RAD Inventory Assessment Tool for PHAs
INSTRUCTIONS
Overview
The RAD Inventory Assessment Tool is designed to help public housing agencies (PHAs) make a firstlevel assessment of properties in their inventory for potential conversion of assistance from public
housing to long-term Section 8 contracts under the Rental Assistance Demonstration (RAD). A helpful
initial step in such analysis is to estimate how much permanent mortgage debt could be supported by
“current funding” under the public housing program when converted to Section 8 assistance to help
meet identified capital needs. With this estimate, a PHA can begin to structure a more thorough Income
and Expense statement (or Operating Budget) as well as Sources and Uses of funds (Development
Budget).
In some cases, the maximum supportable first-mortgage debt may offer a sufficient amount of financing
to meet the capital needs of a project. In other cases, it will be necessary for the PHA to obtain other
sources of subordinate debt, equity and/or grant financing to make the project feasible. There is no
requirement under RAD to assume any level of debt if a conversion is feasible without debt.
Additionally, it may be prudent to reduce the amount of supportable debt by coupling it with
subordinate financing or capital grants to improve a project's cash flow. A PHA might consider
applying its own public housing Operating or Capital Funds (permitted under RAD as a statutory
waiver) as an additional source of capital. Other public and private sources, such as state and local
CDGB and HOME funds or social investment funds, can be structured as subordinate financing. For
projects with higher capital needs, PHAs are encouraged to consider accessing private equity
investments utilizing either 4% or 9% Low Income Housing Tax Credits (LIHTCs). In all cases
involving multiple sources of financing, particularly LIHTCs, PHAs are strongly encouraged to enlist
advisors, development team members and/or partners in needed financing for a potential conversion of
assistance under RAD.
The Tool is preloaded with information from HUD systems on each Asset Management Project (project)
in a PHA’s portfolio, including the number and bedroom size of units and current public housing
funding. The Tool also addresses various underwriting assumptions related to generating a preliminary
Operating and Development budgets. The user only needs to enter a minimal amount of data in order to
generate initial results for each project. The user can then modify any of the information supplied, or
any of the assumptions or formulas, to perform more detailed ‘what-if’ analyses.
For more information on RAD, please see PIH Notice 2012-32 or visit the RAD website at
www.hud.gov/rad. Additional information on preparing a RAD application is provided in the RAD
Conversion Guide, which can also be accessed from the RAD website.
How the Tool Works
There are two types of cells:
► Green cells with bold borders are user inputs. The user can modify the data in these cells to help
refine the analysis
► Black cells are formulas that are locked.
Additionally, throughout the tool are blue question boxes. By holding the cursor over these cells, the
user can see additional information or suggestions specific to that area of the worksheet.
Step 1: Enter Global Inputs
Navigate to the Global Inputs Tab (which appears on the bottom of this Excel window). On this tab, the
user must:
1) Enter the five digit PHA code, e.g., MI011 (Monroe, MI Housing Commission). If you are unsure
of the PHA code, you can look up the PHA in the PHA Code Tab.
2) Click on the “Populate Data for All Properties for this PHA” button. Once clicked, the tool will
populate data for all properties for this PHA on the Inventory Overview Tab. (You will see the tool
go through the population routine and then return to the Global Inputs Tab.). Note: While intended
primarily for PHA use, the Tool contains only publicly available/non-confidential. The prepopulation routine works only once. If you are using this tool for multiple PHAs, you will need to
open a new version of the tool where the radio button has not been engaged. You can then save a
file for each PHA.
3) Enter the First Mortgage Financing Terms (rate, amortization, term, etc.). These terms will then
apply to all projects in your inventory. (On the next tab, you will be able to modify these terms for
any individual project.)
4) Select the type of conversion: PBRA or PBV from the drop-down box. (For the purposes of this
tool, this choice affects the different rent caps under RAD for PBRA and PBV conversions.)
