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NCAHMA and MHC Present: Setting The Stage: An I ntro To Market Studies June 9-10, 2009 Embassy Suites Ridgeland, Mississippi This Event Was Made Possible With Grants From: I nstructors Bud Clarke, MAI, MMA Financial, Boston, MA Bob

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Setting The Stage: An I ntro To Market Studies

June 9-10, 2009 Embassy Suites Ridgeland, Mississippi

NCAHMA and MHC Present:

This Event Was Made Possible With Grants From:

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www.housingonline.com Page 2

I nstructors

  • Bud Clarke, MAI, MMA Financial,

Boston, MA

  • Bob Lefenfeld, Real Property Research

Group, Columbia, MD

  • Mary Ellen Shay, M.E. Shay & Co.,

Sacramento, CA

  • Rob Vogt, VWB Research, Columbus,

OH

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Program Agenda - Day 1

Welcome & I ntroductions – 9:00 am Affordable Housing Background – 9:15 am

  • -History and Philosophy of Affordable Housing
  • -LIHTC Basics

Background on Market Studies – 9:30 am

  • -History of Market Analysis & NCAHMA Background
  • -How is a Market Study Different From an Appraisal
  • -Types of Market Studies
  • -What they are, what they do.

Elements of Market Analysis – 10:00 am

  • -Overview of Housing Markets
  • -Components of Market Studies
  • -Scope of Work
  • -Project Description

Coffee Break – 10:30 am Conducting Site Analysis - 10:45 am

  • -Tips and Advice on Field Work
  • -Site Analysis

Determining Market Area – 11:15 am

  • -Case Study - Market Area Determination

LUNCH – 12:00 pm Putting it in Context: What Does it Mean in Today’s Distressed Economy? - 1:00 pm Demographic Trends: Housing and Economic - 2:00 pm

  • -Sources of Data (public and private)
  • -Pros and Cons of Different Types of Data
  • -Demographic Analysis

Coffee Break – 2:45 pm Rental Market Trends and Conditions - 3:00 pm

  • -Construction and Absorption Levels
  • -Characteristics of Housing Stock
  • -Rent & Vacancy Trends
  • -For Sale Market trends and Conditions

Recap of Day 1, Overview of Day 2, Q&A – 3:45 pm

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Program Agenda - Day 2

Welcome & I ntroductions – 9:00 am Recap – 9:15 am

  • -Elements of Market Studies
  • -Affordable Housing Background
  • -Background on Market Studies
  • -Elements of Market Analysis
  • -Conducting a Site Analysis
  • -Determining Market Area
  • -Demographic Trends
  • -Putting it in Context
  • -Rental Market Trends and Condition

Calculating Market Rent – 9:45 am

  • -Identifying Comparable Properties
  • -Surveying Comparable Properties
  • -Analyzing Comparable Properties
  • -Adjustment Process
  • -Red Flags
  • -Case Study – Calculating Market Rent

Coffee Break – 10:45 am Calculating Capture Rates & Demand Analysis – 11:00 am

  • -State Specific Case Studies
  • -Case Study – Calculating Capture Rates

LUNCH – 12:00 pm Rent Analysis - 1:00 pm

  • -Maximum Rents
  • -Market Advantage
  • -Utility Allowances
  • -Affordability
  • -Achievable Rents
  • -Pro Forma rents

Drawing Conclusions – 2:00 pm

  • -Tying it All Together

Recommendations, Red Flags and Q & A – 3:00 pm End of Program – 4:00 pm

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Affordable Housing Background

  • Late 19th Century Reforms

Public health and safety NYC housing standards Light, air, size

  • New Deal Era

Creation of jobs and economic recovery Housing Act 1933 – FHLB, FHA, Sec 221(d)(3) Housing Act 1937 - Local H/As

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Affordable Housing Background

  • 1960’s An Age of Activism

Great Society Programs & War on Poverty

Rebuild inner-city housing stock 1964 Civil Rights Act

  • Equal opportunity in housing
  • Outlawed discrimination

HUD 1965

Cabinet level agency created unified federal agency

to address crisis in urban areas

1968 Housing Act

Ten year plan to create 26 million housing units

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Affordable Housing Background

  • 1970’s Housing Initiatives

Government sponsorship w/out direct ownership

Section 236 Low interest loans and tax benefits Inflation and rising operating expenses

Section 8

Rent Subsidy program

  • Project based or tenant based

Annual appropriations or annually renewable

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Affordable Housing Background

  • Post HUD-Era Low Income Housing

Minimal support for new development

High concentrations of low income residents H/As not equipped to manage, maintain Focus on maintaining inventory

State, local, & private with federal support

Preservation versus new development Housing Finance Agencies

LIHTC

1987 – designed to promote private investment IRS –Section 42

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I ntroduction to Tax Credit Housing

  • Known under a variety of names

LIHTC Section 42 Tax credit housing MTSP – Multi Family Tax Subsidy Project

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I ntroduction to Tax Credit Housing

  • Most successful program for affordable

multifamily housing production in the U.S.

  • Provides equity to an affordable housing

developer based on development costs.

  • Annual tax credits delivered over 10-year period;

compliance period lasts 15+ years.

  • Approximately 1,550,000 affordable housing

units produced since 1987.

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I ntroduction to Tax Credit Housing

  • Government: Federal (IRS); State Allocating

Agencies;

  • Developers: Broad array of for-profit and non-

profit

  • Syndicators: Approximately 35 for profit and

non-profit syndicators

  • Corporate Investors: GSEs; banks; insurance

companies; non-financial companies

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I ntroduction to Tax Credit Housing

Corporate I nvestor = Limited Partner (99% ) Developer = General Partner (1% ) Tax Credits Tax Credits Tax Credits Equity $ Equity $ Tax Credits Tax Credits

CORPORATE INVESTOR DEVELOPER PROPERTY

Syndicator, LP

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I ntroducti

  • n to Tax

Credit Housing

j Uses of Funds Total $/unit Acquisition 142,005 3,227 Construction Costs 3,477,000 79,023 Developer Fee 435,000 9,886 Professional Fees

  • Architect

160,000 3,636 Lab Fees 5,000 114 Soils 10,000 227 Surveys 30,000 682 Legal 65,000 1,477 Environmental 10,500 239 Lenders Attorney 15,000 341 Audit 25,000 568 Market Study/Appraisal 12,500 284 Marketing Expense 23,000 523 Carrying and Finance

  • Interest

70,000 1,591 RE Tax 80,000 1,818 Insurance 60,000 1,364 Title 20,000 455 Tax Abatement fee 7,500 170 Utility Connections

  • Loan Commitments

70,000 1,591

  • Organiz. - Syndication

55,000 1,250 Tax Credit Fees 104,338 2,371 Development Costs 4,876,843 110,837

  • Working Capital

77,000 1,750 Escrow Requirements 200,000 4,545 Operating Def. Escrow 19,000 432 Lease Up Reserves 40,000 909 Contingency 350,000 7,955 Total Project Costs 5,562,843 126,428 Sources of Funds First Mortgage 1,327,000 24% Equity (Syndication) 3,931,843 71% Home Funds Loan 304,000 5% 5,562,843 100%

Eligible Cost Basis

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I ntroduction to Tax Credit Housing

  • Restricted Rents (40% -60% of AMI)
  • Operating Expenses are not Subsidized

P.I.L.O.T.

