Multi-Family Methodology Analysis

Transcription

1 Multi-Family Methodology 2018 Analysis Assessment Department February, 2018

2 2018 Multi-Family Assessment Methodology Property assessments in the City of Medicine Hat reflect the fee simple market value of each property as of July 1, 2017 (and the condition of the property as of December 31, 2017) as required by the Municipal Government Act which is set in place by the Provincial Government. Market value, as defined by the International Association of Assessing Officers (IAAO) is: The most probable price (in terms of money) which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition are the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: The buyer and seller are typically motivated. Both parties are well informed or well advised, and acting in what they consider their best interests. A reasonable time is allowed for exposure in the open market. Payment is made in terms of cash or in terms of financial arrangements comparable thereto. The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale. 1 The fee simple title as defined by the IAAO is: Fee simple title indicates ownership that is absolute and subject to no limitation other than eminent domain, police power, escheat, and taxation. 2 Improved multi-family properties in the city are primarily valued using the income approach to value. This valuation approach capitalizes a property s stabilized, market typical, net operating income to come up with an estimate of market value. The valuation formula for properties assessed using the income approach is: Market Value = Net Operating Income Capitalization Rate 1 IAAO. Glossary for Property Appraisal and Assessment. Page IAAO. Glossary for Property Appraisal and Assessment. Page Page 2 of 11

3 Mass Appraisal In the aggregate, property assessment establishes the base for fair and equitable distribution of the tax burden. The individual assessments determine each property s share of the tax base. It is a fundamental principle of market value property taxation that properties with a similar market value have similar assessments. The Alberta assessment and taxation system is based on the laws outlined in the Municipal Government Act, RSA 2000, Chapter M-26 [MGA], and all associated regulations, including, for example Matters Relating to Assessment and Taxation Regulation, Alberta Regulation 203/2017 [MRAT]. Assessors have developed valuation procedures to enable them to prepare market value assessments, which reflect current market conditions and which bear an equitable relationship between similar properties. These procedures are incorporated in the practice of mass appraisal. The MGA directs assessors to apply the valuation standards in a fair and equitable manner; the MRAT states that property assessments are to be prepared using mass appraisal to predict accurate market values. A property assessment is: An estimate of the property s market value on July 1, 2017; Prepared using mass appraisal; An estimate of the value of the fee simple estate in the property; A reflection of the property s condition on December 31, 2017; Prepared assuming typical market conditions on the open market by a willing seller to a willing buyer. Mass appraisal requires that: Properties be stratified into groups of comparable properties; Common property data be identified for the properties in each group; A uniform valuation method using market information, which incorporates the individual property attributes, be calibrated for each group; Statistical testing must be performed to confirm quality control. Mass appraisal of properties assessed using the income approach involves a few fundamental principles. Market rental rates must be determined for each group of properties. Long-run vacancies must be determined. Expense ratios must be determined. Capitalization rates must be determined from the sales of other properties in the municipality utilizing the rental, vacancy and expense rates that were determined in the studies conducted in Page 3 of 11

4 the municipality. It should be noted that this methodology document is not intended to be a substitute for an assessor s judgment in arriving at an assessed value (i.e., market value) for a particular property. The document is provided to explain the approaches and analysis applied which meets industry standards for property assessment, conforms to valuation industry norms, and adheres to provincial legislation and regulation. Although it outlines the general approach adopted, it does not replace the assessor s judgment and there may be some cases where the assessor adopts a different approach for justifiable reasons. Multi-Family Classifications Multi-Family properties are properties with three or more residential dwelling units located within the same building. They can be low rise, high rise, town-house style, back to back or side by side structures. The mixed use properties are residences located beside or above the commercial enterprises. Multi-Family classification also includes senior s residences. The Land Use Codes covered by the multi-family analysis are as follows: 123 Multi-Family: 3 Suites Apartment Style 124 Multi-Family: 4 Suites Apartment Style 126 Multi-Family: 3 Suites Non Apartment Style 127 Multi-Family: 3 Suites Above Non-Residential 128 Multi-Family: 4 Suites Non Apartment Style 129 Multi-Family: 4 Suites Above Non-Residential 132 Multi-Family: 5 to 8 Suites 142 Multi-Family: More than 8 Suites 144 Multi-Family: Senior Citizen Self Contained Units 643 Multi-Family: Developed Nursing Home 649 Multi-Family: Developed Contract Nursing Home The following is a list of the variables that affect the applied typical market rates for multi-family properties: Effective Year Built: This is an overall age of the property that accounts for the original build year of the building(s) and any significant renovations or additions. All else equal, a property with an older effective age will have a lower rate applied. Neighborhood (NGHD): This is the numerical code for a location within the city. The map of the neighborhood codes is given in that section near the end of the report. Page 4 of 11

5 Number of Bedrooms: Generally, the higher number of bedrooms per unit will command more income and therefore will be valued higher on the open market, all other factors being equal. Other variables: A property may have site specific issues such as poor access, poor condition, poor location (within a neighborhood), functional, economic, or locational obsolescence that affects the market rates applied. Rental Rate Ranges Residences over Commercial Assessed Rental Rates Type Bachelor 1 Bedroom 2 Bedroom 3 Bedroom 4 Bedroom Min $ 500 $ 575 $ 650 $ 750 $ 875 Max $ 625 $ 725 $ 825 $ 950 $ 1,100 Three and Fourplexes Assessed Rental Rates Type Bachelor 1 Bedroom 2 Bedroom 3 Bedroom 4 Bedroom Min $ 500 $ 575 $ 650 $ 750 $ 875 Max $ 825 $ 950 $ 1,100 $ 1,250 $ 1,450 Five plus Suites Assessed Rental Rates Type Bachelor 1 Bedroom 2 Bedroom 3 Bedroom 4 Bedroom Min $ 575 $ 600 $ 575 $ 575 $ 575 Max $ 775 $ 875 $ 1,000 $ 975 $ 1,050 Senior s Complexes Assessed Rental Rates Type Bachelor 1 Bedroom 2 Bedroom Min $ 825 $ 975 $ 1,100 Max $ 1,025 $ 1,175 $ 1,300 Page 5 of 11

