RAD Transaction Closings Accelerate, Say HUD Officials

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Transaction closings under the federal Rental Assistance Demonstration (RAD) program are ramping up and many more are expected in the months ahead, according to senior officials at the U.S. Department of Housing and Urban Development (HUD).

As of late July, transactions to convert 49 projects with about 4,500 units had closed under the component of RAD limited to public housing and Section 8 Moderate Rehabilitation properties. Another roughly 250 projects, accounting for the balance of the current 60,000-unit cap in this component, have received RAD commitments from HUD. A further 700 or so projects, with more than 120,000 units, are on a waiting list for commitments that could be awarded if Congress passes legislation to lift or eliminate the current ceiling.

Nearly all the closed, approved, and waiting list projects in this component are for conversions of public housing units rather than Section 8 Moderate Rehab units. Under this component, public housing authorities (PHAs) can apply to HUD to convert the current funding for their public housing properties (capital funds and operating subsidies) to long-term Section 8 contracts that provide project-based vouchers or rental assistance for a specified number of units. Renovated or new units can, but don’t have to be, on the same public housing site.

The application window for RAD’s first component opened October 24, 2012. In January 2013, HUD announced 112 initial “CHAP” awards (Commitment to enter into a Housing Assistance Payment) to 68 PHAs to convert 110 public housing properties (1,910 units) and two Mod Rehab projects (343 units).

PHAs representing about 15% of the entire public housing stock have applied under RAD so far, according to HUD.

Activity Ramping Up

In a recent interview, HUD officials Margaret Salazar and Ted Toon noted that the Department has been excited about the interest by PHAs in the RAD program and the activity level so far, and suggested closings will ramp up for the rest of the current fiscal year ending September 30, 2014 and into FY 2015.

“We believe we’re on target to close several thousand more units this year and to ratchet up next year,” said Salazar, just before stepping down as Director of the Office of Affordable Housing Preservation (OAHP) to become Director of HUD’s Portland, Ore. field office. “We believe we may get up to about 25,000 or 30,000 units by the end of next fiscal year.” She explained that this is largely because many RAD transactions have applied to or plan to use 9% or 4% federal low-income housing tax credits; the former type have application deadlines.

“Of the 49 [RAD] projects closed so far, about half have used tax credit equity,” Salazar said, divided about equally between 9% and 4% credits. A small number have had HUD-insured Section 221(d)(4) or 223(f) loans. Toon, Director of Multifamily Development and Acting Director of OAHP, said PHAs split about 50/50 in choosing between project-based vouchers and project-based rental assistance for the closed RAD projects.

“We’re thrilled with the early results in these 49 deals that we’ve successfully converted so far,” said Salazar. “It’s been exciting to see that PHAs are really embracing [RAD] as a tool to revitalize their properties. We’re seeing repair work in the $40,000 per unit range. And we’re seeing about 20% of the PHAs doing new construction, using RAD as a significant tool to reposition these properties.”

Traits of Pipeline Deals

Of the deals in the pipeline, more than half propose to use housing tax credits (of these, three-fourths plan to use 4% credits); a little over a third intend to use conventional first mortgage debt; and about a third plan to use PHA funds of some sort (e.g., reserves, capital funds).

The majority of RAD program participants have been small and medium-sized housing authorities, but Salazar noted, “We’re seeing a growing number of large PHAs.”

HUD has made several revisions to RAD to boost interest among PHAs, clarify various rules (e.g., relocation requirements), and make the program more user-friendly. For instance, the Department has made it easier for PHAs to submit applications for a pool of projects rather than one at a time, and established a system for fast-track processing of RAD applications for projects proposing to use housing credits and non-HUD mortgage debt. HUD has a separate FHA pilot program to expedite approval of HUD Section 223(f) loans for LIHTC projects. Toon anticipated this will be extended to Section 221(d)(4) loans in FY 2015.

According to Salazar and Toon, HUD is continuing to process RAD applications on its waiting list, in case the current unit cap is lifted or eliminated. “And the door is open for folks to submit additional applications,” Salazar said.

(RAD program information and lists of approved and waiting list projects may be found at http://tinyurl.com/l8z95ol)