2. RAD: The Latest Update Moderator: Barry Palmer, Coats Rose, P.C.
Panelists:
Satish Bhasker, Housing Authority of the City of El Paso Ann Gass, Austin Affordable Housing Corporation William Lavy, US Department of Housing and Urban Development
Mark Ragsdale, PNC Real Estate Brian Robinson, Baker Tilly Virchow Krause, LLP

3. Rental Assistance Demonstration (RAD) Update
US Department of Housing & Urban Development July 24, 2018

4. Background on RAD The Problem
Deferred public housing capital repair needs estimate in excess of $25.6B across the portfolio (>$23k per unit) and rising.
Public housing platform creates barriers to accessing private capital
Multifamily “legacy” program properties also at risk
The Solution – Changing the Regulatory Platform
RAD created in FY2012 Appropriations Act with subsequent incremental expansions
Allows public housing to convert to long-term Section 8 Housing Assistance Payment (HAP) contracts
Also allows other at-risk multifamily assisted properties to convert to Section 8 HAP contracts
Leverages private investment to address capital needs, improving conditions for residents, creating jobs and stabilizing the assisted portfolio
Background

5. Structure of RAD
RAD for Public Housing also known as the “1st Component”
RAD for Other Multifamily Housing also known as the “2nd Component”
RAD
Conversion
Rent Supplement
Rental Assistance Payment
Sec. 8 Moderate Rehabilitation
PRAC for Sec. 202
McKinney Vento SRO
Public Housing
(455,000 unit cap*)
* Administration’s FY2019 budget requests elimination of the cap on public housing conversions.
Section 8 PBRA
Section 8 PBV
Background

6. Why RAD for Public Housing?
Proven to be successful in securing resources for public housing modernization based on conversions to date
Preserves prior federal investment in place-based affordable housing
Provides flexibility, creativity, and local control for PHAs
Voluntary and budget-neutral
Transfers property from one regulatory platform to another, facilitating access to private market for capital improvements and improving conditions for residents
Balances interests of PHAs, private partners, residents and other stakeholders

7. Public Housing Conversions Rent Setting
At conversion, PHAs will convert funding to a Section 8 contract rent at “current funding” levels
Post-Conversion (Section 8)
Pre-Conversion (ACC)
PH RAD Subsidy Structure

8. RAD Public Housing Conversions – Status*
97,113 Public Housing Units
converted from Public Housing to Section 8.
$5.68 Billion (roughly $60K per unit)
in construction investment* in RAD public housing conversion properties. It would have taken participating PHAs roughly 46 years to accumulate enough public housing Capital Funds to complete a similar amount of construction.
Roughly 360,000 Public Housing Units
are in the RAD Component 1 pipeline in some form (relative to the 455,000 unit cap). This includes converted units, units with CHAPs, units reserved under multiphase or portfolio reservations, and units that have been on the waiting list and that, upon processing, will have RAD authority under the increased 455,000 unit cap.
* This figure doesn’t include items such as acquisition, soft costs, reserves & developer fee.

9. PH Conversions – Financing*
42% of transactions involve significant work – from $25K to new construction
40% 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 April 30, 2018.

10. 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.

11. Other Multifamily Conversions – Status
Conversions & Outstanding Pipeline
Rent Supp/RAP Transactions:
22 properties remaining in portfolio
12 properties have contracts that expire in 2018
We hope to wind down the Rent Supp & RAP programs in FY2019
Mod Rehab Transactions:
16 active transactions in the RAD 2 Pipeline
Substantial opportunities for Mod Rehab properties
Section 202s
HUD is working to draft the Notice to implement the new conversion option for Section 202 PRAC properties
NOTE: Data derived from RAD 2 closed transactions only through April 30, 2018

12. Policy Updates
New Federal Register Notice implements cap increase  “2016 Modified RAD Rents” (with 2018 Capital Fund)
RAD Supplemental Notice: Streamlined Small PHA Conversion for PHAs with 50 units or less
New Section 18 Notice (PIH ) expands Section 18 Disposition for:
PHA with 50 units or less
Scattered sites
RAD/Section 18 blend

