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Example A and B would both have difficulty qualifying for necessary conventional financing.
<br />With cash flow at such low levels, banks would not be confident in the projects ability to repay
<br />the debt. The perceived risk is also high demonstrated by Cash on Cash return well below the
<br />needed 10% to 15% level.
<br />
<br />MUPTE Impact
<br />As property taxes are a major operating expense in a development project, the property tax
<br />exemption provided by the MUPTE program can play a significant role in improving NOI. The
<br />MUPTE can help create opportunities for financing and return on investment that are not
<br />otherwise achievable in core area multi-unit development.
<br />
<br />Example Pro-Forma A and B were recalculated to include MUPTE. The MUPTE is estimated to
<br />1
<br />have a total value of $267,000 for Example A and $445,000 for Example B.
<br />
<br />Example Pro-Forma A: With MUPTE
<br />
<br />
<br />Year 1Year 2Year 3Year 4Year 5Year 6Year 7Year 8Year 9Year 10
<br />
<br />Rent/Sale Income$ 172,800$ 174,528$ 176,273$ 178,036$ 179,816$ 181,615$ 183,431$ 185,265$ 187,118$ 188,989
<br />
<br /> - Vacancy$ 8,640$ 8,726$ 8,814$ 8,902$ 8,991$ 9,081$ 9,172$ 9,263$ 9,356$ 9,449
<br />
<br /> = Effective Gross Rent$ 164,160$ 165,802$ 167,460$ 169,134$ 170,826$ 172,534$ 174,259$ 176,002$ 177,762$ 179,539
<br />
<br /> - Operating Exp$ 34,560$ 34,906$ 35,255$ 35,607$ 35,963$ 36,323$ 36,686$ 37,053$ 37,424$ 37,798
<br />
<br /> - Property Tax
<br />$ (24,405)$ (24,893)$ (25,391) $ (25,898) $ (26,416)$ (26,945)$ (27,484)$ (28,033)$ (28,594) $ (29,166)
<br />(saved by MUPTE)
<br />
<br /> = NOI
<br />$ 154,005$ 155,789$ 157,596$ 159,425$ 161,279$ 163,156$ 165,057$ 166,982$ 168,932$ 170,907
<br />
<br /> - Debt Service$ 127,740$ 127,740$ 127,740$ 127,740$ 127,740$ 127,740$ 127,740$ 127,740$ 127,740$ 127,740
<br />
<br /> = CF
<br />$ 26,265$ 28,049$ 29,856$ 31,685$ 33,539$ 35,416$ 37,317$ 39,242$ 41,192$ 43,167
<br />
<br />Cash on Cash Return 5%6%6%7%7%7%8%8%9%9%
<br />
<br />Example Pro-forma B: With MUPTE
<br />
<br />
<br />Year 1Year 2Year 3Year 4Year 5Year 6Year 7Year 8Year 9Year 10
<br />
<br />Rent/Sale Income$ 288,000$ 290,880$ 293,789$ 296,727$ 299,694$ 302,691$ 305,718$ 308,775$ 311,863$ 314,981
<br />
<br /> - Vacancy$ 14,400$ 14,544$ 14,689$ 14,836$ 14,985$ 15,135$ 15,286$ 15,439$ 15,593$ 15,749
<br />
<br /> = Effective Gross Rent$ 273,600$ 276,336$ 279,099$ 281,890$ 284,709$ 287,556$ 290,432$ 293,336$ 296,270$ 299,232
<br />
<br />
<br /> - Operating Exp$ 57,600$ 58,176$ 58,758$ 59,345$ 59,939$ 60,538$ 61,144$ 61,755$ 62,373$ 62,996
<br /> - Property Tax
<br />
<br />$ (40,674) $ (41,488) $ (42,318) $ (43,164) $ (44,027) $ (44,908) $ (45,806) $ (46,722) $ (47,657) $ (48,610)
<br />(saved by MUPTE)
<br />
<br /> = NOI
<br />$ 256,674$ 259,648$ 262,659$ 265,709$ 268,798$ 271,926$ 275,094$ 278,303$ 281,554$ 284,846
<br />
<br /> - Debt Service$ 219,000$ 219,000$ 219,000$ 219,000$ 219,000$ 219,000$ 219,000$ 219,000$ 219,000$ 219,000
<br />
<br /> = CF
<br />$ 37,674$ 40,648$ 43,659$ 46,709$ 49,798$ 52,926$ 56,094$ 59,303$ 62,554$ 65,846
<br />
<br />Cash on Cash Return 7%8%8%9%10%10%11%11%12%13%
<br />
<br />Even with the MUPTE, Cash on Cash, in both Example A and B, never goes above 13%.
<br />Therefore, MUPTE is not contributing to exorbitant developer returns.
<br />
<br />
<br />
<br />1
<br /> Values are estimates and depend on the assessed value for the housing in the project, the tax rates in effect during
<br />the exemption period, and the changes in the assessed value of this property over the exemption period
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