1. RENTAL ASSISTANCE DEMONSTRATION PROGRAM University of Affordable Housing May 21 st, 2014 Great Lakes Capital Fund C. Ray Baker & Associates, Inc.

2. AGENDA Background Program Update RAD Basics Advanced Topics Risk Evaluation Factors Documents, Tools, and Forms Conclusion

3. Background

4. RAD is authorized by the Consolidated and Further Continuing Appropriations Act of 2012 (Public Law 112-55, approved November 18, 2011), which provided fiscal year 2012 appropriations for HUD (2012 Appropriations Act). RAD has two separate components: First component. The first component allows projects funded under the public housing and Section 8 Moderate Rehabilitation (Mod Rehab) programs to convert their assistance to long-term, project-based Section 8 rental assistance contracts. Under this component of RAD, public housing agencies (PHAs) and Mod Rehab owners may choose between two forms of Section 8 Housing Assistance Payment (HAP) contracts: project- based vouchers (PBVs) or project-based rental assistance (PBRA Second component. The second component allows owners of projects funded under the Rent Supplement (Rent Supp), Rental Assistance Payment (RAP), and Mod Rehab programs to convert tenant protection vouchers (TPVs) to PBVs, upon contract expiration or, for owners of Rent Supp and RAP projects, termination, occurring after October 1, 2006, and no later than September 30, 2013.

5. RAD Update

6. First Component of RAD

7. A PPLICATION V OLUME

8. A PPS, CHAP S & C LOSINGS Note: This data reflects applications received as of 12/31/13 and CHAPs awarded through 1/6/14. CHAP Awardees includes CNI applicants as well as Portfolio and Multiphase awards made as of 1/6/14.

9. P ERCENTAGE OF P UBLIC H OUSING A PPLICATIONS BY C ENSUS R EGION C OMPARED TO C URRENT P UBIC H OUSING P ROJECTS RAD: 11% PH: 8% RAD:16% PH: 29% RAD: 56% PH: 49% RAD: 17% PH: 13% Note: This data reflects the regional breakdown of RAD applications (“projects”) received compared to the number of existing PH projects in each region.

10. P ERCENTAGE OF C URRENT PH U NITS BY HUD R EGION THAT HAVE A PPLIED FOR RAD 6% 7% 16% 22% 15% 21% 3%7% 18% 21% Note: This data reflects the percentage of PH units in each HUD region that have applied for RAD; note that units are considered public housing until the RAD closing is complete.

11. RAD P ARTICIPANT P ROFILE Top 10 Applicants by PHA 1. Chicago, IL – 10,935 units 2. El Paso, TX – 6,100 units 3. Nashville, TN - 5,384 units 4. Birmingham, AL -5,015 units 5. Baltimore, MD – 4,583 units 6. San Francisco, CA – 4,575 units 7. Charlotte, NC - 3,424 units 8. Mobile, AL – 3,410 units 9. Tampa, FL – 3,065 units 10. Greensboro, NC – 2,195 units

12. P ROJECT L OCATIONS

13. S IZE OF PHA Note: This data reflects the percentage of unique PHAs that have applied for RAD, by size.

14. P ROJECT T YPE

15. S ECTION 8 C ONVERSION C HOICES B Y P ROJECT

16. T YPE O F P ERMANENT P ROJECT F INANCING Type of 1st Mortgage Financing (without Tax Credits)

17. T YPE O F P ERMANENT P ROJECT F INANCING Type of 1st Mortgage Financing (with Tax Credits)

18. T YPE OF LIHTC S BY P ROJECT

19. Indicated PHA Objectives Modernize aging family & elderly properties Sub rehab of deteriorated properties Thin densities/mix-incomes via PBVs & transfer authority Demolish/replace severely distressed/obsolete properties Portfolio streamlining A DDRESSING R ANGE OF C HALLENGES

