RAD Basics. Rich Larsen Novogradac & Company LLP. Matthew Rooney MDG Design + Construction. Holly Knight BGC Advantage

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2 RAD Basics PANELISTS Rich Larsen Novogradac & Company LLP Holly Knight BGC Advantage Matthew Rooney MDG Design + Construction Jesse Cassella National Housing Law Project

3 Holly Knight BGC Advantage

4 In order to preserve the public housing stock convert its assistance to the project-based Section 8 platform, which will: Goal of RAD 1. Stabilize funding 2. Create access to private capital 3. Streamline HUD programs 4. Enhance housing options for residents

5 Before RAD After RAD Properties are placed on a more stable Section 8 funding platform In Public Housing, PHAs cannot borrow money to perform necessary repairs PHAs and owners can more easily borrow money and perform rehabilitation work The funding fails to keep up with the deteriorating living conditions of residents The living conditions of residents are improved Residents cannot choose to move without losing housing assistance Residents may receive a tenant - based voucher, or similar assistance, and move after 1 year in PBV and 2 years in PBRA

6 PH Options

7 $900 Sample Public Housing Conversion Per Unit Monthly (PUM) Same funding - budget neutral $800 $700 $600 $500 $400 Operating Fund $200 Operating Fund $330 Capital Fund $100 Capital Fund $ Funding $164 $792 $450 Housing Assistance Payment $300 Housing Assistance Payment $474 $300 $200 Tenant Payment $150 Tenant Payment $150 Tenant Payment $318 Tenant Payment $318 $100 $- Pre-Conversion Post-Conversion

8 RAD Helping PHAs Address Challenges Indicated PHA Objectives Complete repairs range of moderate repairs, substantial rehab and New Construction ~ 20% of projects planning Demolition and New Construction (on site or off site) Average repair hard costs of ~ $25,000 per unit (excluding new construction) Place mixed-finance properties on solid financial footing for long term (15% of projects) Thin densities/mix-incomes via transfer of assistance Streamline programs Convert to stabilize

9 What is the future? Losing affordable housing $26 Billion capital investment need Unpredictable and insufficient funds Limited investments in public housing Aging housing stock: average PH is 43+ years old Marketability and curb appeal Rules and regulations increasing Under performing PHAs and consolidation Funding trends decreasing HUDs program consolidation goals

10 RAD The basic financing options The RAD main funding options: Convert with PHA Funds only (modest rehab with no debt) Modest rehab with debt only Moderate rehab with debt and Tax Exempt Bonds 4% LIHTCs Major rehab or replacement with debt and 9% LIHTCs

11 How much money do you have? How much need do you have? Which RAD finance method do I choose? RAD is based on a 20 Year Needs schedule How much does the physical needs determine? How much will you do at rehab event? How much will you defer to future years and what is the cost for those future years? RAD conversion will address these needs in one of two ways Initial Deposit to Replacement Reserve (IDRR) Annual Deposit to Replacement Reserve (ADRR)

12 Backlog of Capital Needs Capital repair needs of $23,365 per unit Needs at your PHA Roof - $8,000 3 Bedroom 504 Compliance $25-35,000 ADA Site compliance $10-15,000 HVAC replacement -$4,000 Water Heater - $350 Site Soil Erosion- $20,000 Appliances Range $450 / Fridge $550

13 RAD Physical Condition

14 RAD PNA Reserves

15 Other property financial considerations Annual Income (in public housing and then RAD) Annual expenses Are income and expenses in line with other comparable affordable housing in the market Proforma: an operational budget for the next 20 years

16 PH Typical RAD Development Resources Note: Not listed PHA PBV at FMR, PHA Cost Center Funds, Admin Fees

17 Builds on a more stable funding platform Why RAD Lock in funding Better than Capital Fund Finance, Leveraged Op Sub, or EPC Leverage private capital to address physical needs and preserve your units Leverage 4% LIHTC get 30% project equity Leverage 9% LIHTC get 70% project equity Leverage developer fees, seller take back finance, ground lease Apply for grants HOME, Federal Home Loan Bank Provides a great deal of regulatory and reporting relief Saves in reporting to HUD, policies, and oversight more with board, PHA, and investors

