The U.S. Department of Housing and Urban Development’s (HUD) mission has always been the same: to provide affordable housing. During the most recent (and ongoing) recession, HUD Insured Loans remained a viable alternative to Government National Mortgage Association (GNMA), Fannie Mae and Freddie Mac, offering fully amortized long-term loans to multifamily and healthcare properties. However, history has shown that HUD is a counter-cyclical funding finance vehicle. How can HUD nurture their mission in an evolving cycle? The answer may lie in the aging public housing inventory.
Enter RAD: the Rental Assistance Demonstration (RAD) is a program that allows proven financing tools to be applied to at-risk assisted and public housing. RAD is a central part of HUDs evolving rental housing preservation strategy, which works to sustain the nation’s stock of deeply affordable rental housing, promote efficiency within and among HUD programs, and build strong, stable communities. This was demonstrated by HUD Director Shaun Donovan as he addressed developers at Affordable Housing Finance (AHF) Live in Chicago. In his speech, Donovan dissected RAD numbers, providing insight into the RAD program and how many public housing units can benefit from it.
The Rental Assistance Demonstration (RAD) Program
Through the RAD program, HUD can assist in preserving affordable housing, all while adding energy efficient value to the aging inventory via private financing. In essence, the RAD program allows HUD to provide a vehicle in the assistance of rehabbing antiquated inventory, while simultaneously leveraging the ever increasing global interest in “Green Building Practices”, as evidenced by laws such as California’s AB 1103 energy disclosure law. Energy saving construction and design practices are the backbone of sustainability, and with evolving streamlined technologies and processes, going “Green” has become an increasingly easier mantra to adopt.
The inherent partnership between HUD and the Public Housing Agencies (PHA) and Mod Rehab owners allows them to achieve conversion of their federally funded asset to long-term, project-based Section 8 contracts. This relationship is very organic and natural, and provides a fresh, new alternative method for funding that, by design, coincides with HUDs mission statement.
HUD’s RAD Conversion Process
As part of the conversion process, owners are required to engage qualified third party consultants to provide a RAD Physical Condition Assessment (RPCA), which includes three major components:
Part I – a Property Condition Assessment (PCA) that includes traditional and green comparisons, and a cost benefit analysis. The PCA will be required to meet the HUD standards for the Mark-to-Market program, and will not only include the traditional/green components, but also intrusive analysis of long-life buildings systems, as well as a 20-year reserve analysis. The RPCA Model (similar to the “Green Property Condition Assessment Tool) is also included.
Part II – An Energy Audit component evaluates energy and water consumption via exhaustive analysis of the existing components, a payback analysis, and energy efficient alternatives to mechanical, electrical and plumbing (MEP) systems.
Part III – A Utility Consumption Baseline is a collection and analysis of utility usage at the subject property, and includes resident and owner paid utilities for a 12-month period, which allows for energy benchmarking and potential consumption comparison.
A fourth part, the Integrated Pest Management (IPM) component was recently removed from the required scope of work (SOW), as it was seen as costly and cumbersome to the streamlined process. Ultimately, this component can be completed after the conversion of the asset, but will not be required as part of the RPCA SOW.
The Due Diligence and Energy Audit portions of the RAD conversion process offer exciting opportunities to improve the energy efficiency and overall state of the country’s stock of affordable housing. For us, being able to work with owners and lenders alike to aid in the preservation and modernization of affordable housing communities is truly RAD!