13. Remain in Public Housing
Public Housing Repositioning Options
Remain in Public Housing
Mixed Finance
Operating Fund Financing Program
Capital Fund Financing Program
Energy Performance Contract
Capital Fund
Consolidation/
Consortium/
Transfer

14. Public Housing Repositioning Options
Leave Public Housing
Home Ownership
(Section 32)
Project-Based
Section 8
Voucher Out
Voluntary
Conversion
Section 18
RAD
(PBV or PBRA)
Section 18
(PBV Only)

15. Public Housing Repositioning Options
Section 18
Justifications:
Unsafe/unhealthy location and infeasibility
Scattered Sites
50 or fewer units remaining in PH inventory
“Efficient and Effective”
Physical obsolescence
TPVs for Occupied Units (note: “Efficient and Effective” only eligible for 25% of occupied units)
Can project-base TPVs
Eligible for DDTF and ARF
No replacement housing required
RAD
RAD Contract Rents = Current Public Housing Funding
PBRA or PBV
Can use PH $$ in development budget to support conversion
Long-term Use Agreement
Resident Right to Return
Preserve FSS
Replacement housing requirement
Not eligible for DDTF or ARF
RAD/Section 18 “Blend”
Eligible properties include those whose rehab or construction costs are at least 60% of Hard Construction Cost (HCC) limits, provided not using 9% credits
75% of the units go RAD and 25% go Section 18
Project will receive TPVs for 25% of units

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

17. Agenda Why RAD, Opportunities with RAD, New RAD Notices
Recent legislative activities
Impact of tax reform and Omnibus Spending Bill
Market Conditions (Interest rates)
Advocacy

18. Why RAD Benefits of RAD for PHAs
Stabilize funding
Access to private capital
Strong platform for long-term preservation
Enhance housing options for residents
Streamline HUD programs
RAD, Mixed Finance, Section 22, Section 18, no change

19. Why RAD Recent RAD Notices (Omnibus Spending Bill (2018)
Key Provisions
Authorized an additional 230,000 public housing units to convert under RAD Program
Modified FY2016 RAD Rents
RAD conversion of properties assisted by Section 202 Supportive Housing for the Elderly Project Rental Assistance Contracts (202 PRACs)

20. Why RAD Recent RAD Notices (Supplemental Guidance)
Rent Flexibilities – Expanded Rent-Bundling for Project-Based Vouchers (PBV)
Section 18 Applications and RAD (PIH Notice )
Streamlined RAD Conversion for Small Public Housing Agencies (PHAs)

21. Why RAD Recent RAD Notices (Supplemental Guidance)
Cont’d
Allow PHAs to establish project-specific utility allowances for PBV conversions
Provide an incentive to owners to adopt a waiting list preference for households exiting homelessness/permanent supportive housing by permitting a higher developer fee limit.  

22. Recent legislative activity and its impact to affordable housing
Tax Cut and Jobs Act of 2017 / Omnibus Spending 2018: Key provisions related to affordable housing
Recent legislative activity and its impact to affordable housing
Tax Cut and Jobs Act of 2017
Omnibus Spending Bill (2018) 22

23. Decrease in corporate tax rate from 35% to 21%
Tax Cut and Jobs Act of 2017: Key provisions related to affordable housing
Decrease in corporate tax rate from 35% to 21%
Changes in federal historic tax credit, and federal and state rehabilitation tax credit
Created a new economic development tool called “qualified opportunity zones” 23

24. Tax Cut and Jobs Act of 2017: Key provisions related to affordable housing
Created a new economic development tool called “qualified opportunity zones.”
Impact:
Established to spur long-term private sector investments in low-income communities nationwide.
The program offers a frictionless way to reinvest capital gains into distressed communities through Opportunity Funds, in exchange for a graduated series of incentives tied to long-term holdings.
This program is the first new national community investment program in over 15 years, and has the potential to be the largest economic development program in the U.S.

