Presented by Peter S. Eckert, CRE, MAI, SRA Peter S. Eckert & Company, Inc.
Overview � What are the Significant Factors that impact Affordable Housing Values? � How is the Income Stream impacted by LIHTC restrictions and regulatory agreements? restrictions and regulatory agreements? � How are Expenses affected by the need t0 comply with LIHTC regulatory agreements? � How are valuation measures such as Cap Rates impacted by the presence of these restrictions? � How does the Marketplace perceive values of LIHTC properties? Peter S. Eckert & Company, Inc.
Va. Code §58.1-3295.1 � In Assessing the Fair Market Value of Affordable Rental Housing, one must consider: � ACTUAL Incomes � ACTUAL Expenses � ANY OTHER EVIDENCE that is Relevant � MUST Employ the Income Approach Peter S. Eckert & Company, Inc.
Step by Step � Highest & Best Use � Land and Improvements � Sales Comparison Approach � Data Research � Data Research � Un-complicating Complicated Sales � Cost Approach � Is this a valid methodology? � Income Approach � The True Measure of Value � Market Observations � Comments, Questions, Trends & maybe some answers Peter S. Eckert & Company, Inc.
Highest & Best Use Considerations � Developers pay less for land to be developed with affordable housing. This is a function of: affordable housing. This is a function of: � Lower income expectations generate less return to land; hence, a lower value. � Propensity to push as many costs into the “eligible” category to increase the amount of tax credits. � Typically, a clear pattern will be evident when comparing affordable to conventional land sales. � In periods of high demand, the tax credit developer will often be “pushed out” of the market because of high prices. Peter S. Eckert & Company, Inc.
Highest & Best Use Considerations � LAND - Assessors may wish to establish a two-tier land � LAND - Assessors may wish to establish a two-tier land value approach if: � There is a clear H&B Use distinction between affordable and conventional sites in your market; and, � Actual sales demonstrate these price differentials. Peter S. Eckert & Company, Inc.
Highest & Best Use Considerations � BUILDINGS – Affordable housing is most often found � BUILDINGS – Affordable housing is most often found to be of: � Lesser Quality or More Basic Construction � Fewer Special Unit Features; and, � Fewer Project Amenities Peter S. Eckert & Company, Inc.
Highest & Best Use Considerations Peter S. Eckert & Company, Inc.
Construction Differences Peter S. Eckert & Company, Inc.
Project Amenity Differences Peter S. Eckert & Company, Inc.
Project Amenity Differences Peter S. Eckert & Company, Inc.
Unit Amenity Differences Peter S. Eckert & Company, Inc.
Unit Finish Differences Peter S. Eckert & Company, Inc.
The Sales Comparison Approach � Un-complicate the Complicated � Is It the Regulatory Agreement? � Is It the Regulatory Agreement? OR � Is It the Financing? The initial terms of regulatory agreements are expiring so there is a move to sell or retain, re-credit and rehabilitate. Recent sales show evidence that the prices are affected by the regulatory agreement and/or financing arrangements. Peter S. Eckert & Company, Inc.
The Sales Comparison Approach ���$%#��%��������##�$� ���� ��������� �������� ��� ��������������������������� ����� ����������� ���� ����� ����� �������� ������ � !"���� � �# $��� ���������������� � ���������� ����� �� ���� ����� ����� ������� ���� ��� � ��!!"�#�� � $��"��!"" � ��� ������ ����� � ���� ����� ���� � ���� ���� ������ $"#"!�%&!� $"#"!�%&!� � � ��"�!'�"�� � ��� ������ ����� � ���� ����� ���� ������� ���� ����� ����������"���#� � ��(��!�$���#" � ���������� ���� ��� ���� ����� ���� ������� ���� �� �� ��"��)"�*" � +!""����#����"��,&� � ����������� ���� ��� ���� ����� ���� ������� ���� ����� �)�#�(�-�������&�#( � ��.��"����/&�!" � ����������� ���� ��� ���� 0��" ���� ������� ��� ����� 1!"�"!�2*�%&!� � 3����%!���"�0�!#� � ���� ����� ����� ��� ���� ����� � ��� � �� �� ���� ����� ��"��)"�*" � 4�)�".������"!%!��*" � ����������� ����� ��� ���� ����� ����� �� ���� ���� ����� ��"��)"�*" � 5!%�!�+!�-" � ����������� ���� �� ���� 0��" ����� �� ���� ���� ����� �#�''�!� � �����-"!�6����� � ���������� ���� �� ���� 0��" ����� ��� ���� ���� �� �� 1!"�"!�2*�%&!� � 7������8/&�-��"�# Peter S. Eckert & Company, Inc.
The Sales Comparison Approach � Is Excluding the Approach a Potential USPAP Violation? � Will Jurisdictional Exception Rules Apply? � Complicated Hypothetical Assumptions? The Sales Comparison Approach must remain valid in order to supply the necessary market data to apply the Income Approach but the approach in its standard form may be relegated to a secondary role. Peter S. Eckert & Company, Inc.
The Cost Approach � Relied Upon by Developers for Feasibility Reasons � Relied Upon by Investors � Relied Upon by Tax Credit Syndicators Relied Upon by Tax Credit Syndicators � Relied Upon for New Construction Assessments � Applicable for Assessments? Peter S. Eckert & Company, Inc.
The Income Side of the Income Approach � Obtainable Rents Limited by the Market & by Median Family Income Levels � Rent Increases are Limited by Median Family Income Growth � Other Income may be impacted by affordable housing restrictions � Weaker Tenant Credit Strength typically results in collection losses � Weaker Tenant Credit Strength typically results in collection losses � Many Prospective Tenants earn too much to qualify � Many Prospective Tenants earn too little to afford the rent � Section 8 Tenants sometimes smooth out the rental stream � Section 8 Tenants sometimes create a greater burden on management � LIHTC properties reflect market occupancies if not rent constrained � LIHTC properties reflect higher occupancies if rent constrained Peter S. Eckert & Company, Inc.
The Income Side of the Income Approach � Obtainable Rents - Owner/Manager has less control � Rent Increases – Owner has less control; limited by factors that have little to do with operations & market forces � Other Income – Implied restrictions on certain collections; Other Income – Implied restrictions on certain collections; make sure this income cannot be construed as “rent” make sure this income cannot be construed as “rent” � Weaker Tenant Credit Strength – serving the weaker end of the market; target market is economically vulnerable � Earn too much to quality – reduced tenant pool � Earn too little – reduced tenant pool � Section 8 Tenants – rules enforced by others ***All result in limits on Effective Gross Income*** Peter S. Eckert & Company, Inc.
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