6 Vacancy Rate Ranges Type Min Max Residence over Commercial 1.0 % 5.0 % Three & Four Plexes 1.0 % 5.0 % Five Plus Suites 9.0 % 22.0 % Senior s Complexes 5.25 % 5.25 % Expense Rate Ranges Type Min Max Residence over Commercial 18.0 % 36.0 % Three & Four Plexes 16.0 % 37.0 % Five Plus Suites 22.0 % 36.0 % Senior s Complexes 33.0 % 46.0 % Structural Allowance Type Residence over Commercial 7.0% Three & Four Plexes 7.0 % Five Plus Suites 6.0 % Senior s Complexes 7.0 % Page 6 of 11

7 Capitalization (Cap) Rate Model The indicated capitalization rate for sold properties was established using the following formula: Capitalization Rate = Net Operating Income Adjusted Sale Price Capitalization rates are a tool used in appraisal theory to convert future income into present worth. (Income next year is worth less this year than income from this year.) According to appraisal theory capitalization rates fundamentally reflect the following factors: The degree of perceived risk Market expectations regarding future inflation The prospective rates of return for alternative investments The rates of return earned by comparable properties in the past The prevailing tax law The capitalization rates were calculated using qualified sales that occurred from July 1 st, 2014 to June 30 th, 2017 (which are available on the City s website.). They were determined through analysis of improved sales properties. Typical rent per bedroom was multiplied by the number of units and stratified by effective age equalling the potential operating income. The model vacancy allowance was then subtracted to arrive at an effective operating income. Structural allowances were subtracted from the effective operating income to obtain the net operating income. The typical net income was divided by the time adjusted sale price to obtain the indicated overall capitalization rate. Assessed capitalization rates were modelled to ensure that legislated assessment quality standards are met. Capitalization rates were modelled separately for three and four plex properties and large apartments. The variables that determine a commercial capitalization rate are: Effective Year Built: All else equal, a property with an older effective year built will receive a higher cap rate. Page 7 of 11

8 Neighbourhood Code Map Page 8 of 11

9 Valid Sales List Three & Four Plex Sales Account Address Sale Date LUC Adjusted Sales Price D MAPLE AVENUE SE 16-Aug $ 473, STREET NE 19-Sep $ 312, STREET SW 09-Feb $ 513, COLLIER ROAD SE 09-Apr $ 455, COLLIER ROAD SE 09-Apr $ 455, STREET SE 15-Apr $ 303, STREET SE 15-Apr $ 313, HOBBS WAY NE 24-Apr $ 770, CUYLER ROAD SE 11-May $ 582, A BRAEMAR STREET SE 16-Jun $ 404, COOPER ROAD SE 14-Jul $ 475, AVENUE SW 14-Jul $ 218, CRAIG ROAD SE 23-Sep $ 494, B MAPLE AVENUE SE 25-Sep $ 632, STREET SE 30-Sep $ 517, AVENUE SE 23-Oct $ 463, STREET NE 19-Nov $ 442, STREET NE 27-Jan $ 424, BRIDGE STREET SE 16-Feb $ 261, AVENUE NE 17-May $ 419, STREET SE 16-Sep $ 373, SAGE PLACE SE 26-Oct $ 667, VALLEYVIEW DRIVE SW 10-Nov $ 638, AVENUE SE 16-Mar $ 449, CUYLER ROAD SE 29-Mar $ 462, ABERDEEN STREET SE 20-Apr $ 255, STREET SE 28-Jun $ 300,909 Page 9 of 11

10 Large Apartment Sales Account Address LUC Sale Date Adjusted Sale Price STREET SW Oct-2014 $ 476, SOUTHVIEW DRIVE SE Mar-2015 $ 1,597, THOMPSON CRESCENT SE Mar-2015 $ 639, CAMBRIDGE STREET SE Apr-2015 $ 503, COLLINS CRESCENT SE Jun-2015 $ 1,917, AVENUE SE Aug-2015 $ 398, STREET NE Nov-2015 $ 674, STREET SE Jan-2016 $ 1,414, STREET SE Jan-2016 $ 1,320, STREET NE Feb-2016 $ 1,021, STREET SE May-2016 $ 644, A NORTH RAILWAY STREET SE Sep-2016 $ 193, STREET SE Jan-2017 $ 446,498 Capitalization Rates Type Min Max Residential Over Commercial 6.75 % 9.5 % Three & Four Plexes 5.0 % 7.75 % Five Plus Suites 6.0 % 8.75 % Senior s Complexes 6.0 % 6.75 % Page 10 of 11

11 Time Adjustment Tables 3 & 4 Plexes Large Apartments Date TA Factor Date TA Factor Jul Jul Aug Aug Sep Sep Oct Oct Nov Nov Dec Dec Jan Jan Feb Feb Mar Mar Apr Apr May May Jun Jun Jul Jul Aug Aug Sep Sep Oct Oct Nov Nov Dec Dec Jan Jan Feb Feb Mar Mar Apr Apr May May Jun Jun Jul Jul Aug Aug Sep Sep Oct Oct Nov Nov Dec Dec Jan Jan Feb Feb Mar Mar Apr Apr May May Jun Jun Jul Jul Page 11 of 11