18 RAD Transaction Options Procurement with developer partner is option Expenses are increasing and funding decreasing Gives real estate opportunities Can move HAP contract as needed (transfer of assistance) Can move out of flood zones/hazard zones/undesirable areas Can use non federal funds to purchase properties or land Benefits of partnering for expiring LIHTC, Home projects, HUD Multifamily developments Best and highest use of assets Opportunity to expand your affordable housing portfolio Feasibility, Marketability, and Sustainability Non Federal funds resource

19 What can RAD do now? 20 year, renewable contracts with use agreement Predictable initial contract rent setting; annual operating cost adjustments for inflation (OCAF) Established replacement and operating reserves; standard industry underwriting requirements RAD HAP funding begins at construction closing No limitations on use of project cash flow PHA ownership/control similar to LIHTC practices Long-term affordability ensured No new DOFA date Rehab payments during construction

20 RAD Transaction Concerns Timing Tax credit compliance versus HUD compliance Program change Occupancy and Management rules differ Boards and their role changes PHAs -Limited knowledge of mixed finance Management Ownership changes impact pilot and taxes Investors and HFA unfamiliar with PHAs RAD rents are typically lower than tax credit or FMR HUD conversion requirements and pre development expenses PBV/PBRA PHA Plan Site and neighborhood Elderly designation Environmental Relocation (URA) Affirmatively Furthering Fair Housing

21 Pre RAD Post RAD LHA Section 8 = 36 HCV ACC units LHA Section 8 =330 HCV ACC units PBV Admin Fees Small RAD project Based on $50 Per unit Admin Fee Pre RAD Section 8 Admin Fee= $21,600 a Year Post RAD Section 8 Admin Fee= $198,000 a Year

22 What no one will say One for one replacement is hard LIHTC can be a new world Double the work during conversion Over Income residents HFA that will leverage soft funds for 4% New construction works better in high rent areas (4% and 9%) Work to protect PHA jobs, staff learn more, different work elements post RAD Choice mobility concerns Costs a lot to leverage the funds (Developers, attorney, consultants, funders, third party reports) Lot of learning and understanding that must occur during planning. Takes more time than traditional affordable housing

23 How will RAD impact the management staff/cost center How do I preserve my staff How can we increase our income to the cost center/pha PHA Effects Analyze what you give up from the project from RAD (asset management fee and allowed fees, % Cap Fund) Analyze reduced costs post RAD (reporting, software, fee accounting goes down for HCV, procurement changes, Etc..) Analyze what you get from the RAD project (cash flow, seller take back or ground lease, increased project funding annually (OCAF), developer fee, non federal funds, reimbursements What is the timing of how the PHA will get paid? If we are a portfolio conversion what is process for total RAD conversion and payments?

24 Case Studies 4% Tax Exempt Bond (Small PHA) Leesville, LA 4% Tax Exempt Bonds and 9% (Large PHA) Alexandria, LA PHA Funds Only Auburn, AL and Lafayette, AL

25 Leesville Housing Authority UA Waiver Savings $66,000 annual Pilot forgiveness/roads $20,000 annual $250,000 Gas pipes by gas company Installation of appliances PHA Landscape Volunteers Management incorporated staff Seller Take Back Note New ADA friendly office PBV RAD now receives increased admin fees 194 Units of RAD/ PBV

26 Leesville Housing Authority

27 Twin Lakes of Leesville

28 Twin Lakes- RAD 4% Scope of Work New Lighting, flooring, washer/dryers in units, new hot water heaters, new HVAC, new flooring, paint, new bathroom (tub, sink, vanity mirror, toilet, accessories), new kitchen cabinets, kitchen sink, all new appliances, new windows, new doors, landscaping, new electrical, exterior painting, exterior stone work, upgraded energy efficient insulation, new UFAS units with additional square footage added to building, parking lot repair, new parking lot, new roads, new bricked signage at all 4 sites, New Laundry mat and all new equipment at Blackburn site, New Admin/Property Office, New Maintenance Building Construction Cost per Unit $ 35,800 total project

