HousingHousing Market StudiesMarket Studies

Presented By:

Bowen National Research Staff

April 2016

A Review of Market Study Components A Review of Market Study Components & the Market Study Process& the Market Study Process

Presentation

Market Study Options The Market Study Process Project & Site Information Establishing a Primary Market Area On-Site Analysis Demographic & Economic Analysis Survey of Area Housing Supply Selecting Comparables Calculating Achievable Market Rent Capture Rates Methodologies Impacting Capture Rates Developer Considerations to Improve Capture Rates Penetration Rates Determining Absorption Market Study Resources

Capture Rate Snapshot Prelim Full

PMA X X X XDemographics X X X XEconomic Overview X XOn-Site Analysis XSurvey Comps/Area Supply X (Limited) X XCapture Rate X X X XAbsorption Projections X XRecommendations/ Conclusions X X X XTypical Timing 1-2 Weeks 2-3 Weeks 3-4 Weeks 4-5 Weeks

Market Study Market Study OrderedOrdered

Fieldwork PreparationFieldwork Preparation(Comps, Interviews, Etc.)(Comps, Interviews, Etc.)

Weeks 1Weeks 1--22

FieldworkFieldwork(Site Visit, Comp Inspection, (Site Visit, Comp Inspection,

Community Services)Community Services)Week 3Week 3

Draft Study Draft Study DeliveredDelivered

Weeks 4Weeks 4--55

Final Study Final Study DeliveredDelivered

Client Client RevisionsRevisions

PostPost--FieldworkFieldwork(Analysis of Site Visit and In(Analysis of Site Visit and In--Market Market

Findings)Findings)Week 4Week 4

Data CompilationData Compilation(Data Entry, Demographics & Map Requests)(Data Entry, Demographics & Map Requests)

Weeks 3Weeks 3--44

Internal ResearchInternal Research(Phone Surveys, Interviews)(Phone Surveys, Interviews)

Weeks 2Weeks 2--44

Study Written In Its EntiretyStudy Written In Its Entirety(Typically takes about 8 hours)(Typically takes about 8 hours)

Weeks 4Weeks 4--55

Information Needed Prior To Beginning Research:• Site Aerial Map with Parcel Boundaries• Targeted Population (Family, Senior, Etc.)• Unit Styles (Gardens, Townhomes, Villas, Etc.)• Bedroom Sizes• For Rehab Sites: On-Site Management Contact

Information Needed Prior To Writing Draft Report:• Full Project Concept Checklist• Site and Floor Plans• For Rehab Sites: Scope of Renovations,

Current Rent Roll, Current Tenant Incomes

A Primary Market Area (PMA) is a geographic area from which a property is expected to draw the majority of its residents. Factors Used to Determine a PMA:•Location of Competitive Properties•Accessibility•Natural Boundaries•Housing Product Characteristics•Market Perceptions•Local Interviews•Commuting Patterns•Socio-Economic•Target Market•Jurisdictional Boundaries•Community Services & Employment•Local Agency Service Boundaries•Non-Geographic Factors

Market Area Red Flags:•Based on a Radius•Countywide Market Areas•Gerrymandered/Irregular Shaped

Source: NCHMA White Paper: Determining a Market Area

Various Thematic Maps are Reviewed to Determine a PMA

Note: Senior PMAs are generally larger than general-occupancy PMAs

Map and photos of the site and its surroundings that show the location of community services should be provided.

Is the site appropriate for its intended use?• Compatible surrounding land uses? • Neighborhood adequately served by community

services? • Ingress and egress?• Adequate visibility?• Planned changes in the area that may compromise

its suitability in the future?

Demographics (Current and Projected):•Population Trends •Household Trends•Income Trends

Economics:•Major Area Employers•Recent Economic Development Announcements•Labor Force Employment•Employment/Unemployment Trends (past 5-10 years)

• Identification and survey of market-rate, LIHTC and subsidized housing projects within the PMA (or within region if lack of supply within PMA).

• Collection of over 100 items on all properties surveyed.• Also includes identification of housing projects in the development pipeline.

Collected Info•Year Built/Renovated•Project Type•Unit/Rent Mix•Waiting List Length•Concessions•Utility Structure•Amenities•Number Voucher Holders•Lease-Up (new props)•AND MORE!

Comparable projects are selected based on the following attributes

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.

Adjustment ProcessStart with Asking Rent

if COMP is inferior

if COMP is superior

if COMP is similar

It is becoming more common for syndicators to request Achievable LIHTC rents in their studies.

