elements of market analysis, part one

Elements of Market Analysis, Part One

Kentucky Housing Conference

October 9, 2013Lexington, Kentucky

National Council of Housing Market Analysts

Presents:

•NCHMAMembership organization

Higher level of professionalism Ethics and professional accountability

• Education• Peer review• Sharing of information and resources

Formed in 2001 in response to legislationRequirements vary from state to state

26 states adopted NCHMA standards in some form

www.housingonline.com

•NCHMA ResourcesMinimum standards and best practices

Certification in every reportModel Content - Market study index Glossary of terminologyWhite papers

Market Area Analyzing senior demand and senior markets Factors to consider with preservation properties: Section 8 and

236 Recommended practices for analyzing turnover


•NCHMAWhite 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 Site analysis (DRAFT)



•Who’s in the Room?

Developer?Syndicator?Housing Finance Agency? Market Analyst?Other Professional?


Speakers

•Jonathan Beery, Valbridge / Allgeier Company

•Patrick Bowen, Bowen National Research

•Caitlin Geary, National Council of Housing Market Analysts


Program Agenda

Welcome & IntroductionsNCHMA Background

Introduction to Market Analysis What is a Market Study?

Project Description and Site Analysis

Determining Market Area

Economic Context

Demographics



• What is a Market Study?• Types of Market Studies• Components of Market Studies• Scope of Work

Introduction to Market Analysis

•What is a Market Study?A comprehensive forward looking analysis of

the housing market in a defined market area. Housing needs in specific geography Specific need for proposed development Users

Developers Syndicators Government entities Investors


Who are the Users/Consumers/Clients?


Market Research

Developer

Lender

Investor

State Housing Allocator

•What is a Market Study?▫A comprehensive review of the housing

market in a defined market area.▫At a minimum, market studies include a

review of location, economic conditions, demographics, and existing and proposed housing stock.

▫“When you buy real estate, you are buying a set of assumptions about the future”.

From Dr. James Graaskamp


•What does a Market Study do?

Depth and durability of the market Supply and demand analysis

Marketability of proposed development

Projected outcome - feasibility and conclusions


•What is a Market Study’s Purpose?▫A market study can be used to: 1.Determine the demand for a specific

proposed development 2.Examine the overall condition of an area’s

housing market.3.Measure the impact of a proposed

development on an existing market4.Evaluate the appropriateness of a proposed

development


•Market Studies –SCOPE Complete Market Study

Comprehensive report addressing all items in NCHMA Model Content Standards

Full Narrative or Summary report format.Something less than a market study

Rent study Capture rate demand study Memos Other examples?


•Housing Market Issues▫Which Market Segment is Being Served▫Is the Development Appropriate▫Impact on Existing Market▫Other Issues

Special Needs Population Preservation of Affordable Housing


•Typical Components of a Market Study include:

A. Executive SummaryB. Project DescriptionC. Location and Market Area DefinitionD. Employment and EconomyE. Demographic CharacteristicsF. Competitive EnvironmentG. Analysis / Conclusions and

RecommendationsH. Local Perspectives of Rental Housing

Market and Housing Alternatives


•Project Description (Information to Get Started)

▫ Proposed unit mix ▫ Proposed amenities▫ Housing Consumer▫ Detailed Location▫ Construction / RehabilitationTimeline▫ Plans and specs (if available)▫ Any adverse influences in the area that are

known by the developer


Project Description & Site Analysis


Site AnalysisProject LocationProject AnalysisMarket Area

•Project Location▫City, State, and Exact Location are

discussed in the narrative.▫Aerial Photo of area is obtained

Bing.com Google Maps Others

▫Map of Area is prepared▫Area Linkages are mapped


Site Analysis Is the site appropriate

for intended use? Compatible surrounding

land uses? Neighborhood adequately

served by facilities and services?

Ingress and Egress? Adequate visibility? Any planned changes in the

area that may compromise its suitability in the future?


Site Plan•Site characteristics are usually

described by:▫Size, Shape, Zoning, Frontage, Topography,

Vegetation, Visibility•A typical site plan includes:

▫Buildings, Parking, Ingress/Egress, Amenities, Landscaping, Setbacks


• 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

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.


• 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.


•Delineation of Market Area▫Location of Competitive Properties▫Accessibility▫Natural Boundaries▫Housing Project Characteristics▫Market Perceptions ▫Commuting Patterns▫Target Market▫Jurisdictional Boundaries▫Local Agency Service Boundaries▫Non-Geographic Factors


Is this a good market area?