  • Only qualified units in eligible cost basis
  • Units must remain rented to qualified residents
  • Must find income qualified renter households
  • No assured subsidies - risk of rents

Why would anyone develop housing under this scenario?

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I ntroduction to Tax Credit Housing

  • Benefits to Investors

Tax Credits – 10 year stream $ for $ reduction Tax Losses – offset income & manage earnings Cash Flow – may be consumed by soft debt Residual Value – after 15-year compliance CRA Credit – Community Reinvestment Act Political Goodwill – favorable results

  • Benefits to Developers

Equity Developers fee, builders profit, management fees

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I ntroduction to Tax Credit Housing

  • Privately owned
  • Wide variety of

designs – new construction, rehab

  • Senior and family
  • Generally low and

mid-rise

  • Indistinguishable

from market rate

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Background on Market Studies

  • NCAHMA

Formed in 2001 in response to legislation Requirements vary from state to state

21 states adopted NCAHMA standards in some form

Membership organization

Higher level of professionalism Ethics and professional accountability

  • Education
  • Peer review
  • Sharing of information and resources
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Background on Market Studies

  • NCAHMA

Members in good standing

Education requirement Continuing education requirement Minimum work experience Adhere to strict set of minimum standards and ethics Peer review process

  • Continued improvement
  • Learning
  • Accountability

Produce credible reports that are not misleading.

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Background on Market Studies

  • NCAHMA

Members in Good Standing (continued)

Statement of commitment to peers and users of

services

  • Superior
  • High quality
  • Professional market analysis and related real estate

services

Recognition for efforts towards setting the standard

for quality

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Background on Market Studies

  • NCAHMA

Minimum standards and best practices

Certification in every report

Market study index Glossary of terminology White papers

Analyzing senior demand and senior markets Factors to consider with preservation properties:

Section 8 and 236

Recommended practices for analyzing turnover

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Background on Market Studies

  • NCAHMA

White papers (continued)

Demand and C/R methodology Calculating market rent Selecting comparable properties Determining market area Best practices for rural markets Recommended practices for determining demand

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  • NCAHMA Resources

Model Standards Definitions Best Practices Index Terminology White Papers www.housingonline.com Background on Market Studies

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  • Market Analysis

Historically part of the appraisal process

Scarcity - competitive supply and effective demand Utility Key component preceding 3 approaches to value

Many market analysts are appraisers, but not all

appraisers are market analysts

Background on Market Studies

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  • Types of Market Studies

LIHTC Market Rate Housing Assisted Living Student Housing Military Housing Different purposes

A use with a site to determine feasibility A use in search of a site and feasibility A site in search of a feasible use

Background on Market Studies

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  • What is a Market Study and what do they do?

A comprehensive forward looking analysis of the

housing market in a defined market area.

Users: developers, syndicators, govt. entities, investors

  • Determine housing needs in specific geography
  • Specific need for proposed development or rehab

Depth and durability of the market

Supply and demand (demographic) analysis

Marketability of proposed site Projected outcome - feasibility and conclusions Background on Market Studies

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  • Housing Market Issues

– Low Income Housing as a Special Submarket – Operates within Larger Housing Market – Analysis of the Choices of Market Participants – Tenants, Investors, Lenders

Elements of Market Analysis

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Who Lives in Tax Credit Housing?

Elements of Market Analysis

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Who Lives in Public Housing?

Elements of Market Analysis

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  • What is a Market Study?

– A comprehensive review of the housing market in a defined market area.

Elements of Market Analysis

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  • What is its Purpose?

– A market study can be used to determine the demand for specific proposed development or to examine the overall condition of an area’s housing market.

Elements of Market Analysis

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  • Who Uses It?

– Project-specific market studies are often used by developers, syndicators, and government entities to determine the appropriateness of a proposed development, whereas market-specific market studies are used to determine what housing needs, if any, exist within a specific geography. – At a minimum, market studies include a review of location, economic conditions, demographics, and existing and proposed housing stock.

Elements of Market Analysis

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  • Market Study Resources

– Model Content Standards – Definitions – Best Practices – www.housingonline.com

Elements of Market Analysis

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  • Components of a Market Study include:

– Executive Summary (II 1-7) – Project Description (II 1-4 + maps, VIII 1-7) – Location and Market Area (IV 11) – Employment and Economy (IV 19-25 + map) – Population and Households (IV 14-18) – Existing Rental Housing Stock (V 1-11, Details: IX, X and XI) – Rental Housing Market and Housing Alternatives (VI 1- 12) – Analysis (VII 1-7) – Conclusions and Recommendations (II 1-7)

Elements of Market Analysis

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Scope of Work

  • Define Study Objectives

– Developer needs – HFA or lender requirements

  • Define Product

– Project Layout – Unit Layout – Unit Type – Unit Sizes – Target Markets – Utility Allowance – Tenant Services

Elements of Market Analysis

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  • We ask the client to provide us all of the following if possible

– Proposed unit mix

  • Breakdown of units by bedroom type and % of AMI

– Proposed rents and utility allowance – Type of utilities and the person(s) responsible for paying for the utilities – Proposed amenities – Project type

  • Family, senior, special needs

– Parking type and number of spaces – Location of property, including directions to and a map of the site, if available – Anticipated construction schedule – Pro forma – Plans and specs, if available – Any adverse influences in the area that are known by the developer

  • If the client is unable to provide us with any of the above information, we

typically get this information ourselves.

– Sometimes the client wants us to provide them with this information from the market

  • Unit mix, rents, parking, location, etc.

Elements of Market Analysis

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  • Project Description

– Project name, location, type, and developer

  • Name of subject, exact location of subject within the market area and

state, project type (multi-family, assisted living, senior, single occupancy, etc.)

– Project Design

  • Number of buildings, number of units, number of stories, type of framing

and siding, number of bedrooms and baths in each unit, etc.

– Unit Features, Project Amenities and Services

  • For Units: Type of floor coverings, in-unit amenities (refrigerator,

range/oven, ceiling fans, etc.), air conditioning, heating, etc.

  • For Project: Laundry facility, community rooms, picnic/garden area, tennis

court, pool, etc.

– Parking – Utilities

  • Utility allowance as well as a list of all provided utilities

– Unit Mix, Size, and Rent Structure

  • All of the above are found by personal/telephone meetings with investors

and ordering parties

Elements of Market Analysis

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Design/Sketch (III 3)

A typical unit sketch will show the basic layout

  • f each unit:

– Size, shape, number of rooms, location of each room, etc. – Usually, if there are numerous types of units, a floor plan/sketch will be included for each unit type.

Elements of Market Analysis

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Elements of Market Analysis

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  • Project Location (IV 1)

– City, State, and Exact Location within the State are discussed in the narrative. – Mapping programs such as CoPilot, DeLorme, Site to do Business and Microsoft are typical in the industry.

  • These are used to show the location on the street, within

the neighborhood, within the city, within the county and sometimes within the state.

Elements of Market Analysis

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Tips and Advice on Field Work

  • Be prepared. Identify site, amenities, comps, etc. before hand
  • Allow plenty of time
  • Take lots of pictures
  • Record field notes on tape or BlackBerry
  • Use GPS
  • Talk to lots of people – managers, residents, community

leaders, merchants, kids, etc.

