Who could have imagined the journey Rental Assistance Demonstration (RAD) program would take from its authorization just six years ago. Congress initially capped the number of Sec. 8 conversions at 60,000. Today? It’s at 225,000 units and likely climbing. In fact, it’s a safe bet Congress will declare “no limits” one day soon.
Few dispute RAD’s success. What lies ahead for the program? How much conversion potential remains? What should you look for or look out for in a RAD conversion? Recently Joseph Hague, a director at RED Capital Markets, LLC, sat down to share his insights on the RAD phenomenon.
Have we scratched the surface with RAD conversions?
There is approximately 1.3 million public housing units in the United States. Considering HUD just celebrated the 100,000th RAD-preserved unit, we have just scratched the surface. While many of those units may not be appropriate for a RAD conversion, there still should be hundreds of thousands of units that would be a good fit for a RAD conversion.
The Trump administration recently requested the statutory cap on RAD conversions be lifted. Does the request surprise you?
No, it doesn’t. I think that the RAD program fits very nicely within administration’s priorities. HUD is essentially allowing hundreds of millions of dollars to be invested into the nation’s public housing infrastructure while still being budget neutral.
What, if anything, does lifting the cap say about RAD?
I believe it first speaks to the success of public housing authorities (PHAs) in utilizing RAD—not just to recapitalize single projects, but how a RAD conversion on one project can help the PHA’s entire portfolio. I believe housing authorities are now seeing the potential in how RAD can help them to manage funding issues in the future that the demand is really starting to intensify.
I think it also speaks to how many people at HUD are realizing the true benefits of incorporating low-income housing tax credits (LIHTCs) into all types of affordable housing. HUD seems to realize the ability in the LIHTC program to finance a portion of the deferred maintenance that the public housing stock has incurred.
How do you advise clients on RAD opportunities? What should housing authorities look for/look out for in conversion opportunities? How can your team help?
Every project is unique, but in general, I think it is important to first figure out how much in rehab the project can afford and then figure out what improvements can be done with that budget. Too often a PHA will have a list of repairs that is greater than what they can afford, so once they start to involve the financing team, they have to start narrowing that list. I find it is always best for a housing authority to discuss the transaction with us as lender and their syndicators to understand what the project can afford. Once we are able to develop models showing what the amount of financing, the housing authority should start to develop their scope of work.
Can you describe a recent RED Capital Group example where RAD played a significant role in the financing? What was the outcome?
We recently closed Carver Park Phase II with the Cuyahoga Metropolitan Housing Authority in Cleveland that included a RAD conversion. This project followed Carver Park I which RED closed in 2016. RED provided a $5,483,000 FHA mortgage and $11,500,000 in tax exempt financing. Through the financing, the housing authority was able to finance over $9 million in improvement to the property.
Learn more about how a RAD may be of benefit to your investment program at www.redcapitalgroup.com.
JOSEPH R. HAGUE, IV
Director, RED Capital Markets, LLC (Columbus, Ohio)
Joseph Hague joined RED Capital Markets, LLC in January 2007. Mr. Hague specializes in structuring tax-exempt, FHA, and Fannie Mae debt financings for affordable housing transactions. Mr. Hague has worked with and advised local housing authorities, non-profit developers and for-profit housing developers on capital structures and financings. Prior to joining RED, Mr. Hague worked as a Financial Analyst in National City's Commercial Banking Development Program. He received his Bachelor of Business Administration Degree from Ohio University where he majored in Accounting and Finance.