20. Second Component of RAD

21. 2 ND C OMPONENT U PDATE Current Status Program-TypeClosed* Not Closed- Funded** Not Closed- Not Funded*** Not Yet Approved TOTAL Mod Rehab Projects20103 Units30002050505 RAP Projects510 0 6 Units6492500674 SUP Projects37415056 Units4,3513241,93006,605 SUP - Retro Projects420 17 Units28010022312 RAP - Retro Projects21 0 0 3 Units7151 00122 GRAND TOTALProjects50816175 GRAND TOTALUnits5,6514102,135228,218 *Closed = Executed PBV HAP Contract **Not Closed-Funded = TPV funding has been issued as voucher budget authority to the PHA for the PBV contract, owner and PHA are going through final steps before executing HAP ***Not Closed-Not Funded: These projects are approved but won't move forward until TPV funding becomes available

22. RAD 2 ND C OMPONENT —RS & RAP G EOGRAPHY

23. 2 ND C OMPONENT OF RAD U PDATE Remaining Rent Supp and RAP Stock by FY Expiration Total RAP Units: 11,088Total RS Units: 5,053

24. Program Basics

25. RAD B ASICS PIH Notice 2012-32 REV 1 Allows 60,000 public housing units to convert to long-term Section 8 rental assistance contracts Access private debt and equity to finance capital needs Program simplification/streamlining Better platform for long-term preservation Conversion Options Project-Based Rental Assistance (PBRA) Project-Based Vouchers (PBV)

26. Public Housing: $25 Billion Backlog $25,000/Unit, but wide range from new Mixed- Finance to Demo/Replacement Declining Appropriations Losing 10,000 – 15,000 Units/Year Deregulation Opportunity P ROGRAM B ASICS (W HY ?)

27. Public Housing Funding Trend

28. PHA HISTORICAL FUNDING Operating Fund Capitol Fund $1$1 $0$0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Administration Request Industry Request Capital Fund Appropriation

29. OCAF VS O PERATING S UBSIDY P RORATION L EVELS ( EXAMPLE )

30. Contract Rents

31. P ROGRAM B ASICS (C ONTRACT R ENTS ) Referred to as “current funding” Amounts can be found in: RAD Inventory Assessment Tool (rows 71-74 of the Inventory Overview Tab), and RAD Application (rows 5-7 of the Validation Tab) Based on 2012 funding levels: 2012 Operating Subsidy Eligibility, assuming 95% proration (i.e., we restored the Operating Fund “Allocation Adjustment”), excluding Asset Repositioning Fee (a special fund for demo/dispo projects)

32. P ROGRAM B ASICS (C ONTRACT R ENTS ) Current funding may be affected by PBV or PBRA rents caps, which are sensitive to estimated market (reasonable) rents RAD rents will be increased beginning in 2014 using OCAFs (Operating Cost Adjustment Factors) OCAFs apply for both PBRA and PBV Inventory Assessment Tool uses average utility allowance (data was not available by bedroom size) RAD rents reflect any existing Energy Performance Contracts (EPCs) If project has an EPC where HUD has allowed a freezing of the project-paid consumption baseline, or an energy “add- on”, those arrangements will be carried over in RAD

33. During the remainder of the initial calendar year of funding, the project receives only what it would have received under the public housing program (i.e., it carries forward all remaining Operating and Capital Funds for that year) If a PHA changes the bedroom distribution, the contract rents will be adjusted accordingly. Under public housing funding formulas, operating subsidies increase with each increase in average bedroom size (and decreases in each decrease in average bedroom size) For partial conversions, just enter the proposed number of units, and bedroom mix, and both the Tool and Application will show the new contract rents P ROGRAM B ASICS (C ONTRACT R ENTS )

34. Rent Bundling PHAs may adjust subsidy (and contract rents) across multiple projects as long as the PHA does not exceed the aggregate subsidy for all of the projects the PHA has submitted for conversion under RAD. This use, which HUD refers to as “bundled” rents, is permissible when a PHA submits applications for two or more projects. There is no limit to the number of projects that a PHA may bundle. P ROGRAM B ASICS (R ENTS )

