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Rental Assistance Demonstration: Rent Supplement and RAP Funding Update

by Published On: Oct 12, 2012Updated On: Feb 14, 2014
The FY 20414 Omnibus' extension of RAD authority will allow owners with Rent Supplement, RAP or Mod Rehab contracts to convert their assistance to project-based vouchers through the end of the year under the second component of RAD, subject to the availability of appropriations for tenant protection vouchers, and subject to speedy notice by owners to their local field office. 

On Feb. 6, the U.S. Department of Housing and Urban Development (HUD) issued a Technical Update to HUD PIH Notice 2012-32. This update allows for new applications to be submitted under the 2nd component of RAD.  

The 2nd component allows owners with Rent Supplement contracts, Rental Assistance Payment contracts, or Section 8 Moderate Rehab to convert their assistance to long-term a Section 8 Project Based Voucher (PBV) contract, subject to the availability of appropriations for tenant protection vouchers.

This revision accounts for the extended authority for RAD conversions made possible through the Consolidated Appropriations Act of 2014. The extended authority should allow many more of these projects the opportunity to convert and extend their project-based subsidies.

Owners should note that if they had previously submitted a letter of interest to participate in RAD and were placed in the queue for the 2nd component, that queue is no longer active. 

Owners are directed to the notice to determine if they are eligible under the new authority.  Generally an eligible triggering event that would make a project RAD eligible would be a contract expiration on or before December 31, 2014, or a prepayment that terminates the existing contract on or before December 31, 2014. 

Owners with contracts expiring in FY14 should reach out to their HUD Project Manager in their local field office to inquire about a short-term extension, if necessary.  All extension requests must be received by the Office of Affordable Housing Preservation (OAHP) by April 15, 2014. 

The notice gives the instructions for submitting an application under the new authority.

Owners with contracts expiring in FY14 should reach out to their HUD Project Manager in their local field office to inquire about a short-term extension, if necessary.  All extension requests must be received by the Office of Affordable Housing Preservation .(OAHP) by April 15, 2014.

Previous RAD Pipeline Update 

The second component” of the Rental Assistance Demonstration (RAD) provides an opportunity for owners of properties with Rent Supplement, RAP, and Mod Rehab assistance to convert expiring rental assistance contracts to 15-year Project Based Voucher (PBV) contracts. The program allows owners to safeguard rental supports for vulnerable residents, and to harness financing to make repairs and improve projects.    

The 2013 deadline to submit applications to safeguard rental assistance for residents of properties with Rent Supplement and Rental Assistance Payment (RAP) assistance contracts has passed. The U.S. Department of HUD provides a report of progress to date, and expectations for the future of applications in the pipeline.

HUD reports having received Rental Assistance Demonstration (RAD) applications or letters of interest from two-thirds of all Rent Supplement and RAP properties, and have transactions completed or in progress to preserve more than 3,500 assisted units.

You can check out the full text of what HUD sent out via its RADBlast on April 22, 2013:

The second component of RAD, which is noncompetitive, launched last summer (2013), with tremendous uptake. To date, we have received RAD applications or letters of interest from two-thirds of all Rent Supplement and RAP properties, and have transactions completed or in progress to preserve more than 3,500 assisted units. 

We have received 39 applications for conversion of assistance. Of those, HUD has fully completed and closed on the conversion of eleven projects, preserving 1,207 units across six states, including a handful of retroactive conversions. Another 18 projects, representing some 1,862 units, have been approved for RAD conversion. For the remainder of this fiscal year, prior to September 30, 2013, HUD anticipates that another 18 projects will come through RAD for conversion.  

Letters of Interest  

The Second Component of RAD sunsets on September 30, 2013. Due to limited Tenant Protection Voucher (TPV) resources, prioritization of projects for the RAD conversions has been essential. HUD has been accepting applications on a rolling basis for properties that have contract expiration dates on or before September 30, 2013. Owners with Rent Supp or RAP contract expiration dates after September 30, 2013, interesting in participating in RAD, were to submit a signed letter of interest via email no later than April 1, 2013. Those that met the deadline were placed in a queue for consideration should funding become available. 
 