29 Before but windows were already installed in this picture Twin Lakes- RAD 4%

30 Pictures taken during a construction

31 Progress

32 Alexandria Housing Authority Portfolio Conversion Harmony Gardens 174 Units 4% LIHTC Bond, HOME Funds, FHA 3 scattered sites all rehabilitation Royal Cambridge 384 Units 4% LIHTC Bond, HOME, Citi Bank/Freddie 3 Scattered sites, light rehab, demolition, heavy rehab, new construction, RAD and PBV units Magnolia 9% LIHTC (construction loan) Bayou 4% LIHTC Bond, CDBG, FHA 49 Units 65 Units

33 Auburn and Auburn HA with 304 Units converted PHA funds Auburn manages Lafayette 102 Units which converted PHA funds only Lafayette, AL Lafayette, AL SOURCES Public Housing Operating Reserves $1,442,386 Prior Year Public Housing Capital Funds $364,710 Total Sources $1,807,096 USES Construction Costs $11,318 IDRR $528,046 Operating Reserve $245,917 RAD Transitional Reserve $1,021,815 Total Uses $1,807,096

34 Take the first step in faith. You don t have to see the whole staircase, just take the first step. -Martin Luther King, Jr. Change Resources/Handouts: RAD PBV versus PBRA Why RAD Resident Handout Affordable Rental Housing Action/LIHTC Holly Knight holly@bgcadvantage.com

35 Matthew Rooney MDG Design + Construction

36 RAD Basics: Benefits of RAD for PHA s

37 1.Allows PHA s to leverage private financing to provide repairs 2.Safeguards rental housing assistance for current and Key RAD Benefits future residents within the PHA 3.Stabilizes PHA properties for the long-term with stable financials 4.Allows PHA s to reassess their maintenance operations 5.Maintains the public housing rights of residents

38 Lenders are comfortable lending on the consistent income from Section 8 Every dollar of net income allows the PHA to leverage #1 Private Financing hundreds of dollars of debt Financing allows the project to receive much needed repairs PHA s can leverage financing from a variety of sources

39 #1 Private Financing at Ocean Bay $210 million in NYS Tax Exempt Bonds $170 million in Tax Credit Equity Funding $560 million total in development uses

40 Residents still pay 30% of their income #2 Future Security for Residents Residents receive assistance from a program with heavy support in government Residents receive more options under RAD

41 #2 Future Security for Residents at Ocean Bay Residents are protected by the provisions of RAD Long-term affordability with new and beautiful housing NYCHA still in ownership long-term

42 The PHA has a renovated asset that has a longer life #3 Future Security for the PHA The Section 8 income provides a set contract for income as opposed to yearly budget fluctuations Excess financing can be used to subsidize other PHA properties

43 $43 million in acquisition funds paid to NYCHA #3 Future Security for the PHA at Ocean Bay $23 million in developer s fee $235 million in hard costs (including over $100 million in resiliency work) Option to buy back property from development partner for $1 following compliance period

44 PHA s who choose to partner with a private managing agent may be able to find substantial M&O savings #4 Reassess Maintenance Less repairs on a yearly basis thanks to the rehabilitation of the property Outdated building systems can be upgraded with new boilers, solar panels, etc.

45 Over $1.25 million in projected energy savings #4 Reassess Maintenance at Ocean Bay Substantial savings from private management efficiencies NYCHA maintains an administrative fee out of first cash flow after debt service to maintain certain back office PHA functions

46 Residents are automatically grandfathered into Section 8 #5 Maintain the Rights of the Residents Residents continue to pay 30% of their income Long-term affordability is locked-in Succession rights, TPA rights, right to form a resident organization, grievance procedures, etc. remain

47 #5 Maintain the Rights of the Residents at Ocean Bay Tenant Association has received a new, better space to operate All residents have retained their public housing rights

48 1,395 Units across 24 buildings Sample Transaction Ocean Bay $590mm in total development costs $43mm paid to NYCHA at closing $71mm projected over 30 years Over $6mm in site specific social service funding

49 Ocean Bay Timeline Project Awarded to Development Team July 2016 HUD Issuance of RAD Conversion Commitment October 2016 Construction Loan Closing December 2016 Submission of Financing plan to HUD August 2016 Submit Draft Documents to HUD Mid-October 2016