  • Be flexible – open to new ideas
  • Follow-up with phone calls and e-mails
  • Send data to sources if requested and permitted by client
  • Wear neat and comfortable clothes and shoes
  • Provide ID and purpose of work to extent possible
  • Give a little, get a lot. Be nice.

Conducting a Site Analysis

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Site Analysis

Is the site suitable for

development as affordable rental housing?

  • Surrounding land uses

compatible with housing?

  • Neighborhood adequately

served by facilities and services?

  • Is it accessible by car and public

transportation?

  • Planned changes in the area

that may compromise its suitability in the future?

Conducting a Site Analysis

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Site Plan (III 1)

  • Site characteristics are usually described by:

– Size, Shape, Zoning, Frontage, etc.

  • A typical site plan will show where the

following will be located:

– Buildings, Parking, Entries, Exits, Amenities, Pool, Landscaping, etc. – Sometimes it will contain utilities, traffic flow and anything else important for the site.

Conducting a Site Analysis

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  • Primary Market Area

“A geographic area from which a property is expected to draw the majority of its residents.”

  • Secondary Market Area

“The portion of a market area that supplies additional support to an apartment property beyond that provided by the primary market area.”

Determining Market Area

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  • A housing market area is the

contiguous area within which households compete for available housing.

  • Ask yourself if the market area

delineated seems reasonable in size and character.

Determining Market Area

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Market Area Criteria

  • A reasonable market area is critical as it determines the

geographic scope of other analyses.

– It should be realistic in size. – It should reflect the impact of natural and man-made barriers.

  • Beware of radii, county boundaries, or multi-county

boundaries.

  • Seniors market areas are generally larger than those for

family projects.

Determining Market Area

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  • Delineation of Market Area

– Location of Competitive Properties (X-2 + map) – Accessibility (IV-3) – Natural Boundaries (IV-1) – Housing Project Characteristics (III-1) – Market Perceptions – Commuting Patterns (IV-25) – Target Market – Jurisdictional Boundaries (IV-1) – Local Agency Service Boundaries (IV-10 + map) – Non-Geographic Factors (IV-4, IV-8)

Determining Market Area

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Is this a good market area?

Determining Market Area Case Study

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How about this market area?

Determining Market Area Case Study

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Does this seem reasonable?

Determining Market Area Case Study

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Economic Context

What is the environment in which project will be operating?

Labor Force Unemployment At Place Employment Major Employers

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Labor Force & Unemployment Trends

Annual Unemployment 2000 2001 2002 2003 2004 2005 2006 2007 2008 Labor Force 339,966 335,683 347,203 351,883 359,953 367,615 371,834 384,457 395,042 Employment 322,996 313,873 319,255 323,069 334,820 346,072 352,943 366,374 372,535 Unemployment 16,970 21,810 27,948 28,814 25,133 21,543 18,891 18,083 22,507 Unemployment Rate Pierce County 5.0% 6.5% 8.0% 8.2% 7.0% 5.9% 5.1% 4.7% 5.7% Washington 5.0% 6.2% 7.3% 7.4% 6.2% 5.5% 4.9% 4.5% 5.3% United States 4.0% 4.7% 5.8% 6.0% 5.5% 5.1% 4.6% 4.6% 5.8%

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0%

50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 450,000

2000 2001 2002 2003 2004 2005 2006 2007 2008

Unemployment Rate Labor Force

Labor Force and Unemployment Rate

Labor Force Pierce County Washington United States

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Labor Force & Unemployment Trends

Unemployment Rate Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Pierce County 4.6% 5.2% 5.4% 5.4% 4.9% 5.3% 5.7% 5.7% 5.9% 5.4% 5.8% 6.4% 7.1% 8.8% 9.2% 10.4% Washington 4.7% 5.2% 5.3% 5.1% 4.5% 4.9% 5.1% 5.1% 5.3% 5.0% 5.4% 6.2% 7.1% 8.6% 9.1% 9.7% United States 4.8% 5.4% 5.2% 5.2% 4.8% 5.2% 5.7% 6.0% 6.1% 6.0% 6.1% 6.5% 7.1% 8.5% 8.9% 9.0%

3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 10.0% 11.0% Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Labor Force

Monthly Unemployment Rate

Pierce County Washington United States

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At-Place Employment Trends

187,836 188,762 192,890 198,830 207,522 212,245214,071 222,225 228,264 231,757 241,451 238,600 238,432 243,081 249,457 257,642 265,674 274,779 274,698 50,000 100,000 150,000 200,000 250,000 300,000 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Q3

Total At Place Employment Pierce County

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At-Place Employment Trends

926 4,128 5,940 8,692 4,723 1,826 8,154 6,039 3,493 9,694

  • 2,851
  • 168

4,649 6,376 8,186 8,032 9,104

  • 80
  • 15.0%
  • 10.0%
  • 5.0%

0.0% 5.0% 10.0% 15.0%

  • 4,000
  • 2,000

2,000 4,000 6,000 8,000 10,000 12,000 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Q3 % Annual Growth Annual New Jobs

Employment Growth Pierce County and US

Pierce County United States Pierce County Growth Rate

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At-Place Employment by Sector

20.3% 0.5% 8.1% 7.2% 19.7% 1.3% 4.8% 8.8% 14.2% 10.1% 5.1% 16.2% 1.2% 5.3% 9.8% 19.1% 2.2% 5.9% 12.9% 13.6% 9.8% 4.0% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0%

Employment by Sector 2008 Q3 Pierce County and United States

United States Pierce County

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Change in Employment by Sector

1.3%

  • 5.4%

6.2%

  • 0.7%

2.4% 1.0% 0.1% 4.8% 2.2% 2.1% 1.6% 1.4%

  • 0.7%

1.1%

  • 2.7%

0.4%

  • 2.5%

0.9% 1.3% 3.4% 1.9% 4.3%

  • 6.0%
  • 4.0%
  • 2.0%

0.0% 2.0% 4.0% 6.0% 8.0%

Annualized Employment Change by Sector, 2001-2008 Q3 Pierce County and United States

United States Pierce County

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Commuting Patterns

Travel Time to Work Workers 16 years and over # % Did not work at home: 72,052 97.0% Less than 5 minutes 1,320 1.8% 5 to 9 minutes 4,449 6.0% 10 to 14 minutes 7,024 9.5% 15 to 19 minutes 8,546 11.5% 20 to 24 minutes 11,429 15.4% 25 to 29 minutes 5,577 7.5% 30 to 34 minutes 12,281 16.5% 35 to 39 minutes 2,798 3.8% 40 to 44 minutes 3,385 4.6% 45 to 59 minutes 6,985 9.4% 60 to 89 minutes 5,667 7.6% 90 or more minutes 2,591 3.5% Worked at home 2,243 3.0% Total 74,295 Place of Work Workers 16 years and over # % Worked in state of residence: 73,716 99.2% Worked in county of residence 51,586 69.4% Worked outside county of residence 22,130 29.8% Worked outside state of residence 579 0.8% Total 74,295 100.0% Place of Work

In County Outside County Outside State

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Economic Forecast

Major Employers

Location; Size of Workforce; Prospects for future growth or reduction

Economic Expansions

Any planned expansions in the Market; i.e., BRAC, New Plants. Is household growth increasing demand for services

Economic Disruptions

Major Layoffs or Closing; Vulnerable Sectors of Economy

Wage Trends

Are wages increasing or decreasing

1 1 1 1 1 1 1 1 1 % % % % % % % % % % % % % % % % % % % % % % % % % % % 9 9 9 9 9 9 9 9 9 / / / / / / / / / % % % % % % % % %

1

m ile s

2

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Location of Major Employers

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Demographic Context

Population and Household Trends Demographic Characteristics Income Characteristics

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Population and Household Trends

  • What is the nature of recent demographic

trends in the market area?

