RAD Conversion Updates

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HUD’s New Head of Multifamily Housing on Long-term Sustainability

The Department of Housing and Urban Development’s Rental Assistance Demonstration (RAD) program has a couple of new provisions that should enhance conversion opportunities, attendees of the National Housing & Rehabilitation Association’s annual meeting heard.

Ethan Handelman, deputy assistant secretary for HUD’s multifamily housing programs, told the virtual meeting that RAD has been successfully repositioning public housing units for long-term sustainability.

To date, 146,000 public housing authority (PHA) units have been converted to project-based Section 8 rental assistance, Handelman said, with $11 billion in construction expenditures for their rehabilitation and a leverage rate of $12 in outside investment, including Low Income Housing Tax Credit equity, for every dollar of public housing money from HUD.

“Had those units stayed in the old model, it would have taken 34 years to accumulate the funds to make the investments they have made in the past seven years,” he said.

Recent developments are creating more opportunities for RAD conversions.

“The rent levels have been a constraint in the past, but we updated the RAD rents in December so for a large percentage of PHAs, the rents are at or approaching fair-market rents, which really helps the numbers work,” Handelman said.

In addition, “HUD released a revision to the Section 18 disposition rules to expand use of combined Section 18/RAD transactions. Previously, this was maxed out at 25 percent, but it now includes up to 80 percent of Section 18 units at fair-market rent levels through the Project-Based Voucher program, which creates stability for more affordable units in years to come.

“If you combine these two changes with the new four percent tax credit floor and low interest rates for FHA-insured mortgages, this opens more opportunities,” he said.

The RAD for PRAC (Project Rental Assistance Contracts) program, which allows conversions of Section 202 elderly housing into Section 8s, has seen the first two deals close with a total of 87 units, and three more deals are in final stages, containing another 192 units, Handelman told the meeting.

RAD for PRACs have also involved LIHTC financing as part of private sector investments (Tax Credit Advisor, November 2020).

“It’s still early, but there are potentially 9,000 properties in process. There’s a lot potentially to do there,” he concluded.

In terms of multifamily production, Handelman said, “2020 was a record year, and I don’t think 2021 is going to be much less.”

Fiscal 2020 volume was more than $20 billion, and in the first four months of fiscal 2021 it is $12.4 billion, he said. HUD has seen 24 percent more applications this year versus the same time last year, he said.

An immediate challenge for HUD is record loan production with a declining staff. Currently, it is about 1,100 people, considerably lower than 2013 levels.

“Overall, the multifamily loan portfolio is in good shape,” he said. As of January 19, 159 loans were in default, just over one percent of 14,700 current loans.

“Not a bad rate,” he commented.

He also said HUD currently has 71 forbearance agreements. There haven’t been any new ones since September, though. There has been a surge in interest rate reductions, which are up 1,000 percent in volume for fiscal 2020 compared to fiscal 2019.

Mark Fogarty has covered housing and mortgages for more than 30 years. A former editor at National Mortgage News, he has written extensively about tax credits.