50 One year to close from date of CHAP award without Ocean Bay Key Timeline Items extension Timely submission of a financing plan that won t have any material changes Timely submission of final closing documents that won t have any material changes within 90 days of closing

51 Complete all necessary repairs from deferred maintenance and disaster damage Ocean Bay Determine PHA Goals Recapitalize NYCHA with project proceeds Establish resiliency measures to ensure long-term site health Lower operating costs to establish supportable permanent affordability

52 Full rehabilitation of all apartments including new kitchens, baths, and flooring Ocean Bay Scope of Work New energy efficient systems including hydronic boilers, LED lighting, solar panels, and windows Resiliency measures including flood wall around the site, independent electric service buildings, relocated boiler system to the roof, and flood retention swales General beautification of site and public areas

53 Ocean Bay Accomplishments So Far 74 NYCHA Hires 374 On-Site Queens Employees 78 On-Site Far Rockaway Employees $23 Million in M/WBE Work Contracted 64.6% Decrease in Crime All Apartment Work Completed in Nine Months

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55 Matthew Rooney Chief Executive Officer MDG Design + Construction matthew@mdgny.com

56 Jessie Cassella National Housing Law Project

57 Tenants Rights: Ensuring Compliance and Best Practices

58 1.RAD can drastically impact low-income tenants everyday lives 2.RAD is a fundamental shift for nearly half of all public housing units nationwide Key RAD Principles 3.RAD tenants have more and stronger rights than non-rad PBV or PBRA tenants 4.Details matter! 5.The best RAD conversions go above and beyond HUD s requirements 6.HUD and others will enforce RAD tenants rights

59 #1: RAD can drastically impact low-income tenants everyday lives New owner How/who to pay rent New lease, house rules, grievance procedure Construction at property, in unit Temporary relocation Effect on school-aged children, individuals with reasonable accommodations Transition from PHA multiple owners Emergencies during/after RAD conversion Transfer of assistance Waiting lists for RAD-converted properties Role of PHA v. new owner v. local government Timing/overlap of income recertifications

60 #2: RAD is a fundamental shift for nearly half of all public housing units nationwide Congress has significantly underfunded public housing for decades = $49 billion backlog of capital needs Public housing PBV or PBRA Portfolio conversions PHA 1 or more owners within same community HUD requires several layers of reviews, among different HUD silos RAD builds in protections to ensure the long-term affordability of the property Subject to existing fair housing, accessibility, relocation laws

61 #3: RAD tenants have more and stronger rights than non-rad PBV or PBRA tenants Incorporates public housing rights into RAD-converted property (i.e. grievance procedures, termination notification) Adds key RAD-specific tenant rights: No tenant rescreening, income targeting (RAD authorization statute, HUD Notice REV-3) Right to remain/ return after temporary relocation (RAD authorization statute, HUD Notice REV-3) Broader relocation requirements (HUD Notice ) Phase-in of rent increases caused by RAD (HUD Notice REV-3) RAD tenant education and consultation requirements (HUD Notice REV-3, HUD Notice ) Broader tenant organizing and participation funding requirements (HUD Notice REV-3) Broader choice mobility requirements (HUD Notice REV-3) Broader Section 3 requirements (HUD Notice REV-3)

62 No Rescreening, Income Targeting Current households cannot be denied right to return or relocation housing based on any rescreening, income eligibility, or income targeting This includes LIHTCs! Current households will be grandfathered in for application of any eligibility criteria to conditions that occurred prior to conversion

63 RAD Tenant Right to Remain/ Return Public housing tenants have right to remain at the property If tenants are required to temporarily relocate because of construction, they have right to return to the same property after repairs completed RAD conversion cannot result in permanent involuntary displacement of any resident If proposed plans would prevent resident from returning to the property (i.e. changes in bedroom size), resident must be given opportunity to object to such plans If resident objects, PHA must alter project plans to accommodate resident s right to return If resident prefers to voluntarily and permanently relocate, PHA must secure informed, written consent

