lis 217 stemming the tide - LISC

2. MARKETUltimately, the conversion risk of the propertydepends on the relationship between its currentuse and its maximum market potential.Preservation opportunities, including the avail-ability of federal subsidies, are also closely tiedto how the property is positioned in the marketplace.MARKET ISSUES AT A GLANCEIssueRents(Below or Above market)LocationMarket CharacteristicsMarket ValueUse and RegulatoryRestrictions(Urban Renewal,Zoning Relief, Tax Relief, PublicFinancing, Rent ControlImplications for Preservation StrategyIndicates conversion/ foreclosure risk and nature of preservationopportunity (through increased Section 8 rents or mortgage restructuring).Affects appraisal value/ conversion potential.Affects appraisal and preservation options.Highest and best use determines ultimate value.May limit appraisal value and conversion potential.RentsHow do the project rents compare with rents ofother properties that are similar in age, location,and amenities? This is a critical variable fordetermining the degree of risk to affordableunits and the opportunity for preservation.Below Market. If the project rents are belowmarket, the risk of conversion is greater. But ifthere are Section 8 units, there may also be apreservation opportunity through Mark-Up-to-Market and other federal programs.Above Market. If the project rents are abovemarket, there may be a risk of foreclosure—orthe potential for Mark-to-Market debt restructuringto preserve long-term affordability.LocationLocation plays a significant role in determininga property's current and prospective value.Some important issues include the following: Isthe project site and general location desirableor undesirable? What is located next door?Across the street? Are the surrounding usescompatible? Are transportation, jobs, shopping,and schools nearby? Are they accessible? Whatis the general neighborhood quality? Are theresigns of gentrification or disinvestment?Market CharacteristicsBeyond location, other key market indicatorsinclude: vacancy rates for affordable and market-ratehousing (especially rental); housingdemand vs. housing supply; and turn-backrates for Section 8 housing (i.e., the percentageof vouchers returned because recipients wereunable to locate housing within the allowabletime period). Some market indicators may havespecific relevance to a particular program. Forexample, if the area vacancy rate is below 3 percent,the owner of a below-market Section 8project may be eligible for Mark-Up-to-Marketon a discretionary basis.Market ValueWhat is the highest and best use of the propertythat is legally permissible, physically possible,and financially feasible on this site? Whatcould this property be in five years? In tenyears? Questions to ask include the following:Is the site zoned for office or retail use? Is therevacant land on the site that could be developed?Are there pending development plans forthis neighborhood (e.g., a new transit stop, or ahotel across the street)?36chapter four: Researching the Property: Towards a Preservation Strategy