The subsidy changes form, not amount
Under RAD, the public housing operating subsidy and capital fund allocation for a property convert into a long term project based rental assistance contract, usually project based vouchers or project based rental assistance. The initial contract rent is set from the converting property's current funding, so the conversion is designed to be subsidy neutral at the start. What you gain is not more money per unit on day one. What you gain is a contract that a lender and an equity investor will underwrite.
That is the whole point. Capital fund allocations cannot be leveraged in any serious way. A twenty year HAP contract with annual adjustments can carry debt, and it is the asset that makes the recapitalization possible.
What the capital stack looks like after
A converted property typically carries a permanent first mortgage sized on the contract rents, 4% LIHTC equity if there is enough rehabilitation to generate basis, a seller note or ground lease from the authority, and whatever soft sources the state and locality bring. The authority stays in the deal, usually as general partner or co general partner through an instrumentality or affiliate, and usually holds the land under a long term ground lease.
The rehabilitation scope is what drives whether tax credits work at all. Light touch work does not generate enough basis to be worth the transaction cost. A full scope repositioning usually does, and it is also the only version that solves the deferred maintenance that pushed the authority toward RAD in the first place.
What the authority gives up
Public housing operating rules give way to Section 8 program rules. Resident protections carry over in specific ways: right to return, no rescreening, continued resident organization funding, choice mobility after a period. Those are not optional and they are the part that boards and resident councils examine hardest, so bring them to the first meeting rather than the last.
The authority also takes on a different relationship to the property. It is no longer the owner of record operating under ACC. It is a partner in a leveraged real estate transaction with a lender, an investor, an asset manager and a set of covenants. Some authorities are ready for that and some need to build the capacity first.
Where conversions get stuck
Three places, in our experience. The first is rent sufficiency: if the converting rents do not support meaningful debt and the rehabilitation need is large, the gap may be unbridgeable without additional local sources, and it is better to know that in month one. The second is the resident process, which is not a formality and cannot be compressed. The third is sequencing between the RAD financing plan and the state credit allocation, because the two calendars do not naturally line up and a missed allocation round costs a year.
Start with the rent comparability and the physical needs assessment. Everything else in the deal is downstream of those two documents.
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