McIver Homes, an 87-unit seniors housing development in East Orange, N.J., will remain affordable for years to come after becoming an early project financed under the federal Rental Assistance Demonstration (RAD) program.
The property was recently acquired by New York-based Carthage Advisors, which successfully negotiated a project-based Sec. 8 contract for the property and closed on the financing for the $7.9 million deal. The firm plans to complete about $2 million in renovations.
“We were able to use tax-exempt bonds through RAD,” says Edward Poteat, president of Carthage Advisors. “This deal would have normally been a 9 percent low-income housing tax credit (LIHTC) transaction and may have taken quite a few years.”
There was also a good chance that the aging Sec. 236 property would have converted to a market-rate development if not for RAD.
The new program is a key component of the Department of Housing and Urban Development’s (HUD’s) strategy to preserve at-risk public and assisted housing projects. RAD allows these properties to convert to long-term Sec. 8 rental assistance contracts.
Under one component of the program, up to 60,000 units of public housing and moderate rehabilitation (Mod Rehab) units can be converted. Under a second component, the program allows Rent Supplement, Rental Assistance Payment (RAP), and Mod Rehab properties to convert tenant-based vouchers issued upon contract expiration or termination to project-based assistance.
So far, HUD has issued commitments for about 20,000 units
On July 2, the agency released a set of revisions aimed at broadening the program’s use. The changes can be viewed here.
Carthage Advisors used RAD to obtain a new Sec. 8 contract to replace an old RAP contract at McIver Homes.
The acquisition was financed through the New Jersey Municipal Housing Agency’s conduit tax-exempt bonds arranged by PNC Real Estate, which also provided LIHTC equity.
Having the Sec. 8 contract not only keeps rents low for residents, it makes an acquisition and rehab possible because it helps in underwriting a deal and providing a steady source of income to pay the debt service on the bond.
If a LIHTC project doesn’t have Sec. 8, it is greatly affected because rents will be underwritten to the housing credit level instead of the Sec. 8 level, which is typically higher, says Heidi Burkhart, president of Dane Professional Consulting Group, which represented the seller, CRI, and brokered the deal. She is working on two more RAD deals.
“It’s great to see units being preserved,” she says. “Without RAD, some projects will opt out.”
