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The RAD Physical Needs Assessment Balancing Act

The RAD Physical Needs Assessment Balancing Act. Presented By: Matt Sweet Dominion Due Diligence Group (D3G). The RAD Strategy. There are three basic strategies for completing a RAD conversion Direct take out Preservation Deal Rehab strategy - LIHTC.

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The RAD Physical Needs Assessment Balancing Act

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  1. The RAD Physical Needs Assessment Balancing Act Presented By: Matt Sweet Dominion Due Diligence Group (D3G)

  2. The RAD Strategy • There are three basic strategies for completing a RAD conversion • Direct take out • Preservation Deal • Rehab strategy - LIHTC

  3. A Physical Needs Assessment* is a study which defines immediate and long-term capital needs; and typically includes: • Property Inspection Report • Identification of Immediate Repairs • Reserve for Replacement (R4R) Analysis * PNA, PCA, PCNA, PCR synonymous in the above definition.

  4. The RAD PCNA • Three (3) Scopes of Work in One Assessment • Green PCNA + Energy Audit + UCB • Selecting your PCNA provider • Qualifications • Experience with mixed financing and MAP • Scope and timing • Deliverables • Report + Excel Tool • It is key to understand the RAD Excel Tool • functions & objectives

  5. Driving Factors in a • Physical Needs Assessment • Property Condition • Funding Sources • Ownership Direction/Expectation • Sometimes synergies, sometimes conflict

  6. Property Condition Considerations • Age of Asset and Physical Condition • Level of rehab planned versus what is necessary • Building code issues (life safety, fire, electrical, etc.) • Hidden, latent defect or other conditions warranting intrusive study (long lived building components) • Environmental conditions • Sources of Loan and Financing • Accessibility Issues (UFAS, ADA Title II) • LIHTC QAP Requirements • Lender / Syndicator Requirements

  7. The Yin & Yang of RAD & LIHTC The Balancing Act SOURCES USES or NEEDS

  8. Equity or Loan Sources • LIHTC QAP Architectural Baseline Standards • LIHTC QAP Scoring Architectural Items • Housing Assistance Contracts (PBRA, PBVA) • Housing for the Elderly or other designation • Syndicator Requirements • Permanent Loan Program Requirements • Future Reserve for Replacement (R4R) Deposits (e.g. a 100 unit complex at ADRR of $350/unit= $700,000 + interest over 20 year period)

  9. Expectations (aka “Establishing the Target”) • What are the owner expectations? • Pro-forma projected Per Unit Per Annum (PUPA) or Annual Deposit to the Replacement Reserves (ADRR) • Energy Water Conservation Measures? • And the $60,000 Question is: “Sources allow for how much rehabilitation?”

  10. When and Where do Accessibility Regulations Apply?

  11. RAD Common Issues • Properties may not have an accurate assessment of needs • Perception vs. Reality (Preservation vs. Asset Management) • Lack of property details (build date, SF, #bldgs, off-site...) • “Over-housed” conditions and reclassifying rents • Functional obsolescence issues (EUL, RUL, and REL) • Misperceptions of RAD and bad press • Energy Data, EWCM Implementation, and Utility Allowances • EPCs or CFFP in place • Municipality Involvement (pre and post conversion)

  12. RAD Lessons Learned • RAD is not easy, much like LIHTC with more layers • Identify “expectations” and “goals” early on to meet milestones • Identify available/predictable sources of funding • Remember long-lived building systems (ML 2012-25) • DBWR cannot be avoided (even in a LIHTC pilot!) • Get to know your Transactions Manager (TM) • Request concept meeting for RAD projects going FHA • Review HUD’s RAD FAQs frequently • Coordinate Environmental Site Assessment early

  13. Environmental Items • Common Environmental Studies in affordable housing finance: • Phase 1 Environmental Site Assessment • 24 CFR Part 50 Review • 24 CFR Part 58 Review • Hazardous Material Inspections • NEPA Specialty Studies (Noise; STC Calculations; Floodplains/Wetlands 8-Step Process; ASD Studies; Archeological Studies; Endangered Species…etc.)

  14. Creativity in RAD • Rebranding of a PHA • Making small work for all • Portfolio analysis to create synergies / rent bundling • The Preservation balance of IDRR and ADRR • Reducing expenses through energy upgrades • Use of Section 18 Demo Disposition • Complexity is the “normal”, examples being: • RAD conversion; sell with land-lease; and build new • 15 projects in one bond deal • 157 scattered site townhomes in an inner-city location

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