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The LIHTC Physical Needs Assessment: A Balancing Act

The LIHTC Physical Needs Assessment: A Balancing Act. Presented By: Robert E. Hazelton, President Dominion Due Diligence Group (D3G). A Physical Needs Assessment* is a study which defines immediate and long-term capital needs, and typically includes: Property Inspection Report

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The LIHTC Physical Needs Assessment: A Balancing Act

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  1. The LIHTC Physical Needs Assessment: A Balancing Act Presented By: Robert E. Hazelton, President Dominion Due Diligence Group (D3G)

  2. A Physical Needs Assessment* is a study which defines immediate and long-term capital needs, and typically includes: • Property Inspection Report • Identification of Immediate Repairs/Rehab • Reserve for Replacement (R4R) Analysis * PNA, PCA, PCNA, PCR synonymous in the above definition.

  3. The Yin & Yang of LIHTC The Balancing Act SOURCES USES or NEEDS

  4. Driving Factors in a Needs Assessment • Property Condition • Funding Sources • Ownership Direction/Expectation • Sometimes synergies, sometimes conflict

  5. Property Condition Considerations (Uses) • Age of asset and physical condition • Level of rehab planned, versus what is necessary • Building code issues (life safety, fire, electrical, etc.) • Hidden, latent defect or other conditions warranting intrusive study (long lived building components) • Environmental conditions • Demographics (e.g. Elderly Housing) & Accessibility • Market factors (amenity, unit mix, etc.)

  6. Funding Considerations (Sources) • LIHTC QAP Architectural Baseline & Scoring Items • Housing Assistance Contracts (PBRA, PBVA) • Rental Assistance Demonstration (RAD) • Permanent Loan Program Requirements • Syndicator Requirements • Municipality Issues and Items • Future Reserve for Replacement (R4R) Deposits (e.g. a 100 unit complex at ADRR of $350/unit = $700,000 + interest over 20 year period)

  7. Expectations (aka “Establishing the Target”) • Define ownership strategies and expectations • Short term and long term goals • Energy Water Conservation Measures (EWCM) • Pro-forma projected Per Unit Per Annum (PUPA) or Annual Deposit to the Replacement Reserves (ADRR) • And the $60,000 Question is: “Sources allow for how much rehabilitation?”

  8. PNA Lessons Learned • Owners should prepare for a PNA • Qualify your Needs Assessor! • Identify sources of funding to the Needs Assessor • Confirm property details (build date, SF, #bldgs, off-site items) • Early in the process provide the Needs Assessor with a list of proposed rehab scope, and estimated construction costs • EUL = “Estimated Useful Life”; not Absolute Useful Life • Coordinate market driven or appraiser recommendations • Coordinate Environmental Site Assessment with PNA • Remember long-lived building systems in evaluations • Implement green and EWCM measures if possible!

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