An assisted-living development in Vancouver, Wash., is getting a boost from the federal Rental Assistance Demonstration (RAD) program.
The deal is the first RAD transaction completed for a health-care facility, according to Walker & Dunlop, which provided a $3.4 million loan to the project under the Sec. 232 program for nursing homes, assisted-living, and other care facilities.
RAD is the centerpiece of the Department of Housing and Urban Development’s (HUD’s) strategy to preserve at-risk public and assisted-housing developments. The first component allows public housing and Sec. 8 Mod-Rehab properties to convert to long-term Sec. 8 rental assistance contracts. The second component allows Rent Supplement, Rental Assistance Payment, and mod-rehab properties to convert tenant-based vouchers issued upon contract expiration or termination to project-based assistance.
“Combining the RAD subsidy with the tenants’ affordable rental payments is a ground-breaking approach to using HUD’s Sec. 232 seniors housing program to finance an affordable assisted-living facility,” says Michael Vaughn, senior vice president at Walker & Dunlop, a commercial real estate finance company.
The transaction was structured with a 35-year term and a 35-year amortization schedule. The loan was written to a 78.5% loan-to-value and a 1:45 debt-service coverage ratio.
The deal involves Arbor Ridge Assisted Living, a 60-unit development originally financed with low-income housing tax credits (LIHTCs) and tax-exempt bonds.
In a unique move, the Vancouver Housing Authority (VHA) transferred rental subsidies for 30 units under the RAD program to Arbor Ridge from the Fruit Valley Apartments, which were built in the early 1970s, and, despite good maintenance, have become functionally obsolete, according to Kris Hanson, VHA’s director of affordable housing.
The move seeks to simplify the process of eventually removing the Fruit Valley units and redeveloping the site, and it moves the subsidy to a development that will be a long-term community for VHA.
"It's a very forward-thinking housing authority," Vaughn says.
Arbor Ridge primarily serves Medicaid recipients. The level of funding to the property is not adequate to meet the operating costs. The LIHTC partnership was recently dissolved, and a subsidy from the state expired, so new funding needed to be identified.
The RAD subsidy will help bolster the operating budget and ensure that the development continues to serve its high-need residents.
“To improve the stability of the property, the VHA worked
with Walker & Dunlop to refinance the property, reducing the interest rate
and extending the term, and transferred 30 units of subsidy to Arbor Ridge
Assisted Living,” Hanson says.