Anyone here pursue this as an acquisition strategy? It’s essentially a rent compliance program without any sort of deed restriction etc, is that correct? So you get a property tax abatement based on what percentage of your units are below whatever the 80% rent limits are per unit type?
it’s seems at least on the surface as a decent value add pitch, rather than trying to push rents you have a way to cut the tax bill, net net you still get a boost to NOI.
is the debt financing more accretive from interest rates potentially being lower for NOAH deals?
Lastly, is it true that in order to even qualify there needs to be a non profit group as part of the ownership/JV?
Based on the most helpful WSO content, NOAH (Naturally Occurring Affordable Housing) strategies can indeed be an attractive acquisition approach. Here's a breakdown of your questions:
Rent Compliance Without Deed Restriction: Yes, NOAH strategies typically involve rent compliance programs without the long-term deed restrictions seen in LIHTC or other affordable housing programs. The property tax abatement is often tied to the percentage of units rented below 80% of area median income (AMI) thresholds, making it a flexible way to achieve affordability without the same regulatory burdens.
Value-Add Potential: You're correct that this can be a compelling value-add strategy. Instead of pushing rents, reducing the property tax burden can effectively boost NOI (Net Operating Income). This approach can be particularly appealing in markets where rent growth is limited or where affordability is a key concern.
Debt Financing Benefits: While NOAH deals might not always have the same financing benefits as LIHTC or other subsidized programs, some lenders may offer slightly better terms (e.g., lower interest rates) for properties with affordability components. However, this can vary significantly by lender and market.
Non-Profit Ownership Requirement: In some cases, yes, a non-profit partner or ownership structure may be required to qualify for certain tax abatements or incentives tied to NOAH strategies. This is often dependent on local regulations and the specific program being utilized.
If you're considering this strategy, it might be worth consulting with local housing authorities or legal experts to understand the specific requirements and benefits in your target market.
Sources: Q&A: Affordable Housing Acquisitions, Q&A: Affordable Housing Acquisitions, Scaling A Single-Family Rental Acquisition Strategy, How do Tax abatements make projects feasible?, Tom Barrack: Preventing Covid-19 From Infecting the Commercial Mortgage Market
Can you elaborate a little more? As I understood it, NOAH was an acronym for Naturally Occurring Affordable Housing, not for a specific program or abatement.
Kinda tough to opine without having more context. What municipality offers these tax breaks? What does the abatement look like? Is it a full exemption or just partial?
I can't speak on how each state operates. I am based in California, and so within the state CA, the program requires that you apply/certify for the tax abatement (there is a full application process that requires qualification by both ownership as well as the rent roll). Depending on the % of units which are below the required AMI rent level, you get those units 100% abated from property taxes (special assessments still would apply). So if you have a 100 unit property, and 75 of the units are rented below the AMI threshold, 75% of your tax bill is abated. If you move the other 25 units to conforming over time, each year you re-certify and your tax bill adjusted accordingly.
You seem to know a pretty decent amount about it. What is the question? As you note, a lot of this varies state by state...
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