LIHTC Properties in Franklin County Mark Potts Office of Auditor Clarence E. Mingo, II Director of Government Relations Mapotts@franklincountyohio.gov
LIHTC Properties Need to notify Auditor before or during construction phase that the property is a LIHTC property. Will be appraised using restricted rents if the Auditor is notified. If Auditor is not notified that it is a LIHTC property during the construction phase it will be valued based on the cost and/or market income approach.
Land Use Codes Approved by the State of Ohio for use in Franklin County 591 -AFFORDABLE HOUSING 1 UNIT DWELLING 592 -AFFORDABLE HOUSING 2 UNIT DWELLING 593 -AFFORDABLE HOUSING 3 UNIT DWELLING
VERY IMPORTANT! Notify Auditor of construction of LIHTC properties!!
LOW-INCOME HOUSING TAX CREDIT PROPERTY DETAIL FORM Parcel Number Property Address: Property Name: Date in Program Number of property living units Number of units in LIHTC program ECONOMIC INFORMATION: Most Recent Year's Vacancy % Stabilized Operating Expenses * $ * Excluding real estate taxes, interest and depreciation expenses Unit # UNIT INFORMATION Full Bedrms Baths Half Baths Monthly Rent LIHTC Y/N Additional Information/Comments:
YEAR OF SEXENNIAL REAPPRAISAL AND TRIENNIAL UPDATE FOR OHIO'S 88 COUNTIES 2016-2021 2016 REAPPRAISAL COUNTIES 2017 REAPPRAISAL COUNTIES 2018 REAPPRAISAL COUNTIES 2019 REAPPRAISAL COUNTIES 2020 REAPPRAISAL COUNTIES 2021 REAPPRAISAL COUNTIES ADAMS COLUMBIANA HANCOCK HOCKING HOLMES LAWRENCE MEIGS MONROE PAULDING SCIOTO TUSCARAWAS WASHINGTON 2016 UPDATE COUNTIES CARROLL CHAMPAIGN CLARK FAIRFIELD LOGAN MARION MEDINA MIAMI ROSS UNION WYANDOT AUGLAIZE CLINTON DARKE DEFIANCE DELAWARE FRANKLIN GALLIA GEAUGA HAMILTON HARDIN HARRISON HENRY JACKSON LICKING MAHONING MERCER MORROW PERRY PICKAWAY PIKE PREBLE PUTNAM RICHLAND SENECA SHELBY TRUMBULL VAN WERT WOOD 2017 UPDATE COUNTIES ASHLAND ASHTABULA ATHENS BUTLER CLERMONT FULTON GREENE KNOX MADISON MONTGOMERY NOBLE SUMMIT WAYNE BELMONT BROWN CRAWFORD CUYAHOGA ERIE FAYETTE HIGHLAND HURON JEFFERSON LAKE LORAIN LUCAS MORGAN MUSKINGUM OTTAWA PORTAGE STARK WARREN WILLIAMS 2018 UPDATE COUNTIES ALLEN COSHOCTON GUERNSEY SANDUSKY VINTON CARROLL CHAMPAIGN CLARK FAIRFIELD LOGAN MARION MEDINA MIAMI ROSS UNION WYANDOT 2019 UPDATE COUNTIES ADAMS COLUMBIANA HANCOCK HOCKING HOLMES LAWRENCE MEIGS MONROE PAULDING SCIOTO TUSCARAWAS WASHINGTON ASHLAND ASHTABULA ATHENS BUTLER CLERMONT FULTON GREENE KNOX MADISON MONTGOMERY NOBLE SUMMIT WAYNE 2020 UPDATE COUNTIES AUGLAIZE CLINTON DARKE DEFIANCE DELAWARE FRANKLIN GALLIA GEAUGA HAMILTON HARDIN HARRISON HENRY JACKSON LICKING MAHONING MERCER MORROW PERRY PICKAWAY PIKE PREBLE PUTNAM RICHLAND SENECA SHELBY TRUMBULL VAN WERT WOOD ALLEN COSHOCTON GUERNSEY SANDUSKY VINTON 2021 UPDATE COUNTIES BELMONT BROWN CRAWFORD CUYAHOGA ERIE FAYETTE HIGHLAND HURON JEFFERSON LAKE LORAIN LUCAS MORGAN MUSKINGUM OTTAWA PORTAGE STARK WARREN WILLIAMS
Real Estate Tax Issues Woda Ivy Glen & R.C. 5713.03 Mark A. Snider Porter Wright
Woda Ivy Glen Woda Ivy Glen L.P. v. Fayette Cty. Bd. of Revision, 2009-Ohio-762 (Ohio Supreme Court) Ohio Supreme Court overruled BTA and in favor of property owner Coalition of affordable housing advocates submitted amicus brief to Ohio Supreme Court
Woda Ivy Glen Real property taxes often single biggest nonproductive expense As Court noted, LIHTC properties are operating under limited gross potential income Affordable housing properties rarely sell during compliance period
Woda Ivy Glen County Auditor is required to consider use restrictions imposed under LIHTC program when valuing affordable housing, as restrictions are governmental restrictions imposed for general welfare Requirement of valuing fee simple as if unencumbered different rule for public encumbrances from rule for private encumbrances
Woda Ivy Glen Take Away #1: Court distinguished earlier case law. Income approach likely required to be used to take into account reduced value of property due to use and rent restrictions. Cost approach cannot be used. Take Away #2: Court retained earlier case law that the tax credits / equity are not real property and can t be included in setting value
Woda Ivy Glen Appraisal uncertainty #1: What if actual (subsidized) rental income is greater than fair market rents in the area? Appraisal uncertainty #2: Should actual or market rate expenses be used? Appraisal uncertainty #3: Application to non-lihtc properties Appraisal uncertainty #4: How will auditors and Boards of Revision interpret case law? How can auditors know which properties are affordable housing and their NOI to use in setting initial value?
