2016 MAP Guidelines: Presentation Title Chapter 7 Issues

Transcription

1 2016 MAP Guidelines: Presentation Title Chapter 7 Issues Your companyinformation National Council of Housing Market Analysts Baltimore, MD April 19, 2016

2 Agenda MAP Market Study Guidelines Robert Lefenfeld Managing Principal Real Property Research Group, Inc MAP Appraisal Guidelines M. Scott Allen Vice President GAR Associates, Inc

3 MAP Market Study Presentation Title Guidelines Your companyinformation

4 Evolution of Market Study Content Dialogue Nov- 11 Winter Aug National Council of Affordable Housing Market Analysts (NCAHMA) formed Dedicated to enhancing the professionalism and standards for market analysis of Tax Credit Communities NCAHMA creates Set of Resources: Model Content Standards Market Study Terminology Market Study Index Code of Ethics White Papers Professional Desgination HUD issues Revised MAP Guidebook Separate Section for Market Studies Requires Market Analysis and Appraisal to be conducted by Separate Analysts NCAHMA conducts User Survey of MAP Market Study Users 10 HUD MAP Offices 6 FHA MAP Lenders NCAHMA renamed National Council of Housing Market Analysts (NCHMA) Revised Guidelines and Resources to cover Afforable, Market Rate and Seniors Housing Provide HUD with detailed recommendations to revise MAP market study guidelines Continued feedback on market study guidelines to HUD Jan 2016 FINAL MAP market study guidelines released by HUD

5 Major Enhancements to Market Study Guidelines Organization Site Analysis Economic and Demographic Context (Demand) Competitive Context (Supply) Balance of Supply and Demand Product Positioning in terms of offering and pricing Clarification

6 Market Study Criteria MAP Guidelines National Council of Housing Market Analysts (NCHMA)

7 Section 7.4 Work Sharing Work-Share - certain underwriting functions may be transferred to staff who are in locations that are distant from the project under review. Third Party Market Analysts should assume that their work will be subject to review under Work Share. HUD staff may not always be able to see the subject and comparables. Market information used from nationally purchased data sources such as, but not limited to REIS.

8 7.5.A Purpose and Focus of the Study The purpose of the market study is to assure that there is enough sustainable demand for additional units without adversely impacting the existing supply, so as to maintain a balanced overall market Role of Market Analyst and Appraiser in the MAP Process Market Analyst evaluates balance of supply and demand for rental housing Appraiser is responsible for income (rent) and (operating) expenses. Based on Supply/Demand and income/expenses, Market Analyst is responsible for Absorption.

9 7.5.C Description of Proposed Project 7.5.C.6 For Rehabilitation Projects Description of proposed scope of rehabilitation including a breakdown of hard and soft costs, if available. An estimate of total construction cost and cost per unit. Identify existing unit mix and rents including any existing housing subsidies. Compare current and proposed rents. Current and historical (if available) occupancy information. An analysis of the current rent roll (if available) to determine if existing tenants will remain income qualified.

10 7.5.C.4 Project location in terms of neighborhood and any other locational considerations. Site Analysis Questions What is the setting of the site? What is characteristics of general area? What are transportation linkages? What improvements are anticipated in area? How is the area served by amenities? Schools? Perceptions of Crime Considerations for non-residential land uses

11 Primary Market Area vs. Housing Market Area 7.5.A The primary and secondary market area analyzed by the lender s market analyst may be narrower in scope than the market analysis prepared by the HUD Economic and Market Analysis Division (EMAD), which analyzes the broader Metropolitan Statistical Area (MSA), county, or smaller submarket area as appropriate. The market analyst must, however, also discuss the larger MSA or county.

12 7.5.E Economic Context The description is necessary to provide background and justification for the subsequent demographic analysis and estimates of demand for additional rental housing. 7.5.E.1 Identification of Growth Sectors 7.5.E.2 Trends in Unemployment, Resident Employment levels 7.5.E.3 Anticipated changes in employment 7.5.E.4 Types of jobs being created and lost 7.5.E.5 List of major employers 7.5.E.6 In relevant markets (resorts),availability of affordable housing for workers 7.5.E.7 Employment Forecast Affordable vs. Market Rate

13 7.5.F. Demographic Context A thorough discussion of past and anticipated future trends in the demographic character of the housing market. 7.5.F.1 Recent trends in population and household growth 7.5.F.3 Thorough discussion of building permit trends 7.5.F.4 Characteristic of current household base 7.5.F.5 Current Income Characteristics For senior properties 7.5.F.2 Current and projections senior household base 55+ and/or F.6 Tenure breakdown, income characteristics and rent burden of senior households

14 7.5.G. Current Housing Market Condition The market study must include a comprehensive description of the current conditions of the rental market and of the sales market, if relevant, in the PMA. 7.5.G.1 Estimate of competitive inventory 7.5.G.2 Recent Market trends in a. vacancy trends b. Absorption experience c. Current effective rents d. Current vacancy rate e. Vacancy or absorption problems f. Impact, if any, of SF or condo market

15 7.5.H Pipeline Characteristics of Rental Units in the Pipeline, Under Construction and in Planning. The market study must include separate estimates of the numbers of rental units currently under construction and the numbers in the planning and development process likely to enter the housing market during the specified forecast period. These estimates should include all rental developments known, not solely those determined by the analyst to be comparable and competitive.

