Valuation Issues. Lindsey Sutton Novogradac & Company LLP. Brad Weinberg Novogradac & Company LLP

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Mitchell Lawrence
5 years ago
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2 Valuation Issues PANELISTS Lindsey Sutton Novogradac & Company LLP Brad Weinberg Novogradac & Company LLP Visit to send questions to the moderator

3 Valuation Issues How do market trends potentially impact valuations? Rent trends Operating expense trends High appreciation markets Declining markets

4 Market Trends Three important questions to ask: 1 How is the market currently performing? 2 What do the forecasts and trends indicate about the future? 3 How does my" data correlate with the forecast/ trends?

5 Rent Trends Rent increases/ decreases for LIHTC properties Determined by HUD based on Median Family Income (AMI=MFI) 2016 AMI established by 2013 ACS 5-year Median Income Estimate

8 Large MFI Increases Eureka County, NV Median Income increased 38.52% from 2015 to 2016 Median Income increased 6.16% over the past five years How do the rents in this county reflect these increases?

9 Large MFI Increases Rents increased by 4.86% from 2015 to 2016 In general, rent increases are capped by the greater of 5% or two times the national median household increase Year 60% AMI Rent 2015 $946 % Change 2016 $ %

10 Large MFI Decreases What about the 5% floor for rent decreases? Grayson County, TX Median Income decreased by 10.22% from 2015 to 2016 Median Income decreased by 0.97% over the past five years How do the rents in this county reflect these increases?

11 Large MFI Decreases Rents decreased by 5.0% from 2015 to 2016 In general, rent decreases are capped at 5.0% annually Remember, this county saw a (10.22)% decrease from 2015 to 2016 What happens if MFI decreases in 2017? Year 60% AMI Rent 2015 $838 % Change 2016 $ %

12 Large MFI Decreases We actually already have this information That s over a 5% increase! Thus, given the decrease already taken in 2016, and the projected increase in 2017 based on increasing MFI, it is likely the rents in this county will be stable or increase slightly Sherman-Denison, TX MSA Year MFI Trend 2013 $57, $60,411 Source: ACS

14 LIHTC Expenses Increased 2.72 percent from 2010 to 2014

15 Comparing Market-Rate and LIHTC Properties

16 Comparing Market-Rate and LIHTC Properties

17 Market Trend Wrap up Overall, expenses continue to increase for LIHTC properties at a compounded annual rate of 2.72 percent over the past 5 years Markets with increasing MFI = increased rents Markets with decreasing MFI (5% or more) = decreasing or stable rents over the next year or longer Overall, demand for affordable housing remains strong

18 Partnership Valuations Liquidation vs. going concern values Lack of marketability and control and the impact of the market value Right of first refusal

19 Marketability and Control Minority interest partner Discount for absence of marketability and lack of control Lack of Control For non-controlling interests, the decision to liquidate the partnership, or the real estate asset that the partnership owns, is not under the control of the just the General Partner or other Limited Partners

period of time, the lower the $ an investor is willing to pay Partnership

20 Marketability and Control Lack of marketability reduces value of the interest Other key factors for marketability discount Length of time - longer the period of time, the lower the $ an investor is willing to pay Partnership distributions operating distributions on a regular basis = investor willing to $ more

21 Right of First Refusal Partnership agreement Option agreement Consider the terms of the agreement in full

22 Eligible Basis Eligible Basis Potential valuation issues when calculating eligible basis Existing acquisition rehab versus new development

23 Eligible Basis Calculations New Construction Land value Acquisition-Rehabilitation As is value of the development currently Land value

24 Acquisition/Rehabilitation What about Public Housing converting under RAD? The majority of buyers and sellers of multifamily developments utilize the income capitalization approach. But the Public Housing current income and expense structure is not an accurate basis upon which to value the property, as it results in very low to no value to the development when utilizing the income approach. It is possible that existing public housing restrictions could be removed provided that the Housing Authority re-invest the sale proceeds into other affordable units.

25 Acquisition/Rehabilitation Highest and Best Use is defined by the Dictionary of Real Estate Appraisal 6th Edition; Appraisal Institute, 2015, as the reasonably probable use of property that results in the highest value. The four criteria that the highest and best use must meet are: legal permissibility, physical possibility, financial feasibility, and maximum productivity. What is the as is value of a Public Housing development for establishing eligible basis?

26 Valuation Issues PANELISTS Lindsey Sutton Novogradac & Company LLP Brad Weinberg Novogradac & Company LLP Visit to send questions to the moderator

Acq/Rehab Compliance. Jen Brewerton. Charles A. Rhuda III. Emily Bias. Stephanie Naquin. Matthew Rooney. Pillsbury Winthrop Shaw Pittman LLP

Acq/Rehab Compliance. Jen Brewerton. Charles A. Rhuda III. Emily Bias. Stephanie Naquin. Matthew Rooney. Pillsbury Winthrop Shaw Pittman LLP Acq/Rehab Compliance MODERATOR Charles A. Rhuda III Novogradac & Company LLP PANELISTS Emily Bias Pillsbury Winthrop Shaw Pittman LLP Stephanie Naquin Novogradac & Company LLP Jen Brewerton Dominium Matthew