5) Enter whether you would like the tool to auto-populate an initial operating expenses estimate for
each project with one of the options in the drop-down box or begin each project blank.
You’re now finished with the Global Inputs Tab.
Step 2: Build an Initial Income and Expenses Budget
Click on Inventory Overview Tab. The Tool will now display a first-level, simplified Income and
Expense Budget for each project in the PHA’s inventory, including the estimated first mortgage debt
that each project can support based on the global financing terms that the user entered, operating
expenses (if the user selected an estimate), and the Tool’s pre-loaded underwriting assumptions. In
addition to modifying the data or assumptions in this section (Section 1), the user can click on the
buttons to reveal Sections 2 and 3, where the user can make additional property-specific adjustments to
fine-tune the pro-forma and first mortgage estimates. Some of the key underwriting assumptions that the
Tool begins with, and that can be modified by the user, include: Vacancy loss of 5%; Bad debt loss of
2%; Other Income of $120 per unit per annum; and Replacement reserves of $500 per unit per annum.
Step 3: Build an Initial Sources & Uses Budget
Now the user can build out a more detailed development budget, by using the Tool's Sources and Uses
template. For building out Sources, the user can begin with the estimated first mortgage debt provided
in Step 2. If additional funding is likely to be needed to address a given level of capital rehabilitation or
construction, the user should consider the availability of soft second mortgages or subordinated debt
from a variety of potential sources. Some of these are controlled by the PHA and some are available to
affordable housing projects generally through state, local and private sources. For filling in Uses, the
user should begin with the estimated rehab/construction costs for the project and then estimate
additional project costs including professional fees, loan fees and costs, reserves and developer fees.
If Sources and Uses do not balance, a user can review the Tax Credit Estimator in the Tool below the
Sources and Uses template. Before using the Estimator, be sure to make adjustments to Acquisition
Cost, Operating Reserves and Developer Fee, which are substantively different in transactions involving
tax credits and/or impact the equity that could be raised. Additionally, the acquisition cost of the units is
typically lent to the project as Seller Take-Back Financing, which should appear then as a Source.
Guidance for those changes is provided in the blue box adjacent to the specific line item. Once you have
made these changes, the amount shown in the Tax Credit Estimator already deducts certain LIHTCrelated transaction costs, including additional legal fees and bond issuance costs (if applicable), and so
represents a net equity figure. This is simply an estimate and users who anticipate using LIHTC should
contact an experienced advisor early in the process.
Finally, based on the 1) first mortgage debt proceeds indicated in the Sources and Uses, 2) inflation
factors for rents, expenses, and replacement reserves, and 3) the number of years a user would like to
project out, the Tool estimates the amount of the debt service and the debt coverage ratio in a future
year. The trending of operating Income and Expenses to reflect inflation will be an important
underwriting criterion for some affordable housing lenders, and especially to LIHTC investors
Additional Notes on Use
Saving: IMPORTANT NOTE - The workbook's Excel file format (.xlsm) must be retained. Do not
change the file type or all macros/radio buttons may be deactivated.
Printing: The Inventory Tab is preset to print only Section 1 (Operating Pro Forma and Section 4
(Sources & Uses). A user may change the print area in the Page Setup ribbon.
Multiple PHAs: If you are using this tool for multiple PHAs, be sure to start with the original version
of the tool for each PHA; the pre-population routine will only work if the tool is in its original state (i.e.
PHA Code = "Blank") and the “Populate Data For All Properties for this PHA” button has not been
engaged.
Changing HUD’s Assumptions: The tool begins with initial underwriting assumptions, which are
applied to all projects (e.g. vacancy rate of 5%). The user can customize these by project or can modify
the global assumptions. To the right of the last project column on the Inventory Overview tab, you will
find a number of these standard economic assumptions in blue bold font that the PHA can modify.
