Senior LIHTC Developments Have Higher NOI, But Gap Decreasing

Published by H. Blair Kincer on Wednesday, April 26, 2017 - 12:00am

Kids cause more damage, seniors require more interaction.

That conventional wisdom about operating affordable housing properties is borne out by the Novogradac 2017 Multifamily Rental Housing Operating Expense Report, a 52-page study that documents the costs associated with operating low-income housing tax credit (LIHTC) properties over time. Novogradac & Company looked at expenses for 1,400 properties that include more than 170,000 individual apartments. This year’s report was updated to include information from 2015.

Novogradac again found a significant difference in the operating expenses for LIHTC properties that serve seniors (people 55 and older) and those that serve families–albeit with a surprising twist.

Senior LIHTC properties had higher income and lower expenses per unit in each of the six years (2010 through 2015) analyzed. As a percentage, the typical senior LIHTC apartment was 4.7 percent less expensive to operate than a typical family apartment in 2015–continuing the longtime trend.

Blog Graph Family Properties Narrow Expense Gap
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The presence of children at family LIHTC properties likely leads to more damage and wear–and subsequent higher expenses. The Novogradac report indicates that LIHTC property managers often say senior properties require additional interaction with tenants, which may increase administration expenses. The data-based confirmation of that is important for anyone planning to develop a family or senior LIHTC property.

The biggest gaps between family and senior property were in the categories of real estate tax expense (which is likely due to a geographical bias in the properties studied, in which PILOT agreements reduced property taxes for many senior properties), operating expenses and repairs and maintenance. Again, based on the anecdotal evidence, it’s no surprise that repairs and maintenance were more expensive for family properties, due to the presence of children.

The areas in which senior properties in Novogradac’s sample were more expensive included management expenses, payroll and administration expenses–the last two representing the cost of additional interaction with tenants.

To those in the family or senior affordable housing development communities, the data may help property managers understand whether their circumstances are unusual.

However–and here’s the twist mentioned earlier–the data may foretell a change. That’s because to a property manager, it’s not just about the expense level or income level, but about the net operating income (NOI)–the difference between expenses and income. The Novogradac report suggests that is changing.

While senior developments were consistently less expensive to operate over the six years studied, the gap in NOI between senior and family LIHTC housing decreased. The NOI for family properties increased by 2.1 percent from 2010 through 2015, while that for senior properties decreased by 7.7 percent.

Simply put: In 2010, senior properties had a 23 percent better NOI than family properties. In 2015, the gap dropped to 11 percent.

That’s worth keeping an eye on during coming years.