LHC District Meeting
Denim Springs HA
August 19. 2014
Holly Knight, Vice President of Development, BGC
202-699-1998 holly@thebennettgrp.net

In order to preserve the public housing stock convert its assistance to the project-based Section 8 platform, which will:
1.
Stabilize funding
2.
3.
4.
Create access to private capital
Streamline HUD programs
Enhance housing options for residents
In order to convert the entire public housing stock,
HUD continues to ask Congress for authority and for funds.

CHALLENGE:
• The Public Housing program has remained underfunded for more than 30 years, leading to ~$26 billion capital backlog
• The nation’s Public Housing stock is struggling, and has significant capital repair needs
NEW TOOL:
• Conversion to the project-based Section 8 programs provides an opportunity to invest billions into the public housing stock
• The Rental Assistance Demonstration (RAD) allows PHAs to undertake this conversion for some units
• HUD has achieved its goal of standing up this new tool, attracting many PHAs to participate
• Only 60,000 units are currently able to convert; lifting cap will make the RAD tool available to all PHAs who want to use it.
Lift the RAD Cap Coalition: website with resources

•
•
•
•
•
•
•
“RAD will only work for public housing projects with low needs”
“RAD is for PHAs in strong markets.”
“RAD is for small PHAs”
“Everyone will convert to PBRA”
“Everyone will convert to PBV”
“RAD only works with 9% Low Income Housing Tax Credits and there’s not enough to go around”
“RAD will only work with FHA mortgage insurance – 99% of these transactions will go FHA”
• “RAD won’t work”

P ERCENTAGE OF C URRENT PH U NITS BY HUD R EGION THAT HAVE
A PPLIED FOR RAD
7% 3% 15% 6%
7%
18%
16%
21%
22%
21%
Note: This data reflects the percentage of PH units in each HUD region that have applied for RAD; note that units are considered public housing until the RAD closing is complete.
5

• 76% of the PHAs with CHAP awards have proposed to convert their entire stock,
•
•
• including
52 small PHA (<250 units)
29 medium PHA (250-1,250 units)
26 large PHAs (>1,250 units)

Indicated PHA Objectives
• Complete repairs – range of moderate repairs, substantial rehab and New Construction
• ~ 20% of projects planning Demolition and New Construction (on site or off site)
• Average repair hard costs of ~ $45,000 per unit ($25,000 per unit excluding new construction)
• Place mixed-finance properties on solid financial footing for long term (~ 15% of projects)
• Thin densities/mix-incomes via transfer of assistance
• Streamline programs

• Secretary Donovan letter 2/20 confirms HUD will review the
~ 685 applications above the 60,000 unit cap
•
•
Instruction from Secretary:
Review applications and prepare conditional approvals.
• Next two weeks conditional CHAPs to be issued
• When cap is lifted, HUD will issue CHAPs to all approved applications and process in order of the waiting list.
• HUD will use the RAD Notice for these projects but will use
FY14 funding levels to calculate the rents.

 HUD has asked for RAD cap to be lifted in 2015 budget
RAD Application by

OFND Annual Amount
$6 000 000 000
$5 031 106 183
$5 000 000 000
$4 900 000 000 $4 921 341 060
$4 594 294 060 $4 611 918 201
$4 149 983 999
$4 000 000 000
$3 000 000 000
$2 000 000 000
$1 000 000 000
$-
89.20
%
2014
82%
2013
94.968% 100%
2012 2011
OFND Annual Amount (U.S.) Proration
103%
2010
88.42%
2009

Capital Fund Capital Funding Trends
2,5E+09
$2 341 258 000 $2 365 835 000
2E+09
$1 910 035 000
$1 790 000 000 $1 800 000 000
$1 696 372 000
1,5E+09
1E+09
500000000
0
2009 2010 2011 2012 2013 2014
1 2 3 4 5 6

Note: Not listed PHA PBV at FMR, PHA Cost Center Funds, Admin Fees

• Losing affordable housing
• $26 Billion capital investment need
• Unpredictable and insufficient funds
• Limited investments in public housing
• Aging housing stock: average PH is 43 years old
• Marketability and curb appeal
• Rules and regulations increasing
• Under performing PHAs and consolidation
• Funding trends decreasing
• HUDs program consolidation goals

