MINUTES OF THE
ASSESSING STANDARDS BOARD
LOW INCOME HOUSING SUB-COMMITTEE
Approved as Written
DATE: September 9, 2009 TIME: 1:30 p.m.
LOCATION: Training Room, 109 Pleasant Street, Concord, N.H.
Senator Betsi DeVries Robert Gagne, NHAAO
Representative Betsey Patten, Chair Eric Stohl, Municipal Official
Stephen Hamilton, NHDRA
MEMBERS of the PUBLIC:
Andrew Boyle, NHHFA Bill Walker, HINEC
Len Gerzon, Public Richard Weaver, NNHFA
Scott Dickman, NH DRA Ignatius MacLellan, NNEHIF
Chair Patten called the meeting to order at 1:30 p.m.
Mr. Gagne motioned to accept the minutes of March 27, 2009 and April 20, 2009. Mr. Stohl
seconded the motion. Motion passed unanimously.
Mr. Dickman’s presentation illustrated an expense history using the fifteen (15) properties in the
original matrix previously studied. The expense history was isolated and compared to the fee
simple valuation. The fee simple represents the value of these properties when the encumbered
rents are replaced with the market rents and the expenses were left as is. The average and the
median were determined in the following specific categories: taxes, insurance, admin,
maintenance, operating under reserves and total expenses. The average percentage and fee
simple median of encumbered properties was approximately 65% and the percentage for in-use
(non-market) showed a demonstrable increase of 77% for the average and 84% for the median.
Increase in total shows the fee simple with market value. The EGI, (Effective Gross Income)
equals the income after vacancies are taken into consideration. The operating and expense
(maintenance) categories showed the most increase. The expenses are the actual expenses
experienced by this class of properties. Changes are whether or not the rent is restricted or
market which then changes the ratio. (The expenses divided by the income equals the expense
National expense information is collected by IREM, (Institute of Real Estate Management).
They collect and compile live information from the field. The published (live) rates for the
various types of apartment properties are used in the spreadsheet. They represent non-restricted
properties across hundreds of properties nation-wide as well as regionally. There are multiple
sets of types of properties and the numbers vary depending on the differences in expenses. The
numbers are fairly cohesive. These expense summaries represent pure market summaries versus
the New Hampshire projects. In response to the question posed by the Board, the numbers
clearly demonstrate a pattern of higher expense ratios for this class of properties than any other
market driven class of properties studied.
Chair Patten asked the Board members if this information was helpful in demonstrating the
encumbered property clearly had a significant increase in expenses and maintenance costs for
this type of property.
Mr. Dickman’s presentation also included a traditional apartment valuation exercise using the
income approach. There were multiple building complexes, each having a different series of
units. The units multiplied by per unit market rent; the gross annual income; and applying the
vacancy rate will get the effective gross income. Finding the total expenses and the total net
operating income, the effective gross income minus expenses, equals the net operating income
then capitalizing it for a value. The process assessors are using excludes the use of any variables
such as what the owner paid for the property. This valuation exercise begins and ends for the
market driven considerations, which include the cash flow of the property, which is derived from
the inflow of the rental income, subtraction of the expenses and the application of a market
capitalization rate. Whether the owner paid too much for the property or less than he should
have, is not a consideration. The investor consideration from that perspective does not make its
way into the understanding of the inherent property value of these assets.
In summary, the typical real property valuation would not consider whether an investor over or
under paid for the assets at the beginning; it does not make its way into the analysis. Value from
an assessing perspective as understood under NH Law, ignores those considerations. It is an
understanding at market of the cash flow, which is then capitalized.
Debate of the Selection of a Capitalization Rate (now in statute.)
SCENERIO 1 SCENERIO 2
Total development cost of $10,500,000 Total development cost $10,500,000
Cost per unit $150,000 Per Unit $150,000
Building housed 70 units Building housed 70 units
Unencumbered Rent of $1,250 Encumbered Rent of $900
Applied Annual Appreciation of 2% Applied Annual Appreciation of 2%
Vacancy Rate of 5% Tax Credit Income for 10 years
Expense Ratio of 48% Vacancy Rate was lowered
Spread out for 25 years Expense Ratio was raised
Capitalization Rate of 10% Capitalization Rate was raised (substantially due to
IRR (Internal Rate of Return) 16.28% no known history for a resale of these properties
effectively in NH)
IRR (Internal Rate of Return) 16.01%
1.65% difference between traditional properties versus unencumbered properties. Ultimately,
the final outcome will be very similar no matter what numbers may be used.
When the capitalization rate is raised, the value of the property at the end of this cash flow
exercise (25 years) is understood to be much less than under ordinary market circumstances.
This also included the restricted impact of the encumbrance on the rents and tax credits that were
the actual rates being used at that time. The exercise showed the off setting and competing
dynamics at work.
