federal subsidy (not just to support this development, but to keep their own office lights on), and with limited capacity. As a result, in all honesty, PHAs are the most difficult to underwrite. They are most impacted by the tax code adjustments to price– especially 2016 and 2017 allocations.

Tips for Converting Existing Mixed-Finance Properties to RAD 20% or less of total units assisted: no RPCA needed Can have negative R4R balance after Y10 if not exceeding 50% of 1st mortgage principal amortization Capital Needs Inflation Rate can be modified to current local conditions; defaults to 2.5% Consideration of future debt-only refinance to address IDRR Educate investors, lenders, & HFAs early in process

Timing Considerations for LIHTC/RAD Transactions 9% LIHTC apps to be submitted in next available round following 90 days after CHAP issuance 4% LIHTC apps to be submitted 180 days after CHAP issuance RAD Financing Plans due dates: 9% LIHTCs: 180 days after LIHTC allocation 4% LIHTCs: 90 days after LIHTC allocation Projects expected to close within 90 days of RCC issuance

Tips for Successful LIHTC/RAD Transactions Prepare a feasible “Plan B” if 9% LIHTCs not awarded, long before awards are announced Start Part 58 Environmental Review process early Submit FHEO requests early Submit RAD Financing Plan soon after 4% LIHTC app submitted – don’t wait for LIHTC allocation Prepare HUD closing docs prior to RCC issuance Push for drafts of LPA and loan docs ASAP Communicate with investor, lender, and HFA early re: Subordination to RAD Use Agreement

Richelle (Shelly) Patton Tapestry Development Group richellepatton@tapestrydevelopment.org 404.997.6786