Presentation TitleYour company information

2016 MAP Guidelines:Chapter 7 Issues

National Council of Housing Market AnalystsBaltimore, MDApril 19, 2016

Robert LefenfeldManaging PrincipalReal Property Research Group, Inc

M. Scott AllenVice PresidentGAR Associates, Inc

Agenda• MAP Market Study Guidelines

• MAP Appraisal Guidelines

Presentation TitleYour company information

MAP – Market StudyGuidelines

Evolution of Market Study Content Dialogue

Dedicated to enhancing the professionalism and standards for market analysis of Tax Credit Communities

NCAHMA creates Set of Resources:Model Content Standards Code of EthicsMarket Study Terminology White PapersMarket Study Index Professional Desgination

HUD issues Revised MAP GuidebookSeparate Section for Market StudiesRequires Market Analysis and Appraisal to be conducted by Separate Analysts

NCAHMA conducts User Survey of MAP Market Study Users 10 HUD MAP Offices6 FHA MAP Lenders

Aug 20132014 2015

Jan 2016 FINAL MAP market study guidelines released by HUD

Continued feedback on market study guidelines to HUD

Revised Guidelines and Resources to cover Afforable, Market Rate and Seniors Housing

National Council of Affordable Housing Market Analysts (NCAHMA) formed

NCAHMA renamed National Council of Housing Market Analysts (NCHMA)

Provide HUD with detailed recommendations to revise MAP market study guidelines

Winter 2012

2012

2001

Nov-­‐11

2001-­‐2010

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

National Council of Housing Market Analysts (NCHMA)WWW.Housingonline.orgMAP Guidelines

Market Study Criteria

Section 7.4 Work Sharing§ Work-Share - certain underwriting functions may betransferred to staff who are in locations that are distantfrom the project under review.

§ Third Party Market Analysts should assume that theirwork will be subject to review under Work Share. HUDstaff may not always be able to see the subject andcomparables.

§ Market information used from nationally purchaseddata sources such as, but not limited to REIS.

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.

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”

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.

7.5.C Description of Proposed Project

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

• 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.”

Primary Market Area vs. Housing Market Area

– 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

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.F.1 Recent trends in population and household growth7.5.F.3 Thorough discussion of building permit trends7.5.F.4 Characteristic of current household base7.5.F.5 Current Income Characteristics

7.5.F. Demographic ContextA thorough discussion of past and anticipated future trends in

the demographic character of the housing market.

For senior properties7.5.F.2 Current and projections senior household base 55+ and/or 62+7.5.F.6 Tenure breakdown, income characteristics and rent burden of senior households

7.5.G. Current Housing Market ConditionThe market study must include a comprehensive description of thecurrent conditions of the rental market and of the sales market, ifrelevant, in the PMA.

– 7.5.G.1 Estimate of competitive inventory

– 7.5.G.2 Recent Market trends in a. vacancy trends b. Absorption experiencec. Current effective rentsd. Current vacancy ratee. Vacancy or absorption problemsf. Impact, if any, of SF or condo market

• The market study must include separate estimates of the numbersof rental units currently under construction and the numbers in theplanning and development process likely to enter the housingmarket during the specified forecast period.

• These estimates should include all rental developments known, notsolely those determined by the analyst to be comparable andcompetitive.

7.5.H Pipeline Characteristics of Rental Units in the Pipeline, Under Construction and

in Planning.

• 7.5.I.1 Net Demand Analysis

• 7.5.I.2 Effective Demand Analysis

7.5.I Demand Estimate and Analysis

• 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

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.

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:

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.

7.5.I.2.b Penetration Rateis defined as the percentage of Qualified Households in the PMA that theproperty and similar existing and proposed competing properties mustcapture to fill all units and achieve stabilized occupancy.

– Qualified Households is defined as households that meet any applicableage and income restrictions,

– The Penetration Rate is calculated by dividing the total number of units thecompetitive inventory (subject property, current and proposed relevantcompetitive properties) by the total numberof Qualified Households.

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

• Net and Effective Demand• Project Evaluation• Absorption• Impact on Market

7.5.J Findings and Conclusions

Target Market Unit Distribution Unit Sizes Features and Amenities Price Position

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 proposedproject in terms of location, project size, unit breakdown, unitsizes, amenities, features and rents.

7.5.J.3 Impact on Existing Market

• Address the impact on existing insured properties andshow if sufficient demand will come from new renterhouseholds, the shifting of households into the rentalmarket, or the replacementof lost or sub-­standard units.

• Even if the subject does not directly compete withexisting insured or uninsured properties, an oversupplyof units could spill over into all segments of the market.

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.

Presentation TitleYour company informationAppraisal Guidelines

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”

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.

• 7.2: General Clarifications

– HUD does not formally approve appraisers or appraisal firms as being “MAP Approved”. It is the lenders responsibility.

• 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.

• 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.

• 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 – re-­inspection of the property.

-­ Other update requirements are similar.

• 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.

• 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.

• Section 7.6.E: • seems to now not require 92264-­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.

• 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.

• 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.

• 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.

• 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.

• Section 7.7: Estimating Project Income– A: Allows for HUD form 92273-­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”

• 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:

• Section 7.7.L: Other Incomechanges to:– Pool/Pet fees/Rent – now, may be recognized based on history and market.

– Others like furnished units, interest income, etc. remain similar.

• Section 7.7.L 6/7: Commercial income:– Separate analysis for each type of space using form 92273 or a similar format.

– Outlines commercial space and income limitations.

– M: Limited Waiver requirements seems new.

• 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 lease4. Expense estimate must include all comm. Expenses payable by owner. Show all on 92264.

• 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.

• 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.

• 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.

• Section 7.13 vs Section 7.17• 7.13 : – 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

• 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.

• 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.

• 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 non-­profit sponsored.

Robert LefenfeldManaging PrincipalReal Property Research Group, Inc410.772.1004Bob@rprg.net

M. Scott AllenVice PresidentGAR Associates, Inc716.691.7100Sallen@garappraisal.com