What to do with the Cap Rate? Because of the off sets and benefits (for example lower vacancy
rates and tax credit income) that in balance, a market capitalization rate was as good a solution as
anyone could recommend. Using the market derived cap rate will allow for fluctuations in the
economic market and will automatically adjust to what is happening. Adjusting cap rate
annually per statute is a good idea because it allows for fairness and equitableness. Due to lack
of evidence to the contrary, this proves to be the best system. It is a relatively standardized
procedure, easy to follow and ultimately frees an assessor from trying to figure it out.
Mr. Hamilton stated the balance point between the positive benefits of the tax credits, the
negative/detrimental effect of the restricted rents and the higher expenses all balances out at a
market cap rate. When one considers the actual expenses, the restricted rents and then apply the
market cap rate, that brings it all into balance where it seems to be fair.
Mr. MacLellan agreed the spreadsheet presentation showed what we were hoping to accomplish
when we were doing the legislation. He expressed being nervous due to market uncertainty, tax
credit uncertainty and how properties are struggling so much. He stated he would take the legal
challenge about whether tax credits are real estate that would be included in any other property
and even with the price the investors are paying for the credits down significantly the returns are
still not at 16%. They are currently buying credits for investors at .72, which brings a return of
10 or 11%. In summary, he accepted the formula does work for the amount of restrictions out
Chair Patten asked the subcommittee to think about whether or not they are comfortable with the
formula as is or does it need to be changed using the value of the Tax Credits? Senator DeVries
inquired whether a discussion was necessary for the option to stay in for 10 years and if it
worked? Does it stay with the different economic fluctuations? Is it a hindrance? What is it
doing to the market?
Mr. Hamilton suggested the Board accept formula as written in the statute. The Board should
continue to meet in order to clarify definitions and the how to processes. Bring the what ifs that
apply to the tax-payer (penalty for filing late); add the establishment of cap rate, and any other
technical issues to legislature and correct them through statute rather than rules.
Mr. MacLellan, in past meetings, has suggested the program come in through current use.
Should the owner have the ability to opt out of the program due to not being able to pay taxes?
He requested opportunity to put together clarifications with regard to what ifs…
Mr. Gagne suggested having a different system for housing versus land in current use. There is a
huge discount for an owner having land in current use where there is a significantly smaller
discount for the housing situation.
Mr. Stohl suggested incorporating a provision to protect the system similar to the land use
change tax penalty in the case of the sale of a property in the program. There are two types of
people, people during the credit term and the people after who are receiving two separate
benefits. What are the benefits of the investor, if any? In his opinion, public perception can kill
progress. He suggested some sort of penalty be placed in the rules to ease the public perception
and give them some sense of ease with the system. If the situation is rare, he didn’t see a
problem with putting the penalty in writing.
Mr. MacLellan objected to the penalty. Public restrictions including when an owner can get out,
are in place with these properties. Once credits are gone, the investor steps out and the general
partner (usually a non-profit) takes over ownership. The next owner is still under the same
restrictions as the original investor. He asked during what time period the penalty would be in
effect? He would consider the possibility of a penalty and bring it to the people to whom he is
Mr. Hamilton stated Mr. Stohl and Mr. MacLellan both had legitimate concerns and the
subcommittee should come up with some common language including a penalty in case the
restrictions were able to go away and the property could be sold at market value. This would
comfort both sides.
Mr. Dickman, in response to risk, stated the benefit of having a standard formula versus dealing
with the unknown is good sense. He suggested finding a way to minimize the risk versus having
a tax penalty by having full disclosure of the process in which the cap rate is established with a
community by inviting the assessors in with the DRA.
Senator DeVries suggested that an investor time frame be considered and cautioned that the
process be examined by speaking to individuals in the market. Senator DeVries motioned to
recommend to the full ASB to accept the formula as legislatively written in RSA
75-1:A. Mr. Stohl seconded the motion. The vote to approve was unanimous.
The subcommittee agreed to continue to meet in order to clarify definitions and refinements.
Chair Patten requested the members have suggestions ready for the next subcommittee meeting.
Mr. Hamilton moved to adjourn; Mr. Stohl seconded the motion.
Chair Patten suggested Thursday, October 8th at 1:30 p.m. for the next meeting. All approved.
Chair Patten adjourned the meeting at 2:50 p.m.
Next Meeting: October 8, 2009 – 1:30 p.m. @ Department of Revenue, 109 Pleasant Street
Concord – Training Room
Respectfully Submitted, Stephanie Derosier
NH Department of Revenue Administration - Property Appraisal Division
Documentation relative to the Assessing Standards Board may be submitted, requested or
Telephone: (603) 271-2687 In person at 109 Pleasant Street, Concord
Facsimile: (603) 271-1161 In writing to: NH Dept of Revenue Admin.
Web: www.nh.gov/revenue Assessing Standards Board
PO Box 487
Concord, NH 03302-0487