R E N O & C A V A N A U G H PLLC

Rental Assistance Demonstration (RAD) Florida Association of Housing and Redevelopment Officials

Wednesday, August 6, 2013

RAD – 1st Component• May Convert to Project-Based Rental Assistance

(PBRA) or Project-Based Vouchers (PBVs)• Contract Term:

∙ PBRA = 20 Years∙ PBV = 15 or 20 Years∙ Mandatory Renewals (HUD must offer, owner

must accept)• Use Agreement (only Public Housing

Conversions): ∙ 1st Priority∙ Term Concurrent with HAP∙ Automatic Renewal∙ Not Foreclosable

RAD – 1st Component• Ownership/Control by Public or Nonprofit Entity (only public housing

conversions)∙ Ownership. Public or non-profit entity has legal title to property.∙ Control. Public or non-profit entity has the direct or indirect legal

authority (via contract, partnership share or agreement of an equity partnership, voting rights, or otherwise) to direct the financial, legal, beneficial or other interests of the owner of a project or has 51 percent or more interest of the general partner share in a limited partnership.

• Exceptions Allowing Private Ownership/Control∙ LIHTC: But PHA Must Maintain Control via Ground Lease,

ROFR, PHA Subordinate Debt∙ Foreclosure, Bankruptcy, Termination or Transfer of Assistance

− Priority for capable public entity− If none, then capable private entity

RAD – 1st Component

• Contract Rents Capped at Current Funding per Statute (Public Housing and Mod Rehab):

∙ PBRA = Lower of Current Funding or 120% FMR (But exception rents available in some cases)

∙ PBV = Lower of Current Funding, 110% of FMR, or Reasonable Rent

∙ Rent Adjustments = OCAF• RAD Rehab Assistance: Funding for Vacant Units Undergoing

Rehab or Construction• PBV Waivers on Competitive Selection, Inventory Cap (PBVs

don’t count against 20%), and Income Mixing (up to 50%, but existing exceptions for seniors and services still available)

Other RAD Requirements for PHAs

• PHA Plan. RAD conversion requires a “significant amendment” to PHA Plan.

• Use of Public Housing Funds. PHA may use current public housing funds, including reserves, for predevelopment costs and construction.

• Effect on Public Housing Funding and Unit Cap. RAD units not eligible for Asset Repositioning Fee (ARF) or Replacement Housing Factor (RHF) funds. PHA’s “Faircloth cap” reduced by number of RAD units.

• Davis-Bacon. Requirements apply to all initial repairs identified in Financing Plan to the extent they would qualify as construction or rehabilitation, regardless of whether the project qualifies as “existing housing” under standard PBV rules.

• Demo/Dispo. Section 18 does not apply unless number of assisted units would be reduced by more than a de minimis amount. (1-for-1 replacement)

∙ Previously Demolished Units Eligible for RAD if Still Receiving Subsidy∙ Allows Transfer of Subsidy for Off-Site Replacement without HUD

Demo/Dispo Review• Existing Debt – CFFP and EPC: Address reduced loan coverage with

current lender; can prepay in whole or in part with RAD proceeds.

RAD – Procurement

• May spend up to $100,000 in public housing funds for predevelopment costs without HUD approval

∙ However, must follow public housing procurement rules (small purchase procedures)

• Post-conversion, a PHA can only contribute public housing funds pursuant to HUD-approved financing plan

∙ HUD-approved post-conversion funding does not trigger 24 CFR part 85

∙ Still need to comply with state/local procurement requirements

• Consultation. Resident consultation before RAD application and following award is important and required

• Resident Right to Return. No permanent involuntary displacement may result from RAD conversion, including as a result of changes in bedroom distribution, reduction of units, or reconfiguration. Any resident temporarily relocated has right to return

• URA. Any temporary relocation must comply with Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970

• Waiting List. If project-specific waiting list exists, it must be used after conversion. Otherwise, one must be established consistent with public housing rules which provide access from PHA’s community-wide list. Thereafter, waiting list managed under Section 8 rules

• No Rescreening. Current public housing residents are not subject to rescreening, income eligibility, or income targeting provisions

• PBV Lease Renewal. Unlike standard PBV program, a resident’s lease must be renewed unless cause exists

• Tenant Rent Increases. If tenant’s rent would increase more than greater of 10% or $25, then increase phased in over 3-5 years

• Procedural Rights. RAD statute requires certain rights of public housing residents be retained for converted projects, including requirements for adequate written notice of lease termination and access to grievance process.

