Coats Rose PC Panelists Satish Bhasker Housing Authority of the City of El Paso Ann Gass Austin Affordable Housing Corporation ID: 816443
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Slide2Moderator:
Barry Palmer
,
Coats Rose, P.C. Panelists: Satish Bhasker, Housing Authority of the City of El Paso Ann Gass, Austin Affordable Housing Corporation William Lavy, US Department of Housing and Urban Development Mark Ragsdale, PNC Real Estate Brian Robinson, Baker Tilly Virchow Krause, LLP
RAD: The Latest Update
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Slide3Rental Assistance
Demonstration (RAD) Update
US Department of Housing & Urban Development
July 24, 2018
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Slide4Background on RAD
The Problem
Deferred public housing capital repair needs. 2010 estimate in excess of $25.6B across the portfolio (>$23k per unit) and rising.
Public housing platform creates barriers to accessing private capital
Multifamily “legacy” program properties also at riskThe Solution – Changing the Regulatory PlatformRAD created in FY2012 Appropriations Act with subsequent incremental expansionsAllows public housing to convert to long-term Section 8 Housing Assistance Payment (HAP) contractsAlso allows other at-risk multifamily assisted properties to convert to Section 8 HAP contractsLeverages private investment to address capital needs, improving conditions for residents, creating jobs and stabilizing the assisted portfolio 4Background
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Structure of RAD
Background
RAD for
Public Housing also known as the “1st Component”RAD for Other Multifamily Housing also known as the “2nd Component”
RAD
Conversion
Rent Supplement
Rental Assistance Payment
Sec. 8 Moderate Rehabilitation
PRAC
for
Sec. 202
McKinney Vento SRO
Public Housing
(455,000 unit cap*)
* Administration’s FY2019 budget requests elimination of the cap on public housing conversions.
Section 8
PBRA
Section 8
PBV
Slide6Why RAD for Public Housing?
Proven to be successful in securing resources for public housing modernization based on conversions to date
Preserves prior federal investment in place-based affordable housing
Provides flexibility, creativity, and local control for PHAs
Voluntary and budget-neutral Transfers property from one regulatory platform to another, facilitating access to private market for capital improvements and improving conditions for residents Balances interests of PHAs, private partners, residents and other stakeholders6
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Public Housing Conversions Rent Setting
PH RAD Subsidy Structure
At conversion, PHAs will convert funding to a Section 8 contract rent at “current funding” levels
Post-Conversion (Section 8)
Pre-Conversion (ACC)
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RAD Public Housing Conversions – Status*
* This figure doesn’t include items such as acquisition, soft costs, reserves & developer fee.
97,113 Public Housing Units
converted from Public Housing to Section 8.
$5.68 Billion
(roughly $60K per unit)
in construction investment* in RAD public housing conversion properties. It would have taken participating PHAs roughly 46 years to accumulate enough public housing Capital Funds to complete a similar amount of construction.
Roughly 360,000 Public Housing Units
are in the RAD Component 1 pipeline in some form (relative to the 455,000 unit cap).
This includes converted units, units with CHAPs, units reserved under multiphase or portfolio reservations,
and units that have been on the waiting list and that, upon processing, will have
RAD authority under the increased 455,000 unit cap.
Slide9PH Conversions – Financing*
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42% of transactions involve significant work – from $25K to new construction
40% of transactions involve either 4% LIHTC or 9% LIHTC
A major driver of the deeper-investment transactions, particularly those using 4% LIHTC, is accessing the value of the existing real estate (most significantly, by tapping into acquisition credits).* Data through April 30, 2018.
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Note: This data reflects the inventory of RAD public housing applications (“projects”) received compared to the inventory of public housing projects existing in each region prior to any RAD conversions.
