RAD Category Search
RAD Category Search
Notice Listings on Underwriting and Funding Sources
Notice Section 1.4.B Financing Requirements and Consideration Notice Section 1.4.B.1 Debt Financing Notice Section 1.4.B.2 Public Housing Capital and Operating Program Funds Notice Section 1.4.B.3 Existing PHA Indebtedness and Contractual Obligations Notice Section 1.4.B.4 Federal Housing Administration (FHA) Insured Financing Notice Section 1.4.B.5 Low-Income Housing ax Credits (LIHTCs) Notice Section 1.4.B.6 Grant Funding Notice Section 1.4.B.7 Acquisition Proceeds
Documents on Underwriting and Funding Sources
Questions on Underwriting and Funding Sources

Excess Proceeds

My RAD transaction is expected to generate $500,000 of excess proceeds, which the PHA understands must be used to further its mission. Will any additional HUD requirements apply to these funds (e.g., would these funds have to be considered PHA Reserve funds)?

No additional HUD requirements would apply. As indicated, those funds must be used for purposes consistent with the PHA's mission, state-enabling legislation, and any local laws, if applicable.

Lender and Investor Concerns Regarding Foreclosure

How is RAD responding to concerns of commercial lenders and Low-Income Housing Tax Credit (LIHTC) investors with regard to foreclosure matters and continued rental assistance?

HUD has posted a standard rider to the public housing conversion RAD HAP contracts to address the concerns LIHTC investors have raised while also protecting the long term affordability of properties converting under RAD, and adhering to the statutory provisions for ownership and control. These riders document and set forth conditions for: providing notice to LIHTC investors; accepting the investor’s offer to cure on behalf of a defaulted owner; providing HUD consent to the transfer of the investor’s interest in the ownership; and pre-approving replacement of the general partner or managing member with the special limited partner or similar entity for a limited period of time in order to facilitate an acceptable permanent replacement. To access these riders, go to www.radresource.net > Contracts & Closing Documents. HUD is also in the process of drafting standard riders to the Use Agreement and the public housing conversion RAD HAP contracts to clarify that HUD will not assert an interest to prohibit a lender from foreclosing when there is cause, but that the Use Agreement -- which establishes affordability requirements -- survives foreclosure by its terms and that continuation of HAP assistance requires HUD consent. It is also HUD’s goal through these riders to provide for a limited continuation of HAP assistance if the lender or its designee comes into ownership of the project in accordance with its rights under the loan documents. When final, these riders will be published on the RAD website. Until these riders are finalized, HUD has developed several provisions that can be provided by the RAD Closing Coordinator to assist with transactions currently moving into the closing phase. These provisions address lender concerns while also protecting the long term affordability of properties converting under RAD, and adhering to the statutory provisions for ownership and control. Importantly, neither rider changes RAD statutory and RAD notice requirements around ownership and control. The RAD Use agreement and RAD HAP contract – two means through which long-term affordability for residents are secured – survive foreclosure, leaving current and future residents protected.

How to Underwrite Income from Cell Tower Lease

How would cell tower income be underwritten?

As with all other sources of income, HUD would review past history and supporting documentation (e.g., long-term cell tower lease), with reasonable allowance for loss/bad debt.

Use of Section 8 Administrative Fee Reserves as a Funding Source

Our authority has section 8 admin fee reserves as well as section 8 project based new construction reserves. Can these be used toward a RAD transaction? Does it make a difference whether the RAD transaction is PBV or PBRA?

Yes. Admin fee reserves from the Section 8 program can be used to support a RAD transaction.

Use of HOME Funds for Predevelopment Costs

Are HOME funds eligible for pre-development costs during RAD conversion? For example, can HOME funds be used to pay for the CNA and repairs identified in the CNA? If so, can the funds be drawn down before closing?

What you propose would not be a problem from a RAD standpoint. You should check with the HOME Participating Jurisdiction to see if what you propose would be acceptable from a HOME program standpoint. For example, the HOME PJ would need to satisfy itself that the particular costs to be funded are HOME-eligible. Similarly, the HOME PJ would decide when HOME funds could be advanced.

Operating Pro Forma Feasibility Requirements for DSCR

Attachment 1A of the RAD Notice Rev-2 states, "For leveraged transactions, the debt-coverage ratio should not be less than 1.11 over a ten year period using 2% growth in revenue and 3% growth in expenses." Will HUD be only reviewing the DCR for the first 10 years of a property? In effect, do we only need to submit a proforma with cash flow projections for 10 years? If so, is that also true for non-leveraged transactions?

HUD requires an operating pro forma that projects out for the length of the initial HAP contract (either 15 or 20 years) for both leveraged and non-leveraged projects. Although we require that you submit a pro-forma for the 15 or 20 year period of the HAP, for purposes of analyzing the project’s feasibility, if it’s a self-financed deal (no debt), then we only test the first 10 years for DSCR and net cash flow. Please note that in the revised Notice, HUD has instructions that say that the Financing Plan will be reviewed and evaluated as a whole.