How about this market area?


Does this seem reasonable?


• What is the environment in which project will be operating?• Labor Force• Unemployment• At Place Employment• Major Employers


Economic Context

Unemployment Rate

5.5%5.7%

6.1% 6.2%

7.0% 7.0% 7.1%7.5%

7.9%

8.4% 8.4%8.7%

8.9% 8.9% 9.0%9.4%

9.6%

10.9%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

11.0%

12.0%

Unemployment - March 2012Largest Metropolitan Areas

U.S Rate

Source: US Bureau of Labor Statistics


Change in Metro Area Employment Since Recession Began: % Jobs


-8.9

%

-8.8

% -7.6

%

-5.4

%

-5.1

%

-5.1

%

-3.3

%

-3.1

%

-3.1

%

-2.5

%

-2.4

%

-2.1

%

0.5%

-0.8

%

-0.4

%

-0.1

%

1.3%

1.8%

5.1%

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

DE

T

PH

X

LA

AT

L

SF

CH

I

US

PH

I

MIN

Ch

ar

Ric

h

SE

A

BA

L

NY

BO

S

MIA

DC

DA

L

HO

U

% C

hang

e

% Change in Total Employment Mar-07 to Mar-12

Not Seasonally Adjusted

Change in Metro Area Employment Since Recession Began: # Jobs

• www.housingonline.com

At-Place Employment Trends161,2

96

156,5

30

154,5

44

157,4

41

162,9

09

168,0

50

168,1

48

173,4

20

178,1

94

183,2

53

193,4

11

199,8

80

201,4

69

205,4

39

214,6

37

222,0

72

225,5

77

232,7

34

233,7

99

226,5

07

0

50,000

100,000

150,000

200,000

250,000

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Total Employment1990 - 3Q 2009


At-Place Employment by Sector

16.6%

0.1%

6.5%

5.8%

22.7%

2.2%

4.2%

14.8%

11.3%

12.0%

3.9%

17.1%

1.4%

4.6%

9.3%

19.1%

2.2%

5.9%

12.8%

14.1%

10.0%

3.4%

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

Government

Nat Resources-Mining

Construction

Manufacturing

Trade-Trans-Utilities

Information

Financial Activities

Professional-Business

Education Health

Leisure-Hospitality

Other

Employment by Sector 3Q 2009

United States

Anne Arundel County


Commuting PatternsTravel Time to Work Place of 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


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

0 1

miles

2

SITE

Fulton County

NCR Corp.Emory Eastside Med. Center

EMS Technologies

Intercept Group

Atlanta Journal

Primerica Financial

Scientific-Atlanta

US Postal Service

Location of Major Employers


Sources for Data

• Unemployment Data: http://data.bls.gov/pdq/querytool.jsp?survey=la

• NAIC codes: • http://www.census.gov/cgi-bin/sssd/naics/naicsrch?chart=200

7

• At Place Employment Data:

http://data.bls.gov/pdq/querytool.jsp?survey=en


http://data.bls.gov/pdq/querytool.jsp?survey=la

http://www.census.gov/cgi-bin/sssd/naics/naicsrch?chart=2007

http://www.census.gov/cgi-bin/sssd/naics/naicsrch?chart=2007




• Demographic Trends• Sources of Data• Growth Projections• Population Characteristics

Demographic Context

Change 2000-2020; US Population by Age

2000-2020 US Population by Age

2,000,000

2,250,000

2,500,000

2,750,000

3,000,000

3,250,000

3,500,000

3,750,000

4,000,000

4,250,000

4,500,000

4,750,000

5,000,000

0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75

Age 2000 Population 2009 Population 2014 Population 2020 Population

KidsMove-Up

HouseholdsEmpty

NestersYoungSenior

OldSenior

Starter Households

Age


•Projection Sources▫ Projections

Metropolitan Planning Organizations www.narc.org ▫ National vendors (Neilsen, ESRI)

▫ Local Governments▫ State Data Centers▫ U.S. Census Bureau

C-40 report▫ 2010 Census▫ American Community Survey


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 of number of persons that will form households.