Definition: The percentage of age, size, and income qualified renter households in the primary market area that the property must capture to fill the units.

CAPTURE RATE CALCULATION EXAMPLE:

•50 PROPOSED SUBJECT UNITS•WILL SERVE HOUSEHOLDS WITH INCOMES BETWEEN $10,000 AND $25,000

50 (SUBJECT UNITS)/1,000 (DIVIDED BY ELIGIBLE HOUSEHOLDS)

= 5.0% (EQUALS CAPTURE RATE)

The 50 subject units must capture 5 of every 100 eligible households.

Funding agencies may require restrictions to the qualified households used in the calculation including age, income, living conditions and other comparable factors.

Typical acceptable capture rates:12% - Urban 20% - Rural

100.0%+ Capture Rate

0.0% Capture Rate

Understanding the methodology utilized in a study and the acceptable thresholds for that methodology allows the reviewer to better evaluate the capture rate of the subject project.

7. Demand is limited to NET RENTER HOUSEHOLD GROWTH, after all planned and proposed projects are deducted.

6. An  ANNUAL  TURNOVER  RATE is  applied  to  demand  from  new  RENTERhousehold  growth  and  renters  living  in  SUBSTANDARD and  RENT OVERBURDENED HOUSING.  

5. Demand from new RENTER household growth is added to a small share (1.0% to 2.0%) of renters living in SUBSTANDARD and RENT OVERBURDENED HOUSING.  

4. Demand considers new RENTER household GROWTH and  renters  living  in SUBSTANDARD and RENT OVERBURDENED HOUSING.  

3. Demand is limited to income‐eligible RENTER households only

2. Demand includes SOME income‐eligible OWNER households and all renters

1. Demand includes ALL income‐eligible households (both renters and owners)

MORERestrictive

LESSRestrictive

How Project Components Impact Capture Rates

Unit mix can impact capture rates if demand is done by bedroom type; diverse unit mix expands base of prospective tenants (add bedroom types).

Lowering rents reduces the minimum income requirement at subject, which widens the base of prospective tenants.

Replacing some LIHTC units with market-rate units may make the subject project more marketable and reduce the LIHTC capture rate.

Including a subsidy on some or all of the units will widen window of affordability and make project available to larger base of prospective tenants.

Definition: The percentage of age, size, and income-qualified renter households in the Primary Market Area that all existing and proposed competitive properties must capture to achieve a stabilized level of occupancy.

PENETRATION RATE CALCULATION EXAMPLE:

•50 PROPOSED SUBJECT UNITS AND 200 COMPETITIVE UNITS•WILL SERVE HOUSEHOLDS WITH INCOMES BETWEEN $10,000 AND $25,000

250 (SUBJECT AND COMPETITIVE UNITS)/1,000 (DIVIDED BY ELIGIBLE HOUSEHOLDS)= 25.0% (EQUALS PENETRATION RATE)

The 250 existing and planned units must capture 25 of every 100 eligible households (or 1 of every 4).

Funding agencies may require restrictions to the qualified households used in the calculation including age, income, living conditions and other comparable factors.

• Absorption Rate: # of Units Expected to be Rented on Monthly Basis• Absorption Period: Months Required to Reach Stabilized

Occupancy Rate (Generally 93%+)

Factors Considered When Determining Absorption:•Historic Pattern of New Units Absorbed Annually• Performance of Recently Completed Projects• Market Norms• Adjust Estimate to Reflect Market Conditions

• Economic and Demographic Forecasts• Units in Pipeline• Occupancy Levels• Wait List (Pent-Up Demand)

• National Council of Housing Market Analysts – Market Study Terminology• Bowen National Research – www.bowennational.com• American Fact Finder – www.factfinder.census.gov• Policy Map - www.policymap.com/maps• OnTheMap – www.onthemap.ces.census.gov• Novogradac & Company – Rent & Income Calculator

Rental Housing Locator Tools• HUD - Section 8 Housing Listing• USDA - RD Housing Listing• State Finance Agency Housing Locator Tools and LIHTC lists

State Agency Resources (To Name A Few)• Alabama, Georgia, South Carolina & Virginia – Previous Market Studies and/or

Applications• Indiana – One-Page profiles of allocated projects

Patrick BowenPresident

E-mail: patrickb@bowennational.com

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E-mail: craigr@bowennational.com

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E-mail: desireej@bowennational.com

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Jack WisemanMarket Analyst

E-mail: jackw@bowennational.com