Rental Assistance Demonstration (RAD)

RAD Opens Doors to Funding Opportunities

The Rental Assistance Demonstration (RAD) program can be a significant financing move for public housing constituents. RAD’S success is indisputable – the program has made it possible for Public Housing Agencies (PHAs) to access private capital, perform repairs, and address improvements of public housing properties.

In essence, RAD creates opportunities to reposition affordable housing projects originally developed under public housing programs. In fact, the program has been so successful at helping sustain maintenance of public housing units that the RAD cap is now set at 455,000 units – up from 60,000 units when the program was initiated. Tidwell Group emphasizes that the program has been particularly helpful to Project Rental Assistance Contracts (PRAC) for Housing for the Elderly under Section 202.

While most RAD rules are relatively simple to understand, a regulatory application can be tricky and complicated. When applied incorrectly, the financial consequences can decrease a project’s ability to remain financially viable – particularly when other programs (such as LIHTCs) are involved resulting in a domino effect of consequences. For example, regulatory requirements can change depending on whether a project-based voucher (PBV) program or project-based rental assistance (PBRA) program is being used. This is because each program is governed by a different HUD entity, each with its own nuanced and unique regulatory handbook. Issues including income certification can become confounded as they vary by program.

To successfully reap the rewards of RAD financing, stakeholders must understand which regulations to apply – and as importantly, they must know how to apply them. Tidwell Group regularly assists clients with RAD projects including portfolio analysis, transaction structuring, and underwriting, Regulatory requirements under RAD include:

• Compliance with all fair housing and civil rights requirements
• Satisfaction of non-profit entity ownership rules in accordance with HUD’s detailed descriptions (under Section 202)
• Sufficient operating reserves that are in accordance with minimum requirements.
• Compliant Real Estate Assessment Center (REAC) scores
• A Capital Needs Assessment (CNA) to identify short-term and long-term capital needs after conversion and to support rent increases to build up adequate reserves (dependent on PBV or PBRA)
• Proof of a part-time or full-time designated service coordinator for the property, demonstrating that residents receive applicable supportive services (under Section 202)

Having the ability to leverage private capital financing is the fundamental benefit of the RAD program. It enables stakeholders to financially support the maintenance costs of public housing units so that they do not become obsolete and are lost outside of the public housing space. Other benefits of RAD for public housing constituents include:

• A long-term Rent Subsidy Contract, which is designed for financial stability and to preserve the housing as affordable for current and future residents
• The opportunity for annual rent adjustments, with certain limitations per the Operating Cost Adjustment Factor (OCAF)
• Leveraging of debt, LIHTC equity and several other sources of financing for repositioning of the property
• Rent bundling if multiple eligible projects are submitted and if one project has more subsidy than another. Doing so can provide economies of scale and more affordable financing options for smaller properties
• Continued tenant-based assistance for residents in a RAD property, which can also be transferred to a new site under certain circumstances