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2015 Spring Developer ForumUntangling Property Dispositions
@dozcpa
The Market for Existing Affordable Housing Assets
• Tax Credit Housing Disposition 1st Quarter 2015
• The Q1 2015 survey continues to track six key attributes Main value components Targeted yield Respondent characteristics Terminal or residual capitalization rate Basis point spread between conventional apartment and Y15+
terminal capitalization rates Income and expense trending
Main Value Components & Targeted Yield
• Cash flow remains the top “considered” component with 91% of the respondents stating cash flow is a main element of consideration.
• Subsidy availability also has a 91% consideration rate as a primary component, but cash flow has significantly more respondents placing it in the top 50% of importance relative to factors. (Remaining or potentially new Tax Credits, Other Subsidy, Reversion/Residual or Business Interests.
• Remaining or potential new tax credits has a lower consideration rate relative to residual (72% vs. 67%), a reversal of a trend we’ve been seeing where residual was declining in importance relative to seeking tax credits.
Main Value Components & Targeted Yield
• Historically, the yield expectations or discount rates used in modeling ranged from 5% to 11% for Class A to C apartment products. The current survey is showing a mean required yield of 12.3% and a median required yield of 11%, a significant reduction from 14% in 2009
• The spread between conventional and affordable properties is most likely attributable to the restrictions placed on the Y15+ properties. However, this spread is getting smaller, from about 63 basis points pre-2014 to 47 in Q1 2015.
Interesting Trends
• Variety of Respondents: 27% Non-Profit, 42% Buyers, 42% Buyers/Sellers or Intermediaries,36% syndicator, 30% developer, 12% Investor
• Since 2009, there has been a reduction in the both the mean and median terminal capitalization rate. From 8.5% in 2011 to 7.5% in Q1 2015, with a mean
at 7.2% in Q1 2015
Interesting Trends
• The market continues to evolve and new trends are presenting themselves. There is an increased willingness to consider year 11
to year 14 LIHTC properties. Pricing properties based upon Market rents up to 18%
consider in their valuation Past 3 surveys show increasing demand and
marketability of Fee Simple & LP interests
Interesting Trends
• Five issues to always consider in Y15/Dispositions and Acquisitions Document Review QCP & Agency review Accounting & Property performance data Market & Valuation Partners
• Each issue/Topic requires research, study and communication.
