Evaluating the Asset Management of RAD Properties

Evaluating the Asset Management of RAD Properties

The first decade of research evaluating the Rental Assistance Demonstration (RAD) program shows that when public housing agencies (PHAs) convert public housing developments to project-based vouchers (PBVs) or project-based rental assistance (PBRA) subsidies, most properties receive significant rehabilitation investments, and the physical condition of the converted units improves. To build on this initial research, HUD's Office of Policy Development and Research launched its second comprehensive evaluation that included several studies to answer questions about the program's long-term ability to preserve affordable housing.

One study in this series, Evaluation of the Rental Assistance Demonstration (RAD): Asset Management of RAD-Converted Properties, evaluates the adequacy of asset management practices in RAD properties to ensure their long-term preservation. The study examines how asset management practices in RAD properties align with industry best practices for affordable rental housing, describes the differences between the PBV and PBRA models of asset management, and offers recommendations to improve the asset management of RAD properties.

What Is Asset Management and Why It Matters

Asset management refers to the systems and practices real estate owners use to monitor and improve the physical and financial performance of properties. In 2005, HUD required PHAs to transition from a centralized property management, budgeting, accounting, and maintenance approach that covered all their properties to an asset management approach focused on each individual property. PHAs that convert their public housing properties to PBV or PBRA through RAD shift into project-based funding, which is much more aligned with asset-based management. This study helps assess the quality of asset management practices of RAD-converted properties, which is essential for the properties' long-term success and viability. 

Study Methodology

The study uses gap analysis methodology to compare current RAD asset management practices with industry best practices through three phases of data collection. Researchers interviewed property owners and operators at eight RAD PHAs to identify PBV and PBRA asset management practices. These interviews were conducted concurrently with HUD staff interviews concerning policies and procedures for conversion and interviews with private-sector asset managers about their standard practices. For a comprehensive view of asset management practices, researchers added a census survey of RAD PHAs and an extended survey of RAD owners unaffiliated with PHAs.

RAD Property Ownership Structure

The study found that PHAs retain the ownership of most RAD properties (75%), either directly or through an affiliated or low-income housing tax credit entity in which the PHA is the sole general partner or managing member. PHAs were more likely to own PBRA conversions directly than PBV conversions, and the PHA was more likely to use an affiliated entity in PBV conversions.

Most Asset Management Practices Align With Industry Best Practices

Of the 113 PHAs that completed the asset management survey (46% response rate), 87 percent stated that their properties were in a better asset management and operations position for long-term preservation than they were before RAD. The study also found that asset management practices in RAD properties were generally aligned with industry best practices. PHAs had a good understanding of the importance of properties' physical condition, and 90 percent planned to update their existing capital needs assessment within 10 years. PHAs also followed best practices related to budget preparation, identifying potential financial risks, and communication practices. Approximately 88 percent of PHAs used an accounting or commercial asset or property management software package as the primary means to track property-level data. Researchers found that asset management practices in PBRA and PBV properties were largely consistent regardless of the specific contract type or ownership structure.

Gaps in RAD Asset Management

Although RAD asset management practices were generally adequate, the gap analysis methodology helped identify areas in which PHAs could make improvements. Researchers found that PHAs tended to prioritize short-term functions, such as budgeting, compliance, and operating efficiency, at the expense of long-term outcomes. For example, nearly half of PHAs surveyed did not have a formal business or strategic plan for their RAD properties. Other long-term functions that PHAs deemphasize included assessing external risks, such as changes in insurance or taxes. To bridge this gap, researchers recommend targeted asset management training as PHAs expand their RAD portfolios.

Conclusion and Recommendation

The study found that asset management structures for RAD properties generally are adequate for their long-term preservation, with gaps in some functions. The researchers recommend offering more strategic planning training focused on RAD conversions that could be offered in partnership with national associations that represent PHAs.