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The Rental Assistance Demonstration, which many consider to be the centerpiece of the U.S. Department of Housing and Urban Development’s rehabilitation programs, is in its eighth year. HUD intended for RAD to test a new way to meet the growing capital improvement needs of the nation’s aging public housing stock and to preserve projects funded under its legacy programs. As you may know, RAD converts property assistance to long-term, project-based Section 8 contracts, providing a more reliable source of operating subsidy for property owners and enabling public housing authorities to safely leverage private capital to finance a rehab or replacement. Approximately half of these conversions require construction to bring the properties in line with current safety and building code standards. If you fall into the construction camp, it’s important to understand the development process, because not only will you have to follow RAD rules—you’ll also have to overlay the property development process on top of the conversion. Here’s what you need to know.

The property development process

Search online for “real estate development process” and Google will deliver nearly a billion results. That’s an impressive amount of information, but if you’re trying to understand how a development project progresses, it’s a bit daunting! The process we like is the ‘Real Estate Development Framework’ from the SC Johnson College of Business at Cornell University. *According to Cornell, the real estate development process includes five steps: concept, definition, planning, implementation, and completion.

The first step, concept, is driven by your organization’s vision and strategy. Do you have a plan in place to help you realize your vision for your property? In this phase, you’ll take a hard look at your property and the metrics involved in the development, regardless of whether the project will entail rehab or new construction.

In the second step—definition—you and your staff will evaluate the overall feasibility of the project. Here, you’ll dive into the details of what the project will entail and begin to formulate your funding needs and sources. As the design starts to take shape, you’ll figure out whether the project makes financial sense—in other words, whether it will “pencil out.”

The planning stage is where you’ll select a design team and tackle legal activities such as site purchase. It’s also a great time to contact your insurance representative to discuss your coverage options if you haven’t already done so. The details of your project will start to solidify in the phase.

As the name implies, implementation is when shovels hit dirt. First, though, except your design to go through multiple iterations as you match your project’s needs with your funding. Construction begins once the financing has been arranged. You also “close” on the project during the phase.

As completion nears, things get really exciting. The end is in sight! Construction diminished, you can begin marketing your units, you’ll arrange for final inspections, and you’ll receive the all-important certificate of occupancy. You’ll hire new staff at this phase, or your existing staff will begin operating the building, which includes overseeing occupancy, maintenance, and the transition to asset management.

It’s important to note that while we’ve listed these topics in chronological order, your project may not play out in a linear manner. Development is a messy process that typically involves false starts, multiple stops, delays, and completions. Don’t be surprised if your project takes you longer than you expected—it wouldn’t be the first time!. In the end, though, know that it’s all worth it for your residents.

About HAI Group

HAI Group offers insurance to the public and affordable housing industries. It also offers, through its Housing Alliance Group LLC (HAGL), pre-development and capital products and services to aid in development projects. Visit www.housingcenter.com/capital/ for additional information.

*From the graphic titled, “Tool: Real Estate Development Framework” from the eCornell course SHA581: Introduction to Commercial Real Estate Development, SC Johnson College of Business, Cornell University, 2019, faculty author Brad Wellstead. Used with permission.