The U.S. Department of Housing and Urban Development (HUD) oversees the Residential Assistance Demonstration (RAD). RAD provides a method for housing authorities to rehabilitate and preserve their aging public housing via a combination of public and private affordable housing resources, including the conversion of units from original sources of HUD financing to project-based Section 8 contracts.
In November 2018, Hunt Real Estate Capital announced that it used RAD to support the conversion of the Betances portfolio in the Bronx. As a follow-up, Joshua Reiss, Hunt Real Estate Capital’s Vice President, gave insight into the purpose of RAD, and how it is assisting in preserving affordable housing.
Q. How is the affordability issue being addressed via RAD in New York?
A. RAD is a preservation tool that the New York City Housing Authority (NYCHA) and other housing authorities are using to rehabilitate their housing stock. With 2,400 buildings and more than 175,000 units, the NYCHA portfolio is by far the nation’s largest public housing authority. RAD is an extremely effective way to save these properties from deteriorating into obsolescence
Q. What are some of the benefits of RAD that clients should be aware of?
A. One benefit is that it allows private owners and developers to access and preserve new Section 8 housing stock. HUD is no longer creating new Section 8 housing contracts; they haven’t for some time. Through RAD and Hunt’s lending partners, private owners can secure long-term, fixed-rate financing that provides the certainty needed to run and rehabilitate these properties. RAD is really the only way to access this type of affordable housing, which has never been on the market before.
Q. In addition to the Betances portfolio, what is another example of a RAD transaction in which you have been involved?
A. Hunt recently worked closely with sponsors MDG Design + Construction and WaveCrest Management to facilitate the RAD acquisition and rehabilitation of a 1,088-unit, 39-property scattered site NYCHA portfolio in the Mott Haven area of the Bronx by securing $120.6 million in financing through Fannie Mae. One challenge was the amount of underwriting and due diligence required due to the sheer size of this property.
For the new owners, the first challenge will be coordinating construction and rehabilitation. This will be followed by property operations, as well as earning and maintaining the resident’s trust. Tenant considerations played a major role in WaveCrest and MDG’s proposal, and this thoughtfulness is a huge focus in all their projects. We were extremely lucky to work for such a talented and experienced sponsorship in this regard. WaveCrest specializes in managing HUD Section 8 and tax credit properties, and currently runs more than 18,000 units in the New York metro area. MDG Design + Construction specializes in developing high-quality affordable housing, and has created or preserved 17,500 units of affordable housing. You couldn’t ask for better sponsors on a transaction like this.
Q. What are a few things borrowers/developers new to the RAD process should understand? How is it different than a traditional affordable housing transaction?
A. Borrowers new to RAD might be a bit surprised that it really is not that much different from a traditional affordable housing transaction. Yes, there are additional stakeholders. HUD and the local housing authority bring a unique perspective into the deal, as they are not looking to solely maximize profits, but rather serve as stewards of these assets. But for all intents and purposes, this is similar to a typical affordable housing transaction – just a little bit more labor and time intensive.
Q. How popular is RAD?
A. Since its inception in 2012, RAD has allowed for the conversion and preservation of more than 104,000 units of public housing. The program was first utilized by smaller housing authorities in mid-sized cities, but it is quickly becoming a tool that larger authorities are using to preserve and improve their assets. HUD has approved the Chicago Housing Authority’s application to transition 11,000 units of housing. In late 2018, NYCHA announced the plan to rehabilitate 62,000 units through private-public partnerships with a focus on RAD. The 2018 omnibus spending bill also doubled the RAD cap to 445,000 units – it is clear that RAD is going to be a major tool for housing authorities in large, medium and small cities alike.
Joshua Reiss is a Vice President with Hunt Real Estate Capital. Based in New York, Reiss is responsible for structuring and marketing the firm’s platform of affordable housing loan products. Hunt Real Estate Capital offers Fannie Mae, Freddie Mac and FHA executions, as well as proprietary financing for multifamily and most other commercial assets.