Further Customization: HUD has also designed this workbook so that it can be customized by
users. The password is "RAD2." Before customizing the workbook, be sure you have completed the prepopulation routine in the Global Inputs Tab and saved a copy of the resulting pre-populated workbook.
Technical Notes
Disclaimer: HUD does not warranty any of the formulas, data, or assumptions included in this tool.
This tool is for planning purposes only.
To create this tool, HUD made a number of assumptions, all of which a user may modify:
1. Project and Unit information come from a PIC extract from 6/8/12.
2. Contract Rents are calculated based on Attachment 1C of PIH Notice 2012-32 using the 2012
Appropriation.
a. The Operating Subsidy was derived from Form-52723, taking the following steps:
Step 1: Combine 1) PEL [Section 3 Part A, Line 03 (PUM inflated PEL)] + 2) UEL [Section 3 Part
A, Line 05 (PUM inflated UEL)] + 3) Add-ons [Section 3 Part A, Line 07-15] (excluding Asset
Repositioning Fee [Line14] and Resident Partipation Funding [Line 11], divided by Total Unit
Months + 4) Resident Participation Funding [$25, divided by 12]. The result is a PUM amount.
Step 2: Subtract Adjusted Formula Income [Section 3 Part B, Line 03 (PUM adjusted Formula
Income)]
Step 3: Mutliply the result by the current year's pro-ration
The Result is the derived PUM Operating Subsidy under RAD.
(For MTW agencies, HUD used the average per unit operating subsidy and the reported tenant rents
from the 50058).
b. For the Capital subsidy, HUD used the per unit subsidy amount calculated for the Capital Fund
formula for 2012 grants based on units counts as of 9/30/2011. Actual amounts may differ if the
unit counts of the proposed converting project differ from the standing unit count as of 9/30/2011.
c. Tenant Rents are based on Adjusted Formula Income [Section 3 Part B, Line 03 (PUM adjusted
Formula Income)] from the Form-52723
d. A project with a null value for Operating Subsidy, Capital Subsidy, or Tenant rents, indicates that
the project does not receive one or more of these revenue streams in 2012. If the project is eligible
for subsidy, or would be after rehabilitation under RAD, you can modify this information in Rows
71-73 of the Inventory Overview tab.
e. The calculation of contract rents for MTW agencies with an alternative subsidy calculation under
the public housing program differs from the approach illustrated above because their Operating
subsidy is not currently allocated at a project level. For these agencies, HUD has calculated a perunit Operating subsidy based on each agency’s Operating Subsidy grant. For tenant rents, this tool
uses data provided in the 50058.
3.
Operating Expenses – The option to auto-populate operating expenses with 95% of Formula
Expenses calculates the operating expenses for each project with 95% of the sum of Project
Expense Levels (PELs), Utility Expense Levels (UELs), and Add-ons (excluding Asset
Repositioning Fee). (For alternative-subsidy MTWs, HUD used the average PEL, UEL, and Addon for the metro area in which the agency is located.) The option to auto-populate operating
expenses with Mark-to-Market Comparables utilizes a limited sample size of 1,500 properties and
121,000 units and are representative only of the M2M portfolio. Actual results may for any given
property due to a number of project and market factors.
4.
Fair Market Rents were pulled from HUD’s Final FY 12 FMRs. For some projects, where HUD
was unable to map the project to the FMR database, HUD used the state-wide FMR. The tool uses
FMR data to calculate the applicable rent caps.
5.
Utility Allowance data is extracted from PIC. Where such data is not available, HUD used the
national average of $38 PUPM. The tool uses Utility Allowance data only for the purposes of
determining the applicable rent caps (for example, for PBV conversions, contract rents cannot be
greater than 110% of the FMR adjusted for Utility Allowances).
6.
Market Rents are estimated at 93% of Fair Market Rents. This estimate is based on a national
comparison of rents found in the Housing Choice Voucher program compared to FMRs. The tool
uses the estimate of market rent to calculate the applicable rent caps.