RAD and Section 18 Conversions

The Problem RAD and Section 18 Address

Public housing in the United States is funded through HUD's public housing program, which provides operating and capital subsidy to public housing authorities (PHAs) that own and manage housing for low-income residents. For decades, chronic underfunding of capital reserves has left the public housing portfolio with a substantial deferred maintenance backlog — estimated nationally at over $70 billion — that operating subsidies alone cannot address. PHAs generally cannot access private capital markets or tax credit equity while their properties remain in the public housing program.

HUD's Rental Assistance Demonstration (RAD) and Section 18 programs were designed to address this problem by enabling PHAs to convert public housing to the Section 8 platform — specifically, to long-term Housing Assistance Payments (HAP) contracts — which unlocks access to private debt and equity financing, including Low-Income Housing Tax Credits. The conversion produces a stable, project-based rental subsidy that supports financing and long-term viability, while preserving affordability for existing residents.

The Rental Assistance Demonstration (RAD)

RAD, first authorized by Congress in 2012 and significantly expanded since, allows PHAs to convert public housing units from the Annual Contributions Contract (ACC) funding structure to one of two Section 8 contract types: Project-Based Rental Assistance (PBRA), administered by HUD, or Project-Based Vouchers (PBV), administered by the PHA. The conversion terminates the property's public housing status and replaces the ACC with a long-term HAP contract — typically 20 years for PBRA and 15 years for PBV, with renewal rights.

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

In a RAD conversion, the PHA typically transfers ownership of the property — or a long-term ground lease interest — to a newly formed limited partnership or LLC that will own the property during the compliance period. The PHA or a PHA-controlled entity often retains an interest in the ownership structure as general partner or managing member, preserving the PHA's connection to the property and its residents. The ownership entity is the borrower under the financing, the signatory on the HAP contract, and the entity to which the LIHTC investor contributes equity.

Where the PHA retains ownership of the underlying land, the conversion is structured as a ground lease — typically long-term (75 to 99 years) — between the PHA as ground lessor and the ownership entity as ground lessee. The ground lease must be approved by HUD and must meet lender requirements for leasehold financing. Ground lease structuring is a significant legal workstream in RAD transactions where the PHA elects to retain land ownership.

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's approval of a Section 18 disposition requires the PHA to demonstrate that the transaction serves the best interests of the residents and meets program requirements for relocation, replacement housing, and resident notification. Section 18 approval adds a distinct HUD application and review process to the transaction timeline and must be sequenced carefully with the RAD conversion and financing closing.

The RAD/Section 18 Blend

On larger or more complex public housing redevelopment projects — particularly those involving demolition and new construction of a mixed-income or mixed-use development — PHAs frequently use RAD and Section 18 in combination. Under this approach, a portion of the units are converted through RAD (preserving their public housing-to-Section-8 conversion status), while other units — those being demolished, relocated, or redeveloped on a different site — are processed through Section 18 disposition. The blend allows PHAs to maximize both the subsidy preservation available through RAD and the development flexibility available through Section 18.

A RAD/Section 18 blend requires simultaneous HUD approvals under both programs and careful coordination of the conversion documentation to ensure that the unit counts, subsidy streams, resident protections, and relocation obligations are accurately reflected across both components. The legal closing involves documents from both the RAD conversion and the Section 18 disposition process, alongside the LIHTC financing documents.

LIHTC Financing in RAD Transactions

The primary purpose of most RAD conversions — particularly for properties with significant capital needs — is to access LIHTC equity and private debt financing for rehabilitation or new construction. The converted Section 8 HAP contract supports the underwriting for both the tax credit investor and the lender, because it provides a stable, long-term rental subsidy stream that reduces market risk. RAD/LIHTC transactions are now one of the most common structures in affordable housing finance.

4% Credits in RAD Transactions

The majority of RAD/LIHTC transactions use 4% credits paired with tax-exempt bond financing, for two reasons. First, 4% credits are non-competitive and available without the QAP application process — which is important given the complexity and lead time of the RAD conversion itself. Second, the acquisition cost of the property (even at a nominal or formula price from the PHA) contributes to eligible basis, and the combination of acquisition and rehabilitation basis in a 4% deal can generate sufficient credit volume to support meaningful rehabilitation even at a lower credit rate.

The RAD HAP contract is a critical underwriting input for bond sizing and investor equity pricing. Lenders and investors underwrite to the HAP contract rent rather than to market rents, which provides underwriting stability but also constrains the achievable debt and equity levels to what the subsidized rents can support.

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 among the most complex in affordable housing finance because the HUD approval timeline, the bond issuance or credit allocation process, the PHA governing board approvals, and the construction start requirements must all be coordinated simultaneously. Legal counsel in a RAD transaction must track deliverables across HUD, the state housing finance agency, the bond issuer, the construction lender, the permanent lender, the investor, and any soft debt providers — often with a construction start date driving the entire schedule.

RAD and Section 18 Counsel at Snow LLP

Snow LLP 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. The 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.