  • Has the number of households been increasing,

decreasing, or remaining about the same?

  • Are recent past trends expected to continue?
  • Are demographic projections from a reputable third-

party source?

  • Does building permit activity correlate with

household trends?

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Factors Impacting Population and Household Projections

Cohort Survival Models Births – Deaths + Migration Economic Growth / Loss Is there an economic stimulus that will impact in-migration or out migration Household Formation The age distribution of the population gives you an indication

  • f number of persons that will form

households. Development Patterns Is there infrastructure and land available to support new growth (supply driven demand)

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Definitions

Population

Persons residing in the market area

Group Quarters

A group quarters is a place where people live or stay, in a group living arrangement, that is owned or managed by an entity or

  • rganization providing housing and/or services for the residents. This

is not a typical household-type living arrangement. These services may include custodial or medical care as well as other types of assistance, and residency is commonly restricted to those receiving these services. People living in group quarters are usually not related to each other. Group quarters include such places as college residence halls, residential treatment centers, skilled nursing facilities, group homes, military barracks, correctional facilities, and workers’ dormitories.

Household Population

Population – persons in Group Quarters

Households

A household includes all the people who occupy a housing unit as their usual place of residence and a person, or one of the people, in whose name the home is owned, being bought, or rented. If there is no such person present, any household member 15 years old and

  • ver can serve as the householder for the purposes of the census.

Two types of householders are distinguished: a family householder and a nonfamily householder. A family householder is a householder living with one or more people related to him or her by birth, marriage, or adoption. The householder and all people in the household related to him are family members. A nonfamily householder is a householder living alone or with nonrelatives only.

Average Household Size

Household Population/ households

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Household Growth - 2007 Projections

2007 data created based on latest information available 4 Quarter 2006

Pierce County Total Annual Total Annual Total Annual 1990 2000 2007 2012 # % # % # % # % # % # % Population 586,210 700,820 761,211 813,036 114,610 19.6% 11,461 1.8% 60,391 8.6% 8,627 1.2% 51,825 6.8% 10,365 1.3% Group Quarters 23,160 21,510 22,036 22,380 Households 214,655 260,800 284,579 304,811 46,145 21.5% 4,615 2.0% 23,779 9.1% 3,397 1.3% 20,232 7.1% 4,046 1.4% Average HH Size 2.62 2.60 2.60 2.59 Puyallup Market Total Annual Total Annual Total Annual 1990 2000 2007 2012 # % # % # % # % # % # % Population 114,997 155,171 181,719 203,625 40,174 34.9% 4,017 3.0% 26,548 17.1% 3,793 2.3% 21,906 12.1% 4,381 2.3% Group Quarters 1,191 917 950 954 Households 40,601 55,718 65,333 73,215 15,117 37.2% 1,512 3.2% 9,615 17.3% 1,374 2.3% 7,882 12.1% 1,576 2.3% Average HH Size 2.80 2.77 2.77 2.77 Change 1990 to 2000 Change 2000 to 2007 Change 1990 to 2000 Change 2000 to 2007 Change 2007 to 2012 Change 2007 to 2012

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Household Growth - 2008 Projections

Pierce County Total Annual Total Annual Total Annual 1990 2000 2008 2013 # % # % # % # % # % # % Population 586,210 700,820 788,370 844,098 114,610 19.6% 11,461 1.8% 87,550 12.5% 10,944 1.5% 55,728 7.1% 11,146 1.4% Group Quarters 23,160 21,510 21,866 22,087 Households 214,655 260,800 295,764 318,221 46,145 21.5% 4,615 2.0% 34,964 13.4% 4,371 1.6% 22,457 7.6% 4,491 1.5% Average HH Size 2.62 2.60 2.59 2.58 Puyallup Market Total Annual Total Annual Total Annual 1990 2000 2008 2013 # % # % # % # % # % # % Population 114,997 155,171 193,056 215,448 40,174 34.9% 4,017 3.0% 37,885 24.4% 4,736 2.8% 22,392 11.6% 4,478 2.2% Group Quarters 1,191 917 942 952 Households 40,601 55,718 69,506 77,684 15,117 37.2% 1,512 3.2% 13,788 24.7% 1,723 2.8% 8,178 11.8% 1,636 2.2% Average HH Size 2.80 2.77 2.76 2.76 Change 2000 to 2008 Change 2008 to 2013 Change 2008 to 2013 Change 1990 to 2000 Change 2000 to 2008 Change 1990 to 2000

2008 data created based on latest information available 4 Quarter 2007

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Household Growth - 2009 Projections

Pierce County Total Annual Total Annual Total Annual 1990 2000 2009 2014 # % # % # % # % # % # % Population 586,210 700,820 808,338 866,339 114,610 19.6% 11,461 1.8% 107,518 15.3% 11,946 1.6% 58,001 7.2% 11,600 1.4% Group Quarters 23,160 21,510 21,775 21,912 Households 214,655 260,800 302,924 325,546 46,145 21.5% 4,615 2.0% 42,124 16.2% 4,680 1.7% 22,622 7.5% 4,524 1.5% Average HH Size 2.62 2.60 2.60 2.59 Puyallup Market Total Annual Total Annual Total Annual 1990 2000 2009 2014 # % # % # % # % # % # % Population 114,997 155,171 199,806 222,140 40,174 34.9% 4,017 3.0% 44,635 28.8% 4,959 2.8% 22,334 11.2% 4,467 2.1% Group Quarters 1,191 917 927 931 Households 40,601 55,718 71,761 79,733 15,117 37.2% 1,512 3.2% 16,043 28.8% 1,783 2.9% 7,972 11.1% 1,594 2.1% Average HH Size 2.80 2.77 2.77 2.77 Change 1990 to 2000 Change 2000 to 2009 Change 1990 to 2000 Change 2000 to 2009 Change 2009 to 2014 Change 2009 to 2014

2009 data created based on latest information available 4 Quarter 2008

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Three years series of projections

Household Growth Puyallup Market Pierce Co # Growth Rate # Growth Rate Based on Q4 2006 Data 2007 1,576 2.3% 4,046 1.4% 39.0% Based on Q4 2007 Data 2008 1,636 2.2% 4,491 2.2% 36.4% based on Q4 2008 date 2009 1,561 2.1% 4,460 1.5% 35.0% Projection Year Market % of County

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Building Permits Pierce County

