1. A RAD ICAL C HANGE IN P UBLIC H OUSING C ONVERSION S TRATEGIES FOR A D IVERSE P ORTFOLIO MAHRA Conference Panel - Breakout 3 Christopher Donald, Project Manager Housing Opportunities Commission Montgomery County, MD

2. Near Mandate to Act 5/22/2014RAD Transactions in Real Time2 Subsidy levels consistently at risk Public Housing consistently funded below par Project-Based Rental Assistance has built-in mechanism for increase No other substitute for Public Housing as housing of last resort As these assets begin to fail, State and Local gov’ts will have a problem RAD provides a sustainable model Property vintage at or past recapitalization threshold Cumulative annual underfunding Assets at or past end of useful life for systems and structure Only viable channel to reposition assets Section 18 is suspended Though funded at lower level, RAD is still predictable

3. Opportunity to Reconnect 3 Conversion allows access to common financing tools All other portfolio properties have access to debt and equity Public Housing assets are unleveraged, have implicit equity Conversion gives tenants access to Section 8 network Public Housing residents are limited to PH properties RAD gives preference to residents a year after conversion Partial and total permanent relocation allows for deconcentration Even partial transfer of assistance mixes income stratifications Assistance should be divided among multiple properties Private financing sources ensure operational rigor Introduction of property reserves Third-party, private market accountability 5/22/2014RAD Transactions in Real Time

4. A Simple Tool, A Powerful Force 4 Unencumbering land & assets Full transfer of assistance creates new “subsidy” in unencumbered land Assets are unleveraged and often (because of vintage) in reasonably good locations Adding units at higher price points Partial transfer of assistance unencumbers units for leasing at higher rental rates. Exposing operational inefficiencies Unlike ACC capital funds, ACC operating funds were probably sufficient Use-it-or-lose-it deficit funding mentality Introducing fungibility to funding ACC operating funds couldn’t be repurposed DDTF creates channel for RHF into RAD Portfolio disposition allows subsidy reallocation 5/22/2014RAD Transactions in Real Time

5. Three Core Strategies 5 Stabilization Fewer than 100 units Recent renovations Little additional density, underlying land value LIHTC Rehabilitation Remediable structural skeleton High relocation burden Little additional density Permanent Relocation Capital needs are significant Compromised structural skeleton Meaningful additional density, underlying land value Hard Costs: ~$25K/unit Hard Costs: ~$45K/unit Hard Costs: $80K+/unit - Debt only - Relocation of vacant units - Right-sizing of overhead Funding & Tactics - Debt and equity - Use of seller note - Relocation of vacant units - Opportunistic use of reallocated subsidy Funding & Tactics - Debt and equity - Use of bridge financing - Capitalization of unencumbered land - Dispersion of impaired RAD vouchers Funding & Tactics 5/22/2014RAD Transactions in Real Time

6. IssuesTactics 6 Kensington, Maryland Ken GarWashington Square Gaithersburg Utilities highly inefficient Operations costs were funneled to properties to spend out subsidy. Attractive neighborhoods, surrounded by market rate housing. Focus investment on energy efficiency Generate NOI through reform of operating profile Drive proceeds by combining smaller properties Transfer assistance on vacant units to add market rate units. Stabilization Strategy 5/22/2014RAD Transactions in Real Time

7. LIHTC Rehabilitation Strategy 7 IssuesTactics Silver Spring, Maryland Arcola TowersWaverly House Bethesda, Maryland Utilities inefficient Operations costs were funneled to property to spend out subsidy. High-density construction, more significant need. RAD conversion rents low. Focus investment on energy efficiency Generate NOI through reform of operating profile Access LIHTC investment market Use DDTF to boost rents 5/22/2014RAD Transactions in Real Time

8. Permanent Relocation Strategy 8 IssuesTactics Silver Spring, Maryland Elizabeth House Elderly building with poor adaptability, accessibility Physical capital needs leave gap in LIHTC funding Significant value to underlying real estate Ability to more than double density Build new, modern units. Construct relocation housing off site, capitalize unencumbered property Capitalize unencumbered property through second new building 5/22/2014RAD Transactions in Real Time

9. Discussion 95/22/2014RAD Transactions in Real Time