Sample Public Housing Conversion
Per Unit Monthly (PUM) – Same funding
$900
$800
$700
$600
Operating Fund
$200
Operating Fund
$330
2013 Funding
$164
$500
2013 Funding
$400
$95
$300
$200
Tenant Payment
$150
T enant Payment
$318
$100
$-
Pre-Conversion
Housing Assistance
Payment
Assistance
Payment
$474
Tenant Payment
T
$150
$318
Post-Conversion

 Builds on a more stable funding platform
 Lock in funding
 Better than Capital Fund Finance, Leveraged Op Sub, or EPC
 Leverage private capital to address physical needs and preserve your units



Leverage 4% LIHTC get 30% project equity
Leverage 9% LIHTC get 60+% project equity
Leverage developer fees, seller take back finance, ground lease
 Apply for grants HOME, Federal Home Loan Bank

Provides a great deal of regulatory and reporting relief
 Saves in reporting to HUD, policies, and oversight more with board and PHA

 Procurement with developer partner is simplified
 Expenses
 Gives real estate opportunities
 Can move HAP contract as needed



Can move out of flood zones/hazard zones/undesirable areas
Can use non federal funds to purchase properties or land
Benefits of partnering for expiring LIHTC, Home projects,
HUD Multifamily developments
 Best and highest use of assets
 Feasibility, Marketability, and Sustainability

 Transfer assistance from unworkable units prior to conversion
 Market accommodations in meeting 1-for-1 preservation
(e.g., convert efficiencies to 1 bdrms; long-term vacant units)
 Combine RAD & agency PBVs or SAC TPVs>PBVs
 Flexibility to reduce densities, replace housing off-site, produce mixed income communities
 Allows PHA to undertake renovations immediately or after conversion, as warranted
 Demolition/New Construction allowed
 Ability to “bundle” project applications for flexibility with initial contract rents



 Roof - $8,000
 3 Bedroom 504 Compliance $25-35,000
 ADA Site compliance $10-15,000

HVAC replacement -$4,000
 Water Heater - $350

Site Soil Erosion- $20,000
 Appliances –Range $450 / Fridge $550

• The RAD options:
• Modest rehab with no debt
• Modest rehab with debt only
• Moderate rehab with debt and 4% LIHTCs
• Major rehab or replacement with debt and 9% LIHTCs
• These are funding sources that are not conveniently available to small PHAs
• A conversion of all LIPH units eliminates the HUD requirements for:
• Procurement
• Annual and Five‐ Year Plans
• PHAS
• REAC (if…PBV)
• You Get to Keep the Money – no offsets, developer fees, seller take back financing, cash flow options

 15-20 year, renewable contracts with use agreement
 Predictable initial contract rent setting; annual operating cost adjustments for inflation (OCAF)
 Established replacement and operating reserves; standard industry underwriting requirements
 RAD HAP funding begins at construction closing
 No limitations on use of project cash flow
 PHA ownership/control similar to LIHTC practices
 Long-term affordability ensured

• Similarities:
Real Estate Transaction same
Rent/Income
Reporting to 3 rd parties
Physical needs assessment is a driver
• Differences:
PHAs want to self manage
RAD PCNA tool
Complicated HUD regulations
Lower Income to project
Expenses higher may need to be adjusted
Type of 3 rd party reporting HUD versus Investor
• Benefits of PHA Partner
Invested in community
Familiar with social services
Knows the community partners
Has managed PH inventory on shoestring budget
Familiar with compliance

• Timing
• Tax credit compliance versus HUD compliance
• Rent calculation and income qualification
• Boards and their role changes
• Limited knowledge of mixed finance
• Management
• Ownership changes impact pilot and taxes
• Investors and HFA unfamiliar with PHAs
• RAD rents are low
• HUD conversion requirements
• PBV/PBRA
• PHA Plan
• Site and neighborhood
• Elderly designation
• Environmental
• Relocation (URA)
• Affirmatively Furthering Fair Housing

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