RENTAL ASSISTANCE DEMONSTRATION PROGRAM University of Affordable Housing May 21 st , 2014

1. RENTAL ASSISTANCE DEMONSTRATION PROGRAM University of Affordable Housing May 21st, 2014 Great Lakes Capital Fund C. Ray Baker & Associates, Inc.

2. AGENDA • Background • Program Update • RAD Basics • Advanced Topics • Risk Evaluation Factors • Documents, Tools, and Forms • Conclusion

3. Background

4. RAD is authorized by the Consolidated and Further Continuing Appropriations Act of 2012 (Public Law 112-55, approved November 18, 2011), which provided fiscal year 2012 appropriations for HUD (2012 Appropriations Act). • RAD has two separate components: • First component. The first component allows projects funded under the public housing and Section 8 Moderate Rehabilitation (Mod Rehab) programs to convert their assistance to long-term, project-based Section 8 rental assistance contracts.Under this component of RAD, public housing agencies (PHAs) and Mod Rehab owners may choose between two forms of Section 8 Housing Assistance Payment (HAP) contracts: project-based vouchers (PBVs) or project-based rental assistance (PBRA • Second component. The second component allows owners of projects funded under the Rent Supplement (Rent Supp), Rental Assistance Payment (RAP), and Mod Rehab programs to convert tenant protection vouchers (TPVs) to PBVs, upon contract expiration or, for owners of Rent Supp and RAP projects, termination, occurring after October 1, 2006, and no later than September 30, 2013.

5. RAD Update

6. First Component of RAD

7. Application Volume

8. Apps, CHAPs & Closings Note: This data reflects applications received as of 12/31/13 and CHAPs awarded through 1/6/14. CHAP Awardees includes CNI applicants as well as Portfolio and Multiphase awards made as of 1/6/14.

9. Percentage of Public Housing Applications by Census Region Compared to Current Pubic Housing Projects RAD:16% PH: 29% RAD: 11% PH: 8% RAD: 17% PH: 13% RAD: 56% PH: 49% Note: This data reflects the regional breakdown of RAD applications (“projects”) received compared to the number of existing PH projects in each region.

10. Percentage of Current PH Units by HUD Region that have Applied for RAD 15% 6% 7% 3% 7% 18% 16% 21% 22% 21% Note: This data reflects the percentage of PH units in each HUD region that have applied for RAD; note that units are considered public housing until the RAD closing is complete.

11. RAD Participant Profile Top 10 Applicants by PHA • Chicago, IL – 10,935 units • El Paso, TX – 6,100 units • Nashville, TN - 5,384 units • Birmingham, AL - 5,015 units • Baltimore, MD – 4,583 units • San Francisco, CA – 4,575 units • Charlotte, NC - 3,424 units • Mobile, AL – 3,410 units • Tampa, FL – 3,065 units • Greensboro, NC – 2,195 units

12. Project Locations

13. Size of PHA Note: This data reflects the percentage of unique PHAs that have applied for RAD, by size.

14. Project Type

15. Section 8 Conversion Choices By Project

16. Type Of Permanent Project Financing Type of 1st Mortgage Financing (without Tax Credits)

17. Type Of Permanent Project Financing Type of 1st Mortgage Financing (with Tax Credits)

18. Type of LIHTCs by Project

19. Addressing Range of Challenges Indicated PHA Objectives • Modernize aging family & elderly properties • Sub rehab of deteriorated properties • Thin densities/mix-incomes via PBVs & transfer authority • Demolish/replace severely distressed/obsolete properties • Portfolio streamlining

20. Second Component of RAD

21. 2nd Component Update Current Status

22. RAD 2nd Component—RS & RAP Geography

23. 2nd Component of RAD Update • Remaining Rent Supp and RAP Stock by FY Expiration Total RAP Units: 11,088 Total RS Units: 5,053

