RENTAL ASSISTANCE DEMONSTRATION(RAD)

New England Housing Network BriefingDecember 7, 2012

WHY RAD– GENERALLY?

6.27.4

8.99.6

10.59.6 9.6

10.49.6

10.9

6.55.7 5.6

6.2 6.1 5.8 6.1 6 6.15.4

0

2

4

6

8

10

12

1970 1978 1985 1991 1995 2001 2003 2005 2007 2009

# of Poor Rental Households & Available Affordable Units (in millions by year)

Poor renter households Affordable rental units

-0.3

1.7

3.3 3.4

4.43.8

3.5

4.4

3.5

5.5

-1

0

1

2

3

4

5

6

1970 1978 1985 1991 1995 2001 2003 2005 2007 2009

Gap Between Need & Availability of Affordable Units for Poor Renters (in millions by year)

Source: Institute for Children, Poverty, an d Homelessness, “A Home By Any Other Name,” September 2012

PUBLIC HOUSING – OPERATING FUND REALITY

3

80%

82%

84%

86%

88%

90%

92%

94%

96%

98%

100%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Pro

rati

on L

evel

s

PH Operating Fund Proration Levels 1997-2010

PUBLIC HOUSING – CAPITAL FUND REALITY

4

$1.90

$2.00

$2.10

$2.20

$2.30

$2.40

$2.50

$2.60

$2.70

$2.80

$2.90

$3.00

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Bill

ions

PH Capital Fund Levels 1999-2010

PUBLIC HOUSING – FUNDING FUTURE?

5

$0

$1

$2

$3

$4

$5

$6

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Bill

ions

Gaps in PH Operating Funding 1997-2010Amount made available Administration Request

Public Housing Inventory• ~ 1.15 million units across 3,100+ PHAs

• Capital repair needs in excess of $25.6B across portfolio ($23,365/unit)

• Section 9 funding platform unreliable (pro‐rations, appropriation cuts), limited access to debt/equity capital (declaration of trust)

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

WHY RAD—PUBLIC HOUSING?

HUD’s Legacy Programs (the Orphans)

• Section 8 Moderate Rehabilitation (Mod Rehab) ~ 23,000 units – Cannot renew on terms needed to secure financing

• Rent Supplement (Rent Supp) & Rental Assistance Payment (RAP) ~ 22,500 units– No option to renew when contracts expire

WHY RAD—MULTIFAMILY HOUSING?

Grants• HOPE VI • Choice Neighborhoods

Financing• Mixed Finance• Capital Fund Financing Program• Energy Performance Contracting

Other• Section 18 Demolition/Disposition • MtW Demonstration

HOW TO ADDRESS – PUBLIC HOUSING TOOLS NOW

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• February 2010: FY11 Budget requests $350M for Transforming Rental Assistance (TRA) initiative

• May 2010: “Preservation, Enhancement, and Transformation of Rental Assistance Act of 2010” (PETRA) ‐ Administration’s bill

• December 2010: “Rental Housing Revitalization Act” (RHRA) introduced by Rep Ellison and co‐sponsors

• February 2011: FY12 Budget requests $200M for a “Rental Assistance Demonstration” (RAD)

• August 2011: RAD language provided as “Technical Drafting Service” to Reps Ellison, Bachus, and Senator Shelby 

• November 2011: FY12 Appropriations minibus authorized RAD

LEGISLATIVE HISTORY

• 600+ Section 8 Contracts (PBRA & PBV)– Compared to Mixed‐Finance, offers Capital Fund allocation to support NOI

– Compared to CFFP, considerably less Capital Fund committed  relative to debt/equity raise

– Maximizes leverage of 4% & 9% LIHTC deals by providing RAD rents & stable Section 8 contract 

– Reduced appropriations, other funding reduction risk– No Declaration of Trust work around

• PHAs Function Same as Other Affordable Developers/Owners

• Historic Low Interest Rates– Streamlined access to FHA financing—3.45% for 40/yr amortization

• Streamlines Legacy Programs onto Existing platforms

RADOPPORTUNITIES

RADCONVERSION ELIGIBILITY

Public Housing Mod Rehab Rent Supp & RAP

1st Component: Competitive, 60,000 Units

PBRA PBV

2nd Component: Non‐Competitive, No‐Cap 

(subject to availability of TPVs)

