Holly Knight, Vice President of Development, BGC 202-699-1998 holly@thebennettgrp

1. LHC District Meeting Denim Springs HA August 19. 2014 Holly Knight, Vice President of Development, BGC 202-699-1998 holly@thebennettgrp.net

2. Goal of RAD • In order to preserve the public housing stock convert its assistance to the project-based Section 8 platform, which will: • Stabilize funding • Create access to private capital • Streamline HUD programs • Enhance housing options for residents • In order to convert the entire public housing stock, HUD continues to ask Congress for authority and for funds.

3. Challenge and tools • CHALLENGE: • The Public Housing program has remained underfunded for more than 30 years, leading to ~$26 billion capital backlog • The nation’s Public Housing stock is struggling, and has significant capital repair needs • NEW TOOL: • Conversion to the project-based Section 8 programs provides an opportunity to invest billions into the public housing stock • The Rental Assistance Demonstration (RAD) allows PHAs to undertake this conversion for some units • HUD has achieved its goal of standing up this new tool, attracting many PHAs to participate • Only 60,000 units are currently able to convert; lifting cap will make the RAD tool available to all PHAs who want to use it. Lift the RAD Cap Coalition: website with resources

4. Early RAD conversations • “RAD will only work for public housing projects with low needs” • “RAD is for PHAs in strong markets.” • “RAD is for small PHAs” • “Everyone will convert to PBRA” • “Everyone will convert to PBV” • “RAD only works with 9% Low Income Housing Tax Credits and there’s not enough to go around” • “RAD will only work with FHA mortgage insurance – 99% of these transactions will go FHA” • “RAD won’t work”

5. 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.

6. Whole Portfolio Conversions • 76% of the PHAs with CHAP awards have proposed to convert their entire stock, including • 52 small PHA (<250 units) • 29 medium PHA (250-1,250 units) • 26 large PHAs (>1,250 units)

7. 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 ~ $45,000 per unit ($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

8. Reviewing Applications on the Waitlist • Secretary Donovan letter 2/20 confirms HUD will review the ~ 685 applications above the 60,000 unit cap • Instruction from Secretary: • Review applications and prepare conditional approvals. • Next two weeks conditional CHAPs to be issued • When cap is lifted, HUD will issue CHAPs to all approved applications and process in order of the waiting list. • HUD will use the RAD Notice for these projects but will use FY14 funding levels to calculate the rents.

9. RAD Update • HUD has asked for RAD cap to be lifted in 2015 budget RAD Application by

10. RAD Application update

11. Application Overall Sources of Funding

12. RAD Application tax credits

13. Operating Subsidy Funding • 103% • 89.20% • 82% • 94.968% • 100% • 88.42%

14. Capital Fund Capital Funding Trends

15. PH Development Resources Note: Not listed PHA PBV at FMR, PHA Cost Center Funds, Admin Fees

16. 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

18. PH Options

19. Why RAD • Builds on a more stable funding platform • 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 60+% 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 and PHA

20. Why RAD • Procurement with developer partner is simplified • Expenses • Gives real estate opportunities • Can move HAP contract as needed • 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 • Feasibility, Marketability, and Sustainability

21. RAD flexibility • Transfer assistance from unworkable units prior to conversion • Market accommodations in meeting 1-for-1 preservation (e.g., convert efficiencies to 1 bdrms; long-term vacant units) • Combine RAD & agency PBVs or SAC TPVs>PBVs • Flexibility to reduce densities, replace housing off-site, produce mixed income communities • Allows PHA to undertake renovations immediately or after conversion, as warranted • Demolition/New Construction allowed • Ability to “bundle” project applications for flexibility with initial contract rents

22. 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

23. Show the PHA the Money • • The RAD options: • • Modest rehab with no debt • • Modest rehab with debt only • • Moderate rehab with debt and 4% LIHTCs • • Major rehab or replacement with debt and 9% LIHTCs • • These are funding sources that are not conveniently • available to small PHAs • • A conversion of all LIPH units eliminates the HUD • requirements for: • • Procurement • • Annual and Five‐ Year Plans • • PHAS • • REAC (if…PBV) • • You Get to Keep the Money – no offsets, developer fees, seller take back financing, cash flow options

24. What can RAD do now? • 15-20 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

25. RAD Similar and Different to mixed finance • Similarities: • Real Estate Transaction same • Rent/Income • Reporting to 3rd parties • Physical needs assessment is a driver • Differences: • PHAs want to self manage • RAD PCNA tool • Complicated HUD regulations • Lower Income to project • Expenses higher may need to be adjusted • Type of 3rd party reporting HUD versus Investor • Benefits of PHA Partner • Invested in community • Familiar with social services • Knows the community partners • Has managed PH inventory on shoestring budget • Familiar with compliance

26. RAD Transaction Concerns • Timing • Tax credit compliance versus HUD compliance • Rent calculation and income qualification • Boards and their role changes • Limited knowledge of mixed finance • Management • Ownership changes impact pilot and taxes • Investors and HFA unfamiliar with PHAs • RAD rents are low • HUD conversion requirements • PBV/PBRA • PHA Plan • Site and neighborhood • Elderly designation • Environmental • Relocation (URA) • Affirmatively Furthering Fair Housing

27. Change • Take the first step in faith. You don’t have to see the whole staircase, just take the first step. -Martin Luther King, Jr.