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Puyallup Market

Total Annual Total Annual

Age of Householder 2000 2009 2014

# % # % # % # %

55 to 61 5,344 34.0% 8,984 37.0% 11,054 36.0% 3,640 68.1% 404 5.9% 2,070 23.0% 414 4.2% 62-64 1,899 12.1% 3,341 13.7% 4,174 13.6% 1,442 75.9% 160 6.5% 833 24.9% 167 4.6% 65 to 74 4,768 30.3% 7,100 29.2% 9,697 31.6% 2,332 48.9% 259 4.5% 2,597 36.6% 519 6.4% 75 to 84 2,939 18.7% 3,647 15.0% 4,269 13.9% 708 24.1% 79 2.4% 622 17.0% 124 3.2% 85 and older 783 5.0% 1,242 5.1% 1,485 4.8% 459 58.6% 51 5.3% 243 19.6% 49 3.6% Householders 55+ 15,733 100.0% 24,314 100.0% 30,679 100.0% 8,581 54.5% 953 5.0% 6,365 26.2% 1,273 4.8% Householders 62 + 10,389 15,330 19,625 4,941 47.6% 549 4.4% 4,295 28.0% 859 5.1%

Change 2000 to 2009 Change 2009 to 2014

2,000 4,000 6,000 8,000 10,000 12,000

55 to 61 62-64 65 to 74 75 to 84 85 and older

2000 2009 2014

Senior Household Projections

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Demographic Characteristics

Age Distribution of Population Family type and proportion of one-person

households

Owner / Renter Distribution Permanent Renters

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Age Distribution

0% 2% 4% 6% 8% 10% 12% 14% 16% < 4 5 - 9 10-14 15-17 18-20 21-24 25-34 35-44 45-49 50-54 55-59 60-61 62-64 65-74 75-84 85> % Pop Age

2009 Age Distribution

Puyallup Market Pierce County

Number Percent Number Percent Under 5 years 55,974 7.0% 14,265 7.3% 5-9 years 54,219 6.8% 14,031 7.2% 10-14 years 55,275 6.9% 14,739 7.5% 15-17 years 34,495 4.3% 9,263 4.7% 18-20 years 33,902 4.3% 7,740 4.0% 21-24 years 41,641 5.2% 9,472 4.8% 25-34 years 113,438 14.2% 26,405 13.5% 35-44 years 113,895 14.3% 29,002 14.8% 45-49 years 60,696 7.6% 15,546 7.9% 50-54 years 57,844 7.3% 14,274 7.3% 55-59 years 49,346 6.2% 11,877 6.1% 60-61 years 15,772 2.0% 3,848 2.0% TOTAL Non-Senior 686,497 86.1% 170,462 87.1% 62-64 years 23,657 3.0% 5,773 3.0% 65-74 years 48,317 6.1% 11,371 5.8% 75-84 years 27,468 3.4% 5,794 3.0% 85 and older 11,273 1.4% 2,216 1.1% TOTAL Senior 110,715 13.9% 25,154 12.9% TOTAL 797,212 100.0% 195,616 100.0% Median Age 35 35 Pierce County Puyallup Market

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Household Type

# % # % Married w/ Child 76,385 25.6% 21,515 30.6% Married w/o Child 82,597 27.7% 20,887 29.7% Male hhldr w/ Child 8,360 2.8% 2,116 3.0% Female hhldr w/ Child 22,775 7.6% 4,851 6.9% Non Married Households w/o Children 35,243 11.8% 7,564 10.8% Living Alone 73,232 24.5% 13,332 19.0% Total 298,592 100.0% 70,265 100.0% Pierce County Puyallup Market

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Owner Renter Breakdown

Pierce County 2000 2009 2014 Housing Units Number Percent Number Percent Number Percent Owner Occupied 165,598 63.5% 193,626 64.8% 209,655 65.3% Renter Occupied 95,202 36.5% 104,966 35.2% 111,235 34.7% Total Occupied 260,800 100.0% 298,592 100.0% 320,890 100.0% Total Vacant 16,260 21,436 23,036 TOTAL UNITS 277,060 320,028 343,926 Puyallup Market 2000 2009 2014 Housing Units Number Percent Number Percent Number Percent Owner Occupied 41,207 74.0% 52,514 74.7% 58,481 74.9% Renter Occupied 14,511 26.0% 17,751 25.3% 19,590 25.1% Total Occupied 55,718 100.0% 70,265 100.0% 78,071 100.0% Total Vacant 2,561 3,776 4,116 TOTAL UNITS 58,279 74,041 82,187

Owner Occupied 65% Renter Occupied 35%

2009 Tenure Breakdown Pierce County

Owner Occupied 75% Renter Occupied 25%

2009 Tenure Breakdown Puyallup Market

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Senior vs. Total Owner/ Renter Breakdown

Pierce County Puyallup Market

2009 Households Number Percent Number Percent Owner Occupied 193,626 64.8% 52,514 74.7% Renter Occupied 104,966 35.2% 17,751 25.3% Total Occupied 298,592 100.0% 70,265 100.0% Total Vacant 21,436 3,776 TOTAL UNITS 320,028 74,041

Senior Households 62 and over Pierce County Puyallup Market

2009 Households Number Percent Number Percent Owner Occupied 53,738 78.2% 12,849 83.8% Renter Occupied 14,939 21.8% 2,481 16.2% Total Occupied 68,677 100.0% 15,330 100.0%

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I ncome Characteristics

  • Total I ncom e
  • I ncom e by Tenure
  • Senior vs. Total I ncom e
  • I ncom e by Age of

Householder

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Total I ncome

Number Percent Number Percent less than $25,000 52,248 17.5% 8,348 11.9% $25,000 $29,999 14,254 4.8% 2,759 3.9% $30,000 $34,999 15,041 5.0% 3,106 4.4% $35,000 $39,999 15,330 5.1% 3,137 4.5% $40,000 $44,999 15,266 5.1% 3,309 4.7% $45,000 $49,999 15,017 5.0% 3,332 4.7% $50,000 $59,999 27,425 9.2% 6,386 9.1% $60,000 $74,999 36,507 12.2% 9,603 13.7% $75,000 $99,999 44,413 14.9% 12,769 18.2% $100,000 $124,999 28,932 9.7% 8,372 11.9% $125,000 $149,999 13,760 4.6% 3,928 5.6% $150,000 $199,999 11,317 3.8% 3,167 4.5% $200,000

  • ver

9,081 3.0% 2,049 2.9% Total 298,592 100.0% 70,265 100.0% Median Income Pierce County $67,429 $58,073 Puyallup Market

0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% <$25K $25- $29K $30- $34K $35- $39K $40- $44K $45- $49K $50- $59K $60- $74K $75- $99K $100- $124K $125- $149K $150- $199K $200+K

2009 Household Income by Area

Pierce County Puyallup Market

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I ncome by Tenure

Puyallup Mkt

Number Percent Number Percent less than $25,000 4,565 25.7% 3,783 7.2% $25,000 $29,999 1,234 7.0% 1,525 2.9% $30,000 $34,999 1,389 7.8% 1,717 3.3% $35,000 $39,999 1,403 7.9% 1,734 3.3% $40,000 $44,999 1,480 8.3% 1,829 3.5% $45,000 $49,999 1,131 6.4% 2,201 4.2% $50,000 $59,999 2,167 12.2% 4,219 8.0% $60,000 $74,999 1,616 9.1% 7,986 15.2% $75,000 $99,999 1,224 6.9% 11,545 22.0% $100,000 $124,999 803 4.5% 7,570 14.4% $125,000 $149,999 317 1.8% 3,611 6.9% $150,000 $199,999 256 1.4% 2,911 5.5% $200,000

