On Monday, HUD published “Frequently Asked Questions” to the RAD Resource Desk. (link: http://portal.hud.gov/hudportal/documents/huddoc?id=RADFAQ_Sep24.pdf). It is a good read, but I found the “Benefits of RAD” question and answers on page 4 wonderful!
The question was “If there is no new Federal funding available with RAD, what are the financial benefits of participating in the program?” to which the RAD Resource Desk provided eleven (11!) great reasons to pursue the program, including (verbatim):
(1) Ability to leverage private debt and equity to meet rehabilitation needs. RAD creates an opportunity to convert existing rent subsidy and capital funds to a Section 8 Housing Assistance Payments (HAP) contract. PHAs can borrow against the HAP income stream and/or leverage 4% or 9% LIHTC equity investments against it.
(2) Historically low rates on permanent financing. In the case of FHA financing, for example, current rates are at about 3%, with .45% added for mortgage insurance premium (MIP). These extremely low rates increase project borrowing potential dramatically.
(3) More secure funding stream. While also subject to annual appropriations, project-based Section 8 contracts have not been subject to the same “proration” issues of the public housing Operating Fund Program or the large swings in the Capital Fund Program.
(4) Fee potential. Similar to other affordable housing developers and managers, under RAD, PHAs can earn development, property management, asset management and/or guarantee fees depending upon the financial structure of a transaction.
(5) Additional income potential. Depending upon the financial structure, PHAs may also be able to generate additional income or receipts from RAD transactions via project cash flow, debt-service on PHA-supplied financing and seller take-back notes, ground-lease payments, etc.
(6) Long-term preservation. Unlike traditional public housing, the contract rents will support an annual contribution for replacement reserves so that the project has funds to address the timely replacement of systems of components.
(7) Operational stability. Contract rents will be adjusted annually by an operating cost adjustment factor, which should facilitate long-term project planning. Further, all of the following potential sources of PHA income in a RAD transaction constitute unrestricted, non-Federal funds
(8) Developer fees (10% in debt-only deals; up to 15% in LIHTC)
(9) Land-lease payments
(10)Sellertake-back financing on appraised value of existing units in a rehabilitation transaction (this is not available in the case of demolition and new construction)
(11) Cash flow
So, if you or a client needs help with the Green Capital Needs Assessment (GCNA) to submit to your lender and HUD, please consider D3G. We know housing, we know HUD.”