35. P UBLIC H OUSING C ONVERSION R ENT L EVELS ACCSection 8 P ROGRAM B ASICS (R ENTS )

36. Housing Assistance Payments Subsidy

37. V ARIOUS C ONSIDERATIONS IN C HOOSING PBRA VS. PBV ItemPBRAPBV 1. Baseline Funding Levels Based on 2012 levels, with Operating Fund Allocation Adjustment restored Same 2. Initial Contract Term20 years 15 years (up to 20 at option of voucher agency); voucher agency may also automatically extend for another 15 years 3. Contract Renewals At end of contract term, Secretary must offer, and PHA must, accept renewal Same 4. Rent Caps Current funding cannot exceed 120% of the FMR, unless the current funding is less than market, in which case the current funding cannot exceed 150% of FMR. Current funding cannot exceed the lower of (1) reasonable rent or (2) 110% of FMR. 5. Annual Inflation Adjustment Based on Operating Cost Adjustment Factor (OCAF), i.e., the method used to adjust rents for Multifamily projects renewed under the Multifamily Assisted Housing Reform and Affordability Act (MAHRAA). Same 6. Choice Mobility Resident may request next available voucher after two years; however, voucher agency may limit to not more than 15% of project in any year and not more than 33% of voucher turnover due to RAD. Resident may request next available voucher after one year, with no limitations. 7. Voucher Admin FeeN/APHA earns Section 8 voucher admin fee for all units converted to PBV. Note: for agencies that do not administer a voucher program, and that convert to PBVs, the voucher agency will be responsible for administration of the waiting list, eligibility, reexaminations, leading to substantial deregulation for the converting agency.

38. V ARIOUS C ONSIDERATIONS IN C HOOSING PBRA VS. PBV 8. REAC/UPCS InspectionsYesNo (unless project receives FHA insurance) 9. REAC/FASS-MF Annual Financial StatementsYesNo (unless project receives FHA insurance) 10. Management and Occupancy Reviews (MORs)YesNo (unless project receives FHA insurance) 11. Cash FlowUnrestrictedSame 12. Appropriations Annual funding subject to appropriations; however, the Congress has never failed to renew a PBRA contract An agency’s voucher funding is subject to annual appropriations. Because of the RAD Use Agreement, if Congress provides less than full funding for the Voucher program (i.e., proration), the PHA administering the voucher program may will likely need to absorb the cuts from its non-RAD voucher units. 13. Rehab Requirements There is no required level of rehab under RAD (or requirement to leverage debt). The PHA must simply ensure that identified needs are addressed. Same 14. FHEO Site/Neighborhood StandardsStandard FHEO requirements not waived under RAD.Same 15. Income MixingN/AUnder normal PBV rules, not more than 25% of units in a project can be assisted, unless the units are elderly or disabled, scattered site, or receiving supportive services. RAD increased the threshold to 50%, with the same exceptions.

39. Applications

40. Prior to submitting an application to participate in the Demonstration, HUD requires a PHA to: Notify residents of projects proposed for conversion of the PHA’s intent to pursue a conversion; Conduct at least two meetings with residents of projects proposed for conversion to discuss conversion plans and provide opportunity for comment; and Prepare comprehensive written responses to comments received in connection with the required resident meetings on the proposed conversion to be submitted with the RAD Application. Once a PHA is selected to participate in the Demonstration, it must have at least one more meeting with residents before HUD will execute a HAP contract. P ROGRAM B ASICS (A PPLICATIONS )

41. Portfolio Applications HUD will reserve RAD conversion authority for all projects contained in the portfolio, provided the PHA submits individual completed RAD Applications for at least 50% of the projects. The PHA will have 365 days from issuance of the Portfolio Award Letter to submit acceptable RAD Applications for the remaining projects included in the Portfolio Award, which will result in the issuance of a CHAP for each project. In order to apply for a Portfolio Award, a PHA must submit: A list of all projects proposed for a Portfolio Award, that includes, for each project, the project’s name, PIC Development Number, units to be converted, total estimated capital needs, and the major anticipated financing sources, where applicable; and RAD Applications for at least 50% of the projects identified in the portfolio. Upon approval of the application, HUD will issue, in addition to the provision of CHAPs for the applications submitted, a Portfolio Award Letter covering the remaining projects within the portfolio proposed by the applicant. P ROGRAM B ASICS (A PPLICATIONS )

