RAD Conversions and Section 18 Dispositions

Why PHAs Use RAD and Section 18

Public housing authorities use several HUD tools to address capital needs, preserve affordable housing, and reposition properties. Public-housing portfolios face substantial physical needs, but PHAs may also use Mixed-Finance public housing and other structures to combine public, private, nonprofit, and tax-credit capital without first converting assistance. RAD and Section 18 provide different additional pathways and should not be described as the same conversion program.

RAD converts eligible public-housing assistance to long-term Section 8 Project-Based Rental Assistance (PBRA) or Project-Based Voucher (PBV) assistance. Section 18 separately authorizes HUD-approved demolition or disposition and removes the affected property or units from the public-housing inventory; tenant-protection vouchers may then be used as permitted by HUD. HUD also permits approved RAD/Section 18 blends that combine RAD assistance with project-based tenant-protection-voucher assistance.

The Rental Assistance Demonstration (RAD)

RAD, first authorized in 2012, permits eligible public-housing assistance to convert from Section 9 funding to a long-term Section 8 contract. The two principal forms are PBRA, administered under HUD's multifamily platform, and PBV, administered by a PHA under the Housing Choice Voucher program. Contract terms, renewal requirements, rents, and administration differ between PBRA and PBV and must be confirmed under the current RAD Notice and the transaction's HAP contract.

The RAD Process

A RAD conversion begins with the PHA submitting a RAD Application to HUD. HUD reviews the application and, upon approval, issues a Commitment to Enter into a Housing Assistance Payments Contract (CHAP). The CHAP sets the terms of the conversion and initiates the financing and development process. Once financing is fully structured and closing is imminent, HUD issues the RAD Conversion Commitment (RCC) — the formal commitment that authorizes the conversion and specifies the terms of the HAP contract. Closing occurs simultaneously with or shortly after RCC issuance.

RAD conversions must comply with HUD's RAD Notice (the governing program document, periodically updated), which sets requirements for resident rights and protections, lease terms, relocation procedures, physical conditions, financing structures, and property management. Compliance with the RAD Notice is a central legal requirement throughout the conversion process.

Ownership Structure in a RAD Conversion

A RAD transaction may retain PHA ownership, transfer fee title, or use a long-term ground lease to a project owner, depending on the approved structure. Where LIHTC is used, a limited partnership or LLC commonly owns the improvements or leasehold interest, borrows the financing, is party to the applicable HAP contract as owner, and admits the LIHTC investor. A PHA or PHA affiliate may retain fee ownership, a ground-lessor interest, or an ownership or governance role.

Where the PHA retains the land, the ground lease must have a term and provisions acceptable to HUD, the housing credit agency, investors, and lenders. The documents typically address use restrictions, financing rights, casualty and condemnation, defaults, lender cure and recognition rights, transfer, and disposition at expiration.

Section 18: Demolition and Disposition

Section 18 of the Housing Act of 1937 authorizes PHAs to demolish or dispose of public housing with HUD approval. Disposition under Section 18 allows a PHA to transfer property out of the public housing program — by sale or long-term lease — in connection with a redevelopment or conversion. Section 18 disposition is distinct from RAD in that it removes units from the public housing inventory rather than converting them to a Section 8 subsidy, though the two are often used together.

HUD approval is governed by Section 18, 24 C.F.R. part 970, and current HUD guidance. The application must establish an available statutory and regulatory basis for demolition or disposition and satisfy the applicable consultation, resident-notice, relocation, environmental, valuation, use-of-proceeds, and other submission requirements. The Section 18 process must be coordinated with any RAD application, tenant-protection-voucher request, financing, and closing schedule.

The RAD/Section 18 Blend

Current HUD guidance recognizes Construction Blends, Small PHA Blends, and Sequence Blends. In a blend, at least a portion of the converting project proceeds under RAD, while HUD approves a portion under Section 18 and replacement assistance is provided through project-based tenant-protection vouchers, subject to the eligibility and replacement requirements for the applicable blend.

Blend transactions generally begin with a RAD application for the entire converting project. HUD then coordinates the RAD and Section 18 components, blended rents, unit counts, resident protections, replacement requirements, financing plan, and closing approvals. The precise mix is determined by the current HUD guidance and the facts of the project; it is not simply based on whether particular units are demolished, relocated, or moved off-site.

LIHTC Financing in RAD Transactions

RAD can create a long-term project-based subsidy platform that supports rehabilitation, preservation, refinancing, or redevelopment. Many RAD transactions combine the converted assistance with LIHTC equity, private debt, public financing, or PHA resources, but the capital structure varies by property.

