RAD’s Revision 3

4 min read

Highlights of simplified rule

The Rental Assistance Demonstration (RAD) program began in 2012 with the purpose of addressing a $26 billion backlog of deferred maintenance for public housing. RAD converts both public housing, as well as properties funded under HUD’s Legacy Programs (Rental Supplement, Rental Assistance Payment and Moderate Rehabilitation) to Project-Based Section 8. As of February 2017, RAD is responsible for converting 58,154 units and leveraging $3.9 billion in construction investment (not including acquisition, soft costs, reserves and developer fees). An additional 18,000 units are currently on the waiting list, and the number of units converted has increased each year, with 22,885 conversions in FY2016 and 15,702 units already as of February 16, 2017.

In January of this year, HUD published its third revision to RAD (Rev-3). NH&RA’s RAD User Group discussed the revision in detail, resulting in a comment letter that was submitted to HUD in February. Furthermore, NH&RA’s 2017 Annual Meeting played host to HUD Office of Recapitalization Director Tom Davis, who gave an update on the program and some additional thoughts on Rev-3.

The majority of changes brought on by Rev-3 serve to streamline the program. For the larger, first component of RAD, covering public housing conversions, changes included:

  • Elimination of the 50 percent cap of PBV units at a project. Under this revision, there is no limit on the number of units within a project that may receive Project-Based Voucher assistance.
  • Extending eligibility for all contiguous phases of a HOPE VI project, as long as the original phase is at least ten years old. NH&RA asked in its comment letter that HUD define “contiguous,” as it is defined differently by various programs. The letter asks for a broad definition of contiguous, allowing for the entire footprint of the original public housing site, as well as immediately adjacent parcels. Bisecting roads, as well as properties separated by related facilities integral to the project, such as schools, community facilities, retail, etc. should not break the “contiguity” of the site. It’s likely this was HUD’s intent in writing the revision.
  • Equity and Acquisition Proceeds – Revision 2 stated that loan proceeds from a transaction could be taken out of a deal. This statement led to the interpretation that equity proceeds and acquisition proceeds were off limits. Rev-3 clarifies that those proceeds can also be taken out. Acquisition proceeds are, however, limited to affordable housing purposes.

As for the 18,000 unit waiting list, HUD realizes there is little benefit in putting forth all the effort in a full application to be on such a list. Rev-3 now allows for a simple letter of intent. Once the applicant nears the top of the list, HUD notifies the applicant and gives 60 days for a full application to be completed. The improved process may also hopefully serve to maintain a large waiting list, showing Congress that RAD conversion authority should be increased and the program made permanent. The waiting list does have turnover, as allocation occurs before projects have completed their due diligence resulting in some deals dropping out after the fact.

Creation of a high-priority tier for the waitlist for high investment /new construction projects has also been created. The simple letter of intent will not put applicants in this tier, only a full application will (the earlier date of an LOI will also not be used for a later submitted full application for high investment projects).

For the second component of RAD (HUD Legacy programs) where there is no budget neutral requirement, Rev-3 creates opportunity for increased income. For Mod Rehab projects, rent may now be increased up to 110 percent of FMR or, for certain Project-Based Rental Assistance conversions, up to 120 percent. There is now also the ability to use small area FMRs rather than Metropolitan Statistical Areas. Small area FMRs are based on zip codes – benefitting projects in high-cost markets. While there is plenty in Rev-3 for the developer community to be happy about, there are also areas for concern, hence NH&RA’s comment letter. The most controversial issue is the new limit on the developer fee.