25. How do Opportunity Zones work?
Tax Cut and Jobs Act of 2017: Key provisions related to affordable housing
How do Opportunity Zones work?
The Opportunity Zones program offers investors three incentives for putting their capital to work rebuilding economically distressed communities:
A temporary deferral: An investor can defer capital gains taxes until 2026 by putting and keeping unrealized gains in an Opportunity Fund.
A reduction: The original amount of capital gains on which an investor has to pay deferred taxes is reduced by 10% if the Opportunity Fund investment is held for 5 years and another 5% if held for 7 years.
An exemption: Any capital gains on investments made through the Opportunity Fund accrue tax-free as long as the investor holds them for at least 10 years.

26. Omnibus Spending Bill (2018): Key Provisions related to affordable housing
12.5% percent increase in Housing Credit allocation for four years ( )
Income Averaging: Allows projects to accept tenants with higher average median incomes as long as the overall average of tenants in project does not exceed 60% AMI
Increased the cap for the Rental Assistance Demonstration (RAD) program from 225,000 to 455,000
Extended the RAD program to include HUD 202/811 PRAC properties

27. How does the Income Averaging Test work?
Omnibus Spending Bill (2018): Key Provisions related to affordable housing
Omnibus Spending Bill (2018):
Income Averaging Test
How does the Income Averaging Test work?
A new minimum test has been added to the two set-aside tests of:
At least 20 percent of the units had to be both rent restricted and occupied by households with incomes at or below 50 percent of area median income (AMI)
At least 40 percent of the units had to be both rent restricted and occupied by households with incomes at or below 60 percent of AMI.
The new third minimum set-aside (Income Averaging) is as follows:
At least 40 percent of the units have to be both rent-restricted and occupied by individuals whose incomes do not exceed the imputed income limitation designated by the taxpayer.
The average of the imputed income limitations designated cannot exceed 60 percent of AMI.
The designated imputed income limitations must be in 10 percent increments as follows: 20%, 30%, 40%, 50%, 60%, 70%, 80%

28. Interest rates Market Conditions Interest Rates
HUD 221d(4) [rehab/new construction] or HUD 223(f) [acquisition or refinance]
Still uncertain if there will be more Treasury rate hikes in 2018
December 1, 2018
2.40%
January 1, 2018
2.58%
February 1, 2018
2.86%
March 1, 2018
2.84%
April 1, 2018
2.80%
May 1, 2018
2.95%
June 1, 2018
2.89%
July 1, 2018
2.87%

29. Advocacy
Annual developments generate 95,700 jobs and $9.1 billion in wages
Since inception of the program, $122 billion of tax revenues have been generated for federal, state and local governments
A working paper by the National Bureau of Economic Research found that each LIHTC development in low income areas causes aggregate benefits in those neighborhoods of $116 million, increasing surrounding home values by 6.5%

30. HACA Overview 1,839 public housing units 6,149 Vouchers
1,058 converted to PBRA
781 under CHAPs
>10,000 on WL
6,149 Vouchers
>1,000 on WL
Choice Mobility starts in December

31. HACA RAD Overview 1,058 converted since November 2016 781 under CHAP
457 units: 4% LIHTC rehabs
601 units: Debt/Light rehab
781 under CHAP
220 units: 9% LIHTC
awarded or applied for
561 units: Debt/Light
rehab

32. Debt - Light Rehab – Thurmond Heights
144 units
$9 million in rehab since 2014 using CFP
RAD Scope = Upgrades to Community Room

33. 4% LIHTC Rehab – Gaston Place
100 units
$7.5 million in rehab
RAD Scope
Full Interior Unit Rehab
Common Area Rehab
New Roof/Paint/Siding

34. Gaston Place
Before
After

35. 9% LIHTC Redevelopment – Goodrich Place
40 units -> 120 units
40 PBRA
80 LIHTC
Built in 1973
No A/C
High opportunity area

