A 110-unit development in Delaware is the first project to utilize the Faircloth-to-RAD program for the preservation of existing affordable housing.
LNWA (Leon N. Weiner & Associates), CSG Advisors, and the Dover Housing Authority announced they have secured all permits and financing to acquire and rehabilitate Owens Manor and Queen Manor in Dover.
The execution combines two separate properties, which share a common parking lot, under one partnership. Queen Manor, a public housing community built in 1971, and Owens Manor, an aging low-income housing tax credit (LIHTC) development built in 1999, will now have rental assistance supporting all 110 units.
The creative execution of Department of Housing and Urban Development (HUD) assistance includes a hybrid of Faircloth-to-RAD and project-based voucher units on the 60 homes at Owens Manor. The 50 units at Queen Manor will be supported by a 40%/60% RAD and Section18 blend.
“Reinvestment in our existing affordable housing is essential,” said Sean Kelly, executive vice president at LNWA. “These communities have served multiple generations of seniors at affordable rents and will continue to do so in modernized, healthy buildings.”
The deal comes at a time when the overall number of public housing units has been declining. One reason for the decrease is decades of underinvestment in public housing programs. Another lesser-known reason is what’s known as the Faircloth Amendment, which created a ban on the creation of new public housing by freezing the number of units a public housing authority (PHA) could operate, beginning in October 1999. Since 1999, many housing authorities, due to disposition and demolition efforts, are operating units below the Faircloth limit.
To help expand and improve the supply of housing, a new strategy has recently emerged, building on the success of the federal Rental Assistance Demonstration (RAD) program, which allows PHAs to convert public housing to the Section 8 platform, opening the door to more stable rental assistance as well as financing to address capital needs.
In April 2021, HUD issued guidance on Faircloth-to-RAD, which supports the development of deeply affordable units and mixed-finance strategies through the preapproval of long-term rental assistance contracts. The result is new financing that can support a return of the lost public housing units to the affordable housing stock. Until now, Faircloth-to-RAD had only been utilized for new construction work, according to officials.
The Faircloth-to-RAD program provides a funding mechanism that allows PHAs to expand their number of subsidized units, up to the Faircloth limit, and do not count against a PHA’s limited voucher pool or against its cap on the number of such vouchers that can be project-based, explains a Terner Center for Housing Innovation report.
“This strategy, I hope, will increase much-needed housing to very low-income residents,” says Tanya S. Dempsey, co-CEO of CSG Advisors. “In the Dover example, utilizing the Faircloth-to-RAD program allowed the project to be 100% subsidized and receive additional financing, which is being used to preserve the entire building. Without access to that subsidy, the financing might not have been possible. I am confident that PHAs will find creative ways to utilize this strategy so that more affordable units can be preserved and constructed.”
The total cost of the Dover project is $29.1 million. Financing was made possible through an allocation of 4% LIHTCs by the Delaware State Housing Authority and syndicated by Cinnaire. The loan structure includes a “back-to-back” tax-exempt loan originated by Citi Community Capital. Numerous gap financing sources were utilized to round out the capital structure, including American Rescue Plan Act funding allocated by the city of Dover, federal HOME Investment Partnership capital, and Housing Development Fund capital administered by the Delaware State Housing Authority.
The general contractor is LNWA Construction Corp., and the management agent is Arbor Management, both affiliates of LNWA. The project is expected to be completed in early 2025.