HUD’s Restore-Rebuild Program Seeks to Streamline Faircloth-to-RAD Conversions

Restore-Rebuild, the Department of Housing and Urban Development’s (HUD) rebranded Faircloth-to-RAD conversion program, seeks to streamline and integrate the RAD conversion process for Public Housing Authority (PHA) mixed-finance developments to increase affordable rental units in housing markets throughout the nation.

Faircloth-to-RAD was rebranded and reconfigured by HUD’s Office of Public and Indian Housing’s Office of Urban Revitalization (OUR) and HUD’s Office of Housing’s Office of Recapitalization (Recap) in November 2024. The process was more than simply a rebrand; HUD streamlined many elements of the program to make the process of Faircloth-to-RAD conversions for mixed-finance developments more integrated. Under the new Restore-Rebuild guidelines, PHA partnerships can be formed more easily under certain circumstances. Non-moving-to-work agencies can augment post-conversion rents with existing voucher program reserves, and the processing for Restore/Rebuild acquisitions is also designed to be faster.

“Every year, we lose affordable rental units to demolition, deterioration of aging properties, expiring affordability restrictions, and rent increases in local markets…,” states HUD’s newly released Restore-Rebuild guide. “Restore-Rebuild combines and streamlines the existing mixed-finance development process with a RAD transaction to enable PHAs to build new deeply affordable rental housing more easily.”

Faircloth Authority
Established by Congress in 1998, the Faircloth Amendment caps the number of Public Housing Authority housing units the federal government will subsidize with capital funding and/or operating funds. Suppose a PHA operates fewer than the number of units it did when Faircloth went into effect in 1999. In that case, that number of fewer units is considered its Faircloth authority – or the number of units a PHA is allowed to build or rehab up to the limit.

According to HUD’s Restore-Rebuild guide, as of 2024, nearly 260,000 units nationwide could be built using Faircloth authority if PHAs could finance the projects. The changes to the program made by HUD through Restore-Rebuild are an attempt to help PHAs with the financing and overall process to build or restore those units.

One of the key elements of Restore-Rebuild is that it offers early-stage pre-approval to convert a property to a long-term Section 8 contract via the Rental Assistance Demonstration (RAD) program in a mixed-finance development process. This combined process provides investors and lenders with a level of financial certainty since the project can use Section 8 vouchers when completed. This change, at least theoretically, makes Retore-Rebuild mixed-finance developments more feasible by giving PHAs more leeway in constructing finance packages. In mixed-finance developments, a PHA develops or modernizes units, which are then owned wholly or partially by an entity other than the PHA.

The use of Low Income Housing Tax Credits (LIHTC) is not a requirement of mixed-finance developments or the Restore-Rebuild process, but the federal guide states it is common.

PHA Partnerships and Request for Notice of Anticipated RAD Rents
Under the rules of Restore-Rebuild projects, PHAs that share overlapping jurisdictions may partner to combine resources. These partnerships provide greater flexibility regarding the respective PHA’s use of available Faircloth authority and Housing Assistance Payment (HAP) reserves. Under the guidelines, if only one agency has available Faircloth authority, the other agency may serve as contract administrator at conversion and use HAP reserves for rent augmentation.

The Restore-Rebuild process kicks off with a PHA’s request for a Notice of Anticipated RAD Rents, or NARR. These requests provide the PHA with the RAD rents the property can expect post-conversion. A NARR request is not a binding commitment to pursue the development.

When requesting a NARR, PHAs must provide a Participant Identification Code (PIC) Number of a comparable property within their inventory so HUD may use it to estimate future rents. PHAs that have no public housing properties in PIC or do not have a comparable project in their inventory may use the PIC number of a public housing project in a neighboring PHA inventory.

Added Rent Augmentation Flexibility for Non-Moving to Work Agencies
When the proposed rents a PHA receives through the NARR process are insufficient to support a project, Restore-Rebuild offers new flexibility for Non-Moving to Work agencies to make modifications to the rents using other public housing authority resources. Moving to Work (MTW) agencies have had this flexibility for years. In 2023, HUD opened a trial period to offer flexibility to non-MTWs and, in September 2024, extended the trial period indefinitely.

Under the Restore-Rebuild program, non-MTW agencies may augment their rents using Housing Assistance Payment (HAP) voucher reserves under certain circumstances. The first two requirements, regarding project location, are that the project be in a zip code or metropolitan/micropolitan statistical area where the rental agency is less than four percent or in a zip code where 90 percent of the small Fair Market Rent (FMR) is more than 110 percent of the metropolitan FMR. If one of these location conditions is met, the non-MTW Restore-Rebuild units must also be made exclusively available to people who are eligible for supportive services or youths receiving Housing Choice Voucher Family Unification Program assistance.

Another allowed scenario is if the first two circumstances regarding project location are met, and the Restore-Rebuild units do not make up more than 25 units or 25 percent of the units in the project or the greater of 25 units or 40 percent of units in the project is if it is in a census tract where the poverty rate is no greater than 20 percent.

If the non-MTW PHA meets the criterion, it can use Section 8 HAP reserve funds to increase the rents given in the NARR. Reserve funds used for rent augmentation in the first full year after conversion will then be built into the PHA’s voucher renewal baseline for the second and subsequent years after conversion.

Faster Processing Throughout the Faircloth Conversion Process
One of the overarching goals of Restore-Rebuild is to streamline and expedite the entire process of Faircloth conversion, acquisition, and construction. HUD’s new Restore-Rebuild guide details the steps needed to take to close on deals. The guide states that PHAs should expect it to take about three weeks for a RAD to close once all the paperwork has been uploaded to the HUD site.

For Restore-Rebuild projects without significant rehabilitation, a PHA can implement RAD closing in tandem with the mixed-finance closing, saving money and time.

Restore-Rebuild has also streamlined the process for RAD/Section 18 blends. The blends allow PHAs to convert some public housing units to RAD and others to Section 18, using Tenant Protections Vouchers (TPVs) that can then be converted to Project-Based Vouchers (PBVs). PBVs can bring higher rental income, strengthening a project’s financial feasibility.

Tom Davis, director of HUD’s Office of Recapitalization, which oversees RAD/Section 18 blends, said the blends have “dramatically transformed the level of investment” in RAD projects. Speaking during the Public Housing Challenges and Opportunities Panel at National Housing & Rehabilitation Associations’ conference in Miami Beach in March, Davis said Section 18 blends are “trying to solve the problem of RAD rents that were not good enough to make transactions work.”

Updated RAD Rent Guidance
In January, HUD issued Supplemental Notice 4C, which updated its guidance for RAD rents. It allows RAD/Section 18 blends to use one combined RAD HAP contract in PHA RAD conversions. RAD/Section 18 blends previously required two contracts. The newly allowed combined contract now makes all units in a RAD/Section 18 blend—not just RAD units as was previously the case—eligible for RAD rehab assistance payments for units vacant during rehabilitation. However, the newly allowed combined contract also makes all RAD/Section 18 blend units subject to RAD rent adjustment rules, according to a Nixon Peabody article. The RAD rent adjustment rules limit annual increases to the HUD Operating Cost Adjustment Factor (OCAF). Previously, under a single Section 18 contract, Section 18 units followed normal PBV rent adjustments, which typically allowed greater rent increases.