RAD Reveals and Repairs Major Capital Needs in Illion, New York
The Ilion Housing Authority, in upstate New York, recently converted all 158 of its public housing units to long-term project-based vouchers (PBVs) under RAD. At the time of application to RAD, the agency estimated its immediate capital needs of just $3,000 per unit, which it felt it could meet with existing operating reserves and unobligated Capital Fund proceeds. Consequently, its primary objectives in converting to RAD were to move to a more stable funding platform, one that would allow for a system of replacement reserve funding to pay for property needs as they accrue, and to simplify the agency's regulatory and operating environment. But, after award, as required under RAD, the agency commissioned a third-party physical needs assessment (PNA) that showed capital needs much greater than anticipated. These higher needs caused a shift in the agency's financing strategy.
"Initially, we were hoping to convert without any debt. But once the PNA came back, we knew we needed to obtain a first mortgage to finance some of these repairs," said Jeffrey McTiernan, Executive Director.
Ultimately, the total development budget (hard and soft costs) for these 158 units was $3 million, or approximately $19,000 per unit. The PHA funded about half of these costs with existing public housing funds and raised the balance in first mortgage proceeds, supported by RAD rents.
Although Ilion had no prior experience in financing affordable housing (it does not own other nonpublic housing and it has never participated in the HOPE VI or mixed-financing public housing programs), it was able to work with a local lender to secure favorable terms. "At first, we were concerned that things would be too complicated. But it was really not much different than taking out a loan on your own home," said McTiernan
In-place Rehab: The agency's public housing includes three sites-London Towers, a 108-unit elderly hi-rise, Remington Park, a 32-unit family site, and Ilion Heights, a 20- unit complex. Work includes energy conservation measures, accessibility improvements, site-work and bathroom renovations (tubs, flooring, cabinets, and low-flow shower heads and aerators). Each family unit will have new awnings that will provide much better protection from rain and snow. The elderly hi-rise will have a new entrance awning that will provide residents with seating A Small PHA Leverages Private Financing Replacement Reserve Funding: As part of its financing plan, the agency established an initial deposit for replacement reserves of about $5,400 per unit and will set-aside almost $1,000 per unit annually in replacement reserves, for a total of around $25,000 per unit over 20 years in replacement reserve funding. Creating a system to fund future replacements was essential to the agency's plans to preserve these units long-term. "Because of the variability of congressional appropriations for public housing, it's very difficult for a public housing agency to conduct and carry out long-term capital planning. As such, we've always had to "patch" when what we really needed to do was "replace," which, of course, also increases our operating costs. But under RAD, we were finally able to catch-up, and now we expect to keep-up."
Ownership and Control: Because of the strong background of the agency and the authority's modest debt service payments relative to the net operating income, the lender did not require that the PHA create a new single-purpose entity, such as a non-profit subsidiary of the PHA, to own the project. Consequently, the Ilion Housing Authority will continue to own and operate the units post-conversion.
Why RAD? "The ability to leverage our assets to obtain private financing has provided us with a wonderful opportunity to really jumpstart many capital projects that would have taken us years to complete using the Capital Fund pprogram. This has allowed us to really put our focus back on our primary core skill, property management. We have a huge demand for affordable housing in our community. We're thrilled that we've been able to upgrade a tired asset and put it on solid financial footing for the future," says McTiernan.
|Content Archived: March 25, 2016|