LHC Mini Meeting 2014

Report
LHC District Meeting
Denim Springs HA
August 19. 2014
Holly Knight, Vice President of Development, BGC
202-699-1998
[email protected]
Goal of RAD
In order to preserve the public housing stock convert
its assistance to the project-based Section 8 platform,
which will:
1. Stabilize funding
2. Create access to private capital
3. Streamline HUD programs
4. 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 and tools
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
Early RAD conversations
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“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”
PERCENTAGE OF CURRENT PH UNITS BY HUD REGION THAT HAVE
APPLIED FOR RAD
7%
15%
3%
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
Whole Portfolio Conversions
•
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)
RAD Helping PHAs Address Challenges
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
Reviewing Applications on the Waitlist
•
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.
RAD Update
 HUD has asked for RAD cap to be lifted in 2015 budget
RAD Application by
RAD Application update
Application Overall Sources of Funding
RAD Application tax credits
Operating Subsidy Funding
OFND Annual Amount
$6,000,000,000
$5,031,106,183
$4,594,294,060 $4,611,918,201
$4,149,983,999
$4,900,000,000 $4,921,341,060
$5,000,000,000
$4,000,000,000
$3,000,000,000
$2,000,000,000
$1,000,000,000
89.20%
$-
2014
82%
94.968%
2013
100%
2012
OFND Annual Amount (U.S.)
2011
Proration
103%
2010
88.42%
2009
Capital Fund Capital Funding Trends
2.5E+09
$2,341,258,000$2,365,835,000
$1,910,035,000
$1,800,000,000
$1,790,000,000
$1,696,372,000
2E+09
1.5E+09
1E+09
500000000
2009
2010
2011
2012
2013
2014
0
1
2
3
4
5
6
PH Development Resources
Note: Not listed PHA PBV at FMR, PHA Cost Center Funds, Admin Fees
What is the future?
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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
2013 Funding
$164
Operating Fund
$330
Payment
$474
$500
$409
$100
Tenant Payment
$150
Tenant Payment
Total
Tenant Payment
$318
$259
$200
$792
$450
OP
$300
Capital
Fund
Capital Fund
$144
$100
Tenant Payment
$150
2013 Cap and
2013 Funding
$95
$400
Housing Assistance
Payment
Housing
$300
Assistance
$318
$-
Pre-Conversion
Post-Conversion
PH Options
Why RAD
 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
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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
Why RAD
 Procurement with developer partner is simplified
 Expenses
 Gives real estate opportunities
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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
RAD flexibility
 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
Backlog of Capital Needs
 Capital repair needs of $23,365 per unit
 Needs at your PHA
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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
Show the PHA the Money
• 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
What can RAD do now?
 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
RAD Similar and Different to mixed
finance
• Similarities:
Real Estate Transaction same
Rent/Income
Reporting to 3rd 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 3rd 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
RAD Transaction Concerns
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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
Change
 Take the first step in faith. You don’t have
to see the whole staircase, just take the
first step.
-Martin Luther King, Jr.

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