Working on a real estate equity capital raise for a $30MM senior housing facility. The sponsor has a 10 yr abatement of 25% of taxes. The sponsor is looking to get out of the property by year 8, thereby leaving 2 yrs left on the abatement. Other than doing an NPV on the remaining years of the abatement savings, how else would you model in the tax abatement to value the entire property to back into levered IRR?
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On entrance/exit you value it as if paying full taxes (for NOI) then you add back in the NPV of the abatement discounting the CFs at the same rate as the cap rate.
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