7.16.3 — HUD Multifamily Accelerated Processing (MAP)

A. If the abatement is partial term or variable, it may still be used to secure additional mortgage proceeds. The additional mortgage will be the amount that will amortize over the term of the tax abatement. A special amortization plan must be requested which has debt service payments that are increased by the additional net income generated during the term of the abatement. When processing a partial term or variable abatement, the full amount of the project taxes must be estimated and included in the total project expenses on form HUD-92264 as if there were no abatement. The additional debt service carry resulting from the abatement must be calculated on line I, Criteria 5 of form HUD-92264-A.

B. If Criterion 5 (Amount Based on Debt Service Ratio) is not the controlling criterion, partial term or variable abatements cannot be used to secure additional mortgage proceeds. Also, the appraiser must not include extra value associated with partial-term abatement in either the estimate of land value, the “As Is” value for substantial rehabilitation, or the “As Repaired” or “As Is” value for existing projects, and it must not be included in Criterion 3.

Partial Term Abatements: Assume that Project A has been awarded a 5-year tax abatement of $5,000/year and the interest rate on the insured loan is quoted at 7.5% and the MIP is 0.5%. The amount of additional mortgage is calculated by dividing the annual abatement, $5,000 by the applicable debt service constant (P, I, and MIP). In this example the debt service constant is 0.245455383.

$5,000 / 0.245455383 = $20,370

The additional mortgage amount based upon debt service (Criterion 5 of form HUD-92264-A) would be an increase of $20,370 and a special amortization schedule would be required with a debt service payment that is $5,000/year greater in years 1 through 5.

Variable Abatements: Variable tax abatements are more complex to quantify but are essentially calculated in the same manner. Assume that Project B has been awarded 15-year tax abatement. In years 1 through 5, the abatement is $25,000; in years 6 through 10 the abatement is $10,000; and in years 11 through 15 the abated amount is $5,000. The interest rate on the insured loan is quoted at 7.5% and the MIP is 0.5%. The amount of additional mortgage is calculated as the amount that could be fully amortized by the variable payments over the 15-year period based on the stated financing terms. The graph below illustrates the calculation.

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Chapter 7 Valuation & Market Analysis 7.16 Tax Abatement Procedures

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$25,000 ($5,000) Abatement Period 1 $25,000 -$10,000 = $15,000 $15,000 / 0.245455 = $61,111 $20,000 ($5,000) $15,000 ($5,000) $10,000 ($5,000) ($5,000) Abatement Period 2 $10,000 - $5,000 = $5,000 $5,000 / 0.147422 = $33,912 $5,000 ($5,000) ($5,000) ($5,000) Abatement Period 3 $5,000 - $0 = $5,000 $5,000 / 0.116241 = $43,014

When there are two or more abatement amounts and periods, and the amounts decline, the abatement amount for each period is found by subtracting the abatement amount of the next period. Period 1 will run for 5 years, Period 2 will run for 10 years, and Period 3 will run for 15 years. Because all three periods begin amortization at the same point in year 0, the amount of the abatement for the next period must be subtracted to avoid double counting.

Abatement Period 1: $25,000 minus $10,000 (the amount of abatement in period 2) = $15,000 for 5 years. The debt service constant for a 5-year term at 7.5% interest with 5% MIP is 0.245455383. Dividing $15,000 by 0.245455383 indicates additional mortgage proceeds of $61,111 attributable to period 1.
Abatement Period 2: $10,000 minus $5,000 (the amount of abatement in period 3) = $5,000 for 10 years. The debt service constant for a 10-year term at 7.5% interest with 0.5% MIP is 0.147442123. Dividing $5,000 by 0.147442123 indicates additional mortgage proceeds of $33,912 attributable to period 2.
Abatement Period 3: $5,000 minus $0 (since there are no periods remaining) = $5,000 for 15 years. The debt service constant for a 15-year term at 7.5% interest with 0.5% MIP is 0.116241483. Dividing $5,000 by 0.116241483 indicates additional mortgage proceeds of $43,014 attributable to period 3.
Adding the supportable mortgages from each of the abatement periods results in a total additional supportable mortgage of:
- 1. Period 1 = $ 61,111 2) Period 2 = $ 33,912 3) Period 3 = $ 43,014 4) Total = $138,037

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Chapter 7 Valuation & Market Analysis 7.17 Project-Based Section 8 and LIHTC

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The mortgage amount based on debt service (Criteria 5 of HUD 92264-A) would be increased by $138,037 and a special amortization schedule would be required with a debt service payment that reflects $25,000 per year in years 1 through 5, $10,000 per year in years 6 through10, and $5,000 per year in years 11 through 15. The appraiser must not include extra value associated with variable abatement in either the estimate of land value, the “As Is” value for substantial rehabilitation, or the “As Repaired” or “As Is” value for existing projects, and it must not be included in Criterion 3.