PBV

1st COMPONENT—PUBLICHOUSING&MODREHAB

Key Provisions• Public Housing & Mod Rehab• Convert at current funding only• PBRA or PBV• Cap of 60,000 units• Choice‐Mobility, with limited exemptions• Extensive waiver authority to facilitate conversion

• First come, first served after close of initial competitive window (10/25/2012)

• All applications must be received by 9/30/2015 

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1st COMPONENT—PUBLICHOUSING&MODREHAB

Contracts & Post-Conversion Terms• Option of PBRA or PBV contracts

• Long-term renewable use & affordability restrictions

• Secretary shall offer & the owner shall accept renewal of the contract

• Transfer of assistance to replacement units

• Public Housing Section 18 Demo/Dispo application not needed for conversion of substantially all units

• Requirements for assistance established through contracts, use agreements, regulations, etc

• Waiver authority for PBV, PBRA, Operating Fund, Capital Fund

• Evaluation

• Public or non-profit ownership or control, except after foreclosure, etc., or to facilitate tax credits

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1st COMPONENT—PUBLICHOUSING

Resident Provisions

No Re‐Screening of Residents at ConversionOne‐for‐One Replacement• Must convert all or substantially all units in covered projectFamily Self Sufficiency• Current FSS participants continue in programResident Participation & Funding• PHA must recognize legitimate tenant organizations• PHA must provide $25 per occupied unit annually for resident 

participation ($15 per occupied unit > legitimate tenant organizationResident Procedural Rights• Consistent with Section 6 of the 1937 Housing Act

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PUBLIC HOUSING—CURRENT FUNDING RENT LEVELS

ACC Section 8

At conversion, PHAs will convert  

funding to a  Section 8 

contract rent

2ND COMPONENT—RENT SUPP,RAP&MOD REHAB

Key Provisions• 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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GEOGRAPHIC DISTRIBUTION OF RENT SUPP/RAP

17

CA3%

CT1%

IL6%

MA15%

MD4%

MI12%

MN2%

NJ15%

NY29%

PA1%

VA3%

WA2%

Other7%

Rent Supp/RAP Highly Concentrated in a Few States

Debt• Conventional • Soft secondary• Credit enhancement

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

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

RADFINANCING

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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

FHAMULTIFAMILY MORTGAGE INSURANCE

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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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FHALIHTCPILOT PROGRAM

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

24

PHA’s Meeting Varied Objectives• Move out of public housing system• Preserve properties in good neighborhoods• Address problem properties– Further leverage for CNI/traditional mixed finance– Projects that didn’t get HOPE VI; may not qualify for CNI; don’t meet state’s 9% LIHTC QAP scoring criteria

Using a Range of Financing Structures• Debt only with FHA &/or CRA lenders• LIHTC 4% with FHA short bond structure• LIHTC 9% with debt added to reduce need for gap funds• Use of CDBG, HOME, AHP, local housing trust funds, etc

WHATWE’RE SEEING WITH RADSO FAR

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• Initial competitive application round with ranking factors, designated geographic regions & PHA sizes to ensure equitable access closed October 24, 2012 – Awards anticipated by mid‐December

• 2nd non‐competitive application round allocated on first‐come, first‐served basis opened October 25, 2012– No ranking factors or point system– Remains open until September 30, 2014

RADSTATUS

FY13 Budget• Exempt Section 8 Mod Rehab from the 60,000 unit cap under the 1st component

AHSSIA• Authorize an appropriation of $150 million over 5 years for public housing and Section 8 Mod Rehab conversions

• Authorize owners of Rent Supp/RAP properties to choose to convert to PBRA or PBV assistance with $50 million appropriation over 5 years

FY14 Budget?

OTHER RAD‐RELATED PROPOSALS

PUBLIC HOUSING RESOURCES &TOOLS

28

RAD Conversion Guide for PHAs

PUBLIC HOUSING RESOURCES &TOOLS

29

RAD Inventory Assessment Tool for PHAs

RADCAPITAL MARKETPLACE

30

www.radcapitalmarketplace.com

RAD Notice, Application Materials and Additional Resources can be found at

www.hud.gov/rad

Email questions to rad@hud.gov

RADWEB PAGE