The Rental Assistance Demonstration (RAD) Program is a federal housing program administered by HUD, which was enacted in 2012 as a part of the Consolidated and Further Continuing Appropriations Act. The RAD program allows properties using HUD legacy programs to convert their properties to HUD Section 8 housing, which is much better understood, and more easily permits the use of private capital to fund rehabilitation work.

Rental Assistance Demonstration, or RAD, is a Department of Housing and Urban Development (HUD) program which seeks to help investors preserve affordable housing across the U.S. To do this, the RAD program allows investors using four HUD legacy programs the ability to convert their housing into long-term Section 8 contracts. This helps investors by giving them more flexibility in terms of acquiring the financing to repair their properties, including making it easier to apply for the LIHTC (Low-Income Housing Tax Credit Program).

Specifically, the RAD program allows property owners/investors in 4 different legacy programs the ability to convert into Section 8 contracts. These programs are:

• Rental Supplement (Rent Supp)
• Rental Assistance Payment (RAP)
• Section 8 Moderate Rehabilitation (Mod Rehab)
• Section 202 properties with Project Rental Assistance Contracts (PRACs)

Specifically, residents in RAD properties will continue pay 30% of their income towards housing. By law, these Section 8 contracts must be renewed, so they provide a large degree of stability for both residents and landlords.

HUD 223(f) loans can be used to finance a property participating in a HUD legacy program, such as Rent Supplement, Rental Assistance Payment, or Section 8 Moderate Rehabilitation, and then have it converted to Section 8 housing under the RAD program. In addition, combining a RAD conversion with HUD 221(d)(4) financing is an ideal fit for many borrowers who wish to upgrade a property currently participating in one of the HUD legacy programs. HUD 223(f) loans permit LTVs up to 90% and DSCRs as low as 1.11x for subsidized properties, and the HUD 221(d)(4) loan has a 40-year, fixed-rate term.

For additional information, read:

• The HUD Multifamily RAD FHA Lenders FAQ sheet
• New York State Public Housing Authority Directors Association - HUD’s Rental Assistance Demonstration (“RAD”) Program

The RAD (Rental Assistance Demonstration) Program gives PHAs (public housing authorities) the power to “preserve and improve public housing properties.” RAD also allows them to address the $26 billion dollar deferred maintenance backlog across the United States. Additionally, RAD I (RAD first component) transactions are subject to Davis-Bacon, even when using HUD 223f.

For many borrowers who wish to upgrade a property currently participating in one of the HUD legacy programs mentioned above, combining a RAD conversion with HUD 221(d)(4) financing is an ideal fit. Borrowers can use this funding to finance substantial rehabilitations to their property. In general, properties with 90% or more low-income units (such as RAD conversions) are allowed LTVs up to 90%. In addition, rental assistance properties are permitted DSCRs as low as 1.11x. Finally, borrowers for Section 8 properties are eligible for a low 0.45% mortgage insurance premium (MIP), which is significantly lower than MIP for market-rate or affordable properties. Plus, the HUD 221(d)(4) loan has a 40-year, fixed-rate term, which makes it one of the longest term self-amortizing loans in the entire industry.

HUD 223(f) loans may also be a good option for certain RAD owners, especially if their property is currently being funded with another type of loan with a higher interest rate and they would like to refinance. HUD 223(f) loans also permit LTVs up to 90% and DSCRs as low as 1.11x for subsidized properties. HUD 223(f) loans can also be used if a borrower would like to acquire a property participating in a HUD legacy program, such as the ones mentioned above, and then have it converted to Section 8 housing under the RAD program.

Regarding public housing conversions, HUD lists 5 things to know:

• PHAs can use RAD to use public and private debt and equity to reinvest in public housing stock.
• “In RAD, units move to a Section 8 platform with a long-term contract that, by law, must be renewed. This ensures that the units remain permanently affordable to low-income households."
• “Residents continue to pay 30% of their income towards the rent and they maintain the same basic rights as they possess in the public housing program."
• “RAD maintains the public stewardship of the converted property through clear rules on ongoing ownership and use."
• “The RAD program is cost-neutral and does not increase HUD's budget. This program simply shifts units from the Public Housing program to the Section 8 program so that providers may leverage the private capital markets to make capital improvements."

For additional information, read:

• The HUD Multifamily RAD FHA Lenders FAQ sheet
• New York State Public Housing Authority Directors Association - HUD’s Rental Assistance Demonstration (“RAD”) Program

The risks associated with RAD for HUD 223(f) loans include the potential for increased costs due to Davis-Bacon prevailing wage rates, the need to comply with HUD rules and regulations, and the potential for reduced LTVs and DSCRs. Additionally, there is the potential for increased costs due to the need to convert from a public housing program to a Section 8 platform.

For additional information, read:

• The HUD Multifamily RAD FHA Lenders FAQ sheet
• New York State Public Housing Authority Directors Association - HUD’s Rental Assistance Demonstration (“RAD”) Program

The HUD 223(f) loan requirements for RAD are:

• LTVs up to 90%
• DSCRs as low as 1.11x
• Mortgage insurance premium (MIP) of 0.45% for Section 8 properties
• 40-year, fixed-rate term

For additional information, read:

• The HUD Multifamily RAD FHA Lenders FAQ sheet
• New York State Public Housing Authority Directors Association - HUD’s Rental Assistance Demonstration (“RAD”) Program