RAD Workshop

WCAH

July 25, 2013

Presented by: C. Ray Baker & Associates

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• Most of America’s 1.2 million Public Housing units were built as temporary housing beginning in 1937.

• These units are old, outdated and in desperate need of major capital repairs.

• RAD will allow PHAs and their developer partners to convert Public Housing units to Section 8 PBV units.

• During this transformation a combination of LIHTCs and debt will provide the funding necessary to modernize these units.

• Only a small fraction of the nations 3,200 Housing Authorities have the expertise necessary to implement RAD.

WHY RAD?

Public Housing• Capital repair needs in excess of $25.6B across portfolio, or

$23,365/unit• Section 9 funding platform unreliable (pro-rations, cuts),

inhibits access to private debt and equity capital (declaration of trust)

• Losing 10,000-15,000 hard units/year

Section 8 Moderate Rehabilitation (Mod Rehab)• Cannot renew on terms needed to secure financing

Rent Supplement (Rent Supp) & Rental Assistance Payment (RAP)

• No option to renew when contracts expire3

CURRENT CHALLENGES

• Public Housing & Mod Rehab• Can compete to convert assistance to:

– Project-Based Rental Assistance (PBRA) or– Project-Based Vouchers (PBV)

• Cap of 60,000 units (applications must be received by9/30/2015)

• Convert at current funding only• Choice-Mobility, with limited exemptions• Extensive waiver authority to facilitate conversion

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1ST COMPONENT

• Mod Rehab, Rent Supp & RAP• Upon contract termination/expiration, convert

Tenant Protection Vouchers (TPVs) to PBVs• No cap, but subject to availability of TPVs

• Choice-Mobility requirement per PBV program rules

• Limited waiver authority to facilitate conversion

• Prospective conversion authority through 9/30/2013

• Retroactive conversion authority back to 10/1/2006(convert by 9/30/2013)

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2ND COMPONENT

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• In nine months there are more Public Housing Authorities engaged in RAD than there were in the first two years of the HOPE VI program.

• There are more Public Housing units in the RAD program than there were in the first two years of the HOPE VI program.

• The RAD program has not required any additional funding from Congress.

RAD VS. HOPE VI

2/2/2012

What?

• Allows 60,000 public housing units to convert to long-term Section 8 rental assistance contracts

Why?

• Access private debt and equity to finance capital needs

• Program simplification/streamlining

• Better platform for long-term preservation

Conversion Options

• Project-Based Rental Assistance (PBRA)

• Project-Based Vouchers (PBV)

RAD BASICS

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• What is RAD? HUD demonstration program that combines public housing operating and capital subsidy into a Section 8 HAP contract

• What kinds of developments are being done with RAD? Minor rehab; major rehab; new construction; mixed income; off-site replacement housing

• How do I determine if I have a project/portfolio that would be a good candidate for RAD conversion? Use the RAD Inventory Assessment Tool in the Resources section of www.hud.gov/rad

• How would RAD affect:• Residents: No change; 30% of income for rent• PHA Functions: Dependent on cash flow, fees, strong management; puts them

on the more secure Section 8 funding platform; Gives them the affordable housing tools of other nonprofit developers

• Resources: www.hud.gov/rad; www.radcapitalmarketplace.com; www.radresource.net

RAD WORKSHOP

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• Ownership – Public or non-profit, except to facilitate tax credits

• Contract Rents

Operating Fund (with Operating Fund Allocation Adjustment)+ Capital Fund+ Tenant Rents= RAD Contract Rent

Notes:• HUD will honor the FY 2012 RAD contract rents for all applications

received before end of CY 2013 (applies to individual applications, portfolio awards, and multi-phase awards)

• PHA may adjust Contract Rents across multiple projects as long as aggregate subsidy does not exceed current funding (“rent bundling”)

RAD BASICS (CONT.)

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PUBLIC HOUSING CONVERSION RENT LEVELS

Pre-Conversion Post-Conversion $-

$100

$200

$300

$400

$500

$600

$700

$800

$900

Tenant Payment $318

Tenant Payment $318

Capital Fund $144

Operating Fund $330 Housing Assistance

Payment$474

Sample Public Housing Conversion Per Unit Monthly (PUM)

$792

ACC Section 8

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• Partner with PHAs to:• Modernize aging family & elderly properties• Substantial rehab of deteriorated properties• Demolish/replace severely distressed/obsolete

properties• Thin densities/mix incomes via RAD HAPs and

transfer authority• Place RAD HAP contracts in off-site units in high

amenity locations• Increase QAP scoring by serving more VLI families• New 20 year HAP contract funding

NONPROFIT DEVELOPER OBJECTIVES

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Debt• Conventional • Soft secondary• Credit enhancement

FHA Insurance• FHA Mortgagee Letter for RAD transactions• LIHTC Pilot

LIHTCs• 4% availability & considerations• 9% availability & considerations

RAD FINANCING

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Section 223(f) • Refinance or acquisition• Minor/moderate repairs ($6,500/unit*high cost factor)• Permanent debt with repair escrow - up to 35 years

Section 221(d)(4)• Substantial rehab: 2 major building systems• Construction/permanent debt all in one - initial/final closing• 40-year financing

Mortgagee Letter for RAD Transactions issued 10/12• Eligibility, underwriting criteria, processing & materials

FHA MULTIFAMILY MORTGAGE INSURANCE

Streamlined-Enhanced FHA 223(f) & LIHTCs

• Rehab expenditures of up to $40,000/unit

• Tax credit or Bond Cap allocation in hand

• Processed in Multifamily Hubs

• Using MAP lenders approved for the Pilot

• Goal of 3-4 month turnaround on applications

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FHA LIHTC PILOT PROGRAM

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Affordable Housing Program (AHP)• This program is funded with 10% of the Federal Home Loan

Banks' net income each year.