4% Credits in RAD Transactions

Many RAD/LIHTC transactions use bond-financed 4% credits. Those credits are outside the competitive 9% allocation ceiling but remain subject to private-activity-bond volume cap, issuer approval, the housing agency's QAP and underwriting requirements, Form 8609 certification, and Section 42. Acquisition basis is not created automatically by a nominal or formula-price transfer from a PHA; tax counsel must confirm acquisition eligibility, related-party rules, valuation, rehabilitation requirements, and the applicable bond-financing threshold.

The RAD HAP contract, approved contract rents, operating expenses, reserves, rent adjustments, market and comparable-rent rules where applicable, and other program restrictions are important underwriting inputs. Lenders and investors analyze the full operating and regulatory framework rather than relying on HAP rents alone.

9% Credits in RAD Transactions

Nine-percent credits can be used in RAD transactions, and they generate significantly more equity per dollar of eligible basis — making them attractive for projects with large capital needs relative to the eligible basis. However, 9% credit availability is subject to the competitive QAP process, and not all RAD projects can secure a competitive award. PHAs and developers pursuing 9% credits in a RAD context must navigate the QAP application timeline simultaneously with the RAD application and HUD approval process, which adds coordination complexity.

The Legal Work in a RAD/LIHTC Closing

RAD/LIHTC closings involve all of the legal work present in a standard LIHTC transaction, plus the HUD-specific documentation, approvals, and requirements of the RAD program. The legal workstreams include:

HUD and RAD Documentation

RAD Conversion Commitment (RCC) review and compliance
Housing Assistance Payments (HAP) contract — PBRA or PBV
RAD Use Agreement recorded against the property
Section 18 disposition approval documentation where applicable
HUD-required certifications and closing deliverables
Resident notification and relocation plan documentation

Ownership and Ground Lease Structure

Ground lease between the PHA and the ownership entity
Ground lease lender consent and recognition agreements
Formation of the tax credit ownership entity
PHA-related entity documentation (GP/managing member)
Partnership or operating agreement with the investor
Development agreement and management agreement

Financing Documentation

Construction loan agreement and security documents
Bond documents — indenture, loan agreement, regulatory agreement (in 4% transactions)
Permanent loan documents — agency or CDFI/bank
Subordinate public agency loan documents
Intercreditor and subordination agreements
Leasehold title insurance for each lender and investor

LIHTC Investment Documents

Investor equity documents and capital contribution schedule
Guaranties — completion, operating deficit, tax credit delivery
RAD-specific investor requirements and HUD consent
LIHTC regulatory agreement and LURA
Coordination of RAD Use Agreement with LIHTC regulatory agreement
Year-15 exit planning in the investor documents

Timing and sequencing. RAD/LIHTC closings are complex because HUD, bond or credit, PHA-board, lender, investor, relocation, environmental, and construction requirements proceed on overlapping timelines. Counsel must track deliverables across HUD, the housing credit agency, the bond issuer, lenders, investors, the PHA, residents and relocation teams, and any public funding providers, with the approved development and closing schedule controlling the sequence.

RAD Conversion and Section 18 Counsel at Snow LLP

The firm advises developers, sponsors, and public housing authorities on RAD conversions, Section 18 dispositions, and RAD/Section 18 blend transactions — including the LIHTC financing structures used to fund rehabilitation and new construction in connection with those conversions. This practice handles the legal workstreams associated with the ownership entity, the ground lease, the HUD and RAD documentation, the financing stack, and the LIHTC investor documents, and coordinates with HUD counsel, bond counsel, agency lenders, and public agency participants as each transaction requires.

Illustrative Example

A PHA uses RAD to convert an aging public-housing property to project-based Section 8 assistance and forms or partners with a LIHTC ownership entity, often using a ground lease. Depending on whether the assistance is PBRA or PBV, the project owner enters into the applicable HAP contract with HUD or the administering PHA. The ownership entity finances rehabilitation with bond-financed 4% LIHTC, debt, and other sources. HUD conversion approvals, the ground lease, HAP contract, bond and LIHTC documents, resident protections, and financing closing are coordinated. If the project qualifies for a HUD-approved RAD/Section 18 blend, a portion of the assistance may instead be supported by project-based tenant-protection vouchers under the applicable blend rules.

This example is a simplified illustration of transaction structure and mechanics. It does not describe an actual engagement, is not legal advice, and does not predict any outcome.