24. Program Basics

25. RAD Basics • PIH Notice 2012-32 REV 1 • Allows 60,000 public housing units to convert to long-term Section 8 rental assistance contracts • Access private debt and equity to finance capital needs • Program simplification/streamlining • Better platform for long-term preservation • Conversion Options • Project-Based Rental Assistance (PBRA) • Project-Based Vouchers (PBV)

26. Program Basics (Why?) PublicHousing: • $25BillionBacklog • $25,000/Unit,but widerangefromnew Mixed- Financeto Demo/Replacement • DecliningAppropriations • Losing10,000– 15,000 Units/Year • DeregulationOpportunity

27. Public Housing Funding Trend

28. PHA historical funding OperatingFund $6 $5 $4 Billions $3 AdministrationRequest IndustryRequest Capital Fund Appropriation $2 $1 $0 19971998199920002001200220032004200520062007200820092010201120122013 Capitol Fund $6 PublicHousingcapital repairneedsareinexcessof $25.6Billion Billions $5 $4 AdministrationRequest IndustryRequest Capital Fund Appropriation $3 $2 $1 $0 19971998199920002001200220032004200520062007200820092010201120122013

29. OCAF vs Operating Subsidy Proration Levels (example)

30. Contract Rents

31. Program Basics (Contract Rents) • Referred to as “current funding” • Amounts can be found in: • RAD Inventory Assessment Tool (rows 71-74 of the Inventory Overview Tab), and • RAD Application (rows 5-7 of the Validation Tab) • Based on 2012 funding levels: • 2012 Operating Subsidy Eligibility, assuming 95% proration (i.e., we restored the Operating Fund “Allocation Adjustment”), excluding Asset Repositioning Fee (a special fund for demo/dispo projects)

32. Program Basics (Contract Rents) • Current funding may be affected by PBV or PBRA rents caps, which are sensitive to estimated market (reasonable) rents • RAD rents will be increased beginning in 2014 using OCAFs (Operating Cost Adjustment Factors) • OCAFs apply for both PBRA and PBV • Inventory Assessment Tool uses average utility allowance (data was not available by bedroom size) • RAD rents reflect any existing Energy Performance Contracts (EPCs) • If project has an EPC where HUD has allowed a freezing of the project-paid consumption baseline, or an energy “add-on”, those arrangements will be carried over in RAD

33. Program Basics (Contract Rents) • During the remainder of the initial calendar year of funding, the project receives only what it would have received under the public housing program (i.e., it carries forward all remaining Operating and Capital Funds for that year) • If a PHA changes the bedroom distribution, the contract rents will be adjusted accordingly. Under public housing funding formulas, operating subsidies increase with each increase in average bedroom size (and decreases in each decrease in average bedroom size) • For partial conversions, just enter the proposed number of units, and bedroom mix, and both the Tool and Application will show the new contract rents

34. Program Basics (Rents) Rent Bundling • PHAs may adjust subsidy (and contract rents) across multiple projects as long as the PHA does not exceed the aggregate subsidy for all of the projects the PHA has submitted for conversion under RAD. This use, which HUD refers to as “bundled” rents, is permissible when a PHA submits applications for two or more projects. There is no limit to the number of projects that a PHA may bundle.

35. Public Housing Conversion Rent Levels Program Basics (Rents) ACC Section 8

36. Housing Assistance Payments Subsidy

37. Various Considerations in Choosing PBRA vs. PBV

38. Various Considerations in Choosing PBRA vs. PBV

39. Applications

40. Program Basics (Applications) Prior to submitting an application to participate in the Demonstration, HUD requires a PHA to: • Notify residents of projects proposed for conversion of the PHA’s intent to pursue a conversion; • Conduct at least two meetings with residents of projects proposed for conversion to discuss conversion plans and provide opportunity for comment; and • Prepare comprehensive written responses to comments received in connection with the required resident meetings on the proposed conversion to be submitted with the RAD Application. Once a PHA is selected to participate in the Demonstration, it must have at least one more meeting with residents before HUD will execute a HAP contract.