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


Population and Household Trends

Dauphin County Total Annual Total Annual Total2000 2010 2011 2016 # % # % # % # % # % # %

Population 251,798 268,100 268,408 269,954 16,302 6.5% 1,630 0.6% 308 0.1% 308 0.1% 1,546 0.6% 309 0.1%

Group Quarters 6,787 6,788 6,761 6,625

Households 102,670 110,435 110,693 111,994 7,765 7.6% 777 0.7% 258 0.2% 258 0.2% 1,301 1.2% 260 0.2%

Average HH Size 2.39 2.37 2.36 2.35

Laurel Ridge Market Total Annual Total Annual Total

2000 2010 2011 2016 # % # % # % # % # % # %

Population 55,023 59,895 60,137 61,364 4,872 8.9% 487 0.9% 242 0.4% 242 0.4% 1,227 2.0% 245 0.4%

Group Quarters 1,403 1,376 1,370 1,342Households 22,832 25,756 25,896 26,606 2,924 12.8% 292 1.2% 140 0.5% 140 0.5% 710 2.7% 142 0.5%Average HH Size 2.35 2.27 2.27 2.26

AnnualChange 2010 to 2011

Annual

Change 2010 to 2011 Change 2011 to 2016

Change 2011 to 2016

Change 2000 to 2010

Change 2000 to 2010


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? For seniors’ projects, trend of age-qualified

households www.housingonline.com

Age Distribution

Number Percent Number Percent

Children 62,460 23.3% 13,050 21.7%

Under 5 years 17,721 6.6% 3,547 5.9%

5-9 years 16,673 6.2% 3,482 5.8%

10-14 years 16,907 6.3% 3,578 6.0%

15-17 years 11,159 4.2% 2,442 4.1%

Young Adults 53,381 19.9% 11,330 18.8%

18-20 years 9,118 3.4% 1,843 3.1%

21-24 years 12,359 4.6% 2,565 4.3%

25-34 years 31,904 11.9% 6,922 11.5%

Adults 104,132 38.8% 24,977 41.5%

35-44 years 36,803 13.7% 8,640 14.4%

45-54 years 42,584 15.9% 10,444 17.4%

55-61 years 24,746 9.2% 5,892 9.8%Seniors 48,435 18.0% 10,780 17.9%

62-64 years 10,605 4.0% 2,525 4.2%

65-74 years 19,374 7.2% 4,315 7.2%

75-84 years 12,636 4.7% 2,715 4.5%

85 and older 5,819 2.2% 1,225 2.0%

TOTAL 268,408 100.0% 60,137 100.0%

Median Age 38 40

Dauphin County Laurel Ridge Market

23.3%

19.9%

38.8%

18.0%

21.7%

18.8%

41.5%

17.9%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

Children

Young Adults

Adults

Seniors

% PopAg

e

2011 Age DistributionLaurel Ridge Market

Dauphin County


# % # %

Married w/ Child 20,780 18.8% 5,548 21.5%

Married w/o Child 29,196 26.4% 7,424 28.8%

Male hhldr w/ Child 2,978 2.7% 523 2.0%

Female hhldr w/ Child 9,261 8.4% 1,462 5.7%

Non Married Households w/o Children

13,248 12.0% 2,765 10.7%

Living Alone 34,972 31.7% 8,034 31.2%

Total 110,435 100.0% 25,756 100.0%

Source: The Nielsen Company; Estimates, Real Property Research Group, Inc.

Dauphin County Laurel Ridge Market

18.8%

26.4%

2.7%

8.4%

12.0%

31.7%

21.5%

28.8%

2.0%

5.7%

10.7%

31.2%

0% 5% 10% 15% 20% 25% 30% 35%

Married w/ Child

Married w/o Child

Male hhldr w/ Child

Female hhldr w/ Child

Non Married Households w/o Children

Living Alone

% Households

Hou

seho

ld T

ype

2010 Households by Household Type

Laurel Ridge Market

Dauphin County


Household Type

Trends in U.S. Rentership Rate

30.0%

31.0%

32.0%

33.0%

34.0%

35.0%

36.0%

37.0%

38.0%

39.0%

40.0%

1968

1969

1970

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Q1

Annual Average Rental rate

200431% Renters

2012Q134.6%

Renters

196836.2%

Renters

198034.43% Renters


Total Income

Number Percent Number Percentless than $15,000 11,461 10.4% 1,157 4.5%$15,000 $24,999 11,029 10.0% 1,903 7.3%$25,000 $34,999 12,375 11.2% 2,210 8.5%$35,000 $49,999 17,833 16.1% 4,139 16.0%$50,000 $74,999 23,044 20.8% 5,666 21.9%$75,000 $99,999 14,557 13.2% 4,084 15.8%