42. Multi-Phase Applications A Multi-phase Award allows a PHA to reserve conversion authority for a project with multiple distinct development phases and locks in the applicable contract rent, for the entire project, at the time of initial application. Upon acceptance of the PHA’s application, HUD will issue a CHAP for the initial phase and a Multi-phase Award Letter covering all phases of the project. For projects requiring multi-phase development, a PHA’s RAD Application for the first phase must include: a narrative summary of the proposed phasing the proposed date of submission of each phase’s financing plan the proposed date of each phase’s LIHTC application (if applicable), and the proposed date of any demolition or disposition associated with each phase (if applicable). The PHA will have until July 1, 2015 to submit an application for the final phase of the project covered by the Multi-phase Award. P ROGRAM B ASICS (A PPLICATIONS )

43. Phase # of Units in Phase Date of Application (or Proposed) Type LIHTC & QAP Year Or Other Financing Financing Plan Demo/ Dispo in Phase 11209/1/13Rehab4% - 20133/1/14No 2803/1/13 New Construction 9% - 20149/1/14Yes 31003/1/14 New Construction 9% - 20159/1/14Yes 4501/1/15AcquisitionSurplus Cash7/1/15No 5507/1/15RehabFHA12/1/15No Total400----- P ROGRAM B ASICS (A PPLICATIONS ) Phasing to Reposition a Large Portfolio

44. Because of the the emerging capital needs of certain maturing Mixed-Finance public housing projects, the RAD program seeks to address the feasibility of converting public housing mixed-finance assistance to the Section 8 platform P ROGRAM B ASICS (A PPLICATIONS )

45. Tax Credit Transactions

46. On LIHTC transactions (with or without private debt), PHAs may earn a developer fee payable from the tax credit equity subject to the LIHTC allocating agency’s limitations on developer fees, and in no case to exceed 15 percent of total development costs, payable on the schedule allowed by the allocating agency and/or equity investor. PHAs eligible to earn a LIHTC developer fee are not eligible to earn the RAD Developer Fee. Applicants proposing to use 9% LIHTCs, if a reservation has not already been secured, are required to submit a letter from the credit-issuing authority addressing: Whether the property and proposed transaction appear eligible; Whether the applicant or owner entity has acceptable experience to proceed; The timing of application and award; and Whether a typical reservation of credits is sufficient to address the expected need of the first or only phase of the subject project. If 9% tax credits cannot be secured during that first application cycle the CHAP will be terminated unless, within 90 days of notification, the PHA can provide a Financing Plan that does not rely on 9% tax credits. P ROGRAM B ASICS (T AX C REDIT T RANSACTIONS )

47. Development & Operating Costs

48. RAD Physical Condition Assessment (RPCA) Required only after CHAP award Exclusions for: new construction, for rehab that is “down to the stud”, and for projects recently built (based on HUD approval) HUD shortly to form “user group” Bonus – Ownership Type Ownership can include: PHA, directly or through related non-profit Any other public or non-profit owner For-profit owner in the case of tax credits No approval required of these alternate ownership arrangements (other than 2530/APPS process) P ROGRAM B ASICS (D EVELOPMENT AND O PERATING C OSTS )

49. Projecting Operating Costs If estimating Operating Costs as a percentage of current Formula Expenses (say, 95%), keep in mind that “Formula Expenses”, as defined, within the Inventory Assessment Tool, exclude funding the PHA may receive under Stop-Loss (called “Transition Funding”) If estimating Operating Costs based on historical project expenses, remember that HUD’s public housing financial reporting model (1) has a slightly different chart of accounts than FHA and (2) has a separate column for Operating Fund and one for Capital Fund. Generally, you will want to include only the Operating Fund column P ROGRAM B ASICS (D EVELOPMENT AND O PERATING C OSTS )

50. Utilizing Public Housing Funds in the Transactions

51. PHAs are permitted under the Demonstration to use available public housing funding, including Operating Reserves, Capital Funds, and Replacement Housing Factor (RHF) funds, as an additional source of capital in the development budget to support conversion PHAs eligible to earn a LIHTC developer fee are not eligible to earn the RAD Developer Fee. P ROGRAM B ASICS (U TILIZING P UBLIC H OUSING F UNDS )

52. Prior to the approval of a project’s Financing Plan, a PHA may expend up to $100,000 in public housing program funds in related pre-development conversion costs per project without HUD approval. Predevelopment assistance may be used to pay for materials and services related to proposed development and may also be used for preliminary development work. Public housing program funds spent prior to the effective date of the HAP are subject to public housing procurement rules. P ROGRAM B ASICS (U TILIZING P UBLIC H OUSING F UNDS )

