Going RAD

6 min read

We have two options,” an official from the Housing Authority of Baltimore City (HABC) tells a meeting of several hundred people who live in an HABC-owned building. “We can begin necessary repairs and rehabilitation and have it all done in the next 200 years, or we can begin now and have it all done in two years. Which do you want?”

Decades of deferred maintenance are not difficult to see. Elevators don’t work well; plumbing can be unreliable; electrical wiring is dated. And there are no basic amenities, such as an activity and community meeting room.

The residents—who obviously support the “two year” option—are about to have their homes significantly improved, thanks to a federal program that brings two forms of “preservation” to affordable housing.

The U.S. Department of Housing and Urban Development’s Rental Assistance Demonstration (RAD) Program, created by Congress in 2012, gives owners participating in three HUD ‘legacy’ programs (Rent Supplement, Rental Assistance Payment, and Section 8 Moderate Rehabilitation) the opportunity to convert from public housing to long-term project based Section 8 contracts that provide the incentive for private investors to sustain and improve the property and assure the buildings remain as affordable housing.

According to a 2014 report from the federal Government Accountability Office, “the goals of the RAD program include maintaining the affordability of federally assisted rental properties and improving their physical and financial condition. Specifically, property owners can leverage the subsidy payments under the newly converted contracts to raise capital through private debt and equity investments to make improvements.”

Hence, the two “preservations”: preserve a unit’s status as affordable housing, and physically preserve it so it does not decay into non-livability.

And hence the “two and 200-year” figures. With the capital available to the Housing Authority of Baltimore City in the absence of RAD, repairs and rehabilitation of the building would have stretched out for two centuries—a ridiculous figure because in 8-10 years, experts estimate, decay and neglect would have made the building uninhabitable. And with the RAD program, all work to be completed over the next two years—extending the building’s useful life by decades.

Big Baltimore RAD deal
A developer with extensive experience building and maintaining affordable housing in Baltimore and other cities, Christine Madigan, Executive Vice President, Enterprise Homes, says “RAD is an important, innovative tool for upgrading public and assisted housing because it allows private capital to help meet the backlog of repair and renovation needs, particularly in public housing, and preserve this housing.”

Nationwide, there is $26 billion backlog of deferred maintenance and other necessary public housing capital improvements.

In Baltimore, roughly $300 million in RAD funds—available thanks to Maryland Governor Larry Hogan, who received the funds in an allocation by HUD—will be devoted to 23 HABC buildings, rehabilitating about 4,600 units, which are 40% of the city’s total HABC units.

This makes Baltimore the most RAD-active city on the east coast, and developers are excited. “The RAD program allows HABC and its developer partners to make once in a generation renovations for a portfolio of public housing properties that have suffered from decades of deferred maintenance,” says Catherine Stokes, Vice President of Washington, DC based Telesis Corporation, which specializes in affordable housing and is working on two RAD-financed projects in Baltimore. “The infusion of private resources will enable these teams to significantly improve the quality of life for thousands of low-income Baltimoreans.”

These feelings are echoed by Christine Madigan, whose company, Enterprise, is also doing several RAD projects in Baltimore, who adds, “RAD fills a significant gap caused by the shortage of federal funding for capital projects within public housing, and utilizes private capital to significantly upgrade the units and the overall communities. These investments will provide significantly better housing for people.”

Buildings for RAD in Baltimore are selected by HABC according to need, number of residents, and strategic placement in that their rehabilitation will have a positive impact on nearby neighborhoods. Emphasis is also placed on buildings occupied by the elderly and people with disabilities.

What is done to these buildings? What requests and demands does the Housing Authority make? “They’re trying to maximize benefit to the residents through improvements in the physical condition of the property,” says Stokes. “As the physical needs and resident desires differ from building to building, HABC is not being prescriptive. Rather, it is committed to ensuring that the physical needs of the building are addressed and that the rehabilitation is transformative for residents, providing tangible benefits, such as new finishes and fixtures, upgrades to common spaces and new resident amenities.”

Examples of Improvements
She cites examples that Telesis is working on in Baltimore: “The Brentwood is a 150-unit, mixed population, 13-story high-rise built in 1977, and has not had a significant renovation since that time. The $13 million phased renovation began in December 2015 and will involve modernization of the building, including the replacement of exterior windows and doors, roof insulation, interior finishes, plumbing fixtures and risers, as well as mechanical and electrical systems. In addition, accessible units and common areas will be reconfigured as required to meet the uniform federal accessibility standards.

“And, the Ellerslie is a 117-unit, mixed population, five-story building built in 1974. The scope of the construction is still under development, but will include the replacement of roof insulation, interior finished, plumbing fixtures, and reconfigurations to meet the uniform federal accessibility standards.”

Developers, profit-making and not-for-profit, for RAD projects in Baltimore are selected by HABC through a competitive process. These developers are responsible for securing the financing, so lender and investor partners vary from transaction to transaction. Developers are also responsible for selecting a management agent for the RAD properties.

Christine Madigan says that optimally RAD developers need “significant experience in refinancing and rehabilitating apartment communities with residents in place,” and that a successful RAD project “involves significant communication and coordination between the developer and various departments both within the local housing authority and HUD.”

With such working relationships in mind, HABC structures the RAD transactions through Baltimore Affordable Housing Development (BAHD), a 501(c)(3) affiliate controlled by HABC, and the developers. HABC will deed its entire interest in each RAD property to BAHD in order to facilitate the financings. BAHD, among other things, facilitates the transfer of the RAD Properties and acts as the lender of the sale proceeds; serves as HABC’s contractor to perform various oversight tasks; and performs waiting list management services. This structure enables HABC to separate its obligations and revenue generated through RAD from its obligations and revenue under the public housing program.