$100,000 $124,999 9,185 8.3% 2,859 11.0%$125,000 $149,999 4,421 4.0% 1,491 5.8%$150,000 $199,999 3,355 3.0% 1,112 4.3%$200,000 over 3,432 3.1% 1,276 4.9%

Total 110,693 100.0% 25,896 100.0%

Median Income

Laurel Ridge MarketDauphin County

$65,618 $52,874

10.4%

10.0%

11.2%

16.1%

20.8%

13.2%

8.3%

4.0%

3.0%

3.1%

4.5%

7.3%

8.5%

16.0%

21.9%

15.8%

11.0%

5.8%

4.3%

4.9%

0% 5% 10% 15% 20% 25%

<$15K

$15-$24.9K

$25-$34.9K

$35-$49.9K

$50-$74.9K

$75-$99.9K

$100-$124.9K

$125-$149.9K

$150-$199.9K

$200+K

% Households

Hou

seho

ld In

com

e

2011 Household Income by Area

Laurel Ridge Market

Dauphin County


Number Percent Number Percent

less than $15,000 507 6.3% 650 3.6%

$15,000 $24,999 834 10.4% 1,069 6.0%

$25,000 $34,999 858 10.7% 1,352 7.6%

$35,000 $49,999 1,881 23.5% 2,258 12.6%

$50,000 $74,999 2,156 26.9% 3,510 19.6%

$75,000 $99,999 933 11.7% 3,151 17.6%

$100,000 $124,999 654 8.2% 2,205 12.3%

$125,000 $149,999 82 1.0% 1,408 7.9%

$150,000 $199,999 61 0.8% 1,051 5.9%

$200,000 over 40 0.5% 1,235 6.9%

Total 8,005 100.0% 17,891 100.0%

Median Income

Renter Households Owner Households

$49,392 $75,838

507

834

858

1,881

2,156

933

654

82

61

40

650

1,069

1,352

2,258

3,510

3,151

2,205

1,408

1,051

1,235

0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000

<$15K

$15-$24.9K

$25-$34.9K

$35-$49.9K

$50-$74.9K

$75-$99.9K

$100-$124.9K

$125-$149.9K

$150-$199.9K

$200+K

# of Households

Hou

seho

ld In

com

e

2011 Household Income by Tenure

Owner Households

Renter Households


Income by Tenure

49


Questions?

Elements of Market Analysis, Part Two: Assessing the Market and Drawing

Conclusions

Kentucky Housing Conference

October 9, 2013Lexington, Kentucky

National Council of Housing Market Analysts

Presents:

Speakers

•Jonathan Beery, Valbridge / Allgeier Company

•Patrick Bowen, Bowen National Research

•Caitlin Geary, National Council of Housing Market Analysts


Program Agenda

Re-Introduction

Supply: Rental Market Trends and Conditions

Calculating Market Rent

Net Demand

Drawing Conclusions


Supply: Rental Market Trends and Conditions


• Analysis of Trends and Conditions from regional to local to primary market area

• Use 2010 Census data to establish housing profile of PMA

• Profile number of housing units, owner/renter mix and number of vacant housing units

• Evaluate building MF and SF permits for recent activity

• Other important housing characteristics are rental units by type, gross rents, year of construction and rent overburdened


Building Permit Data from US Census Building Permit Websitehttp://www.census.gov/const/www/permitsindex.html#estimates

Variable: Three and Four FamilySingle-Family Five or More FamilyTwo-Family Total

Housing Data Profile from US Census American FactFinder Site - http://factfinder.census.gov/home/saff/main.html?_lang=en

VariableYEAR HOUSEHOLDER MOVED INTO UNIT HOUSING OCCUPANCYHOUSING VALUES / GROSS RENT UNITS IN STRUCTURESELECTED MONTHLY OWNER COSTS (SMOC) YEAR STRUCTURE BUILTSELECTED MONTHLY OWNER COSTS AS A % OF HH INCOME ROOMSPOPULATION AND HOUSEHOLD GROWTH BEDROOMSGROSS RENT AS A % OF HH INCOME (GRAPI) HOUSING TENURE

http://www.census.gov/const/www/permitsindex.html

http://factfinder.census.gov/home/saff/main.html?_lang=en

From Desk identify all inventory in PMA existing and planned

Field survey should be comprehensive to evaluate housing continuum (LIHTC, older/newer market rate, gov. sub., luxury), current conditions and identify comparable properties

All Tax Credit properties should be surveyedSF affordability and shadow market for-rent single-

family homes and condos may need to be surveyed to measure market rents, and competing supply.First-time homebuyer programs



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.