  • ver

165 0.9% 1,884 3.6% Total 17,751 100.0% 52,514 100.0% Median Income Renter Households $77,737 $40,912 Owner Households

2,000 4,000 6,000 8,000 10,000 12,000 14,000 <$25K $25- $29.9K $30- $34.9K $35- $39.9K $40- $44.9K $45- $49.9K $50- $59.9K $60- $74.9K $75- $99.9K $100- $124.9K $125- $149.9K $150- $199.9K $200+K

2009 Household Income by Tenure

Renter Households Owner Households

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Senior vs. Total I ncome

Payallup Mkt

Number Percent Number Percent less than $24,999 8,348 11.9% 3,555 23.2% $25,000 $29,999 2,759 3.9% 1,108 7.2% $30,000 $34,999 3,106 4.4% 1,130 7.4% $35,000 $39,999 3,137 4.5% 930 6.1% $40,000 $44,999 3,309 4.7% 816 5.3% $45,000 $49,999 3,332 4.7% 725 4.7% $50,000 $59,999 6,386 9.1% 1,249 8.1% $60,000 $74,999 9,603 13.7% 1,714 11.2% $75,000 $99,999 12,769 18.2% 1,693 11.0% $100,000 $124,999 8,372 11.9% 998 6.5% $125,000 $149,999 3,928 5.6% 506 3.3% $150,000 $199,999 3,167 4.5% 467 3.0% $200,000

  • ver

2,049 2.9% 439 2.9% Total 70,265 100.0% 15,330 100.0% Median Income $45,866 Total Income Income HHldrs 62+ $67,429

0.0% 5.0% 10.0% 15.0% 20.0% 25.0%

<$20K $20- $24.9K $25- $29.9K $30- $34.9K $35- $39.9K $40- $44.9K $45- $49.9K $50- $59.9K $60- $74.9K $75- $99.9K $100- $124.9K $125- $149.9K $150- $199.9K

2009 Total Income and Householder 62 and Older Income

Total Income Sr 62+ Income

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I ncome by Age of Householder

Total 15-24 25-34 35-44 45-54 55-64 65-74 75 + Total Households 70,265 3,212 11,856 14,894 15,974 12,342 7,106 4,880 less than $25,000 8,355 721 875 957 1,096 1,610 1,536 1,559 $25,000-$34,999 5,859 517 869 827 926 671 1,113 936 $35,000-$49,999 9,760 691 2,006 1,825 1,645 1,561 1,160 872 $50,000-$74,999 15,997 854 3,218 3,510 3,435 2,749 1,439 791 $75,000-$99,999 12,763 250 2,551 3,588 3,172 2,044 908 252 $100,000-$124,999 8,378 115 1,405 2,107 2,603 1,579 419 149 $125,000-$149,999 3,932 36 521 1,020 1,291 766 188 112 $150,000-$199,999 3,173 28 278 741 1,066 806 168 86 $200,000-$250,000 933 81 168 345 252 51 37 $250,000 or more 1,114 52 152 394 304 125 87 Median Income $67,446 $43,187 $67,410 $77,282 $81,968 $71,094 $46,130 $34,419

$67,446 $43,187 $67,410 $77,282 $81,968 $71,094 $46,130 $34,419

$0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000 $40,000 $45,000 $50,000 $55,000 $60,000 $65,000 $70,000 $75,000 $80,000 $85,000 $90,000 Total 15-24 25-34 35-44 45-54 55-64 65-74 75 +

Median Household Income Age of Householder

Median Household Income by Age of Householder

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Rental Market Trends & Conditions

  • Your field survey starts with the right Primary Market

Area (IV-11-13)

  • Use 2000 Census data to establish housing profile of

PMA (IV-15, XI-5,15)

  • Profile number of housing units, owner/renter mix

and number of vacant housing units (IV-15)

  • Evaluate building permits for recent activity (IV-17)
  • Other important housing characteristics are rental

units by type, gross rents, year of construction and rent overburdened (XI-14-16)

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32 24 190 404 300 296 156 267 888

Units in All Multi- Family Structures

745 769 779 629 744 727 639 663 606 775

Units in Single- Family Structures

777 793 969 629 1,148 1,027 935 819 873 1,663

Total Units

2008 2007 2006 2005 2004 2003 2002 2001 2000 1999

Housing Unit Building Permits for: Hinds County, MS

32 24 190 404 300 296 156 19 884

Units in All Multi- Family Structures

456 223 139 77 85 93 102 95 113 184

Units in Single- Family Structures

488 247 329 77 489 393 398 251 132 1,068

Total Units

2008 2007 2006 2005 2004 2003 2002 2001 2000 1999

Housing Unit Building Permits for: Jackson, MS

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Rental Market Trends & Conditions

  • Existing housing conditions dictate extent of field

survey

  • Field survey should be comprehensive to evaluate

housing continuum (LIHTC, older/newer market rate,

  • gov. sub., luxury), current conditions and identify

comparable properties (Section V)

  • All Tax Credit properties should be surveyed

regardless of concept (V-5)

  • For-rent single-family homes may need to be

surveyed to measure market rents

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Rental Market Trends & Conditions

Field surveys will consist of various property types:

Comparable property is representative of the

rental housing choices of the subject’s Primary Market Area and is similar in construction, size, amenities, or age to the subject.

Competitive property is comparable to subject

and competes at similar rent levels, and tenant profile, such as age, family or income.

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Rental Market Trends & Conditions

Purpose of identification of comparable properties:

Evaluate the Primary Market Area (PMA) or the

need for a Secondary Market Area (SMA)

Evaluate subject’s market position Determine achievable market rents for subject

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Rental Market Trends & Conditions

  • Analyze survey results to identify trends/issues (V-1-4)
  • Analysis of unit distributions suggests product gaps

(V-1)

  • Age of conventional housing surveyed shows where

vacancy problems might exist (V-2)

  • Consider recently renovated properties; older

properties are often candidates for renovations with Tax Credits (V-2)

  • Evaluate existing and proposed rent levels;

supplements achievable market rent analysis (V-3)

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Rental Market Trends & Conditions

  • Consider quality of existing properties; strong

correlation between quality and vacancies (V-4)

  • Government-subsidized properties may represent

direct competition depending on proposed rent structure (V-4)

  • HUD Sections 8, 236, 811, 202, Public Housing,

RD 515 (with and w/o Rental Assistance)

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Rental Market Trends & Conditions

Field survey of comparable market-rate and Tax Credit properties includes (V-5, VI):

  • Rents, rent premiums, concessions
  • Tenant profile/targeted market
  • Physical characteristics
  • Design
  • Age and rent class
  • Quality/condition
  • Location/accessibility
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Shopping Comparable Properties

  • Identify historic occupancy/rent change
  • If recent construction, get lease-up

performance

  • Identify turnover trends (seasonal)
  • Identify issues to specific target market
  • Should have a comprehensive field sheet
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Rental Market Trends & Conditions

Comparable properties (Senior)

Family properties with high % of seniors Senior amenities – product design May need to expand search beyond market area Know age restrictions Proximity to senior center, medical, transportation Identify services (beware of assisted living facilities) More price sensitive than younger renters Suburban versus rural demand drivers

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Rental Market Trends & Conditions

Comparable properties (Rehabs)

Cost per unit spent or will be spent

  • Kitchens, baths, floors
  • Get in as many units as possible

Compare rehabs to rehabs if possible Get previous and current occupancy Get previous and current rents Was property repositioned

  • Previous marketability issues?

