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Urban Appraising in tax credit/spec. fin.

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john snyder

Thread Starter
Senior Member
Joined
Jul 27, 2002
Professional Status
Certified General Appraiser
State
Michigan
Location is an older industrial town within the downtown area. Tax credits of Renaissance, Michigan Credits of 10% of investment, maybe brownfield as well. Reduced interest rates with longer amortization periods.

Question - when this type development is possible through use of tax credits and financing and is the only game in town, is this market value based on definition as "financing typical for the market"?

Should an analysis be developed as well as to typical conventional market terms or since the projects are not feasible without all these extra considerations does conventional even matter?

jbs
 

Hal Mann

Senior Member
Joined
Jan 19, 2005
Professional Status
Certified General Appraiser
State
New York
Clarification, Please

Are the subsidies in question free of income restrictions?
 

PropertyEconomics

Elite Member
Joined
Jun 19, 2007
Professional Status
Certified General Appraiser
State
New Mexico
Location is an older industrial town within the downtown area. Tax credits of Renaissance, Michigan Credits of 10% of investment, maybe brownfield as well. Reduced interest rates with longer amortization periods.

Question - when this type development is possible through use of tax credits and financing and is the only game in town, is this market value based on definition as "financing typical for the market"?

Should an analysis be developed as well as to typical conventional market terms or since the projects are not feasible without all these extra considerations does conventional even matter?

jbs


John,

I have done a few of these in the past, and the way we always handled them was to provide a "market value" utilizing market data and an "investment value" considering the tax credits, market financing, rents under the program, and increased expenses associated with the project. In my market median income is such that there was NEVER a rent reduction under the LIHTC guidelines. In fact in most instances the allowable rent under the guidelines exceeded the market rent, and our rent under the program ended up being that of market. Certainly because of a program you will not see higher rents for qualifying tenants than they could realize in a non tax credit property.
After doing a few of these we quickly became uncomfortable with the amount of data available and declined to do others.

I dont think there is any real way for you to conclude that LIHTC financing meets the definition of market value, at least, we couldnt.

I wish you the best of luck in this assignment.
 

john snyder

Thread Starter
Senior Member
Joined
Jul 27, 2002
Professional Status
Certified General Appraiser
State
Michigan
Dear Hal and PE,

Thanks for the replies.

Hal, no income restrictions that I see either rent or to business. In fact as part of the Renaissance property taxes are abated ( these are due for renewal soon) and employees and employer may be exempt from local and state income taxes.

PE, as far as LIHTC this is not a subsidized housing type project.

The proposed uses is for a franchise coffee shop on the first floor that will rent for +/- $ 50k TN. The second floor is will have 3200 up that will be a legal office. No commitment yet but the location is directly across from District Court so chances are good to land a tenant from that aspect although parking could be a problem. There is only offstreet and ramps - no owned or leased parking at this time. There are two ramps planned nearby but who knows if that is 1 year or 5 years away.

The coffee shop creates and additional problem of is appraisal problem a leased fee and combination fee simple problem as well?

I appreciate the comments about limited data and in particular the other regarding market rents are the applicable rents.

regards,

jbs
 

PropertyEconomics

Elite Member
Joined
Jun 19, 2007
Professional Status
Certified General Appraiser
State
New Mexico
Dear Hal and PE,

Thanks for the replies.

Hal, no income restrictions that I see either rent or to business. In fact as part of the Renaissance property taxes are abated ( these are due for renewal soon) and employees and employer may be exempt from local and state income taxes.

PE, as far as LIHTC this is not a subsidized housing type project.

The proposed uses is for a franchise coffee shop on the first floor that will rent for +/- $ 50k TN. The second floor is will have 3200 up that will be a legal office. No commitment yet but the location is directly across from District Court so chances are good to land a tenant from that aspect although parking could be a problem. There is only offstreet and ramps - no owned or leased parking at this time. There are two ramps planned nearby but who knows if that is 1 year or 5 years away.

The coffee shop creates and additional problem of is appraisal problem a leased fee and combination fee simple problem as well?

I appreciate the comments about limited data and in particular the other regarding market rents are the applicable rents.

regards,

jbs


John ... can you provide just a bit more information as to the program and how it is anticipated to work. I havent done any that had subsidized rents either, most just had "rent restrictions", however, the restrictions were based on median income (or a percentage thereof) and a reduction in rent was never realized.
Im just a little confused as to your question about fee simple and leased fee ... then again I havent fully grasped the concept of the specific program you are appraising to.

PE
 

john snyder

Thread Starter
Senior Member
Joined
Jul 27, 2002
Professional Status
Certified General Appraiser
State
Michigan
PE,

There are several tax credits and below market loans available.

Renaissance consist of no property taxes or reduction for at least 4 more years and this may be renewed by Feds.

This area also allows no income taxes both city or state to employees/employers that locate here. Some of these may require residency as well. Still quite a bonus for employees.

Tax credits that may be sold to investors of 10% of total investment. These are Michigan related however Brownfield also is available due to environmental remediation or functional/economic problems that a level 4 assessor can attest to from the city offices. Not hard to prove in our area. Not hard to prove in older downtown bldgs.

Below market loans consist of :

$ 500k @ 4.9% 25 yrs term 20 yr balloon
$ 500 k @ 7% 25 year term 2 year balloon ( this one is close to market except for short call) and can be rolled into permanent financing)

The leased fee question is if the lower level tenant leases for 10 years @
$ 50k TN but the upper level is only offered is it not an analysis of both leased fee and fee simple? Or is it just fee simple if contract and market are equal?

The lease per square foot appears high for both the coffee shop and office compared to market rents today. However three projects that will employ 1000 are scheduled to come on line within the next year and are under construction within one block.

The reinvestment of the area is running into the multi-millions as U of M and others seek to make this a college high/tech town.

Gap financing may be required to allow some projects to meet expenses until the tipping point is met.

Using a band of investment my rate is a build up of about 7.5% which is due mainly to the loan terms.

If the incentives are not there market to redevelop would take longer or evaporate.

jbs
 
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