36. Pathways at Goodrich Place

37. Takeaways from HACA Reach out stakeholders early
Resident Protection Team - PIC
Met with all City departments to explain RAD - timelines, PR/messaging
Be ready with messaging for pushback on RAD
Assemble a great team with RAD experience
Advise HUD Office of Recap of concerns/ complications early
Resident Protection Team - PIC
Great team with RAD experience -
Attorneys, LIHTC consultants, RAD consultant Bring in LIHTC consultants early, during planning process
E.g. 2 mile rule
Advise HUD Office of Recap of concerns/complications early
E.g. Rosewood
Met with all City departments to explain RAD - timelines, PR/messaging
Mayor, City Council, Planning and Permitting, AFD, Austin Energy
Be ready with messaging for pushback on RAD
Selling public housing
Residents pushed out
Rent going up

38. Resident Protection Team
Advisory Group:
Austin Tenant’s Council
Austin Travis County Integral Care
Austin Independent School District
Boys & Girls Club
Capital Metro
Family Eldercare
Austin Energy
Austin Interfaith
ADAPT
Communities In Schools
HACA Residents

39. Takeaways from HACA - PBRA
Allow for extra staff for transition
Conversion affects ALL departments
Choose and begin
work with PBRA
software early
Allow for extra staff for transition
Lease signings, new program/rules
Conversion affects ALL departments
Procurement, Finance, CFP/Planning and Development
E.g. COOP procurement, move from PIH to Multifamily
For PBRA, choose and begin work with PBRA software early

40. ABOUT HACEP: A City View

41. HACEP’s RAD: Timeline

42. Successful Revitalization Record
HACEP’s RAD: Financing
Successful Revitalization Record
9% Awards
Gonzalez Place & Commissioners’ Corner – both new construction (2018
Blue Flame & Medano Heights (2017)
Sherman North & Westfall Village (2016)
Tays South & Krupp Hollow (2015)
Total 4% Closed-To-Date
3,445 units
Total Projected TDC: $1.2 B
TDC on Closed Communities: $673 M
Total HARD Cost: $297 M
HACEP GAP Loan: $79 M
HACEP GAP Loans
Private equity Bonds
45L Credits
Federal Historic Tax Credits
State Historic Tax Credits
PH Capital Funds
PH Operating Reserves
Developer Fees
Federal Home Loan Grant
LIHTC 9% Tax Credits
LIHTC 4% Tax Credits
Freddie TEL
Freddie Forward
FHA
Conventional Loan
HOME
Type of Funding Utilized
Recognitions
Clean Audit – NINE years in a row
GFOA Budget Excellence Award Four Year in a row
Bond Deal of the Year 2016

43. HACEP’s RAD: Lessons Learned
HAVE A VACANCY STRATEGY!
Think about your agency’s “End State” – RAD impacts the funding of central office
Lease Enforcement: Address breaches of lease agreements prior to project launch
Infrastructure: Dedicate more time for discovery for non-visible legacy issues  bad news impacts timelines
Right-Sizing: Meet the current needs/demographics of your families
HUD’s Lesson: Develop a plan for 100% portfolio conversion/rehabs
Development Timeline: Front-load the BIG developments
Systems: Have the right project-management tools/software in place
“It’s not about moving too slow, it’s about meeting the conservative deadlines.”

44. Organizing the Team
Understand that team members chosen NOW will have to interact/work well with team members chosen LATER
Hire good, experienced tax credit/bond/financing/RAD/development partners
Self-Developing vs. Co-Developing – know your limitations
Unlikely that any Housing Authority is staffed to account for and complete all the required steps, including construction/development
Know what you know and what you don’t know

45. Deal By the Pound

46. Structure and Foundation
Important to talk about ALL logistics early – work backwards from closing
discuss expectations
timing
flow of funds
tax credit structure
TE bonds and LIHTC timing and requirements
third party and other soft funding
PCNA results
architect/contractor work complete to-date vs. to be completed
third party reports