How many current residents are qualified?

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Rental Market Trends & Conditions

Comparable properties (Rural)

  • Use the apartments that exist in PMA
  • Trailers
  • SF homes
  • Neighboring town or market area
  • Similar population
  • Similar employment centers with similar

wages

  • Similar home prices
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Rental Market Trends & Conditions

High propensity

Close to Suburban/Metro Well defined central towns Transportation infrastructure Well diversified economies Recreational amenities Technology /Schools Strong pop and HH growth Job creation

Low propensity

Removed from CBD / urban core No defined central towns Poor linkages to infrastructure No diversification or weak job

base

No recreational amenities No technology Stagnant pop and HH growth No job creation Subsidized inventory & tenants

Classify type of rural market:

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Rental Market Trends & Conditions

  • Tax Credit properties should compare year

built/renovations, location, occupancy, target market, tenant profile, wait lists, amenities, unit sizes, baths and rents by AMHI to subject (V-5-10)

  • Verify number of Housing Choice Vouchers or other

rental assistance

  • Should make an “apples to apples” rent comparison;

acquire utility allowances to adjust (V-6)

  • Identification of targeted AMHI is critical; note

maximum allowable income levels (V-6)

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Rental Market Trends & Conditions

  • Identify “pipeline” product (V-10)
  • Verify Tax Credit allocation lists; current economic

conditions are eliminating allocated properties

  • Consider for-sale market as competition (V-10,11)
  • Bigger issue during earlier part of decade
  • Note first-time homebuyer programs
  • New for-sale product generally offers more direct

competition than existing homes (better designs, energy efficient, less maintenance)

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Rental Market Trends & Conditions

When the field survey and analysis is complete, you should:

  • Understand strengths/weaknesses of the market
  • Who are your Tax Credit competitors and how are

they performing

  • Who are your comparable market-rate properties and

how do they compare to the subject

  • What are the strengths and weaknesses of your

property

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Recap

  • Affordable Housing Background

History and philosophy of affordable housing LIHTC basics

  • Background on Market Studies

History of market analysis and NCAHMA Market study vs. appraisal Types of market studies What they are and what they do

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Recap

  • Elements of market analysis

Overview of housing markets Components of market studies Purpose and scope of work Project description

  • Conducting a site analysis

Tips and advice on field work

  • Determining market area
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Recap

  • Demographic trends, housing trends, and

economic trends

Sources of data Pros and cons of different types of data Demographic analysis

  • Putting it in context: What does it mean

in today's distressed economy?

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Recap

  • Rental market trends and conditions

Construction and absorption levels Characteristics of housing stock Rent & vacancy trends For sale market trends & conditions

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Program Agenda - Day 2

Welcome & I ntroductions – 9:00 am Recap – 9:15 am

  • -Elements of Market Studies
  • -Affordable Housing Background
  • -Background on Market Studies
  • -Elements of Market Analysis
  • -Conducting a Site Analysis
  • -Determining Market Area
  • -Demographic Trends
  • -Putting it in Context
  • -Rental Market Trends and Condition

Calculating Market Rent – 9:45 am

  • -Identifying Comparable Properties
  • -Surveying Comparable Properties
  • -Analyzing Comparable Properties
  • -Adjustment Process
  • -Red Flags
  • -Case Study – Calculating Market Rent

Coffee Break – 10:45 am Calculating Capture Rates & Demand Analysis – 11:00 am

  • -State Specific Case Studies
  • -Case Study – Calculating Capture Rates

LUNCH – 12:00 pm Rent Analysis - 1:00 pm

  • -Maximum Rents
  • -Market Advantage
  • -Utility Allowances
  • -Affordability
  • -Achievable Rents
  • -Pro Forma rents

Drawing Conclusions – 2:00 pm

  • -Tying it All Together

Recommendations, Red Flags and Q & A – 3:00 pm End of Program – 4:00 pm

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Calculating Market Rent

  • Market Rent

The rent an apartment, without rent or

income restrictions or rent subsidies, would command in the open market considering its location, features, and amenities.

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Calculating Market Rent

  • Review

Identify comparable properties Principal of substitution Senior, Rehab, Rural Survey and shop comparable properties Analyze comparable properties Organize data Adjustment Process

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Calculating Market Rent

  • Adjustment Process

Start with Asking Rent Upward if COMP is inferior Downward if COMP is superior No adjustment if COMP is similar

Case Study: Section VI, pages 1-12- Adjusting Comparable Properties

Remember! You are adjusting the COMP to the Subject

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Calculating Market Rent

  • Adjustment Process

Quantifiable –Extracted from market

Utility adjustments Amenities / view / design / services Seasonality

Qualitative

Appeal Location Quality / Condition

Units of comparison

Per unit Per square foot

Case Study: Section VI, pages 1-12- Adjusting Comparable Properties

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Calculating Market Rent

Class Exercise

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Calculating Market Rent

  • Assess current and projected economic

conditions

Where are we in the economic cycle? Leading economic indicators

  • Assess the existing and future relationship

between supply and demand.

Market rate and affordable Where are we in the real estate cycle?

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Calculating Market Rent

  • Consider overall rental housing market

Projected Renter Household Growth Additional Units in the Pipeline Economic Development Factors

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Calculating Market Rent

  • Red Flags

Too many or too large adjustments,

indicating lack of good comparables.

Comparables located long distances from

subject.

No precedent for conclusion market place. No new construction in market area. Why?

PRICE IS THE BEST AMENITY!

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Calculating Capture Rates & Demand Analysis

  • Capture and penetration rates represent two of the

key tools in evaluating a proposed projects market potential (VII)

  • Capture rate is the percentage of age-, household

size- and income-qualified renter households in the Primary Market Area that the property must capture to fill the units

  • Penetration rate is the percentage of qualified

households that all existing Tax Credit units must capture to achieve a stabilized occupancy

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I nterpreting Capture Rates

I ncome- qualified households

5% Capture Rate (need to get 1 in every 20 eligible households) 33% Capture Rate (need to get 1 in every 3 eligible households)

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Calculating Capture Rates & Demand Analysis

An acceptable capture rate only indicates sufficient demand to support the proposed number of units at the proposed income levels. It does not include an evaluation of the subject development versus the existing rental stock.

