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The latest in industry news with the insight of Dominion Due Diligence Group (D3G) President, Rob Hazelton

 

A change to the Rental Assistance Demonstration (RAD) regarding conversions to project-based rental assistance under RAD’s Second Component.

You can read more here but the good news is that they (HUD) clarified the understanding. 

https://www.federalregister.gov/documents/2018/12/11/2018-26709/rental-assistance-demonstration-amendment-to-final-notice 

The Revitalization of Lynchburg, Virginia's Historic Krise Building

When you're in the business of Housing Preservation, it's certainly always cool when a project that you've supported helps to preserve and revitalize a 100+ year old building. Our work included everything from the ESA to SEDI to Radon testing and NGBS Green Verification Services. 

https://www.benzinga.com/pressreleases/18/09/r12413590/walker-dunlop-provides-4-million-construction-loan-for-the-revitalizat

 

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RAD Celebrates 100,000 Units Preserved

What an awesome milestone in housing preservation! D3G is proud to have been at the forefront of the RAD process and to see so many of our projects through to successful completion.

http://d3g.com/images/other_media/RAD/RAD_100000_Homes_2018.pdf

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Jenn Krieher Joins D3G as Housing Preservation Manager

D3G is excited to announce and welcome Jenn Krieher as Housing Preservation Manager. The Housing Preservation Services (HPS) department was recently created to support the widened scope of services that D3G provides. Jenn will be responsible for providing technical assistance for RAD and SAC Section 18 programs, as well as overseeing portfolio wide reviews for our PHA clients. She’ll manage the D3G relationship with PHA’s and their development teams, performing RAD transaction liaison and owner representative services for clients. 

“I’ve known Jenn for the past eight years and am thrilled to have her on board here at D3G. Her talent, and especially her HUD experience, will add to our unprecedented affordable housing knowledge,” said Rob Hazelton, President of D3G

Jenn joins D3G from HUD, where she was part of the innovative Office of Recapitalization, during the early days of HUD’s green programs. She brings with her a strong housing preservation background, existing relationships with key players in housing across the country and deep knowledge of RAD & SAC, having been a RAD Transaction Manager.

 

 

Opportunities for Developers and Stakeholders within HUD’s Rental Assistance Demonstration (RAD)

The HUD Rental Assistance Demonstration (RAD) began as a limited pilot program in 2012, focused on accessing capital to address the backlog of deferred physical needs within public housing.   According to a HUD 2010 study, the backlog of repairs was estimated at $26B within the public housing stock.   More recent estimates place the backlog repair cost at greater than $35B.  The underlying premise of RAD is to remove the restrictive covenants on the property, better known as a “Declaration of Trust” which previously hindered the ability for public housing entities to leverage and redevelop real estate assets. Unencumbered real estate, combined with the transfer of public assistance from the Section 9 platform to the Section 8 platform allows for public housing to receive long term Housing Assistance Payment contracts and operate more like conventional affordable housing.  A few current stats on the viability and success of the program:

a.       RAD is a no-cost program to the Government involving a transfer of Public Housing capital and operating funds to the stable Multifamily Section 8 platform.   All residents have the right to return post-transformation, and long-term affordability is protected by renewable 20-year Section 8 contracts. 

b.       RAD has overwhelming bipartisan support, as evidenced by the recent increase in statutory authority from the previous 185,000 units to 455,000 units of public housing.  Also worthy of noting is that the Senate requested elimination of the cap altogether, which would allow conversion authorization for all 1.2million units of public housing.

c.       The initial 85,000 units of RAD conversion has generated greater than $5.8B investment in public housing, with a private to public capital ratio of 9:1.  Based upon current HUD Section 9 subsidy levels, it would have taken 47 years of appropriations to invest the same amount of capital for repairs, renovations and replacement.

Recent Policy Improvements:

RAD, though still considered a demonstration program, has advanced far beyond the original 60,000 units of authority.   HUD’s Office of Recapitalization has demonstrated strong leadership and a willingness to both streamline the process, as well as encourage deeper rehabilitations and/or disposition/demolition of functionally obsolescent property.   Subsequently, at the beginning of Q2 2018 HUD released a housing guidance document (PIH 2018-04 (HA)) which provides greater flexibility, new opportunities and streamlined initiatives within RAD; including:

a.       Small PHAs under 50 units can transfer to the Section 8 platform under a simplified process.  These units would obtain project-based voucher (PBV) contracts and be transferred to a non-profit entity.

b.       Scattered site assets, defined as non-contiguous 4-unit or less buildings, can be “disposed” of by a public housing agency via: (i) Section 8 contract transfer; (ii) fair market value (FMV) sale; or (iii) transfer of ownership to public housing residents.

c.       PHAs with excess land and commercial buildings have a streamlined method for (i) FMV sale; (ii) transfer to a non-profit demonstrating commiserate public benefit; or (iii) leverage and housing construction using RAD. 

d.       PHAs intending to use 4% LIHTC bonds to address advanced capital needs may apply for a 25%-75% SAC/RAD rental assistance split, whereby 25% of the units can be granted HUD Section 18 Tenant Protection Vouchers (TPV).  This new financing structure provides greater rent levels and timing of rental assistance payments, substantially enhancing LIHTC 4% bond proceeds.

Opportunities:

The following HUD graphic details adoption rates of RAD by region in the United States.  The Southeast has been an early adopter of RAD and continues to show rapid acceptance of the program.

 

 

The following discussion points detail opportunities about the potential role of Developers and Stakeholders within RAD transactions:

1.       RAD works and works well, supported by the evidence and success of early adopters, and increasing interest by some of the largest affordable housing developers in the country.   They all cannot be that wrong!

2.       RAD is best when combined with other sources of capital, equity and grant funds; for this reason, affordable housing developers with affordable and mixed financing experience find themselves in a unique opportunity to assist with public housing transformation.

3.       PIH Notice 2018-04 provides a prescriptive process for determining functional and cost obsolescence on older properties.  New guidance encourages demolition of larger public housing projects and replacement with multiple smaller, regionally diverse, new construction projects.  Single large PIH projects will be encouraged to be divided into multiple transactions, deconcentrating demographics. 

4.       PIH Notice 2018-04 provides mechanisms for commercial property, vacant land, and low-density land to be repurposed, and either sold at FMV, transferred to a non-profit, or placed under a land-lease with a private developer. 

5.       PIH Notice 2018-04 provides a method for public housing transformation where residents may become home buyers.   It is estimated that more than 200,000 single family homes are within the public housing portfolio, and recent HUD guidance encourages transfer of ownership to residents.   

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