Purpose of surveying comparable properties:

Evaluate which properties are truly competitive: Principle of Substitution

Evaluate the Primary Market Area (PMA) or the need for a Secondary Market Area (SMA)

Evaluate subject’s market position

Evaluate Section 8 reliance and affordability issues

Evaluate tenant profile/targeted market

Evaluate utility allowances and preferences


Purpose of surveying comparable Properties (continued):

Evaluate location and accessibility

Evaluate proximity to supporting uses

Evaluate physical characteristics

Evaluate demand drivers and forecasts

Evaluate correlation between quality and vacancy

Evaluate govt. subsidized properties


Purpose of surveying comparable properties (continued) :

Conclude market rents and achievable LIHTC rents

Conclude stabilized occupancy Conclude absorption estimate Conclude use and need for concessions,

seasonality Conclude rent premiums and discounts Conclude rent growth projections Conclude to changes or recommendations

Purpose of surveying comparable properties (continued) 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


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 www.housingonline.com

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:

When the field survey and analysis is complete, you should:Understand strengths/weaknesses of the market.What are trends in market, where in the RE cycle.Who are your Tax Credit competitors and how are

they performing.Who are your Market-rate competitors and how are

they performing.What are the strengths and weaknesses of your

property and how does it compare.


•Calculating Market Rent•Demand•Affordability


Findings

The rent an apartment, without rent or income restrictions or rent subsidies, would command in the open market considering its location, features, and amenities.


Calculating Market Rent

•Adjustment ProcessStart with Asking Rent

Upward if COMP is inferiorDownward if COMP is superior No adjustment if COMP is similar

Remember!

You are adjusting the COMP to the Subject


Calculating Market Rent (Cont.)

•Adjustment ProcessQuantifiable –Extracted from market

Utility adjustments Amenities / view / design / services Seasonality

Qualitative Appeal Location Quality / Condition

Units of comparison Per unit Per square foot



One Bedroom Units

A. Rents Charged Subject Data $ Adj. Data $ Adj. Data $ Adj.Street Rent $895In parts B thru D, adjustments were made only for differencesB. Design, Location, Condition Data $ Adj. Data $ Adj. Data $ Adj.Utilities Included None Hot Water,W/S,Trash ($45) Trash ($10) None $0Rent Concessions $0 None $0 None None $0Structure / Stories 3-Story Garden 3-Story Garden $0 3-Story Garden $0 3-Story Garden $0Year Built / Year Renovated 2010 2006 $10 2004 $15 2005 $13Condition / Street Appeal Excellent Excellent $0 Excellent $0 Excellent $0Town Center Micro Location Excellent Above Average $21 Average $42 Excellent $0C. Unit Equipment / Amenities Data $ Adj. Data $ Adj. Data $ Adj.Number of Bedrooms 1 1 $0 1 $0 1 $0Number of Bathrooms 1 1 $0 1 $0 1 $0Unit Interior Square Feet 734 792 ($15) 775 ($10) 770 ($9)Balcony / Patio / Porch Yes Yes $0 No $5 Yes $0Microwave Yes Yes $0 Yes $0 Yes $0Dishwasher/Disposal Yes / Yes Yes / Yes $0 Yes / Yes $0 Yes / Yes $0Washer / Dryer: In Unit Yes No $35 Yes $0 No $35D. Site Equipment / Amenities Data $ Adj. Data $ Adj. Data $ Adj.Parking ($ Fee) $0 $0 $0 $0 $0 $0 $0Fence/Gate No No $0 No $0 Yes ($5)Club House Yes Yes $0 Yes $0 Yes $0Pool Yes Yes $0 No $10 No $10Fitness/Workout Room Yes Yes $0 Yes $0 No $10Computer Room / Bus. Center Yes Yes $0 No $5 Yes $0E. Adjustments Recap Positive Negative Positive Negative Positive NegativeTotal Number of Adjustments 3 2 5 2 4 2Sum of Adjustments B to D $66 ($60) $77 ($20) $68 ($14)F. Total Summary

