A Visit to SF-RAD

6 min read

Largest government-to-private ownership conversion in history

In 2015, San Francisco approved the largest conversion of government housing into private ownership in American history. The deal is a mass overhaul of the city’s decrepit public housing stock, as units across multiple neighborhoods are being restored and transferred to new management. The deal also represents the largest single application thus far of the Rental Assistance Demonstration (RAD) program, a recent voluntary reform initiative from HUD. This initiative in San Francisco, known as SF-RAD, is supposed to improve public housing services while preserving some of the city’s ever-dwindling affordable housing stock. Recently, I was given a tour of various properties within SF-RAD’s portfolio, to see how the repairs are coming along.

Before the SF-RAD project began in 2015, San Francisco had dealt with a poorly-run public housing authority that oversaw mold- and rodent-infested properties. In the prior year, HUD, recognizing that public housing was suffering similar mismanagement and disrepair nationwide, launched RAD. The program, according to the department’s website, “allows public housing agencies to leverage public and private debt and equity in order to reinvest in the public housing stock.” This means that such projects can adopt private-sector qualities, by funding repairs through a combination of Low Income Housing Tax Credit (LIHTC) equity and Section 8 vouchers. It also means that investors and developers can (so long as they follow certain rules) replace public agencies as the owners and operators of projects.

Such privatization was embraced by San Francisco mayor Ed Lee, who thought it would help compliment the struggling local housing authority. During the SF-RAD project, the city is rehabilitating a whopping 3,500 units, across 29 different projects, using eight private developers. Project costs will be $2.2 billion, and the repairs should be complete by 2020.

The finances driving this gargantuan project are unique. Bank of America Merrill Lynch—which was founded in 1904 in San Francisco as Bank of America, and has historically financed many of the city’s affordable housing projects—financed the entire SF-RAD project alone. Indeed, the company is the sole construction lender and LIHTC investor, loaning money to the developers for repair and maintenance (Freddie Mac bought some of this debt, and is the project’s permanent lender, while the seller-carryback lender and soft-lender, respectively, are the San Francisco Housing Authority and the city government). Ari Beliak, vice president of the bank’s Community Development branch, which is overseeing SF-RAD, said having just one financier is unusual for such a large project. But the advantage to it, he said, while touring me around San Francisco, “was streamlining the logistics for the City of San Francisco and the Housing Authority to have a single point of contact to create transactional efficiencies to make the project simpler for them.”

I had decided to meet Beliak to better grasp the scope of the SF-RAD project. It turned out to be an even bigger project in life than how the numbers read on paper. We first met in the city’s Mission District to visit the Mission Dolores Senior Apartments, a high-rise structure that caters to low-income elderly people. Like every other project in the SF-RAD portfolio, it was currently under renovation, surrounded by scaffolding and construction workers.

From there Beliak and I traveled by Lyft to the city’s south-east side, where public housing encompasses large swaths of certain neighborhoods. This mainly included various low-rise projects in the Hunters Point area, which roll along the hills just above a shipyard. As Beliak noted, these units have excellent views of downtown San Francisco, in all its prosperity, yet have long been segregated poverty clusters.

Finally, Beliak and I visited some properties in the downtown area. These included some of the highest-density buildings within the SF-RAD portfolio, such as a 234-unit tower on Pacific Avenue that fit nicely beside Chinatown’s commercial heart. Other SF-RAD properties—which we didn’t have time to visit—are in Bernal Heights, Western Addition, The Tenderloin and other neighborhoods.

What connects these properties is that they house low-income tenants, including some who are mentally ill, substance abusers, or coming from tough family situations. This is a big reason, noted Beliak, that many of the units first fell into disrepair. And it’s why Bank of America, while financing SF-RAD, voluntarily allocated $2.2 million for onsite counseling. That, he said, would be “necessary to enable these tenants to thrive and for the properties to be managed appropriately.”

Another social issue that the city and Bank of America hope to address through SF-RAD is the housing situation. “San Francisco,” said Beliak, “is going through an extreme affordability crisis, which is impacting all segments of society.”

This is highlighted by a housing shortage that, as I note in my latest Housing USA column, results from San Francisco’s housing growth falling significantly behind its population growth. The SF-RAD project at least chips in for this problem: not only will it preserve low-income units, but it will, in a sense, be adding units, since many existing ones within the portfolio were so run-down that they’d been abandoned.

Yet, because the project isn’t dedicated to significant housing growth beyond just repairing what exists, it feels like a massive wasted opportunity, especially given the city’s land constraints. Take, for example, the aforementioned portions of the SF-RAD portfolio throughout the southeast side. They mirror the failed public housing found nationwide—they are low-density, suburbanized, and remote from private and public services. One option—which is possible through RAD—would’ve been to tear those structures down and replace them with buildings that have better designs, mixed incomes and more units. San Francisco has done this elsewhere via its Hope SF program, and some of those projects were financed by Bank of America. But it wasn’t the city’s strategy for SF-RAD, due to the same concerns about density and scale that inhibit many market-rate projects, too. (Olson Lee, director of the mayor’s Office of Housing, didn’t respond to multiple requests for comment).

That said, the SF-RAD project is still massive and ambitious; the largest of its kind in America. And it looks like repairs are moving along, with the before-and-after differences between adjacent units growing visible from street level. SF-RAD thus testifies to the coordination that occurred between different interest groups, the streamlined implementation of HUD’s new RAD policy—and the vast resources of one financial institution.