PH Conversions – Where it works
Slide11Other Multifamily Conversions – Status
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Rent
Supp
/RAP Transactions:22 properties remaining in portfolio12 properties have contracts that expire in 2018We hope to wind down the Rent Supp & RAP programs in FY2019Mod Rehab Transactions:16 active transactions in the RAD 2 PipelineSubstantial opportunities for Mod Rehab propertiesSection 202sHUD is working to draft the Notice to implement the new conversion option for Section 202 PRAC propertiesNOTE: Data derived from RAD 2 closed transactions only through April 30, 2018Conversions & Outstanding Pipeline
Slide12Policy Updates
New Federal Register Notice implements cap increase
“2016 Modified RAD Rents” (with 2018 Capital Fund)
RAD Supplemental Notice: Streamlined Small PHA Conversion for PHAs with 50 units or less
New Section 18 Notice (PIH 2018-04) expands Section 18 Disposition for:PHA with 50 units or lessScattered sitesRAD/Section 18 blend12
Slide13Remain in Public Housing
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Mixed Finance
Energy Performance Contract
Capital Fund Financing ProgramOperating Fund Financing ProgramCapital FundConsolidation/Consortium/Transfer
Public Housing Repositioning Options
Slide14Leave Public Housing
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Home Ownership
(Section 32)
Project-BasedSection 8Voucher OutSection 18(PBV Only)
RAD(PBV or PBRA)
Voluntary
Conversion
Section 18
Public Housing Repositioning Options
Slide15Public Housing Repositioning Options
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Slide16For more information and case studies visit
www.hud.gov/rad
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Slide1717
Agenda
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Why RAD
Benefits of RAD for PHAs
Stabilize funding
Access to private capitalStrong platform for long-term preservationEnhance housing options for residentsStreamline HUD programs
Slide19Why RAD
Recent RAD Notices (Omnibus Spending Bill (2018)
Key Provisions
Authorized an additional 230,000 public housing units to convert under RAD Program
Modified FY2016 RAD Rents
RAD conversion of properties assisted by Section 202 Supportive Housing for the Elderly Project Rental Assistance Contracts (202 PRACs)
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Slide20Why RAD
Recent RAD Notices (Supplemental Guidance)
Rent Flexibilities – Expanded Rent-Bundling for Project-Based Vouchers (PBV)
Section 18 Applications and RAD (PIH Notice 2018-04 )
Streamlined RAD Conversion for Small Public Housing Agencies (PHAs)
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Slide21Why RAD
Recent RAD Notices (Supplemental Guidance)
Cont’d
Allow PHAs to establish project-specific utility allowances for PBV conversions
Provide an incentive to owners to adopt a waiting list preference for households exiting homelessness/permanent supportive housing by permitting a higher developer fee limit.
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Slide22Recent legislative activity and its impact to affordable housing
Tax Cut and Jobs Act of 2017
Omnibus Spending Bill (2018)
Tax Cut and Jobs Act of 2017 / Omnibus Spending 2018:
Key provisions related to affordable housing22
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Tax Cut and Jobs Act of 2017:
Key provisions related to affordable housing
Slide24Created a new economic development tool called “qualified opportunity zones.”
Impact:Established to spur long-term private sector investments in low-income communities nationwide.The program offers a frictionless way to reinvest capital gains into distressed communities through Opportunity Funds, in exchange for a graduated series of incentives tied to long-term holdings.
This program is the first new national community investment program in over 15 years, and has the potential to be the largest economic development program in the U.S.
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Tax Cut and Jobs Act of 2017:Key provisions related to affordable housing
Slide25How do Opportunity Zones work?
The Opportunity Zones program offers investors three incentives for putting their capital to work rebuilding economically distressed communities:
A
temporary deferral
: An investor can defer capital gains taxes until 2026 by putting and keeping unrealized gains in an Opportunity Fund.A reduction: The original amount of capital gains on which an investor has to pay deferred taxes is reduced by 10% if the Opportunity Fund investment is held for 5 years and another 5% if held for 7 years. An exemption: Any capital gains on investments made through the Opportunity Fund accrue tax-free as long as the investor holds them for at least 10 years.25
Tax Cut and Jobs Act of 2017:
Key provisions related to affordable housing
Slide26Omnibus Spending Bill (2018):Key Provisions related to affordable housing
12.5% percent increase in Housing Credit allocation for four years (2018-2021)
Income Averaging: Allows projects to accept tenants with higher average median incomes as long as the overall average of tenants in project does not exceed 60% AMI
Increased the cap for the Rental Assistance Demonstration (RAD) program from 225,000 to 455,000
Extended the RAD program to include HUD 202/811 PRAC properties 26
Slide27How do
es the Income Averaging Test
work?
Omnibus Spending Bill (2018):
Income Averaging Test
A new minimum test has been added to the two set-aside tests of: At least 20 percent of the units had to be both rent restricted and occupied by households with incomes at or below 50 percent of area median income (AMI)At least 40 percent of the units had to be both rent restricted and occupied by households with incomes at or below 60 percent of AMI.