16 7.5.I Demand Estimate and Analysis 7.5.I.1 Net Demand Analysis 7.5.I.2 Effective Demand Analysis

17 7.5.I.1 Net Demand Analysis Estimate of demand must be based on a calculation of incremental demand, typically for a 36 month time period. Demand Household Growth Replacement (CINCH Data) % of Renter Households Occupancy Level in Existing Inventory Supply Pipeline (all rental product) Subject Balance of Demand and Supply

18 7.5.I.2 Effective Demand Analysis Effective Demand: is the pool of households with sufficient incomes and/or applicable household size that would be expected to demand such housing during the forecast period, including the income levels and rent- to-income ratio(s) assumed in the study. Evaluation of Effective Demand includes an analysis of : Capture Rate, and Penetration Rate:

19 7.5.I.2.a Capture Rate is defined as the percentage of qualified households in the PMA the property must capture to fill the units and achieve stabilized occupancy. Qualified Household is defined as households that meet any applicable age and household size restrictions and are within any limiting income eligible band such as LIHTC Income Limits and who have sufficient minimum income to pay the proposed rent without being rent overburdened. The Capture Rate is calculated by dividing the total number of units at the property by the total number of households that meet the applicable age and any income band requirements.

20 7.5.I.2.b Penetration Rate is defined as the percentage of Qualified Households in the PMA that the property and similar existing and proposed competing properties must capture to fill all units and achieve stabilized occupancy. Qualified Households is defined as households that meet any applicable age and income restrictions, The Penetration Rate is calculated by dividing the total number of units the competitive inventory (subject property, current and proposed relevant competitive properties) by the total numberof Qualified Households.

21 7.5.I.2.c Subsidized Communities Effective Demand For subsidized communities, sensitivity affordability and penetration rate analyses should be conducted both with and without project based rental assistance. 7.5.A No market study required for projects in which 90 percent of units are subsidized with project-based rental assistance

22 7.5.J Findings and Conclusions Net and Effective Demand Project Evaluation Absorption Impact on Market

23 7.5.J.1 Project Evaluation Evaluate the subject property within the context of the site, economic, demographic and competitive characteristics. Comment on the strengths and weaknesses of the proposed project in terms of location, project size, unit breakdown, unit sizes, amenities, features and rents. Target Market Unit Distribution Unit Sizes Features and Amenities Price Position

24 7.5.J.3 Impact on Existing Market Address the impact on existing insured properties and show if sufficient demand will come from new renter households, the shifting of households into the rental market, or the replacement of lost or sub-standard units. Even if the subject does not directly compete with existing insured or uninsured properties, an oversupply of units could spill over into all segments of the market.

25 7.5.L Data, Estimates, and Forecast The study should document the methods and techniques used to develop all estimates and forecasts and provide adequate citations on the sources. Conclusions in the study must be consistent with the facts presented;; To the extent possible, the qualitative and quantitative estimates of demand for additional rental units should take into account the changes in renter households by household size, not just in total. Although data for all household sizes may be used, a study of the trend of change by household size may derive a more representative and accurate demand estimate consistent with the characteristics of the target market.

26 Presentation Appraisal Guidelines Title Your companyinformation

27 Chapter 7- Appraisal/Valuation Most of the changes relate to clarification and bringing the document to current USPAP guidance. Intro: Added language in 7.1 C: Such appraisals shall be performed in accordance with uniform standards, by individuals who have demonstrated competence and whose professional conduct is subject to effective supervision

28 Chapter 7- Appraisal/Valuation 7.1 D: Allows for Hud lender review without HUD staff appraiser review Low Risk and some medium risk transactions non compicated. 223(f) with limited repairs.

29 7.2: General Clarifications HUD does not formally approve appraisers or appraisal firms as being MAP Approved. It is the lenders responsibility.

30 7.4 : Workload Sharing Reviews: Appraisers/Market Analysts should assume that their work will be subject to review under Workload Sharing. Market information comments: Not limited to REIS. Goal: to assure that the reviewer can better understand the nuances of the local market.

31 Section 7.6: Begins the Appraisal Requirements This section has new/current language related to USPAP. Similar content but current. Reporting: Narrative format/uspap compliant. No reference to Self Contained/old reporting options.

