W&D Executes First Section 8 Finance Conversion Through HUD

US Housing and Urban Development headquarters

BETHESDA, MD—Walker & Dunlop helped a borrower execute a complex transaction that the capital finance provider says is a first: to acquire and rehabilitate an older Section 8 property using a tax credit pilot program available at the US Housing and Urban Development’s in its apartment lending operations. Or, if you prefer, the HUD 223(f) program under a tax credit pilot. By doing this, the borrower Scott Canel & Assoc., a Chicago-area law firm, was able to avoid the higher costs of going through HUD’s 221(d)(4) program – or in plain English, its mortgage insurance fees for new construction or substantial rehabilitation. The final piece of the structure was using the Government National Mortgage Association’s tax exempt taxable swap structure. This lowered transactions costs even further and secured the borrower a lower interest rate as well, according to Walker & Dunlop. The end result for the borrower: a $7.6 million loan for Glen Oak Towers, a federally subsidized high rise for senior citizens, in Peoria, Ill. Walker & Dunlop worked with HUD to convert the Moderate Rehabilitation Section 8 contract to a Project Based Rental Assistance (PBRA) contract under the Rental Assistance Demonstration (RAD) program, according to Carolyn McMullen, senior vice president, “the first transaction in the country to achieve that.”

Glen Oak Towers, a federally-subsidized high rise for senior citizens, in Peoria, Ill

‘The Most Complicated Transaction in My 28-Year Career’ She makes it sound so easy. According to Scott Canel, principal at Scott Canel & Assoc., “Glen Oaks was one of the most complicated transactions of my almost 28 year career in Low Income Housing Tax Credit transactions. It involved RAD-2, the creation of a new 20-year HAP contract, tax exempt bonds, tax credits, a complex rehab and underpinning all of this, a HUD 223(f) loan.” Allow me to translate. RAD-2 refers to HUD’s Rental  Assistance  Demonstration launched in 2013 that allows  public housing   agencies  and  owners  of  HUD-assisted properties to convert units to project-based Section 8 programs. RAD-1 transactions cover Public Housing units that are subject to a unit cap and are limited to current funding. RAD-2 transactions cover Rent Supplement, Rental  Assistance  Payments   and  Section  8  Moderate  Rehabilitation  projects.  RAD-2 transactions  are  not subject  to  the  cap,  but  are  limited  by  the  availability of  tenant  protection  vouchers. A HAP contract is a Housing Assistance Payments contract and the 223(f) loan is HUD’s standard apartment acquisition or refinancing program. With the funding secured, Scott Canal & Assoc. plans renovate the168-unit property, which was first built in 1954 and rehabbed in 1984-85. An Increased Focus on HUD During the company’s recent earnings call CEO Willy Walker mentioned that W&D was stepping up its focus on HUD. “Recently announced changes in HUD’s multi-family program, including a significant reduction in mortgage insurance premiums, could result in increased popularity of the product, especially if current market dynamics move other capital sources to the sidelines,” he said. Also, HUD’s construction program is becoming more popular and will probably be a significant portion of the company’s HUD production this year.