Woda Ivy Glen Early process many BOR complaints were required Early process adoption by counties varied significantly Early process many appeals to BTA
Woda Ivy Glen Recent case law challenges HUD vs. LIHTC properties Recent case law challenges When actual rents exceed market rents Recent case law challenges Evidentiary standards; shifting legal burdens
R.C. Section 5713.03 Two important statutory changes to real property valuation statute (2012) Reasons for changes
R.C. Section 5713.03 The county auditor, from the best sources of information available, shall determine, as nearly as practicable, the true value of the fee simple estate, as if unencumbered but subject to any effects from the exercise of police powers or from other governmental actions, of each separate tract, lot, or parcel of real property and of buildings, structures, and improvements located thereon...
R.C. Section 5713.03... if such tract, lot, or parcel has been the subject of an arm's length sale between a willing seller and a willing buyer within a reasonable length of time, either before or after the tax lien date, the auditor shall may consider the sale price of such tract, lot, or parcel to be the true value for taxation purposes....
QUESTIONS? MARK SNIDER 614.227.2150 msnider@porterwright.com
Real Estate Tax Issues the struggle continues
Why does it matter? Rents are artificially low compared to market (THAT S THE POINT OF THE PROGRAM!) High administrative burden produces higher cost compared to un-restricted properties (LOADS OF PAPERWORK!) LIHTC properties have laser thin margin of error (cold winter / snow / tree removal / HIGH TAXES / etc can ruin budget for year)
LIHTC projects very sensitive! Example is illustrative of how sensitive a typical LIHTC property can be to a relatively modest increase in expenses Public policy goals not met if LIHTC project under continual financial stress
The issue Inconsistency with valuations amongst a handful of county auditors Some appear very proactive in seeking information about restricted properties / takes steps to annotate systems Some Auditors appear unwilling to consider the LIHTC Use Restrictions
The issue (continued) Some valuations not consistent with 5713.03 Valuations of LIHTC properties bouncing back to previously high levels every 3 (or 6) years at a number of properties Results in a significant administrative burden for ALL parties Produces unnecessary cost to property (that they can t afford!)
Family / rehab Sampling of projects Family / new Elderly / new SFLP Significant fluctuations are seen at a number of projects Interesting time-spans between changes Elderly / rehab Family / new Elderly / new Feels like playing a game of whac-a-mole!
The impact Hundreds of LIHTC properties across Ohio spent millions of dollars over the past six years during the appeal process to achieve valuations that are consistent with the Woda case & state statute (ORC 5713.03)
Representative Case Study 1 56 unit / Single Family Lease Purchase project (LIHTC) Initial valuation was $4.75M (not considering LIHTC restrictions) Annual real estate tax was $134K ($2,398/unit ~33% of rent) After 3 year-long appeal process (considering Use Restrictions), valuation reduced to $2.2M Revised annual real estate tax was $62K ($1,123/unit ~15% of rent) Legal fees were ~$44K
Representative Case Study 2 60 unit / elderly project (LIHTC) Initial valuation was $5.8M (not considering LIHTC restrictions) Annual real estate tax was $163K ($2,732/unit ~40% of rent) After year-long appeal process (considering Use Restrictions), valuation reduced to $1.9M Revised annual real estate tax was $53K ($890/unit ~13% of rent) Legal fees were ~$28K
Industry wide impact? Average ~ $25k legal fees Does not include GP or management time ~375 appeals over 7 years 150+ during first wave of appeals after initial Woda case in 2009/2010 Valuations at many projects bounced back during triennial update, requiring full process to be repeated Some projects now the 3 rd round of appeals ~375 appeals x ~$25K each = ~$9.3M in unnecessary cost!
Our goal? Fair valuations resulting in real estate taxes that account for the use restrictions Reduction in the administrative burden for GPs, managing agents and our friends at the local county auditor s office! Avoidance of unnecessary expenses (that these projects can NOT afford) Fulfillment of the public policy goals intended by the program
Q & A Tony DiBlasi Chief of Asset Management Ohio Capital Corporation for Housing 88 East Broad Street, Suite 1800 Columbus, Ohio 43215 tdiblasi@occh.org (614) 224-8446 x157