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Mayor Lee Celebrates Milestone in U.S. Department of Housing & Urban Development Partnership to Re-Envision, Revitalize & Rebuild City’s Public Housing

HUD Partnership to Transform City’s Public Housing for 8,000 Low-Income San Franciscans & Provide National Model to Preserve & Rebuild Public Housing in U.S. Cities & Protect Nation’s Most Vulnerable

Mayor Edwin M. Lee joined by U.S. Housing and Urban Development (HUD) Secretary Julián Castro, House Democratic Leader Nancy Pelosi and Board of Supervisors President London Breed highlighted the Phase 1 implementation of the $1.69 billion transformation plan for San Francisco’s public housing system for extremely low-income households living in distressed conditions. This HUD partnership will allow San Francisco to leverage approximately $700 million in investor equity and other new resources and allow for the rehabilitation of up to 4,584 public housing units for 8,000 low-income San Franciscans through HUD’s Rental Assistance Demonstration (RAD) program – among the biggest public housing portfolio conversions in the country.

“This innovative tool allows us to revitalize and rebuild our distressed public housing – without displacing existing tenants – for our extremely low-income families and residents,” said Mayor Lee. “Through this public-private partnership, we will finally be able to re-envision public housing for thousands of very low-income San Franciscans, and I thank HUD Secretary Castro, Leader Pelosi, President Breed and the entire Board of Supervisors for working together with our partners to ensure that San Francisco’s public housing is clean, safe and in good condition for our most in need families.”

“With the RAD initiative, we have dramatically accelerated the pace of progress for residents and families across San Francisco,” said House Democratic Leader Nancy Pelosi. “Through this innovative public-private partnership, we are unleashing new resources, protecting tenants’ rights, and preserving a strong voice for our families in the housing policy decisions that affect their communities. We are leveraging a better future for thousands of public housing families, and my thanks are with Mayor Lee and Secretary Castro for their commitment to confronting the affordable housing crisis in our city.”

“Public housing is a key part of San Francisco’s affordable housing stock,” said President London Breed. “The Rental Assistance Demonstration program is helping us make these homes livable and safe, protecting some of our most vulnerable residents. We’re rehabilitating existing offline units, repairing elevators, getting rid of pests, and installing security cameras and lighting. I am proud to partner with our residents—many of whom I grew up with—as well as Secretary Castro, Leader Pelosi, and Mayor Lee. Thank you for your care, diligence, and teamwork.”

This innovative public-private partnership is the centerpiece of Mayor Lee’s 2013 Re-Envisioning Public Housing plan and takes advantage of a new program unveiled by HUD in 2012, the Rental Assistance Demonstration Program (RAD). In 2013, as the Federally-funded San Francisco Housing Authority was responding to federal sequestration cuts and difficult administrative problems, Mayor Lee convened a community re-envisioning process led by City Administrator Naomi Kelly and Mayor’s Office of Housing and Community Development Director Olson Lee to help preserve and improve the City’s troubled public housing stock. A key component of the re-envisioning was to adapt the SFHA’s organizational structure and to develop partnerships with the City, HUD, affordable housing developers, and residents. The City’s, SFHA’s, and HUD’s agreement for the RAD program meets these goals.

In 2014, HUD approved the Housing Authority and City’s application for conversion of 4,584 units under RAD. The bulk of the work is comprised of a portfolio broken into two phases that together include immediate rehab work necessary at 29 buildings comprising 3,500 units. (An additional 1,000 units are new construction HOPE VI or HOPE SF sites.) Further details of the portfolio are as follows:
•    29 Properties located across 9 of SF’s 11 supervisorial districts
•    Phase 1 units: 1,425
•    Phase 2 units: 2,066

RAD is an historic program that will allow San Francisco to leverage approximately $700 million in investor equity, $300 million in debt financing, and between $50 million and $100 million in City funding for the rehabilitation of over 3,475 public housing units as a portfolio development. Renovation of another 1,000 units will follow with additional public and private sources. Development costs for Phase 1 of the portfolio, which includes more than 1,400 units, are $692 million, and total costs for the full portfolio rehabilitation are $1.692 billion.

In San Francisco, the RAD program will allow, for the first time, SFHA with the assistance of the Mayor’s Office of Housing and Community Development (MOHCD) to access resources such as debt financing and low income housing tax credits to complete this significant rehabilitation program and preserve the long-term viability of the units. In addition to improvements, all buildings will have tenant engagement services and access to neighborhood resources. The plan will also provide for rigorous tenant protections and a right to return for residents who may need to move temporarily while their units are rehabbed. RAD will also convert to new ownership and property management by community based non-profit affordable housing developers.

In San Francisco, RAD will use private resources – an estimated $300 million in debt financing and $700 in private equity from the syndication of 4 percent low-income housing tax credits – as well as a minimum commitment of $50 million of local government funding to complete approximately $700 million of rehabilitation to bolster the long-term viability of the units. Rental subsidies from HUD, generated from both RAD and the Section 18 buildings, will repay permanent loans and subsidize the operating costs of this housing for the low income residents.

The City is providing over $50 million toward the effort, which is in addition to the City funds dedicated to the HOPE SF work. The City is issuing tax-exempt bonds that will work in concert with other grants, tax credit equity and over $50 million in local subsidy to allow reconstruction. On its own, it would take the San Francisco Housing Authority over 50 years to provide the kind of capital improvements that will now occur within 3 years. Separately, Mayor Lee has authorized $200 million in funds to build mixed income communities on the HOPE SF sites at Hunters View, Alice Griffith, Sunnydale and Potrero, and has committed significant additional funds for the Potrero and Sunnydale transformation efforts.

An important part of the portfolio transformation program is HUD’s provision of additional resources through its approval of eight “Section 18” applications submitted by SFHA, which identify buildings with the most severe rehabilitation needs. These resources are essential to the success of the overall transformation program and, in addition to extending the buildings’ useful lives and improving habitability for tenants, demonstrate to the nation the effectiveness of RAD.

Bank of America has been selected through a competitive process as the construction lender and the equity investor for the 14 Phase 1 projects. Bank of America’s final proposal, in partnership with Freddie Mac as the permanent lender, was one of the most favorable that many in the industry have seen. The financing terms will allow the City to finance additional rehabilitation at the sites.

Construction start on Phase 1 of the RAD partnership is scheduled to begin this November.

The projected schedule for the transaction is as follows:
•    Phase 1 Construction closing and construction commencement: November 2015
•    Phase 2 Financing applications: December 2015
•    Phase 2 Construction closing and construction commencement: September 2016
•    Phase 1 Completion: August 2016 – April 2017
•    Phase 2 Completion: December 2017 – September 2018

HUD estimates that approximately 10,000 units of public housing units are lost annually, primarily due to disrepair. To date, RAD has leveraged more than $1 billion in private partnerships to help preserve affordable housing units throughout the nation.