The National Council of Housing Market Analysts (NCHMA) hosted a virtual town hall for members last week to discuss the state of the market analysis industry in light of the COVID-19 pandemic.

Background

NCHMA is a professional association whose mission is to be an educational and membership organization for multifamily market analysts. The organization developed Model Content Standards that are widely accepted throughout the industry as the “gold standard” for market study development. Syndicators, investors, lending institutions and housing finance agencies (HFAs), among others, have adopted these guidelines as part of their underwriting requirements for third-party market analysts. In addition to the Model Content Standards, NCHMA publishes white papers and other guidance of relevance to the market analysis industry, and encourages professional development through hosted symposia, conferences and webinars.

NCHMA falls under the umbrella of the larger National Housing & Rehabilitation Association (NH&RA), a professional association of affordable housing and multifamily owners, developers and professionals. Novogradac is an active member, participant and sponsor of both groups.

Town Hall Summary

The virtual town hall was to provide an open forum for both analyst practitioners and market study users to discuss the state of the industry. Panelists included market analysts, syndicators and a state housing finance agency, representing a spectrum of those involved with the market study process. Several topics were touched upon, including these major themes:

Field Work

Field work within the context of market analysis consists of two primary components: the physical inspection of the site and market, and in-person data collection. Panelists were asked if field work is still being conducted and if so, what modifications may be made. Responses varied widely, but there were some key takeaways:

• Modifications to what would previously be considered standard field work are occurring. These modifications could include:
  • Elimination of on-site interviews with comparable properties, instead conducting them via telephone.
  • Elimination of interior, occupied unit inspections of existing properties.
  • Engagement of a local, qualified third party to assist with field work.
• Delay of field work to a later date, with all other aspects of market analysis completed in the interim.
• Elimination of field work for those projects where it may not be necessary, such as updates of prior work, Phase II developments or markets where the analyst has extensive prior experience.

Above all, it is clear that analysts and users of these studies should be aware of all pertinent federal, state and local requirements. In many cases, real estate services and affordable housing are listed as critical or essential services. It was cautioned that analysts must stay abreast of all current restrictions and consult with legal counsel as needed.

These are just a few examples of steps market analysts are taking in order to adapt field work to the current environment while still delivering good quality, credible market analysis.

Data Limitations

Good-quality market studies are dependent on the quality of research conducted and in turn, incorporated into the analysis. The COVID-19 pandemic has created some significant challenges with respect to data collection and relevancy.

Comparable Rent Data

Nearly universally, properties have closed rental offices on-site and managers are working remotely; many have also reduced hours. This makes obtaining current rental and operating data difficult. Possible solutions were discussed including emailing staff, reaching out to ownership, culling third-party aggregators and using more dated information from prior surveys.

Economic Uncertainty

Given the speed with which the fallout from the pandemic impacted the market, economic data will lag for at least a few months. It is clear that the impact will be severe, but the big unknown is for how long. It is prudent for market analysts to consider the economic impact on the particular market and property they are analyzing. It is possible certain economic think tanks will release projections soon, ahead of when economic data may be published and analysts should consider these sources once available.

Demographic Data

The impact on demographic data will likely be the latest to lag the market. Proprietary data providers update estimates annually and it is unclear when the impact on renter versus ownership rates, migration, population and income will be felt. Analysts should consider this in light of their particular market, although this will likely remain an unknown for some time.

Impact on Rent and Income Limits

As a corollary to demographic data impact, the impact on rent and income limits moving forward is of particular concern to those throughout the affordable housing industry. The 2020 income limits released last week are effective April 1, 2020. Nationally, income increased 4 percent from 2019. The 2020 limits are not directly impacted by the COVID-19 crisis, but given the formula HUD currently uses, it is likely that the impact will start to be felt beginning in 2021 and extending through 2024. Again, this assumes HUD does not change its current methodology. Aside from the impact on published limits, there is also the concern of when 2020 limits can actually be achieved in the marketplace, due to the timing of the release in the midst of the pandemic. Additional analysis of the impact on income limits can be found in this Novogradac blog post.

Impact of Market Analysis on the Broader Housing Finance Agency and Investor Arena

Market analysis is a key component of the tax credit allocation process, as it guides funding decisions. HFAs need to ensure they are receiving credible and timely analysis. Likewise, syndicators need confidence that credit decisions will satisfy all investor requirements; they rely on the data provided by third-party market analysts for significant investment decisions. From an HFA standpoint, possible solutions include delays in application cycles in order to ensure good quality market analysis can be completed. Another option includes not necessarily delaying the process altogether, but extending the deadline for which third-party reports, including market studies, can be submitted. More information regarding individual state HFA response thus far can be found on Novogradac’s COVID-19 resource page.

Within the context of reports for syndicators and investors, analysts will need to be creative in obtaining necessary market data. Similar to some of the challenges experienced in 2008-2010 during the height of the Great Recession, flexibility and adaptability will be necessary on the part of both market analysts and market study users. Communication was also stressed by all parties as more necessary then ever; this includes communication up front about an appropriate scope of work for each engagement, while also communication throughout the process in terms of potential data limitations and what that may mean for the final work product.

Conclusion

Coming out of the town hall, based on member and participant feedback, NCHMA’s Executive Committee issued a memorandum April 7 that outlines best practices for market analysts in light of the current health and economic crisis. Although the current situation remains fluid, this guidance provides a useful framework for analysts and their clients to use as we navigate through market uncertainty. This memorandum has been posted to Novogradac’s COVID-19 resource page. Additional guidance related to the market analysis industry will be posted as it is issued.

In addition, Novogradac’s Government Consulting and Valuation Advisory Group (GoVal Group) is adapting its protocols and continues to provide comprehensive real estate advisory services.