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Housing
agencies react to market study standards
By Donna Kimura
A first-ever set of voluntary standards for market studies is providing
an increased level of comfort for low-income housing tax credit (LIHTC)
allocating agencies.
Unveiled last fall, the recommended practices were developed by the
recently formed National Council of Affordable Housing Market Analysts
(NCAHMA).
For several allocating agencies, the standards are an affirmation that
they are calling for the right data in their market studies.
"For the most part, they are perfect," said D. Ryne Johnson,
development officer in the LIHTC allocation department at the Virginia
Housing Development Authority. "They are very similar to most states'
(standards) in one way or another. They are similar to Virginia's."
Johnson, however, points out that Virginia and other states have their
own established rules that analysts must continue to follow. "We
cannot accept studies if they are not in our format," he said.
"During the reservation time, I must read about 75 studies in a
two-week period. I must streamline the process so Virginia's guidelines
are shorter than the Council's guidelines."
Others also stress that the council's voluntary standards, which outline
key elements that should be included in a report, do not replace a state's
requirements. Tax credit allocating agencies still ultimately make the
call about what needs to be in a market study.
"The council did a good job with the definitions, and they should
work with the states to mold the state's guidelines to make them easy
for both the state and the analyst," Johnson said. "Some states
have very difficult guidelines for the analyst to complete in a timely
and affordable manner."
A 2000 statutory change made it a requirement for all new LIHTC developments
to have an independent market study, but it failed to provide details
about what should be included in a report. As a result, state tax credit
agencies vary in what they require in a market study. (For more information
about market studies, see Affordable Housing Finance magazine,
September 2003, page 54, and November 2003, page 14.)
In a growing trend, more LIHTC allocating agencies are commissioning
the studies themselves to get an independent report of a project's need
and feasibility. Others have a list of approved market analysts that
developers must use.
NCAHMA's standards are intended to improve the quality and bring consistency
to studies nationwide.
"I applaud them for doing that," said Bill Boerigter, multifamily
development officer at the Wisconsin Housing and Economic Development
Authority (WHEDA). "There needs to be some consistency in the industry."
The standards, he said, will help provide a higher comfort level for
state agencies in making their tax credit allocations each year.
Like other tax credit allocating agencies, WHEDA has its own set of
market study guidelines that must be followed. In addition, Wisconsin
has a list of approved market study providers that developers must use.
Although wholesale changes are not expected, Boerigter said he may
consider some gradual changes in the language of WHEDA's guidelines
to make them consistent with the national standards.
Other HFAs are also taking their time. "We will continue to analyze
how the guidelines impact our work and mission," said E. J. Miranda,
spokesman for the New Jersey Housing and Mortgage Finance Agency (NJHMFA).
NJHMFA contracts with market study reviewers to complete a site visit
and evaluate the reasonableness of the conclusions in the study.
More
HFAs seek reliable market studies
By Cynthia Bartlett
Hunter
Around the country, state housing finance agencies (HFAs) are
becoming increasingly leery of developer-commissioned market studies.
The suspicion is that some studies cater to the needs of the people
who paid for them.
With demand for low-income housing tax credits outstripping supply
by a 2-to-1 or 3-to-1 ratio in many parts of the country, HFAs
want to allocate credits to projects that will succeed.
Since at least 2001, when federal requirements began, and much
longer in some states, market studies have been a major element
in selecting which projects should get credits. If the studies
aren't reliable, then decisions based on them won't be either.
In response, some states have begun directly commissioning market
studies to ensure impartiality. The pioneer, Georgia Department
of Community Affairs (DCA), started doing this in 1999, and both
the North Carolina Housing Finance Agency (NCHFA) and the New
Mexico Mortgage Finance Authority (NMMFA) started in 2001. North
Carolina's program, in fact, was mentioned by other HFAs as being
a model that they had studied.
The Iowa Finance Authority (IFA) began commissioning studies
last September for their 2004 credits, and the South Carolina
State Housing Finance & Development Authority (SCSHFDA) will
start this year. Although the Indiana Housing Finance Authority
has yet to implement third-party market reviews, its qualified
allocation plan has language that allows it to.
HFA-commissioned market studies are less common for 4% credits.
DCA began requiring them this year to expedite review of "applications
which have a tight time frame for bond closing," said Joy
Fitzgerald, director, office of affordable housing. High vacancy
rates in tax-exempt bond properties have recently led the Ohio
Housing Finance Authority to reserve the right to do an independent
market study if it is suspicious of the reliability of what the
developer submitted.
In most states, developers haven't welcomed agency-commissioned
reports. "When the idea was first proposed, we got some negative
comments," said Hank Moore, SCSHFDA's director of due diligence.
One worry is that a developer won't have the opportunity to clarify
any misunderstandings or address any problems.
NCHFA has responded to complaints by allowing developers to have
direct contact with analysts, said Mark Shelburne, counsel and
policy coordinator. In Iowa, during the pre-application process,
a developer can get a market study and then communicate with the
analyst through IFA to find out how to make the project viable.
That ends when the application is submitted. In Georgia, developers
can submit their own studies as a secondary source.
In addition to providing HFAs with reliable information, standard
criteria and format, and a quicker and more efficient review process,
agency-controlled studies can sometimes offer cost savings to
developers. In New Mexico, some of the $4,000 market study fee
might be refunded when multiple projects are in one market. "The
nice thing is that in this last round, we had several projects
in one city, and the market study firm could take the need and
market impact of all the projects into account when making its
studies," said Linda Bridge, senior development program manager
for NMMFA.
Generally, market study fees are due at the time an application
is turned in. In Georgia, the application fee includes the study.
NMMFA tries to test applications for threshold items before commissioning
studies to save developers money, and SCSHFDA's time frame might
allow that to be possible. At other HFAs that commission market
studies, the application process does not accommodate this.
Short of commissioning market studies, states such as Arkansas
and Wisconsin require developers to choose from an approved list
of market analysts. Officials at other HFAs, though, plan to continue
allowing developers to obtain their own studies because they think
that they know their states well enough and have enough safeguards
in place to be able to spot a manipulated market study.
Some HFA officials are puzzled by why a developer would want
to encourage a biased market study in order to earn the right
to invest time and money in a project for which there is no market.
"You have to look at it in the long run," which developers
using flawed market studies aren't doing, said Tim Waddell, IFA's
tax credit manager.
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