RAD updates bring Christmas in July – higher rents, expanded rent-bundling and more! (Part 2: Supplemental Guidance)

Two HUD RAD notices this week bump up initial rents for RAD 1 transactions, allow comparable market rents for new Rent Supp & RAP PBRA conversions in high cost areas, intro five new innovations and implement the RAD updates from the FY 2018 Appropriations Act. 

Supplemental Guidance notice.  The second notice, FR-6106-N-01 (announcing Housing Notice 2018-05 /  PIH-2018-11) introduces 5 new RAD 1 innovations: 

1.      Expanded rent bundling – PHAs can now more easily bolster low RAD rents with non-RAD PBVs in more stable and simpler ways.  Basic RAD rent bundling allowed PHAs to shift subsidy from higher rent RAD projects to lower-rent RAD projects within a RAD portfolio, but the benefit was limited by RAD rent-setting requirements.  PHAs have been essentially been trying to rent bundle with non-RAD PBVs for years, trying to boost overall NOI with non-RAD PBVs either with a second non-RAD HAP contract within a building or by underwriting a RAD building together with a non-RAD building.  Both methods were clumsy and came with substantial down sides.  Now, PHAs can take the total budget authority available from RAD and non-RAD PBV sources and more simply distribute it in a way that makes the most sense.  Projects will more easily be able to stand on their own underwriting and maintain viability in the long term!  This will save much time and many headaches!

2.      Utility Allowances savings in PBV – PBV owners now join PBRA owners in being able to boost rents from post-rehab utility savings.  If a project’s rehab will result in utility savings, PBRA owners have had the ability to apply a lower site-specific utility allowance and use the reduction toward rents.  This notice extends that same tool to PBV owners.  Owners of projects with only RAD PBV units can make an election; owners of PBV projects that include RAD and non-RAD units must first request a PBV waiver. 

3.      Developer fee boost for homeless preference – Projects that dedicate at least 25% of their units to certain households referred by a local Continuum of Care or exiting permanent supportive housing can get a 25% increase in their developer fee, subject to LIHTC limits. 

4.      RAD / Section 18 combo rules tightened – For projects using a Section 18-RAD combo, the notice reaffirms RAD’s one-for-one unit replacement requirement (subject to the de minimis allowance) and requires RAD relocation and right to return protections. 

5.      Streamlined Small PHA conversion process – PHAs with less than 50 units meeting certain eligibility requirements and converting their entire portfolio without rehab or new construction benefit from fewer application requirements and streamlined processing, including no CNA, tiered environmental review and simplified financial requirements. 

Part 1 of this blog entry summarized the notice implementing the RAD provisions of the FY 2018 Appropriations Act.  (Except RAD for PRAC provisions, which are still a work in progress and will be implemented in Rev-4 of the RAD Implementation Notice, hoped for by year-end.)  HUD will host a webinar on July 9, at 2pm EST to discuss the updates in these notices.  You can register here.