Update on LIHTC Programs and RAD

Midwest Lenders ConferenceChicago, IL

 Wednesday, October 14, 2015 10:15 – 12:00 noon

Presented by:Rebecca Arthur, MAIPartnerNovogradac & Company LLPRebecca.arthur@novoco.com(913) 677-4600 ext. 1515www.novoco.com

NUANCES OF APPRAISING LIHTC TRANSACTIONS

RENT:Achievable Market Rent

The rent that a particular unit, considering its condition, location, features, unit size and amenities, would command in a market assuming no rent or income restrictions or rent subsidies. Based upon analysis of comparable market rate properties. 

Achievable LIHTC Rent

The rent that a LIHTC unit can achieve taking into account comparable LIHTC competition, AMI level restrictions, market conditions, and features. May be less than Maximum allowable LIHTC rent for that unit. 

Maximum Allowable LIHTC Rent*

Maximum allowed by Federal Program (based on Area Median Income)•Gross LIHTC Rent (tenant paid utilities have not yet been deducted)•Net LIHTC Rent (tenant paid utilities have been deducted)

*Even though its allowable to charge this rent, the rent may not be achievable in the market

Novogradac’s Rent & Income Calculator:http://www.novoco.com/products/rentincome.php

Example #1: Aurora, Kane County, Illinois – 2015

•Maximum Allowable LIHTC rents are achievable•Achievable LIHTC rents are more than 10% below Achievable Market Rents (rent advantage more than 10%)

PROPOSED RENTS

Unit Type

Average Square Footage

(SF) Number of Units

Asking Rent

Utility Allowance

(1) Gross Rent

LIHTC Maximum Allowable Gross Rent

60% AMI Studio 610 1 $700 $36 $736 $798 1BR 692 3 $786 $46 $832 $855 2BR 862 2 $941 $61 $1,002 $1,026

LIHTC RENT COMPARISON - @60% Property Name 0BR 1BR 2BR

Aurora St. Charles Senior Living (Subject) $700 $786 $941 2015 LIHTC Maximum (Net) $762 $809 $965

Alden Horizon Senior Apartments* - $840 to $845 $945 to $960 Diamond Senior Apartments Of Oswego* - $791 $913

Silver Oaks At Waterford* - $846 - Average (excluding Subject) $762 $833 $961

Novoco Achievable LIHTC Rent $762 $809 $965

MARKET RENT COMPARISON Property Name 0BR 1BR 2BR Subject Market $700 $925 $1,100

Alara Summerfield - $1,293 to $1,524 $1,407 to $1,721 Aurora Heights $673 $817 to $897 $946 to $996

Historic Stolp Island Apartments $798 $941 to $1,061 $1,334 Hunters Glen Apartments - $1,187 to $1,295 $1,410 to $1,580

Kirkland Crossing - $1,417 $1,529 to $1,758 Lakeview Residences $931 $1,240 $1,605

Average (excluding Subject) $801 $1,190 $1,446 Novoco Achievable Market Rent $850 $1,100 $1,300

SUBJECT COMPARISON TO MARKET RENTS

Unit Type Subject Surveyed Min

Surveyed Max

Surveyed Average

Achievable Market Rents

Subject Rent Advantage

Studio @ 60% $700 $673 $931 $801 $850 -18% 1 BR @ 60% $786 $817 $1,524 $1,190 $1,100 -29% 2 BR @ 60% $941 $946 $1,758 $1,446 $1,300 -28%

Example #1: Aurora, Kane County, Illinois – 2015

Example #2 : Collinsville, Madison County, IL

•Maximum Allowable LIHTC rents are NOT achievable•Achievable LIHTC rents are greater than 10% below Achievable Market Rents•Even though Maximum Allowable LIHTC rents are Less than Achievable Market Rents, Maximum Allowable LIHTC Rents are still not achievable

LIHTC RENT COMPARISON - @60% Property Name 1BR 2BR 3BR 4BR

Subject – 60% AMI $525 $679 $750 $810 2015 LIHTC Maximum (Net) $718 $855 $983 $1,090

Alton Pointe Apartments $440 $570, $630 $725 - Broadway Place Apartments - $525 $630 -

Gateway Apartments $415 $490 $620 $700 Meachum Crossing $440 $505 $635 -

Washington Avenue Apartments - $567 $672 - Windham Terrace Apartments - $560 $645 - Average (excluding Subject) $432 $550 $655 $700

NOVOCO Estimated Ach. LIHTC Rents $500 $650 $750 $780

SUBJECT COMPARISON TO MARKET RENTS

Unit Type Subject Surveyed

Min Surveyed

Max Surveyed Average

Achievable Market Rents

Subject Rent Advantage

1 BR @60% $525 $459 $548 $508 $775 -32% 2 BR @60% $679 $528 $1,162 $797 $975 -30% 3 BR @60% $750 $657 $1,226 $1,025 $1,150 -35% 4 BR @60% $810 - - - $1,250 -35%

Example #3 : Des Moines, Polk County, IA

•Maximum Allowable LIHTC rents are NOT achievable•Achievable LIHTC rents are less than 10% below Achievable Market Rents (rent advantage less than 10%)

LIHTC Rent Comparison - @60% Property Name 1BR 2BR 3BR Subject Phase I $595 $715 $820

LIHTC Maximum (Net) $754 $895 $1,020 Melbourne Apartments Phase II $615 $735 $840 Melbourne Apartments Phase III $615 $735 $840

Prairie Winds - $666 - Southbrook Green Apartments $543 $606 -

Southwinds Apartments - $670 - Willow Bend Apartments $559, $564 $686, $736 -

Willow Bend Apartments II $527 $637 $761 Average (excluding Subject) $571 $684 $814

NOVOCO Estimated Achievable LIHTC Rents $615 $735 $840

SUBJECT COMPARISON TO MARKET RENTS

Unit Type Subject’s 60% AMI

LIHTC

Surveyed Min

Surveyed Max

Surveyed Average

Novogradac’s Estimated Achievable

Market Rents

Subject LIHTC Rent Advantage to Ach. Market

Rent 1 BR $595 $530 $625 $581 $650 -8% 2 BR $715 $620 $775 $694 $775 -8% 3 BR $820 $787 $875 $835 $875 -6%

NUANCES OF APPRAISING LIHTC TRANSACTIONS

Expenses:

•Admin Fees –higher •Mgmt Fees – higher •Taxes – may have PILOT, abatements, valuation of LIHTC heavily contested/debated in certain areas•Utilities •Maintenance – generally similar

Capitalization Rates:

LIHTC Sales Comps?

USING MAP APPRAISALS FOR DETERMINATION OF LIHTC ELIGIBLE BASIS (Save the borrower some cash)???

RAD/ LIHTC Transactions

VALUING PUBLIC HOUSING DEVELOPMENTS

As Is Value - Very Important for LIHTC Eligible Basis Determination

Highest & Best Use of the Property As Is?

Two Scenarios to Test •As Is Achievable Market Rents utilizing unrestricted – market oriented operating expense and capitalization rate•CHAP Rents utilizing market-oriented Restricted operating expenses and capitalization rate

VALUING SECTION 8 DEVELOPMENTS