41. Program Basics (Applications) Portfolio Applications • HUD will reserve RAD conversion authority for all projects contained in the portfolio, provided the PHA submits individual completed RAD Applications for at least 50% of the projects. • The PHA will have 365 days from issuance of the Portfolio Award Letter to submit acceptable RAD Applications for the remaining projects included in the Portfolio Award, which will result in the issuance of a CHAP for each project. • In order to apply for a Portfolio Award, a PHA must submit: • A list of all projects proposed for a Portfolio Award, that includes, for each project, the project’s name, PIC Development Number, units to be converted, total estimated capital needs, and the major anticipated financing sources, where applicable; and • RAD Applications for at least 50% of the projects identified in the portfolio. • Upon approval of the application, HUD will issue, in addition to the provision of CHAPs for the applications submitted, a Portfolio Award Letter covering the remaining projects within the portfolio proposed by the applicant.

42. Program Basics (Applications) Multi-Phase Applications • A Multi-phase Award allows a PHA to reserve conversion authority for a project with multiple distinct development phases and locks in the applicable contract rent, for the entire project, at the time of initial application. • Upon acceptance of the PHA’s application, HUD will issue a CHAP for the initial phase and a Multi-phase Award Letter covering all phases of the project. • For projects requiring multi-phase development, a PHA’s RAD Application for the first phase must include: • a narrative summary of the proposed phasing • the proposed date of submission of each phase’s financing plan • the proposed date of each phase’s LIHTC application (if applicable), • and the proposed date of any demolition or disposition associated with each phase (if applicable). • The PHA will have until July 1, 2015 to submit an application for the final phase of the project covered by the Multi-phase Award.

43. Program Basics (Applications) Phasing to Reposition a Large Portfolio

44. Program Basics (Applications) Because of the the emerging capital needs of certain maturing Mixed-Finance public housing projects, the RAD program seeks to address the feasibility of converting public housing mixed-finance assistance to the Section 8 platform

45. Tax Credit Transactions

46. Program Basics (Tax Credit Transactions) • On LIHTC transactions (with or without private debt), PHAs may earn a developer fee payable from the tax credit equity subject to the LIHTC allocating agency’s limitations on developer fees, and in no case to exceed 15 percent of total development costs, payable on the schedule allowed by the allocating agency and/or equity investor. • PHAs eligible to earn a LIHTC developer fee are not eligible to earn the RAD Developer Fee. • Applicants proposing to use 9% LIHTCs, if a reservation has not already been secured, are required to submit a letter from the credit-issuing authority addressing: • Whether the property and proposed transaction appear eligible; • Whether the applicant or owner entity has acceptable experience to proceed; • The timing of application and award; and • Whether a typical reservation of credits is sufficient to address the expected need of the first or only phase of the subject project. • If 9% tax credits cannot be secured during that first application cycle the CHAP will be terminated unless, within 90 days of notification, the PHA can provide a Financing Plan that does not rely on 9% tax credits.

47. Development & Operating Costs

48. Program Basics (Development and Operating Costs) RAD Physical Condition Assessment (RPCA) • Required only after CHAP award • Exclusions for: new construction, for rehab that is “down to the stud”, and for projects recently built (based on HUD approval) • HUD shortly to form “user group” Bonus – Ownership Type • Ownership can include: • PHA, directly or through related non-profit • Any other public or non-profit owner • For-profit owner in the case of tax credits • No approval required of these alternate ownership arrangements (other than 2530/APPS process)

49. Program Basics (Development and Operating Costs) Projecting Operating Costs • If estimating Operating Costs as a percentage of current Formula Expenses (say, 95%), keep in mind that “Formula Expenses”, as defined, within the Inventory Assessment Tool, exclude funding the PHA may receive under Stop-Loss (called “Transition Funding”) • If estimating Operating Costs based on historical project expenses, remember that HUD’s public housing financial reporting model (1) has a slightly different chart of accounts than FHA and (2) has a separate column for Operating Fund and one for Capital Fund. Generally, you will want to include only the Operating Fund column

50. Utilizing Public Housing Funds in the Transactions