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Calculating Capture Rates & Demand Analysis

  • To calculate the capture rate, the appropriate

income range for residents to qualify for the project must be established (VII)

  • Maximum allowable income for the subject project is

based on the household income necessary to qualify for the largest unit offered at the site (VII-1)

  • Persons per housing unit can be adjusted by

analysts (VII-1)

  • NCAHMA occupancy guidelines are as follows:

One-bedroom: 1-2 Two-bedroom: 2-4 Three-bedroom: 4-6 Four-bedroom: 5+

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2009 HUD Income Limits

Jackson, MS HUD Metro Area

$34,020 $28,350 $22,680 Four-person $36,720 $30,600 $24,480 Five-person $30,600 $25,500 $20,400 Three-person $39,480 $32,900 $26,320 Six-person $27,240 $22,700 $18,160 Two-person $23,820 $19,850 $15,880 One-person

60% AMHI 50% AMHI 40% AMHI Household Size

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Calculating Capture Rates & Demand Analysis

  • Minimum income required to live at the

property is based on the lowest gross rent (including all utilities) offered at the subject site (VII-2)

  • Accepted ratio of rent to income is 35%

for families and 40% for seniors (VII-2)

  • May vary by state or situation
  • Example: $500 gross rent requires an

annual income of $17,140 ($500/35%X12mos.= $17,140)

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Calculating Capture Rates & Demand Analysis

  • Calculate income-qualified renter

households to date of opening (VII-3)

  • Senior properties may include a capture

rate of all age- and income-qualified households (VII-4)

  • Generally, capture rates for individual

projects should be < 10% (VII-4)

  • The closer the proposed rent is to

maximum allowable, the narrower the band to qualify households

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Calculating Capture Rates & Demand Analysis

  • Penetration rate calculation is similar to capture

rate except all Tax Credit properties are accounted for (VII-5)

  • Appropriate income range is based on the largest

unit type and lowest gross rent offered in Tax Credit properties (VII-5)

  • Include subject site and any other allocated

properties (VII-5)

  • You may calculate a penetration rate for only

family units or senior units (VII-5)

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Calculating Capture Rates & Demand Analysis

  • There are no right or wrong capture rates
  • Capture/penetration rates must be considered

within context of market

  • In rural markets, be conservative; “don’t want to

be wrong forever”

  • Critical demand for several units does not mean

sufficient demand

  • Senior markets may consider support from

homeowners

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0% 2% 4% 6% 8% 10% 12% 14% 0% 10% 20% 30% 40% 50%

Rural Markets Danger Zone Best Opportunity Urban Markets

Penetration Rate Capture Rate Calculating Capture Rates & Demand Analysis

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Other Factors I mpacting Demand

  • Location—Surrounding land uses may attract or

prevent renters from moving to the site

  • Proposed Rents—Capture rates estimate the

number of households able to pay the proposed rents, not the willingness to do so

  • Housing Markets—Rental markets with high

vacancy rates may reflect an oversupply of available

  • housing. The overall health of the rental market

may impact the ability of a proposed development to reach stabilization despite low capture rates.

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Special Note for Rehabilitation Projects

  • Two capture rates should be calculated for

Section 8 rehabilitation projects

  • First capture rate is for property without

Section 8 (assumes Tax Credit rents)

  • Second capture rate is for property with

Section 8 subsidy (down to $0 income)

  • Resulting capture rates demonstrate

importance of maintaining Section 8

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Capture Rate Exercise

Your assignment is to calculate a capture rate for a proposed new construction Tax Credit family project. You will need to establish the maximum and minimum income levels acceptable for residency at the property. Once established, you will need to calculate the number

  • f renter households that are qualified to live at the

property and then the overall capture rate.

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Capture Rate Exercise: Project Description

GROSS UTILITY ALLOWANCE COLLECTED % OF AMHI SQUARE FEET STYLE BATHS BEDROOM TYPE TOTAL UNITS 150 $950 $205 $745 60% 1,120 GARDEN 2.0 THREE-BR. 60 $875 $175 $700 60% 860 GARDEN 1.0 TWO-BR. 90 PROPOSED RENTS

Year of Project Opening: 2010 Maximum Number of Persons per Household: 5 Rent-to-income Ratio: 35%

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Capture Rate Exercise: AMHI I ncome Limits

$60,200 Seven $55,100 Six $49,999 Five $44,700 Four $41,999 Three $34,800 Two $29,999 One Income Limit Household Size

60% of AMHI I ncome Limits Based on HUD Estimates

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Capture Rate Exercise: Distribution of I ncome

100.0% 30,838 100.0% 13,104 Total 47.8% 14,739 15.5% 2,031 60,000+ 3.5% 1,076 2.2% 284 $55,000-$59,999 7.4% 2,287 4.6% 603 $50,000-$54,999 3.5% 1,065 3.4% 449 $45,000-$49,999 8.1% 2,485 8.0% 1,048 $40,000-$44,999 5.6% 1,724 7.6% 994 $35,000-$39,999 5.0% 1,528 6.7% 881 $30,000-$34,999 5.3% 1,635 10.3% 1,354 $25,000-$29,999 3.5% 1,090 6.9% 903 $20,000-$24,999 3.8% 1,185 9.3% 1,225 $15,000-$19,999 3.1% 969 7.7% 1,003 $10,000-$14,999 2.2% 686 11.6% 1,514 $5,000-$9,999 1.2% 369 6.1% 815 $0-$4,999 Percent Number Percent Number Owners Renters Income Range

Distribution of I ncome By Tenure I n 2010

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Capture Rate Exercise: Calculations

% Capture rate for property: Number of Tax Credit units proposed: Number of renter-qualified households in market: $ Minimum income required to reside at property: $ Maximum allowable income for residency at property: 4.4% 150 3,372 $30,000 $49,999

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Rent Analysis

  • Achievable Tax Credit Rent

The rent an apartment, with LIHTC rent

and income restrictions, could command in the open market considering its location, features, and amenities.

  • Pro Forma Rent

The rent proposed by a developer, market

analyst, or underwriter for a a LIHTC property based on risk or mission goals and

  • bjectives.
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Rent Advantage

  • Market Advantage provides insulation to

market risk over long-term.

Limited universe of renters Annual re-certifications Perceptions

  • Industry Benchmark = 10%
  • Exceptions:

Strong markets with strong rent

growth.

Stagnant/rural markets with few

alternative housing choices.

Superior Product provides advantage

Rent Analysis

Achievable LIHTC Rent Pro Forma Rent Market Rent Maximum LIHTC Rent

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Rent Analysis

Gross maximum rents Utility allowances New rules Net maximum rents Affordability Income limits out of line with local market

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$400 $575 $625

1970-80’s Market Rate Max LIHTC Rent Late 90’s / New Market Rate Construction

$ ? $ ? New LIHTC

$?

Anytown, USA

Rent Analysis

Achievable LIHTC Rent

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Rent Analysis

Achievable Rents Pro Forma rents Mission driven / Non-profits 15-year hold / Conservative

underwriting

  • Stabilized occupancy
  • Rent Growth
  • Other Income
  • Section 8 reliance - FMR
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  • Can Subject Achieve its Required Market

Share? (VI-10)

  • If yes, why?
  • If no, what changes are needed?

– Design – Unit Mix – Project Attributes – Rents

Drawing Conclusions

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– Projected Absorption Levels (VII-6)

  • Historic Pattern of New Units Absorbed Annually
  • Performance of Recently Completed Projects
  • Adjust Estimate to Reflect Market Conditions

– Economic and Demographic Forecasts – Units in Pipeline – Occupancy Levels

Drawing Conclusions

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  • Projected Project Performance (VI-1)

– Rents – Concessions – Absorption Rate – Stabilized Occupancy – Rent Appreciation – Turnover

Drawing Conclusions

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Thank You

Thank you to the Mississippi Home Corporation, The U.S. Department of Housing Urban Development and U.S. Department of Agriculture for generously sponsoring this event. Additional information on Market Analysis and NCAHMA is available online at www.housingonline.com.