In total, HUD received 152 letters of interest, representing some 11,000 contract units. This equates to approximately half of the universe of all Rent Supp and RAP properties in the inventory, demonstrating strong support of the RAD program. We are currently assessing the availability of funding for the letter of interest transactions and will be putting out information as soon as possible in the coming weeks on which projects we will be able to accommodate this year.  

Community and Geographic Impact 

Rent Supplement and RAP conversions are concentrated in several states which are home to these properties – New York, New Jersey, Michigan, and Massachusetts.  Owners have worked closely with public housing agencies, HUD staff, tenant organizations, housing consultants and state and local housing agencies to complete successful RAD conversions. Many transactions are proposing to repair or rebuild rental homes in areas impacted by Hurricane Sandy. HUD is pleased to partner with these organizations to improve housing, communities, and resident opportunities.  

Note: The above reflects data for all active applications under review.
 
A RAD Success Story
 

The Detroit Multifamily HUB closed its first RAD transaction on April 16, 2013. Foxfire Apartments is a 160-unit development located in Jackson, Michigan. The project was previously Section 236 uninsured with 32 units assisted with a RAP contract. The local office processed an Interest Reduction Payment (IRP) decoupling and as part of the RAD transaction and Section 236 prepayment, the project now benefits from 72 project based vouchers to be administered by MSHDA. The owner utilized HFA insured financing under the Section 223(f) program and will make an estimated $386,000 in repairs, in addition to the anticipated rehab to be performed in conjunction with low income housing tax credits. The lender is Pillar Capital Finance, LLC and the FHA insured loan amount is $5,044,000.  

Margaret S. Salazar
Acting Associate Deputy Assistant Secretary for the Office of Affordable Housing Preservation
 

Send questions to rad@hud.gov and visit the RAD website regularly for additional resources. To join the RAD email list, please go here.

Rental Assistance Demonstration Background

Underwriting Instructions for Projects Converting Assistance as part of the Rental Assistance Demonstration (RAD) Program, issued Oct. 11, 2012, by the U.S. Department of Housing and Urban Development (HUD), provides 22-pages of detailed information on project eligibility based on timing and type as well as guidance for expedited underwriting transactions including:

  • Appraisals.
  • Project rent setting.
  • Developers fees.
  • Project expenses. 

According to the notice, properties that participate in Rental Assistance Demonstration (RAD) may: 

  1. Convert public housing or Mod Rehab assistance to Section 8 Project-Based Rental Assistance (PBRA) contracts.
  2. Convert public housing, Rent Supp/RAP, or Mod Rehab assistance to Section 8 Project Based Voucher (PBV) assistance. 

PHAs and private owners of Rent Supp, RAP or Mod Rehab properties may then leverage the PBRA or PBV assistance contract to attract new financing FHA multifamily mortgage insurance is an important source of debt financing for projects participating in RAD.

The notice indicates that underwriting of public housing, Mod Rehab, Rent Supp and RAP properties with PBV or PBRA assistance under RAD will mirror the underwriting of other properties assisted with Section 8 PBV or PBRA assistance. 

HUD endorses many transactions each year involving the acquisition, refinance and rehab of PBRA or PBV-assisted projects. However, HUD is making certain allowances for processing RAD transactions that utilize FHA insured debt to accommodate and expedite these transactions, as described below.

Of particular note to senior housing providers with an interest in housing plus services, the notice indicates (page 8) that, among eligible expenses, an owner/PHA may propose non-shelter services in RAD projects from an external funding source or using surplus cash, with the constraint that no more than 15% of the project’s effective gross income may be used for supportive services, so long as there services would not be commercial in nature or undermine the predominantly residential character of the property.

Applicability of the LIHTC Pilot to RAD Transactions is also addressed in detail.

As with many of the latest pieces on preservation and refinancing, the HUD contact is Margaret S. Salazar in the Office of Multifamily Housing at 202-402-2423202-402-2423.

 



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