Gross Total AdjustmentNet Total Adjustment

G. Adjusted And Achievable Rents

Estimated Market Rent $930Rent Advantage $ $35Rent Advantage % 3.80%

% of Effective Rent 100.7% 106.4% 106.1%Adjusted Rent $900 $952 $939

$6 $57 $54

Adj. Rent Adj. Rent Adj. Rent

$894 $895 $885

$126 $97 $82

Chesterfield County, VA Chesterfield County, VA Chesterfield County, VA Chesterfield County, VA

Subject Property Comparable Property #1 Comparable Property #2 Comparable Property #3


•Red FlagsToo 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!


•Demand▫Household Growth▫Demolitions▫% of Renter Households

•Supply▫Pipeline▫Subject

•Balance of Demand and Supply


Net Demand

DemandHousehold Growth Units

2009 Households 69,2292012 Households 73,772Net Change in Households 4,543

Add: Units Removed from MarketHsg Stock

Removal Rate Lost Units

2009 Housing Stock 72,455 0.480% 3482010 Housing Stock 74,017 0.480% 3552011 Housing Stock 75,612 0.480% 363

1,066Net New Demand for Housing Units 5,609Percent Renter Households in 2012 19.1%Net New Demand for Renter Units 1,072

Add: MF Competitive Vacancy Inventory VacantStabilized Multifamily Communities 6,617 481Deep-Subsidy Multifamily Communities 2,500 0

Subtotal Stabilized Communities 9,117 481

currently vacant

Vacant as of Jan 1,

2009

Communities under lease up 561 208 96Total Competitive Inventory 9,678 577

Market Vacancy at 5% 484Less: Current Vacant Units -577Vacant units required to reach 5% Market Vacancy -93

Total Rental Demand 979

Planned Additions to the SupplyTotal Units 95% Occupancy

project x 250 238project y 500 475Subject 200 190

Total New Rental Supply 950 903

Excess Demand for Rental Housing 77


Growth and Substandard Housing

Unit Type All 2 BR 3 BRGross Rent $331 $331 $383Income Ratio 35% 35% 35%Minimum Income $11,349 $11,349 $13,131Maximum Income (2/BR) $34,200 $29,460 $34,200

Demand From New GrowthHousehold Growth, 2000-08 588 588 588 X Percent Income Qualified 41.3% 33.5% 38.2%X Percent Renter 41.5% 41.5% 41.5%X Appropriate Household Size 100% 100% 100%Demand From Household Growth 101 82 93

Substandard Renter HousingInadequate Plumbing 121 121 121 Overcrowded Housing 1,238 2,014 2,014 Total Substandard Units 1,359 2,135 2,135 X Percent Income Qualified 41.3% 33.5% 38.2%Substandard Renter Housing 561 715 815

Rent OverburdenRenters Paying Over 35% 1,238 1,238 1,238 X Percent Income Qualified 41.3% 33.5% 38.2%Total Rent Overburden 511 415 472

Total Demand 1,173 1,212 1,380

Less Comparable Units Built Since 2000 (96) (48) (48) Units Built Since 2000 (80) (32) (48) Less Units Under Construction (84) (42) (42) Less Units Planned (43) (22) (21) Total Units Since 2000 (303) (144) (159)

Net Demand 1,077 1,164 1,332

Proposed Units - Subject 69 45 24

Capture Rate 6.4% 3.9% 1.8%


• Capture rate is the percentage of age, size, and income qualified renter households in the primary market area that the property must capture to fill the units.

Calculation:Capture Rate is calculated by dividing the total number of units at the property by the total number of age, size and income qualified renter households in the primary market area.


Calculating Capture Rates & Penetration Rates

• Penetration Rate is the percentage of age and income qualified renter households in the primary market area that all existing and proposed properties that are competitively priced to the subject that must be captured to achieve the stabilized level of occupancy.

Calculation:Penetration Rate is calculated by dividing the total number of units at the property and all existing and proposed properties, to be completed including the subject by the total number of age, size and income qualified renter households in the primary market area.


