7.9.8 Land/Site Valuation

A. The site value of land in new construction is to be estimated using all applicable approaches to value, as if the project were unrestricted and market rate.

B. The “As Is” value in substantial rehabilitation cases is to be estimated using all applicable approaches to value based on the current operation of the project.

• C. For both Section 7.9.8.A and Section 7.9.8.B above, no consideration will be given to:

1. Any additional value that may be attributable to subsidies available to the project or any LIHTCs or other tax benefits the project will receive; or

2. Any value reduction due to any NOI or value limitations caused by regulatory agreements or affordability restrictions imposed by any subsidy program or tax regulation. This valuation methodology permits Sponsors to acquire a project at its market value for new construction or rehabilitation of affordable housing. The value attributable to the presence of LIHTCs diminishes over time and is not always freely transferable, and thus should not be taken into consideration.

NOTE: See special instructions for Cost Certification as it relates to As Is Valuation in Chapter 13, Section 13.21.

D. For underwriting purposes, where sites/projects are sold by a public body to the Developer for a specific re-use purpose, the value of land fully improved is the lesser of:

1. The amount determined by comparison with other sites possessing the improvements and amenities that the subject site will have upon completion.

2. The dollar amount paid by the purchaser under the purchase contract with the public body, plus an estimate of any additional costs imposed by its terms or by the insurance program. Such costs are those to be borne by the purchaser under the purchase contract, including real estate taxes and special assessments accruing from date of purchase to date of commitment, legal fees incident to the land/project purchase, re-zoning costs, installation of certain designated off-site improvements, razing structures and clearance of the site (after allowance for any income to the purchaser), and environmental abatement. This is not a complete list of items covered but serves as a guide to the acceptability of costs required by the purchase contract.

3. The actual values are noted in the MAP Appraiser’s narrative and in the Remarks Section of the 92264.

4. The site value of land in new construction or the “As Is” value will be noted in the MAP appraiser’s narrative report and in the Remarks section of form HUD-92264. For the purpose of developing the cost build-up in Section G of form HUD-92264, the lesser of market value or the acquisition cost will be entered in Section G. Line 74 (Total Estimated Replacement Cost of the Project) is to be entered in Criterion 3 of form HUD-92264-A.

5. In the case of non-LIHTC developments that otherwise meet the definition of affordable per Chapter 3, Section 3.1.12 of the MAP Guide, all or a portion of the residual land value assignable to the affordable units in the transaction may be included in Criterion 3, as long as the land value is constrained by a valuation consistent with an affordable development (as opposed to a market-rate site valuation). For purposes of clarification, the site value used for affordable housing may be lower than the corresponding value if all of the units were operated at market. The units that are restricted

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Chapter 7 Valuation & Market Analysis 7.9 Site Analysis

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to rents below area market rents (established in the appraisal) would not contribute the same value to the underlying land as the market rate units. In some cases, the value may pose a negative impact for each unit restricted as the amount of rent generated would likely not cover expenses. Thus, the impact of the rents in this case must be thoroughly analyzed.

6. The appraised value of the land may be included in Criterion 3 in the event that the public entity maintains ownership in the transaction, and the project meets the definition of affordable per MAP Guide Chapter 3, Section 3.1.12.

E. HUD’s estimated value of land or project “as is” for cost certification may include all of the items in Section 7.9.8.D.2 above with the exceptions of: the installation of off-site improvements and the cost of razing structures and clearing the site (less income received). This is intended to avoid duplication of costs that might be reflected in the estimated value of land “as is” and also allows for the Sponsor to include them as separate items in cost certification which includes both off-site costs and demolition. The dollar amount of the land purchase contract plus a breakdown of the estimate of additional costs must be fully itemized and documented.

NOTE: Cost Certification instructions (enforced by Statute) dictate that, in substantial rehabilitation cases, the lesser of the “as is” value of the land and improvements (before repair or rehabilitation) or the purchase price of the land and improvements is used in the cost build up for Criterion 3 of form HUD 92264A. Consequently, when mortgage proceeds will be used to fund the acquisition of the project, the “as is” value estimation will be used as a test of the reasonableness of the acquisition price.

F. When the acquisition price is less than the “as is” value of the land and improvements (as accepted by HUD), and mortgage proceeds will be used to fund the acquisition of the project, the acquisition price will be used in the cost build up for Criterion 3, forming the cost basis for the Firm Commitment

G. When the acquisition price exceeds the “as is” value of the land and improvements (as accepted by HUD), then the acquisition price must be reduced to the “as is” value and will, subsequently, comprise the basis of the cost build up for the Firm Commitment.

H. When mortgage proceeds will not be used to fund the acquisition of the project, the “as is” market value of the project will be used in the cost build up for Criterion 3, forming the cost basis for the Firm Commitment. This is particularly significant when below-market rent restrictions are in place (such as in the case of LIHTC-limited rents or Section 8 rent subsidy) and the use of market rents in valuing the project will result in a premium over these rent restrictions.