The Cambridge Housing Authority (CHA) in Massachusetts has completed the conversion of its first 441 units of public housing to project-based assistance under the federal Rental Assistance Demonstration (RAD) program.

L.B. Johnson Apartments is among the public housing properties that the Cambridge Housing Authority in Massachusetts is converting to project-based assistance under the RAD program.
L.B. Johnson Apartments is among the public housing properties that the Cambridge Housing Authority in Massachusetts is converting to project-based assistance under the RAD program.

Over the next 12 to 18 months, the agency will convert all 2,129 of its public housing units under RAD, triggering more than $200 million in needed construction at its developments throughout Cambridge.

“Our goal is to make these units available for another 30 to 40 years,” says Gregory Russ, CHA executive director. “We think by shifting to RAD there’s an initial benefit in terms of the capital and the ability to finance.”

When a development obtains long-term rental assistance through RAD, it has a more stable funding platform, which puts the property in a better position to leverage additional financing to perform capital improvements.

“It opens the doors for options now and then options in the future when buildings might need more capital work,” says Russ.

CHA’s portfolio-wide RAD conversion was approved by the Department of Housing and Urban Development (HUD) in 2013 and was at the time the fifth-largest RAD conversion in the country, according to the agency. The first phase involves 1,150 units and about $143 million in construction. To finance the renovations, CHA leaders have obtained 4 percent low-income housing tax credits (LIHTCs) and other financing from the Massachusetts Department of Housing and Community Development, MassDevelopment, Wells Fargo, and Citibank.

Without RAD, CHA would not have been able to undertake the project. Relying on traditional public housing capital sources would have likely taken 30 years to raise a similar amount of money.

RAD is the centerpiece of 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.

RAD expansion approved

In a big victory for HUD, Congress recently approved an expansion of the first component from 60,000 to 185,000 units, a move that will allow the agency to convert a long waiting list of projects to RAD.

The program expansion, which was approved as part of the fiscal 2015 spending bill, allows RAD applications to be submitted until Sept. 30, 2018, an extension from the original deadline of Sept. 30, 2015. In addition, the bill extends the second component of RAD. It also makes McKinney-Vento single-room occupancy (SRO) units eligible for conversion under RAD.

“Expanding RAD was important for several reasons,” says Diane Yentel, vice president of public policy and government affairs at Enterprise Community Partners. “Broadly speaking, public housing is literally crumbling due to obsolescence and chronic underfunding, and the problem grows worse each year as the capital needs backlog accumulates and no additional funds are appropriated to address it.”

More specifically, it was important to allow conversions for the approximately 120,000 units’ worth of applications on the waiting list that have developed plans and secured commitments in the form of funding and partnerships for RAD conversions.

“Had RAD not been expanded, these viable plans leveraging significant private investment would have fallen through while the conditions at these properties would continue to deteriorate,” Yentel says.

RAD was created in 2011 as a way to alleviate the huge backlog of capital needs at public housing developments.

“The idea is to bring these units out of the public housing paradigm so they can leverage debt and make the improvements needed to remain affordable and available as good quality housing for years to come,” says Amy McClain, a partner at the Ballard Spahr law firm and author of Beginner’s Guide to Public Housing Conversion under RAD.

She has worked on more than a dozen RAD transactions, with several more in the works, including several large portfolio conversions.

McClain has seen deals use a variety of funding sources to finance their renovations. Most are using LIHTCs, especially 4 percent credits but 9 percent credits as well. Others have used strictly bond proceeds or other funding.

While RAD is a key piece of HUD’s overall preservation strategy, members of Congress have pointed out that the last word in its name is “demonstration,” adds McClain.

That means there’s still much to learn about the program. “There’s a time to step back and look at what impact these deals are having,” she says. “Is it working? Is it the best approach? Are there ways to fine-tune it?”

The recent expansion makes a broader policy statement about the program.

“Though RAD was initially authorized as a relatively small demonstration, expanding it acknowledges that it is our best and most realistic opportunity for a solution to the huge public housing capital needs backlog,” Yentel says. “The momentum coming off of this expansion will very likely increase as we begin to see more results from RAD conversions already underway and those that will soon be approved. Right now, there is an understanding in Congress of why RAD works in principle, but in the coming months we will have much more data to prove its success practically, which I expect would increase demand for RAD among both PHAs and policymakers.”

Connect with Donna Kimura, deputy editor of Affordable Housing Finance, on Twitter @DKimura_AHF.