Tenant Repayment Agreements

How should PHAs handle existing tenant repayment agreements through a RAD conversion? Must the repayment agreement stay with the PHA?

As with any other assets/liabilities of a property, the PHA and new owner must determine whether to transfer the repayment agreement with the property at conversion or to retain the repayment agreement on the PHA's books. Once determined, it is the responsibility of the PHA or Owner to maintain the terms of the repayment agreement and tenant rights.

Opportunity Zone Rent Increase Eligibility

What converting projects are eligible for the Opportunity Zone Rent Increase provision?

A project, as defined in the RAD Notice and which equates to a single transaction or phase, must meet all of the following criteria. The project must: • Be converting to a Project Based Rental Assistance (PBRA) HAP contract • Be located in a designated Opportunity Zone • Propose in its Financing Plan to be newly constructed or substantially rehabilitated • Require the rent increase in order to achieve viability of the transaction

Rent Increase Needed for Viability

For the Opportunity Zone Rent Increase, how will HUD determine whether the rent increase is necessary for the viability for the transaction?

PHAs may request an increase to the rents in their CHAPs by up to $100 per unit per month. Generally, HUD will take the following approach to determining whether the rent increase is necessary for the viability of the transaction: 1) HUD will consider the total revenue for the property, including any other adjustments to the CHAP rents and other revenue producing units at the site. 2) The transaction must utilize “hard,” must-pay financing. 3) Using a trending rate of 2% for revenue and 3% for expenses, the transaction must maintain a debt coverage ratio that is no greater than 1.35 over a 20-year pro forma. 4) The transaction cannot include any cash-out financing or net acquisition proceeds to the PHA. 5) For transactions with more than 50 units, the transaction must defer or exclude at least 25% of the maximum allowable developer fee that would be allowable under the state Qualified Allocation Plan. As a result of these tests, HUD may deny the rent increase or reduce the amount from what was requested. HUD reserves the right to consider other unique factors in the analysis of individual transactions.

Definition of Substantial Rehab

For Opportunity Zone rent increases, how is “substantial rehabilitation” defined and what can be included in the RAD Scope of Work to measure against Housing Construction Costs?

Substantial rehabilitation is defined here as a proposed RAD scope of work where the hard construction costs, including general requirements, overhead and profit, and payment and performance bonds, exceed of 60% of the “Housing Construction Costs.” Housing Construction Costs for a given market area can be found at https://www.hud.gov/sites/dfiles/PIH/documents/TDC.pdf We have also developed a tool available on the RAD Resource Desk that PHAs can use to check to quickly assess whether proposed rehab level meet this threshold. For purposes of calculating aggregate construction costs vis-à-vis the 60% threshold, HUD will consider the combined construction costs of the overall development. The development may include a mixture of new construction and rehabilitation and may include other units besides the converting units (e.g., through the development of new units).

Opportunity Zone Locations

How can I determine if a project is in a designated Opportunity Zone?

Each state has designated certain census tracts as Opportunity Zones. HUD has created a national map where users can identify whether a project is situated within a designated Opportunity Zone. See opportunityzones.hud.gov/

Requesting an Opportunity Zone Rent Increase

When may a PHA make the request for an Opportunity Zone Rent Increase and how will HUD document approval?

PHAs may make an initial request for the rent increase up to six months prior to submission of the Financing Plan and will make the final request when the Financing Plan is submitted. The PHA’s initial request should affirm that the project: Is converting to a Project Based Rental Assistance (PBRA) HAP contract Is located in a designated Opportunity Zone Will be newly constructed or substantially rehabilitated Requires the rent increase in order to achieve viability of the transaction Unless the project is not converting to PBRA or if it is located outside of an Opportunity Zone, HUD will issue a CHAP addendum that will provide a modified rent schedule conditioned on 1) submission of a complete and acceptable Financing Plan within six months of the date of the addendum and 2) HUD’s verification at the time of Financing Plan that the transaction meets the criteria for the rent increase as described above. The PHA can use the CHAP addendum to support lender and investor underwriting. Please note that while HUD anticipates being able to fund most requests, HUD may need to delay issuance of a CHAP addendum if there is inadequate funding available to support the request. If a complete and acceptable Financing Plan is not submitted within six months of the date of the CHAP addendum is issued, the CHAP addendum will expire. HUD will not provide extensions. The PHA may submit a subsequent request for the rent increase, which HUD will consider subject to the availability of funding. In reviewing the submitted Financing Plan, HUD will confirm that the project meets all criteria to be eligible for the increase and confirm that the amount of the rent increase is necessary for the viability of the transaction. Once confirmed, HUD will amend the CHAP to fully incorporate the increased rents.