• To calculate the capture rate, the appropriate income range for residents to qualify for the project must be established

• Maximum allowable income for the subject project is based on the household income necessary to qualify for the largest unit offered at the site

• NCHMA occupancy guidelines are as follows: One-bedroom: 1-2 Two-bedroom: 2-4 Three-bedroom: 4-6 Four-bedroom: 5+

• Persons per housing unit can be adjusted by analysts based on other factual data


Income Caps and Bases

Base

• Minimum income required to live at the property is based on the gross rent (including all utilities) offered at the subject site

• Accepted ratio of rent to income is 35% for families and 40% for seniors

Caps

• Based on HUD income caps


One Bedroom Two Bedroom

Base Price MinimumMaximum Base Price MinimumMaximum Number of Units 40 Number of Units 40Net Rent $665 Net Rent $770Gross Rent $755 Gross Rent $900% Income Spent for Shelter 35% % Income Spent for Shelter35%Income Range $25,886 $31,170 Income Range $30,857 $37,440Range of Qualified Hslds 6,041 5,239 Range of Qualified Hslds5,282 4,390# Qualified Households 802 # Qualified Households 892

Unit Total HH Capture Rate 5.0% Unit Total HH Capture Rate 4.5%

Range of Qualified Renters 2,727 2,279 Range of Qualified Renters2,303 1,805# Qualified RenterHouseholds 448 # Qualified RenterHouseholds 498

Unit Renter HH Capture Rate 8.9% Unit Renter HH Capture Rate 8.0%

Gross Capture Rate Total Households 11,732 Total HHNumber of Units Band of Qualified HHs # Qualified HHs

Income $25,886 $37,44060% Units 80 HHs 6,041 4,390 1,651 4.8% Capture Rate

Renter Households 6,437 Renter HHBand of Qualified HHs # Qualified HHs

Income $25,886 $37,44060% Units 80 HHs 2,727 1,805 922 8.7% Capture Rate

60

% U

nit

s


Affordability @ 35% Rent Burden

Capture RatePenetration

RateUnit Type All AllGross Rent $450 $450Income Ratio 35% 35%Minimum Income $15,429 $15,429Maximum Income (2/BR) $34,200 $34,200

Total Qualified RentersExisting Households, 2006 9,189 9,189 X Percent Income Qualified 43.8% 43.8%X Percent Renter 41.5% 41.5%Total Qualified Renters 1,670 1,670

Other LIHTC Units Existing LIHTC Units 0 208 LIHTC Under Construction 0 84 Proposed Units - Subject 0 43 Proposed Units - Other App 69 69Total LIHTC Units 69 404

Total Qualified Renters 1,670 1,670

Total LIHTC Units 69 404

Capture / Penetration Rate 4.1% 24.2%


Capture Rates & Penetration Rates

Income-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)


Interpreting Capture Rates

• There are no definitive right or wrong capture rates

• Capture rates and penetration rates must be considered within context of market

• Senior projects more likely to consider support from homeowners


0% 10% 20% 30% 40% 50%0%

2%

4%

6%

8%

10%

12%

14%

Rural Markets Too Many Units

Best Opportunity Urban Markets

Penetration Rate

Cap

ture

Rat

e


Other Factors Impacting Demand• Location—Surrounding land uses may

attract or prevent renters from moving to the site

• Proposed Rents— Look at households able to pay the proposed rents, not the willingness to do so

• Housing Markets—Rental markets with high vacancy rates; Foreclosures

• Employment “Shocks”

• Credit Marketswww.housingonline.com

Special Note for Rehabilitation Projects

•Two capture rates should be calculated for Section 8 rehabilitation projects▫without Section 8 / RD Subsidy (assumes

Tax Credit rents)

▫with Section 8 / RD subsidy (down to $0 income)

•Resulting capture rates demonstrate importance of maintaining Section 8


•Rent Analysis•Project Evaluation•Absorption•Projected Project Performance


Drawing Conclusions

• 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 LIHTC property based on risk or mission goals and objectives.



Rent Advantage

• Market Advantage provides insulation to market risk over long-term.

Limited universe of rentersAnnual re-certificationsPerceptions

• Industry Benchmark = 10%• Exceptions:

Strong markets with strong rent growth.

Stagnant/rural markets with few alternative housing choices.

Superior Product provides advantage

Achievable LIHTC Rent

Pro Forma Rent

Market Rent

Maximum LIHTC Rent

▫Projected Absorption Levels 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


•Projected Project Performance▫Rents▫Concessions▫Absorption Rate▫Stabilized Occupancy▫Rent Appreciation▫Impact on existing rental market


88


Questions?

elements of market analysis, part one

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