32 Section 7.6.B: Effective Date: - Moved from K - Timing still the same: 120/180 days before the date of the application package (pre/firm). - Effective date definition still the same: the most current date that the appraiser inspected. - Change: Updates now call for re-inspection of the exterior of the subject property. Previously reinspection of the property. - Other update requirements are similar.

33 Section 7.6: Other comments: Variations between Effective date and Inspection date can vary but should not be a significant difference. Market conditions and information really drive the work required for an update.

34 Section 7.6.C: Brevity Added/new. - report should be clear/concise. - for large sets of data/tables;; report conclusions, but put data in addendum. - Avoid verbatim quotes from published sources. - Must be submitted as searchable pdf with one signed hard copy.

35 Section 7.6.E: seems to now not require A to go in the appraisal. Other data is similar. H: Language change;; previously consulting assignment for 221(d) and others. Now: says: HUD considers valuation work for these assignments to be an appraisal that is developed and reported in compliance with USPAP Standards 1 and 2. Value as complete not necessary to require this.. The components of the analysis require USPAP to be followed.

36 Section 7.6.H.1: Verbiage changes mostly. Comments added for : 231 sub rehab exception: require cost and as repaired value limit mortgage. Apartments that are occupied;; income approach reliance. Also, as is value cannot be based on after rehab income.

37 Section 7.6.I: Added comments related to 223(f) value: Still to assume repairs are completed. But adds language on impact;; not all correlated to value increase. States also: rent increases need to be supported/demonstrated by market data. Section 3: comment added on DCF used only for certain situations involving leaseholds.

38 Section 7.6.I.3 On page 161: added data related to underwriters adjustment: May need to adjust the rate used in securing mortgage so land values reflect FHA requirements but should not adjust the appraisal or the value conclusion. More so to allow for impact of current vs long term conditions.

39 Section 7.6.K.REL Remaining Economic Life Additional verbiage: The estimate is not strictly a formulaic calculation. Terms defined: Physical Life, Economic Life, Functional obsolescence, Effective Age. Review page 161 and 162 for details. REL defined with examples presented.

40 Section 7.7: Estimating Project Income A: Allows for HUD form s8 if appraisal is being used also as a RCS. C: Reworded the final rent selection. Out is the comment on rent estimate from the central 60% range, in with : The appraiser should select final rent based on the comparables that are most similar

41 Section 7.7.G: Occupancy similar with comment: appraisers should use income from actual operations and market conditions in determining value. Sizing;; underwritten vacancy rates will be the greater of minimums set and actual levels:

42 Section 7.7.L: Other Income changes to: Pool/Pet fees/rent now, may be recognized based on history and market. Others like furnished units, interest income, etc. remain similar.

43 Section 7.7.L 6/7: Commercial income: Separate analysis for each type of space using form or a similar format. Outlines commercial space and income limitations. M: Limited Waiver requirements seems new.

44 Section 7.7.N: Commercial Income: 1. Must conduct complete analysis of at least 3 income and expense comps with pix. 2. Support for vacancy/rollover. No less than 10% for 223(f) and 20% for 221(d). 3. Details of each subject lease 4. Expense estimate must include all comm. Expenses payable by owner. Show all on

45 Section 7.8: Expenses Mostly similar. A) comments added related to use of historical with variations requiring discussion/support. C-1) Reserves: Must document research conducted to make determination. Must address differences in estimate vs FHA required deposit for underwriting.

46 Section 7.8.I: Underwritten NOI/Programmatic Guidance: New;; see pages 177/178. Guidance seems to be for underwriting not necessarily appraisers. Comments related to cap ex in budget vs reserves.

47 Section 7.10: Pre-Application No major changes;; A-5 Note: although cost approach/value is not part of appraisal: Lender must consider cost information from various sources including the appraiser. Marshall Valuation/cost comps. But.. The appraiser will need a detailed set of costs for the project.

48 Section 7.13 vs Section : Applies to as is value by income for 221(d)(4) Value to be based on lesser of Market rent or restricted rent. Goal;; avoid inappropriately inflating income/value

49 Section 7.17: Applies specifically to PBA/LIHTC Processing Section D: As is value to be set by capitalizing NOI at market without considering: Added value due to subsidies or LIHTC benefits Any value reduction due to NOI or value limitations from affordability restrictions.

50 HUD clarification: If PBA/Hap: NOI supporting as is value should reflect lesser of market or contract. If rents are below market and to be raised as part of the re-capitalization, can/should assume market rents;; if approved and supported by RCS.

51 Section 7.17: Section 8/LIHTC C-4: New comment on tax abatements: Will be recognized in both value (criterion 3 and 5) even if abatement runs with owner rather than land so long as the owner is nonprofit sponsored.

52 Robert Lefenfeld Managing Principal Real Property Research Group, Inc M. Scott Allen Vice President GAR Associates, Inc