How to Ensure a Successful RAD Conversion

November 1, 2017

As HUD money continues to decrease for housing authorities around the country, most public housing authorities (PHAs) have turned to the Rental Assistance Demonstration (RAD) program as a lifeline to save existing public housing properties.

Performing a RAD conversion allows PHAs to use public and private debt to reinvest in needed unit repairs and maintenance, such as painting, plumbing upgrades and more. It will also switch your authority’s revenue stream from resident rents to project-based voucher funds, with HUD contract payments coming in through several different programs.

Consider the following steps to ensure a successful RAD conversion from beginning to end.

1. Determine the Financial Feasibility

A financial feasibility analysis helps the public housing authority identify what financing will be required to meet the authority’s needs, comparing expenses with revenue that will be received through HUD contracts. This analysis should look at all expenses, including operating salaries, routine maintenance, and major improvements and renovations needed to operate the RAD project.

RAD contracts pay specific rates over a long period of time. These rates include all operating and capital requirements necessary to operate the RAD project. The income stream can be calculated based on the HUD contract, including renewals.

Calculate all expenses and obligations over the course of the contract, including salaries, routine maintenance and all other operating expenses. Then, calculate needed renovations and capital improvements to determine capital costs. Project any related required debt, along with debt service, including interest and principal payments. All projected expenses should be realistic.

The calculated stream of revenues through HUD contracts balanced with the determined expenses will give you an idea of whether the RAD conversion is financially feasible.

Make sure a RAD conversion is the right decision for your agency — not just your bottom line. Also, because a conversion will switch your authority’s revenue stream, have a plan to deal with any leftover public housing stock.

Consider your agency’s long-term capacity. Is your public housing in areas where it would be more advantageous to redevelop internally with partners rather than through the RAD program?

2. Meet With Residents — and Keep Them Informed

If you decide to move forward with a RAD conversion, you must notify all residents in the affected development and conduct at least two meetings with them. You are required to submit all comments residents provide during these conversations as part of your RAD application.

Draw up a schedule for meeting with residents and keep any additional communication channels (i.e., phones, message boards, etc.) open. If residents transfer to another property or vacate the unit during the conversion process, you’re required to inform them of their rights — including their right to return.

The property manager of the conversion and the internal project coordinator should communicate consistently to ensure all required guidelines are met and codified in resident files.

3. Remember Your RAD Program Manager

Upon selection into the RAD program, you’ll be assigned a program manager to assist you throughout the conversion process. He or she will inform you of notice rights to the tenant, Uniform Relocation Act (URA) requirements and financing requirements.

Your RAD program manager will also be the first line of communication in troubleshooting issues during the conversion. Communicate early and often with the program manager to ensure you remain compliant, and the transition goes smoothly.

Ask that they review your documentation, and make sure you go through your next steps in detail together.

4. Revamp Your Bidding Strategy

Increased oversight and regulations associated with federal contracts make it harder to find bidders to work on your construction improvement projects.

So, how can you offer more attractive bids? Divide and conquer. Turn any construction improvements necessary after conversion into smaller projects with a reduced scope of work. This strategy will appeal to smaller contractors, helping you to complete the conversion on time.

The conversion process will require a lot of planning, from identifying your RAD projects to assembling your development team. Refer to your financial adviser to ensure you remain compliant throughout.

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