53. PHAs that are scheduled to receive ongoing Replacement Housing Factor funding in future years may choose to forego any ongoing RHF grans and repurpose the foregone subsidy to augment the initial RAD rent. The RAD rent may be augmented by the following amount: 2012 RHF grant × Years of RHF funding the PHA is eligible to receive, but has not yet received = Total Anticipated RHF grants Total Anticipated RHF Grants ÷ 20 ÷ Number of Units converting under RAD ÷12 = PUM RAD Rent Augmentation The PUM RAD Rent Augmentation would be reflected in the initial rents established in the HAP contracts. The contract rents will still be subject to applicable rent caps. P ROGRAM B ASICS (U TILIZING P UBLIC H OUSING F UNDS )

54. Program Funds and “De-federalization” There is no restriction on use of cash flow (and no residual receipts account), mortgage proceeds, or developer fees – PHAs are bound only by State and local laws, as applicable Unless the project is the remaining project to convert in a PHA’s inventory, there will be a subsidy layering review where the PHA contributes Capital Funds to the Development Budget or where the PHA contributes public housing operating reserves in excess of the three-year average of reserves for the project All proceeds from seller-take back financing related to LIHTC transactions is also de-federalized. P ROGRAM B ASICS

55. Program Milestones

56. Within 30 days following CHAP issuance, the PHA must submit to HUD: a) Accepted Lender Engagement or Commitment Letter b) Statement of development team capacity Within 60 days following CHAP issuance, the PHA must submit to HUD: a) The significant amendment to its Annual/Five Year Plan b) The PHA’s decision whether the project will convert its assistance to PBV or to PBRA Within 90 days following CHAP issuance, the PHA must submit to HUD a certification that all industry-standard due diligence (including the PCA) has been performed for and received by the Lender and/or other financing source. Within 150 days following CHAP issuance, the PHA must submit to HUD certification that it has applied for firm commitments of all financing. P ROGRAM B ASICS (CHAP M ILESTONES )

57. Within 180 days following CHAP issuance, the PHA must submit to HUD a Financing Plan. HUD will have 60 calendar days from the date of submission of the Financing Plan to approve, reject, or request additional information. Within 320 days following issuance of the CHAP (and no later than 40 days prior to closing), the PHA must submit evidence of firm commitment for financing or equivalent milestone in securing all sources of financing required to close the transaction. Within 360 days following CHAP issuance the PHA must reach closing, upon which the RAD conversion is completed. The Financing Plan and RCC must include a reasonable timeline for completion of all rehabilitation items acceptable to HUD, generally 12 to 18 months from the date of closing the conversion and any financing, depending on the scope of rehabilitation funded. P ROGRAM B ASICS (CHAP M ILESTONES )

58. Advanced Topics

59. Fair Housing Issues – Relocation plans and right to return Timing of transaction with Low Income Housing Tax Credits – 10% test, in-service dates, and early starts Financing issues – Use of donation tax credits and the RAD use agreement 4% tax credits – Pooling the bond issue to reduce transaction costs EPC vs. RAD – When to do which? RAD transaction manager – Who are they and what do they do? Unit size configurations and rent bundling – how to ask for it. A DVANCED T OPICS – L EARNINGS FROM C URRENT TRANSACTIONS

60. Risk Evaluation Factors

61. R ISK E VALUATION F ACTORS Development Team Rental Market Development Costs Operating Expenses Environmental Rental Subsidy Financing Plan and Execution

62. Documents, Tools, and Forms

63. P ROGRAM B ASICS (I MPORTANT D OCUMENTS, T OOLS, AND F ORMS ) RAD Assessment Tool RAD Application Portfolio Application Worksheet Rent Bundling Worksheet Commitment to Enter into a Housing Assistance Payment Contract (CHAP) Rental Assistance Demonstration Conversion Commitment Certification of Receipt of Due Diligence Material Certification of Firm Commitment(s) Application Financing Plan Lender Subordinate Agreement PHA Subordinate Agreement Termination of Mixed Finance ACC Termination of Regulatory and Operating Agreement RAD Use Agreement Release from Declaration of Restrictive Covenants

64. Thank You