New Developments: Checking In with RAD

4 min read

If you haven’t looked at RAD in a while, now is a good time. Several recent developments deserve your attention.

HUD’s Rental Assistance Demonstration (RAD) program continues to be one of the most impactful affordable housing policy developments of the past several years. In concept, RAD is relatively straightforward: it is a mechanism to convert public housing and older HUD rental subsidy programs into a more predictable funding platform—Project-Based Rental Assistance (PBRA) or Project-Based Vouchers (PBV) that allow owners to leverage new financing to recapitalize the properties.

The RAD program has two components. Under Component 1, public housing units may convert their public housing capital and operating funding at current funding levels into 15- or 20-year rental assistance contracts. Component 2 allows for HUD “Orphan” properties, including Section 8 Moderate Rehabilitation, Rent Supplement and Rental Assistance Payment subsidies, to convert into the Section 8 platform.

RAD benefited in several important ways in the FY 2018 omnibus appropriations legislation. For starters, the Component 1 program cap was increased, 225,000 units to 455,000 units. This should fulfill the requests of all PHAs currently on the waitlist (as of May 31 there were nearly 144,000 units queued up) and leave room for additional housing authorities to apply. Furthermore, increases in the Public Housing Capital Fund formula will give a much-needed boost for Component 1 rents. Even those projects that already have a Commitment to Enter into a Housing Assistance Payments Contract (CHAP), but have not yet closed, may still ask for a rent increase through an amendment process.

Furthermore, this legislation extends Component 2 authority to include Section 202 Project Rental Assistance Contracts (PRAC). Many developers have not explored the 202 portfolio as a business opportunity because the projects are relatively small (a typical PRAC project is between 42 to 50 units) and because the law requires the housing to be owned by a nonprofit. Notably, a series of legislative and regulatory changes of the past ten years, which now allow for joint-venture and mixed-finance, create opportunities that did not exist historically.

A more significant constraint in recent years has been the limitation of the PRAC contract itself. The 202 program was designed to provide low-cost loans and operating rental subsidies (for many years Section 8 contracts) to build housing for moderate-income seniors. The program was restructured in 1990 into a capital advance program secured by a HUD mortgage. Operations have been subsidized with a PRAC rather than a Section 8 contract. Unlike a typical Section 8 contract, the term of PRACs was often short (as little as three years), and, while they are generally renewed, the uncertainty of the renewal and the short-term has made it challenging for many PRAC owners to leverage sufficient financing for a recapitalization. Allowing PRAC contracts to now convert via RAD into Section 8 will allow owners and developers to leverage permanent financing or pool projects together into tax exempt bond transactions.

While some of the PRAC portfolio is owned by large and highly competent nonprofit development entities, such as National Church Residences and Volunteers of America, there is a significant number of properties that are owned by smaller nonprofits, often religiously affiliated single-purpose entities, that do not have development capacity or financial capacity and could benefit from professional development, management and asset management services. In many cases, they may also own surplus or underutilized land that could be developed in the future.

In another positive development, HUD’s Office of Recapitalization has issued new supplemental guidance for the remaining RAD Component 2 Rent Supplement and Rental Assistance Payment (RAP) projects located in high-cost areas to convert to PBRA with comparable market rents and potentially seek future rent increases through the Mark-Up-To-Market process. The guidance also locks in ability for PHAs to bolster lower RAD rents with non-RAD PBVs, extends utility allowance incentives to PBV projects and permits a higher developer fee for projects addressing homelessness.

Taken together, the expansion of RAD and these recent regulatory developments makes a great program even better.

Thom joined National Housing & Rehabilitation Association (NH&RA) in 2004 and currently serves as its as Executive Vice-President and Executive Director. NH&RA is a national trade association and peer-network for affordable housing and tax credit developers and related professionals including: investors, lenders, public agencies and professional advisers. Thom directs the association’s day-to-day operations including legislative and regulatory advocacy, committee activities, conferences and events, publications, financial management and strategic planning. Thom also serves as the Executive Director of the Tennessee Developers Council, a state-wide trade association for affordable housing developers and professionals active in Tennessee. In 2013 he spearheaded the launch of NH&RA's Preservation through Energy Efficiency Project, a major educational initiative supported by the John D. and Catherine T. MacArthur Foundation. Thom also serves on the Board of Directors for International Center for Appropriate & Sustainable Technology (iCAST) as well as the Advisory Board for its ResourceSmart program, a turn-key, cost-effective, green rehab provider for multifamily affordable and market-rate housing communities and nonprofit facilities. Thom is a frequent speaker at affordable housing, sustainable development and tax credit industry events and has been published in a variety of industry journals including Tax Credit Advisor, Independent Banker, and the Novogradac Journal of Tax Credit Housing. Thom also serves as the Associate Publisher of Tax Credit Advisor, a monthly magazine for tax credit and affordable housing professionals and is an Executive Vice-President at Dworbell Inc., a boutique association management and communications firm in Washington, DC. Thom was previously employed at a national lobbying firm focusing on financial services and technology issues. Prior to moving to Washington, Thom worked in media relations in the New York State Assembly and as a research assistant for New Hampshire Governor Jeanne Shaheen. Thom graduated Magna Cum Laude from Tufts University with a double major in Political Science and History.