47. Lenders Must Look at ALL Aspects

48. RAD/Lender Teamwork Make sure you are thinking ahead
Don’t assume that you have already finalized your contracts. Lenders, equity providers, tax credit agencies, cities, etc. will all potentially have comments as to the form of contracts. Lenders will want to review and approve contracts (specifically for architect and contractor)
Make sure the process is clear to your architect and contractor
Relocation affects both Residents AND financing structure
think through tenants’ needs
logistics and timing of move-out/move-in
contractor’s expectations regarding occupied/unoccupied units
financing can be made to match: residents-in-place immediate loan vs. construction/forward loan concept

49. Quality leverage / Quality Development
Maximize your leveraging capabilities
ground lease/abatement
seller carry-back notes
vouchers (new RAD rule on Housing Choice Vouchers)
Project Based Vouchers
bonds
credits
soft funds
utility savings

50. Quality leverage / Quality Development
New areas to maximize leveraging capabilities
PHAs may convert up to 25% of units to S8 PBV rents on 4% bond deals
“If a PHA converts at least seventy-five percent (75%) of a project’s public housing
units through RAD, HUD’s Special Applications Center will allow the PHA to dispose of
the remaining units (up to 25%) under a Section 18 disposition application and replace
them with project-based Tenant Protection Vouchers as long as the project is not also
receiving nine percent (9%) low income housing tax credits. In order to qualify, the
project-based Section 8 units (both RAD and non-RAD) must be either newly constructed
or substantially rehabilitated. (See PIH , Section 3(A)(3)(c)).”
Potential to reset the rent base to more current levels
Properties on the waiting list as well as those receiving an award by the end of calendar year
2018 will receive FY 16 public housing levels, but would replace the PHA’s FY 16 Capital Funds
Formula Grant with FY 18 numbers; properties receiving awards after January 1, 2019 will
receive rents based on a calculation of the FY 18 Operating Fund, Capital Fund, and Tenant Rent
Levels.

51. Quality leverage / Quality Development
New areas to maximize leveraging capabilities
Expanded rent setting flexibility: Bundling in the current RAD program notice PIH 2012–32/Housing 2017–03 to permit PHAs to rent bundle between RAD Project-Based Voucher (PBV) and non-RAD PBV projects. Under this provision, rents of non-RAD PBV contracts are reduced by the equivalent increase to the RAD PBV initial contract rents.
Project-specific utility allowances for covered projects: When a RAD conversion results in the reduction of one or more utility components used to establish the utility allowance, HUD will permit the RAD contract rent to be increased by a portion of the utility savings.

52. Your Lender will help you with leverage
Loan Funds
Lender

53. Saving Time is Saving Money
Receipt of the RCC and HUD Firm Commitment should be on parallel tracks when possible. Otherwise you will be stacking the timing of the closing loan and RAD processes
HUD RAD, HUD Lender, LIHTC Provider, Attorneys, etc. may have year-end closing cut-off dates, summer breaks and other timing/calendar issues. Be aware ahead of time about how this will affect the transaction
Always be cognizant of closing/PIS deadlines. Give yourself and others plenty of time to get things right. There are many groups that need attention coming down to a closing
Agreements should be willing and able to change. There are many RAD process items that ultimately will be reviewed later by other participants. Insurance, Management Documents, Architect Agreements, Construction Contracts, etc. Be prepared for the need to adapt and change. Manage ahead with Housing Authority Boards and approval channels

54. Financing is Fun!
Most important: use lending programs that fit your situation
Cost
Timing
Ease
Experience
Take advantage of market conditions
Compatibility with goals
Compatibility with all other deal partners

55. Thank You! RAD: The Latest Update
Moderator:
Barry Palmer, Coats Rose, P.C.
Panelists:
Satish Bhasker, Housing Authority of the City of El Paso Ann Gass, Austin Affordable Housing Corporation William Lavy, US Department of Housing and Urban Development
Mark Ragsdale, PNC Real Estate Brian Robinson, Baker Tilly Virchow Krause, LLP