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- Identification of Immediate Repairs/Rehab- Reserve for Replacement (R4R) Analysis

* PNA, PCA, PCNA, PCR synonymous in the above definition.

SOURCES

USES or NEEDS

The Yin & Yang

of LIHTC

The Balancing

Act

- Property Condition- Funding Sources- Ownership Direction/Expectation

Sometimes synergies, sometimes conflict

Driving Factors in aNeeds Assessment

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.)

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)

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?”

PNA Lessons Learned1. Owners should prepare for a PNA

2. Qualify your Needs Assessor!

3. Identify sources of funding to the Needs Assessor

4. Confirm property details (build date, SF, #bldgs, off-site items)

5. Early in the process provide the Needs Assessor with a list of proposed rehab scope, and estimated construction costs

6. EUL = “Estimated Useful Life”; not Absolute Useful Life

7. Coordinate market driven or appraiser recommendations

8. Coordinate Environmental Site Assessment with PNA

9. Remember long-lived building systems in evaluations

10. Implement green and EWCM measures if possible!