The RAD Physical Needs Assessment
Balancing Act
Presented By:
Matt Sweet
Dominion Due Diligence
Group (D3G)
The RAD Strategy
There are three basic strategies for completing
a RAD conversion
- Direct take out
- Preservation Deal
- Rehab strategy - LIHTC
A Physical Needs Assessment* is a study which
defines immediate and long-term capital needs;
and typically includes:
- Property Inspection Report
- Identification of Immediate Repairs
- Reserve for Replacement (R4R) Analysis
* PNA, PCA, PCNA, PCR synonymous in the above definition.
The RAD PCNA
• Three (3) Scopes of Work in One Assessment
o Green PCNA + Energy Audit + UCB
• Selecting your PCNA provider
o Qualifications
o Experience with mixed financing and MAP
o Scope and timing
• Deliverables
o Report + Excel Tool
It is key to understand the RAD Excel Tool
functions & objectives
Driving Factors in a
Physical Needs Assessment
- Property Condition
- Funding Sources
- Ownership Direction/Expectation
Sometimes synergies, sometimes conflict
Property Condition
Considerations
•
•
•
•
Age of Asset and Physical Condition
Level of rehab planned versus what is necessary
Building code issues (life safety, fire, electrical, etc.)
Hidden, latent defect or other conditions warranting
intrusive study (long lived building components)
• Environmental conditions
• Sources of Loan and Financing
 Accessibility Issues (UFAS, ADA Title II)
 LIHTC QAP Requirements
 Lender / Syndicator Requirements
The
Yin & Yang
of RAD &
LIHTC SOURCES
USES or NEEDS
The
Balancing
Act
Equity or Loan Sources
• LIHTC QAP Architectural Baseline Standards
• LIHTC QAP Scoring Architectural Items
• Housing Assistance Contracts (PBRA, PBVA)
• Housing for the Elderly or other designation
• Syndicator Requirements
• Permanent Loan Program Requirements
• Future Reserve for Replacement (R4R) Deposits
(e.g. a 100 unit complex at ADRR of $350/unit= $700,000 + interest over
20 year period)
Expectations
(aka “Establishing the Target”)
• What are the owner expectations?
• Pro-forma projected Per Unit Per Annum (PUPA) or
Annual Deposit to the Replacement Reserves (ADRR)
• Energy Water Conservation Measures?
• And the $60,000 Question is:
“Sources allow for how much rehabilitation?”
When and Where do Accessibility
Regulations Apply?
MARKET RATE
APARTMENTS
Fair Housing Act
Requirements
AFFORDABLE (not
assisted, e.g. LIHTC's)
Fair Housing Act
Requirements
FEDERALLY ASSISTED**
Fair Housing Act & 504/UFAS
Requirements
Projects built from 7/11/1988 to
3/13/1991
None
None
504/UFAS Requirements
Sub Rehab of projects built before
7/11/1988
None
ADA Title II
504/UFAS Requirements (subjected
to 8.23(b) other alterations, as
applicable; load bearing wall
exception)
Refinance of projects built prior to
7/11/1988***
None
None
504/UFAS Requirements (load
bearing wall and
financial/administrative burden
exceptions
All Public Accommodation
ADA
ADA
ADA & 504 UFAS
ACTIVITY & YEAR BUILT
Projects built (1st occupancy*) after
3/13/1991
RAD Common Issues
1. Properties may not have an accurate assessment of needs
2. Perception vs. Reality (Preservation vs. Asset Management)
3. Lack of property details (build date, SF, #bldgs, off-site...)
4. “Over-housed” conditions and reclassifying rents
5. Functional obsolescence issues (EUL, RUL, and REL)
6. Misperceptions of RAD and bad press
7. Energy Data, EWCM Implementation, and Utility Allowances
8. EPCs or CFFP in place
9. Municipality Involvement (pre and post conversion)
RAD Lessons Learned
1.
RAD is not easy, much like LIHTC with more layers
2.
Identify “expectations” and “goals” early on to meet milestones
3.
Identify available/predictable sources of funding
4.
Remember long-lived building systems (ML 2012-25)
5.
DBWR cannot be avoided (even in a LIHTC pilot!)
6.
Get to know your Transactions Manager (TM)
7.
Request concept meeting for RAD projects going FHA
8.
Review HUD’s RAD FAQs frequently
9.
Coordinate Environmental Site Assessment early
Environmental Items
Common Environmental Studies in affordable housing
finance:
• Phase 1 Environmental Site Assessment
• 24 CFR Part 50 Review
• 24 CFR Part 58 Review
• Hazardous Material Inspections
• NEPA Specialty Studies (Noise; STC Calculations;
Floodplains/Wetlands 8-Step Process; ASD Studies;
Archeological Studies; Endangered Species…etc.)
Creativity in RAD
1. Rebranding of a PHA
2. Making small work for all
3. Portfolio analysis to create synergies / rent bundling
4. The Preservation balance of IDRR and ADRR
5. Reducing expenses through energy upgrades
6. Use of Section 18 Demo Disposition
7. Complexity is the “normal”, examples being:
a.
RAD conversion; sell with land-lease; and build new
b. 15 projects in one bond deal
c.
157 scattered site townhomes in an inner-city location