What is the Rental Assistance Demonstration (RAD) Program?

Exploring the Rental Assistance Demonstration (RAD) Program

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.

Four HUD Legacy Programs are Eligible for the Rental Assistance Demonstration Program

Currently, four different HUD legacy programs are eligible for RAD conversions, including:

  • Section 8 Moderate Rehabilitation (Mod Rehab)

  • Section 202 properties with Project Rental Assistance Contracts (PRACs)

  • Rental Supplement (Rent Supp)

  • Rental Assistance Payment (RAP)

Section 8 Moderate REhab conversions

One of the most substantial benefits of the RAD program is that it allows property owners to convert to a long term Section 8 HAP (Housing Assistance Payment) contract. This is a particularly important incentive for properties under Section 8 Moderate Rehab contracts, as they currently only allow for 1-year contracts, and strictly limit annual rent increases. By successfully completing a RAD conversion, a property can change a 1-year HAP contract to a 15-20 year contract, and may be able to increase rents more significantly.

RAD’s Success Has Lead To An Increase in Unit Caps

Originally, the RAD program was only authorized to convert 60,000 units to Section 8, but demand grew quickly, and congress has subsequently authorized three additional increases; to 185,000 in 2015, to 225,000 in 2016, and to 455,000 in 2018. By 2015, the program was reported to have facilitated $2.5 billion in capital investment, using only $250 million in government funds. However, despite RAD’s success, it is only a demonstration program, and will be cancelled if it is not made permanent by September 2020.

RAD Allows for New Construction Projects (Under Certain Circumstances)

If you would like to demolish an apartment building that is under one of the eligible HUD legacy programs mentioned above, you can demolish it and reconstruct the property, as long as you find suitable housing for the property’s existing residents during the transition period. In some cases, you may even be able to build a new affordable property at a different location, which could eliminate the need to find current residents a new place to live during construction. This element of RAD is called transfer of assistance. It’s possible that this type of construction project could be funded with HUD 221(d)(4) financing, though it could be somewhat challenging.

In addition, RAD projects can be made from several scattered housing sites, though these projects would generally not qualify for HUD multifamily financing.

Rental Assistance Demonstration and HUD Multifamily Loans

HUD multifamily loans, such as the HUD 221(d)(4) and HUD 223(f) loans, are ideal for affordable properties, such as those undergoing a RAD conversion. They permit LTVs up to 87% for affordable properties and up to 90% for properties with 90% or more affordable units (to compare, the maximum LTV is 85% for market-rate properties). Plus, these loans allow 1.15x DSCR for affordable properties and 1.11x DSCR for LIHTC or Section 8 properties (market rate properties only allow a minimum of 1.20x). In addition, HUD multifamily mortgage insurance premiums (MIPs) for affordable properties are only 0.45% for the

Finally, if a borrower would like to take advantage of lower interest rates, or wants to reduce their monthly mortgage payment or extend their amortization, HUD multifamily properties can be refinanced with the HUD 223(a)(7) loan. Unlike other types of HUD apartment financing, the 223(a)(7) loan requires little in documentation and no third-party reports, making it incredibly easy to apply for. It should also be stated that both RAD and HUD multifamily loans can be combined with the Low-Income Housing Tax Credit (LIHTC) program, which helps generate private capital for affordable properties by offering investors a 10-year, dollar-for-dollar federal tax credit.

To learn more about RAD, visit the RAD page on the HUD Exchange website, or HUD’s RAD Resource Desk.

To learn more about HUD multifamily loans, simply fill out the form below and a HUD lending expert will get in touch.