The new third minimum set-aside (Income Averaging) is as follows:At least 40 percent of the units have to be both rent-restricted and occupied by individuals whose incomes do not exceed the imputed income limitation designated by the taxpayer.The average of the imputed income limitations designated cannot exceed 60 percent of AMI.
The designated imputed income limitations must be in 10 percent increments as follows: 20%, 30%, 40%, 50%, 60%, 70%, 80%
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Omnibus Spending Bill (2018):
Key Provisions related to affordable housing
Slide28Interest rates
HUD 221d(4) [rehab/new construction] or HUD 223(f) [acquisition or refinance]Still uncertain if there will be more Treasury rate hikes in 2018
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Market Conditions
Interest Rates
Slide29Advocacy
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Slide30HACA Overview
1,839 public housing units1,058 converted to PBRA781 under CHAPs>10,000 on WL6,149 Vouchers
>1,000 on WL
Choice Mobility starts in
December30
Slide31HACA RAD Overview
1,058 converted since November 2016457 units: 4% LIHTC rehabs601 units: Debt/Light rehab 781 under CHAP220 units: 9% LIHTC
awarded or applied for
561 units: Debt/Light
rehab 31
Slide32Debt - Light Rehab – Thurmond Heights
144 units$9 million in rehab since 2014 using CFP RAD Scope =Upgrades to
Community Room
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Slide334% LIHTC Rehab – Gaston Place
100 units$7.5 million in rehabRAD Scope Full Interior Unit RehabCommon Area Rehab
New Roof/Paint/Siding
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Slide34Before
After
Gaston Place
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Slide359% LIHTC Redevelopment – Goodrich Place
40 units -> 120 units40 PBRA80 LIHTCBuilt in 1973No A/C
High opportunity area
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Slide36Pathways at Goodrich Place
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Slide37Takeaways from HACA
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Reach out stakeholders early
Resident Protection Team - PIC
Met with all City departments to explain RAD - timelines, PR/messagingBe ready with messaging for pushback on RADAssemble a great team with RAD experienceAdvise HUD Office of Recap of concerns/ complications early
Slide38Resident Protection Team
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Advisory Group:
Austin Tenant’s Council
Austin Travis County Integral Care Austin Independent School District Boys & Girls Club Capital Metro Family Eldercare Austin Energy Austin Interfaith ADAPT Communities In Schools HACA Residents
Slide39Takeaways from HACA - PBRA
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Allow for extra staff for transition
Conversion affects ALL departments
Choose and begin work with PBRA software early
Slide40ABOUT HACEP: A City View
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Slide41HACEP’s RAD: Timeline
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Slide42HACEP’s RAD: Financing
Successful Revitalization Record
9% Awards
Gonzalez Place & Commissioners’ Corner – both new construction (2018
Blue Flame & Medano Heights (2017)Sherman North & Westfall Village (2016)Tays South & Krupp Hollow (2015)Total 4% Closed-To-Date3,445 unitsTotal Projected TDC: $1.2 BTDC on Closed Communities: $673 MTotal HARD Cost: $297 MHACEP GAP Loan:
$79 M
HACEP GAP Loans
Private equity Bonds
45L Credits
Federal Historic Tax Credits
State Historic Tax Credits
PH Capital Funds
PH Operating Reserves
Developer Fees
Federal Home Loan Grant
LIHTC 9% Tax Credits
LIHTC 4% Tax Credits
Freddie TEL
Freddie Forward
FHA
Conventional Loan
HOME
Type of Funding Utilized
Recognitions
Clean Audit – NINE years in a row
GFOA Budget Excellence Award Four Year in a row
Bond Deal of the Year 2016
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Slide43HACEP’s RAD: Lessons Learned
HAVE A VACANCY STRATEGY!
Think about your agency’s “End State” –
RAD impacts the funding of central office
Lease Enforcement:
Address breaches of lease agreements prior to project launch
Infrastructure:
Dedicate more time for discovery for non-visible legacy issues
bad news impacts timelines
Right-Sizing:
Meet the current needs/demographics of your families
HUD’s Lesson:
Develop a plan for 100% portfolio conversion/rehabs
Development Timeline:
Front-load the BIG developments
Systems:
Have the right project-management tools/software in place
“It’s not about moving too slow, it’s about meeting the conservative deadlines.”