Resident Rights

Choice Mobility

• HUD Goal: Provide residents of all covered projects with portable tenant-based vouchers after initial occupancy

∙ PBV: standard rules – voucher after 1 year∙ PBRA: more flexibility – 2 years; turnover &

project caps; some good cause exemptions∙ Vouchers from turnover or another PHA

−Implications for Voucher Waiting List

• Commitment to enter a Housing Assistance Payment (“CHAP”) – effectively this is the HUD RAD award letter

• CHAP sets forth units to be converted, size, and contract rents as well as “Milestones” that must be met after issuance of the CHAP

• For LIHTC deals, milestones begin at award of LIHTC funding

HUD Process

• Within 30 days: a) lender engagement or commitment; and b) statement of capacity of development team

• Within 60 days: a) significant amendment to Annual/Five Year plan; and b) election to convert to PBV or PBRA

• Within 90 days: a certification from PHA that all lender due diligence – including a physical condition assessment and environmental reports – has been completed; and the PCA must be submitted to HUD

• Within 150 days: a certification from PHA that all applications for firm commitments have been submitted (note: for FHA-insured deals, this is the Firm Commitment Application)

• Within 180 days: the Financing Plan must be submitted to HUD• Within 320 days: submit a firm commitments for all financing• Within 360 days: financial closing• Within 12-18 months: after issuance of HAP, completion of

work.

RAD Milestones

• Key elements of Financing Plan are:∙ Identify type of conversion (PBV or PBRA)∙ Physical Condition Assessment∙ Scope of Work for rehab or new construction ∙ Completed Environmental Review∙ Relocation Plan∙ Development Budget∙ Development Team (all principals must have Previous

Participation Certification in APPS – i.e. Form 2530 clearances)

∙ Proposed Financing (including consent of first mortgage lender to Use Agreement)

∙ Title pro forma∙ Other items: Operating Pro Forma, Market Study, and How

Construction Management Will Be Done

RAD Financing Plan

• RCC will include key conditions to conversion such as:

∙ Effective Date of HAP (Executed by HUD but held in escrow)

∙ Scope of Work∙ Timeline for Work∙ Key terms of financing, replacement reserve funding,

and other special conditions

RAD Conversion Commitment

Public Housing RAD

Conventional Mixed Finance Conventional Section 8/LIHTC

PHA owns project subject to HUD Declaration of Trust

Private owner (LIHTC entity) owns project (PHA may have GP interest); subject to HUD Declaration of Restrictive Covenants

PHA owns project directly (or through an affiliated single purpose entity), subject to RAD Use Agreement

Private owner (LIHTC entity) owns project (PHA may have GP interest), subject to RAD Use Agreement

All public housing funds (possibly other soft sources)

Multiple sources of funding, including LIHTC

Mortgage loan proceeds (possibly other sources)

Multiple sources of funding, including LIHTC

All public housing units Often mixed-income (pub. housing, LIHTC, market)

All RAD Section 8 units May be mixed income (Sec. 8, tax credit, market) subject to RAD one-for-one replacement requirements

Property manager typically PHA (but can be private)

Property manager typically private (but may be PHA)

Property manager probably PHA (but can be private)

Property manager probably private (but may be PHA)

PHA procures General Contractor directly; Field Office approves proposal

Owner entity contracts with General Contractor and other parties; HUD Headquarters review

PHA procures General Contractor directly; HUD RAD review

Owner entity contracts with General Contractor and other parties; HUD RAD review

PHA Development Methods

1. Providing RAD awards for multiphase projects.

2. Allowing PHAs to apply for a portfolio award for multiple projects. PHA must submit complete RAD applications for 50% of the projects and complete RAD applications for the remaining projects within 365 days. Applications for the last phase of a multiphase project must be submitted before the authority for the RAD program expires in 2015. HUD has said that closing dates for multiphase projects will be set on an individual award basis and that HUD will issue a FAQ to address this further.

3. For all RAD applications received prior to December 31, 2013, including applications for Portfolio or Multi-phase Awards, providing RAD contract rents at FY2012 rent levels.

4. Permitting the "bundling" projects for conversion and thereby potentially set higher rent levels. Basically, PHAs can adjust subsidy across multiple projects provided an aggregate subsidy cap is not exceeded. There is no limit to the number of projects that may be bundled.

Important Changes in Notice PIH 2012-32-REV-1

1. D2. d3. d4. d

5. Allowing Moving to Work (MTW) agencies who are applying for two or more projects to use their MTW block grant flexibility in setting initial contract rents subject to PBV or PBRA rent caps.

6. Eliminating certain caps/restrictions on RAD conversions of mixed-finance and incorporating more flexible provisions for HOPE VI properties. There is no cap on the number of units a PHA may be awarded and no cap on the number of mixed-finance units that may be converted. HOPE VI properties with a DOFA date of greater than 10 years are eligible and newer HOPE VI properties that evidence multi-year financial distress are eligible.

7. Exempting awarded public housing projects from scoring under the Public Housing Assessment System (PHAS).

8. Opening Mod Rehab Ongoing Application Period under First Component and removing the cap on Mod Rehab projects applying under First Component.

9. Also permitting portfolio awards and multiphase Mod Rehab projects.

Important Changes in Notice PIH 2012-32-REV-1

R E N O & C A V A N A U G H PLLC

Megan Glasheen, Member

(202) 349 2457

mglasheen@renocavanaugh.com