affordable housing: an appraiser’s role lessons from ... · • based on affordable rents &...
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Affordable Housing: An Appraiser’s RoleLessons from Appraising Affordable Housing
Adam G. Dickinson, AACI, P.App, de Stecher Appraisals Ltd.
June 11, 2017
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• Adam G. Dickinson, AACI, P.App.
• Appraiser/Co-owner; de Stecher Appraisals (Saint John, NB)
• Volunteered with Abbey St. Andrew Inc. • 96 unit mixed income development constructed in 2011
• 4 years as board president
• Work for affordable housing sector clients:• Bank financing appraisals
• Market research for converting school to housing
• Replacement cost analysis (insurance)
• Land value analysis – urban parking lot
• Valuation of rent-to-own townhouse property
Who Am I
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• New entrants into affordable housing delivery• Civil Society Groups
• Churches
• Municipal Bodies
• For Profit Developers
• Expiration of Operating Agreements• Funding programs for certain affordable
properties are coming to an end
• Coincides with mortgages being paid off
• Groups are pursuing strategies for new frameworks
Need for Appraisers in Affordable Housing
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• Existing Affordable Housing Groups:• Seeking new financing (bank and alternative)
• Considering changes and/or expansion
• Maximizing rents for “market rent” units
• Considering sale of buildings
• New And Existing Affordable Housing Groups:• Highest and Best Use Analysis
• Market Studies
Where Appraisers Fit In
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• Property: • Small town apartment building run by local affordable housing co-op
• Assignment: • Point in time valuation for credit union mortgage renewal
• Unique Details: • Property was paying lower property tax rate because of “affordable housing” use
• If property were sold to for-profit owner, property tax rate would increase
Case 1: Defining Scope
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• Solution: • Explained to client and lender the difference between “value to owner” and market value
• Provided value estimate and analysis based on “market” tax rate
Case 1: Defining Scope
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• Property: • Urban apartment building with underground parking
• Mixed income (60% rent-geared to income, 40% market rent units)
• Assignment: • Help management to strategize how to increase revenue from market units
• Unique Details: • Market units had vacancy rate more than double local market’s vacancy rate
• Property had unoccupied underground parking
Case 2: Maximizing Revenue from Market
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• Solution: • Study competitive properties
• How were they were achieving higher rents and lower vacancy rates
• Made recommendations• Utilize professional rental agent (not in-house staff who specialized in managing affordable housing)
• Offer rental incentives (such as discounted underground parking)
Case 2: Maximizing Revenue from Market
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• Property: • Former school with redevelopment potential
• Client considering redevelopment as mixed-income apartment building
• Assignment: • Provide clients inventory of competitive properties
• Unique Details: • Market rents and vacancy rates vary widely in community
• Client had business model completed; had established break even rent
Case 3: Market Analysis for New Project
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• Solution: • Provided inventory of new (10 years and newer) apartment buildings
• Provided rent details for competitive buildings
• Provided amenities included in competitive buildings (elevators, appliances, parking)
• Provided overview of vacancy for similar buildings
• Identified several competitive properties that were proposed for the area
• Outcome: • Analysis allowed client to understand
competitive market rents
• Client has not yet moved forward, due to break even requirements
Case 3: Market Analysis for New Project
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• Property: • Fire damaged apartment building being repaired and converted to affordable rental units
• Assignment: • Provide market value for mortgage financing
• Unique Details: • Property was being renovated as part of the Rental Residential Rehabilitation Assistance
Program (RRRAP)• RRRAP provides forgivable mortgage financing for renovations, if the owner will provide “affordable” rents
Case 4: Rental Program Impact on Value
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• Solution: • Provided value estimates under 2 scenarios:
• Based on affordable rents & relevant vacancy
• Based on market rents & market vacancy
• To revert to market rents, owner (or purchaser) would have to pay off remainder of forgivable loan
• Additional Note:• Developer won local award for quality of renovation
Case 4: Rental Program Impact on Value
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• Property: • Former church building, converted to homeless shelter
• Assignment: • Provide replacement cost value estimate (as new) for insurance
• Unique Details: • Two storey church building converted to homeless shelter using paid and volunteer labour
• Several months later, client’s funding partner required market value
• Solution: • Explained to client and funding partner the intended use of original report
• Explained the difference between a replacement cost value (as new) and market value
Case 5: Help Clients Understand Process
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• Property: • Parking lot beside church.
• Assignment: • Church wanted to know land value,
as they considered developing affordable housing.
• Unique Details: • Urban parking lot, rented to municipality for paid parking
• Zoned “Central Business”
• Solution: • Appraisal presented valuation based on “highest and best use”
• Group proceeded with housing development because of proximity to their church building
Case 6: Not Always Highest and Best Use
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• Case 1 (Case of Below Market Property Taxes):
• Define scope with client and their lender asap
• Case 2 (High Vacancy) & Case 3 (School):
• More opportunity than just "point in time" valuation.
• Boards are often willing to engage qualified experts.• Note, boards/NPOs may be slower to act than some other clients
• Case 4 (Renovation Program):
• Be prepared to provide analyses that explore different scenarios for the same real estate.
• Be prepared to inspect properties that need some (or a lot) of work.
• Case 5 (Converted Church):
• Some clients will have limited experience with appraisers, be prepared to explain your process and your reports.
• Case 6 (Land):
• Developer may not always pursue highest and best use
Lessons
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• Tenants may not be open during inspections
• Projects may proceed slowly due to governance and accountability frameworks
• Projects may change and evolve as funding is secured
Additional Thoughts
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Thank You