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Slide44Organizing the Team
Understand that team members chosen NOW
will have to interact/work well with team members chosen
LATER
Hire good, experienced tax credit/bond/financing/RAD/development partners Self-Developing vs. Co-Developing – know your limitations Unlikely that any Housing Authority is staffed to account for and complete all the required steps, including construction/development Know what you know and what you don’t know44
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Deal By the Pound
Slide46Structure and Foundation
Important to talk about ALL logistics early – work backwards from closing discuss expectations
timing
flow of funds
tax credit structure TE bonds and LIHTC timing and requirements third party and other soft funding PCNA results architect/contractor work complete to-date vs. to be completed third party reports46
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Lenders Must Look at ALL Aspects
Slide48RAD/Lender Teamwork
Make sure you are thinking ahead Don’t assume that you have already finalized your contracts. Lenders, equity providers, tax credit agencies, cities, etc. will all potentially have comments as to the form of contracts. Lenders will want to review and approve contracts (specifically for architect and contractor)
Make sure the process is clear to your architect and contractor
Relocation affects both Residents AND financing structure think through tenants’ needs logistics and timing of move-out/move-in contractor’s expectations regarding occupied/unoccupied units financing can be made to match: residents-in-place immediate loan vs. construction/forward loan concept48
Slide49Quality leverage / Quality Development
Maximize your leveraging capabilities ground lease/abatement
seller carry-back notes
vouchers (new RAD rule on Housing Choice Vouchers)
Project Based Vouchers bonds credits soft funds utility savings49
Slide50Quality leverage / Quality Development
New areas to maximize leveraging capabilities
PHAs may convert up to 25% of units to S8 PBV rents on 4% bond deals
“If a PHA converts at least seventy-five percent (75%) of a project’s public housing
units through RAD, HUD’s Special Applications Center will allow the PHA to dispose of the remaining units (up to 25%) under a Section 18 disposition application and replace them with project-based Tenant Protection Vouchers as long as the project is not also receiving nine percent (9%) low income housing tax credits. In order to qualify, the project-based Section 8 units (both RAD and non-RAD) must be either newly constructed or substantially rehabilitated. (See PIH 2018-04, Section 3(A)(3)(c)).”Potential to reset the rent base to more current levels Properties on the waiting list as well as those receiving an award by the end of calendar year 2018 will receive FY 16 public housing levels, but would replace the PHA’s FY 16 Capital Funds Formula Grant with FY 18 numbers; properties receiving awards after January 1, 2019 will receive rents based on a calculation of the FY 18 Operating Fund, Capital Fund, and Tenant Rent Levels. 50
Slide51Quality leverage / Quality Development
New areas to maximize leveraging capabilities Expanded rent setting flexibility: Bundling in the current RAD program notice PIH 2012–32/Housing 2017–03 to permit PHAs to rent bundle between RAD Project-Based Voucher (PBV) and non-RAD PBV projects. Under this provision, rents of non-RAD PBV contracts are reduced by the equivalent increase to the RAD PBV initial contract rents.
Project-specific utility allowances for covered projects:
When a RAD conversion results in the reduction of one or more utility components used to establish the utility allowance, HUD will permit the RAD contract rent to be increased by a portion of the utility savings.
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Your Lender will help you with leverage
Lender
Loan Funds
Slide53Saving Time is Saving Money
Receipt of the RCC and HUD Firm Commitment should be on parallel tracks when possible. Otherwise you will be stacking the timing of the closing loan and RAD processes HUD RAD, HUD Lender, LIHTC Provider, Attorneys, etc. may have year-end closing
cut-off dates
, summer breaks and other
timing/calendar issues. Be aware ahead of time about how this will affect the transactionAlways be cognizant of closing/PIS deadlines. Give yourself and others plenty of time to get things right. There are many groups that need attention coming down to a closingAgreements should be willing and able to change. There are many RAD process items that ultimately will be reviewed later by other participants. Insurance, Management Documents, Architect Agreements, Construction Contracts, etc. Be prepared for the need to adapt and change. Manage ahead with Housing Authority Boards and approval channels53
Slide54Financing is Fun!
Most important: use lending programs that fit your situation
Cost
Timing
Ease Experience Take advantage of market conditions Compatibility with goals Compatibility with all other deal partners54
Slide55Moderator:
Barry Palmer
,
Coats Rose, P.C. Panelists: Satish Bhasker, Housing Authority of the City of El Paso Ann Gass, Austin Affordable Housing Corporation William Lavy, US Department of Housing and Urban Development Mark Ragsdale, PNC Real Estate Brian Robinson, Baker Tilly Virchow Krause, LLP
RAD: The Latest Update
55
Thank You!
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