64 RAD Temporary Relocation Written relocation plan required if: any permanent relocation (including transfer of assistance), or temporary relocation anticipated to last >1 year Generally, relocation cannot take place before RCC effective date Decent, safe, and sanitary living conditions Reasonable accommodations, adequate unit size Relocation written notifications RAD Information Notice General Information Notice Notice of Intent to Acquire RAD Notice of Relocation (after RCC issued) URA Notice of Relocation Eligibility (for residents whose temporary relocation >1 year) Notification of Return to the Property

65 RAD Rent Increase Phase-In If a tenant s monthly rent increases by more than the greater of 10% or $25 purely as a result of conversion, the rent increase must be phased in over 3 or 5 years PHA must create a policy setting the length of the phase-in period at three years, five years, or a combination depending on circumstances Include in Significant Amendment to PHA Plan

66 RAD Tenant Education and Consultation When? Before submitting RAD application After CHAP After RCC After closing How? Accommodate persons with hearing, visual other disabilities Resident meetings in physically accessible facilities Meaningful access for LEP individuals Name and telephone number of contact on each notice

67 Tenant Organizing and Participation Funding Tenants have the right to organize before and after RAD conversions Protected organizing activities (i.e. tenant organization meetings on site, distributing leaflets, door-to-door surveys) Owners and their agents must allow tenant organizers to assist tenants in establishing and operating tenant organizations Owner must provide $25 per occupied unit per year for resident participation, of which at least $15 per occupied unit shall be provided to the legitimate tenant organization If no tenant organization, owners must make resident participation funds available to residents for organizing activities

68 Choice Mobility Requirements PBV Choice Mobility: Residents have a right to move with tenant-based rental assistance the later of: 12 months from date of execution of the HAP or 12 months after the move-in date PHA Administrative Plan PBRA Choice Mobility: Residents have a right to move with tenant-based rental assistance the later of: 24 months from date of execution of the HAP or 24 months after the move-in date Choice Mobility Letter of Agreement

69 Section 3 Requirements Requires recipients of HUD funding to ensure to the greatest extent feasible that certain % of job training, employment, and contracting opportunities benefit low- and very low-income individuals HUD Notice (REV-3): Section 3 (24 CFR part 135) applies to all Work, including any new construction, that is identified in the Financing Plan and RCC to the extent that such repairs qualify as construction or rehabilitation. In addition, Section 3 may apply to the project after conversion based on the receipt of the use of federal financial assistance for rehabilitation activities.

70 #4: Details matter! Who Who will be the owner? Who are the local community members who can support your efforts? What PBV or PBRA? Where Which properties? Entire portfolio? How many units? When What stage of RAD conversion? How Rehab? How much and for how long? When? Temporary relocation? On or off-site? Tenant education and outreach? Waiting list changes? New leases? House rules? Grievance procedures? Utility allowances? Emergency transfers? Section 3 compliance? Choice mobility implementation? Transition between PHA and owner? Post-conversion oversight? Ground lease?

71 #5: The best RAD conversions go above and beyond HUD s requirements RAD guiding principles early on More tenant education and involvement Community input, transparency Written relocation plan always Long-term oversight: ground leases Uniformity across portfolio conversions within community Housing retention framework Post-conversion local data collection

72 #6: HUD and others will enforce RAD tenants rights HUD investigations and litigation, especially for: Failure to provide (adequate) grievance procedures Failure to provide right to remain/return Illegal tenant rescreening Inadequate tenant education Interference with tenant organizing Failure to provide resident participation funding Illegal leases Illegal termination notifications Failure to phase-in tenant rent increases Failure to provide reasonable accommodations Discrimination based on protected class status Relocation violations Failure to provide emergency transfers, per VAWA Failure to provide translation for LEP tenants Noncompliance with accessible design requirements Impermissibly concentrating accessible units Section 3 noncompliance Failure to maintain RAD resident logs Failure to provide choice mobility Failure to follow fair housing and accessibility laws Inadequate long-term oversight

73 Thank you! Jessie Cassella Staff Attorney, National Housing Law Project

74 RAD Basics PANELISTS Rich Larsen Novogradac & Company LLP Holly Knight BGC Advantage Matthew Rooney MDG Design + Construction Jesse Cassella National Housing Law Project

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