• Most effective when paired with other programs and funding sources, like Low-Income Housing Tax Credits.

• More than 776,000 housing units have been built using AHP funds, including 475,000 units for very low-income residents.

• $4.6 billion in total AHP dollars since 1990. That’s 200 million per year.

• AHP loan funding often comes with an equal amount of grant funding.

FEDERAL HOME LOAN BANK AHP

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RAD Sweet Spot—Debt Only

• Abt study—$24k/unit average capital need

• Opex at $4,500 pupy + $300 replacement reserves

• FHA debt at 3.45%; 1.2 DCR

• Feasible with RAD rents above ~$610/month

RAD & LIHTCS

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RAD Sweet Spot—4% LIHTCs• Rehab needs above $24k/unit to ~$40k/unit

• Ease of meeting 50% test with RAD rents

• Available P-A Volume Cap

• Non-competitive

• QAPs favoring preservation, green

• Evolving, accessible short-bond structure

• Historically low borrowing rates

RAD & LIHTCS

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Short Bond Structure for 4% LIHTCs • At Closing

– TE bonds with 24 month term issued (1.25%)– FHA 221(d)(4) or 223(f) closes

• During Construction– Construction draws: Standard GNMA certificates– Bonds paid down & paid off at construction completion– Reduces negative arbitrage costs

• Long Term– Project benefits from 40-year loan at FHA rate of 3.45%

RAD & LIHTCS

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RAD Sweet Spot—9% LIHTCs• Targeted prospects for substantial rehab &

replacement housing• No Section 18 review• Income mixing• Split project (AMP)

– 9% LIHTC used to help cover relo/demo/first phase– 4% LIHTC for balance of site

• RAD HAP contract(s) for off-site replacement – Acquisition/rehab– New construction

RAD & LIHTCS

RAD ACROSS THE COUNTRY – 1ST COMPONENT

9,997Units

949Units

2,556Units

1,279Units

Northeast Midwest South West Total

PHAs and Mod Rehab Units Awarded 949 1,279 9,997 2,556 14,781

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RAD ACROSS THE COUNTRY

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1st Component

2nd Component

• Approved 5,000 units in 48 projects • Expecting additional 2,000 unit approvals by end FY 2013• Over 120 projects awaiting approval with additional authority

• 132 CHAP awards, representing 14,781 units• 51% conversion to PBRA, 49% conversion to PBV• Over 60% of proposals planning to use LIHTCs (the vast majority being

4% credits)• Over 60 partnering lenders and investors• Expected to raise $816M in debt and equity instruments

• Eliminates caps on units that can convert for:- Public housing- Mode Rehab

• Creates new awards for:- Portfolio conversions

- PHA defines “portfolio” of projects, either the entire PHA inventory or some subset- PHA must submit applications for at least half of the projects in portfolio- HUD will reserve award for remaining units in portfolio- PHA must submit application for remaining projects in portfolio within 365 days

- Multi-phase conversion- Allows PHAs to reserve conversion authority for projects with multiple development phases with

applicable contract rent for all phases- PHA has until July 1, 2015 to submit application for final phase- PHA required to fulfill all CHAP milestones for each CHAP awarded- Upon application acceptance, HUD will issue CHAP for initial phase and multi-phase award

letter covering all phases of project - Joint RAD/CNI applicants

• Opens the Ongoing Mod Rehab Application Period

KEY CHANGES IN THE RAD NOTICE

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Winter

2012

Sprin

g 2013

Summer

2013

Fall 2

013

Winter

2013

Sprin

g 2014

Summer

2014

Fall 2

0140

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

Awards-to-Date

Awards Expected Based on Applica-tion Trends

Awards Expected Based on Current Outreach

Anticipated Future Awards

Agg

rega

ted

Num

ber o

f Uni

t Aw

ards

Issu

ed

RAD AWARDS TREND CHART

LENDERS AND TAX CREDIT INVESTORS

Alliant CapitalBoston CapitalCalifornia Community Reinvestment CorporationCenterline Capital GroupCommunity Affordable Housing Equity CorporationCommunity House Partners Development CorporationDirect Tax Credits, Inc.Enterprise Community InvestmentGeorgia Department of Community AffairsGreat Lakes Capital FundHudson Housing CapitalHunt Capital ParntersNational Equity FundNewport Partners LLCOhio Capital CorporationOhio Capital Housing CorporationPNC Real EstatePrestige Affordable Housing Equity PartnersRaymond James Tax Credit Funds Inc.RBC Capital Markets

Arbor Commercial MortgageBeekman SecuritiesCenterline Mortgage CapitalChase BankColumbus Bank and TrustContinental Mortgage CorporationFederal Home Loan Bank of ChicagoHunt Capital PartnersMcCan CommunitiesNew Mexico Bank & TrustNW Financial Group LLCRabobank N.A.Red Stone Equity PartnersSunTrust BankTD BankUS BankRed Stone Equity PartnersRichmon GroupUnion Bank

Bellwether Enterprise Real Estate Capital LLCCapital Fund Services Inc.Crain Mortgage Group LLCFifth Third BankFirst Citizens Bank NAForest City Capital CorporationGreat Lakes Capital FundHighland Commercial MortgageLake Forest Bank & Trust CompanyLancaster PollardLove FundingM&TPNC Real EstatePrudential Huntoon Paige Associates LLCRBC Capital Markets Housing Finance GroupRed Mortgage CapitalRockport MortgageSt. James Capital LLCUS Bank Community Development CorporationWalker Dunlop

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

www.hud.gov/rad

Email questions to radresource.net

RAD WEB PAGE