Or. Admin. R. 150-308-0720 - Special Assessment of Government Restricted Multiunit Rental Housing Property

Current through Register Vol. 61, No. 4, April 1, 2022

(1) The assessed value (AV) of government restricted multiunit rental housing property is the lower of:
(a) The specially assessed value (SAV);
(b) The maximum assessed value based on the special assessment (MSAV); or
(c) The real market value (RMV).
(2) An owner of government restricted multiunit rental housing property may elect to have the property specially assessed using:
(a) An income approach method using actual income and stabilized expenses; or
(b) A ratio method.
(3) The income approach method: For the initial year of special assessment, the assessor must utilize the property's actual income statements for at least the prior three years if available. Pro forma statements may be used for recently constructed properties. Economic or market based rents cannot be used. A combination of actual and pro forma statements may be used.
(a) The goal of the income approach is to determine the value of only the real property. No personal property value should be included. The assessor may remove personal property value by one of the following methods:
(A) Include revenues and expenses for both the real and personal property. After the net operating income has been capitalized, deduct the value of the personal property; or
(B) Remove all income and expense generated by the personal property assets prior to capitalization.
(b) In determining the SAV, no income should be included for government income tax credits or mortgage interest subsidies.
(c) The assessor must use actual income (revenues) and stabilized expenses rather than market or economic rents. However for recently built or recent conversions to government restricted multi-unit rental housing, a combination of pro forma and actual rental income may be used.
(d) Actual revenues included are those that result from the operation of the property. They include the rent paid by tenants and any monthly rent subsidies. Also, rent for parking or other amenities must be included. Revenue not directly related to the property, such as interest income, should be excluded.
(e) Stabilized expenses are those that would be expected to be typical for the property, not those that reflect unusual or extraordinary circumstances. The assessor may use averages for the three years and may express expenses on a per-unit basis or as a percentage of revenue. Expenses for a particular year should be adjusted if they are atypical. The goal is to find the typical level of expenses.
(f) Expenses to include are those directly related to the operation of the property including, but not limited to, repairs and maintenance, utilities, government required tenant services, management, and insurance. Certain expenses such as depreciation, mortgage interest, payments to developers, and property taxes must be excluded. Reserves for replacements should be included, but any expense in the repair and maintenance category should be disallowed if it comes from the reserve account.
(g) The net operating income is determined from the above steps by subtracting the stabilized annual expenses from the actual annual revenues.
(h) The capitalization rate is estimated as follows:
(A) Factors to be considered in selecting a rate include the risks associated with multiunit rental housing subject to government restriction. These include diminished ownership control, income-generating potential, and liquidity. The assessor must also consider any other factors or risks typically taken into account when estimating a capitalization rate.
(B) The selected capitalization rate must be equal to or greater than the rate used by the assessor for similar unrestricted properties.
(C) To the selected rate, add the effective property tax rate for the code area where the property is located, as described in OAR 150-308.205-(G). This is the overall rate to use for capitalization.
(D) The value determined from the income approach is calculated by dividing the overall capitalization rate into the net operating income. This is the SAV. Notwithstanding the result of the calculation, the SAV of the real property land and improvements may not be less than $1,000 per dwelling unit.
(4) The ratio method: This method utilizes a ratio of restricted to market rents.
(a) The assessor estimates the RMV of the property as if unrestricted.
(b) The actual annual total rent, including subsidies, is determined.
(c) The annual market rent for the property, if unrestricted, is estimated. If insufficient county data is available, the assessor may look to regional data.
(d) The ratio of the actual rent to the market rent is calculated.
(e) The unrestricted value from step (4)(a) is multiplied by the ratio from step (4)(d). This is the SAV. Notwithstanding the result of the calculation, the SAV of the real property land and improvements may not be less than $1,000 per dwelling unit.
(5) Other issues of value, including unusual physical or functional circumstances affecting the property, are not considered in determining the SAV. They are appropriately addressed in estimating the property's RMV.
(6) Certain properties may have a mixed use. For example, a portion of the property may be used as government restricted multiunit rental housing property, while another portion may be commercial or retail. The special assessment applies only to the portion that is used as government restricted multiunit rental housing property. The assessment of the remainder of the property is unaffected by this rule.
(a) For mixed-use properties, a portion of the land value may be subject to special assessment as government restricted multiunit rental housing property. The remainder of the land value is not subject to this special assessment.
(b) The portion of the total land value subject to special assessment equals the portion that the gross square footage of the real property improvements used for government restricted multiunit rental housing bears to the total gross square footage of all the real property improvements, both restricted and unrestricted.
(7) The SAV must be allocated between land and improvements.
(a) The portion of the SAV allocated to the land is equal to the RMV of the land at its highest and best use.
(b) The remaining SAV is allocated to the improvements.
(c) If the SAV is equal to or less than the RMV of the land, a minimum value will be placed on the improvements and the remaining value will be assigned to the land.
(8) For the initial year of application, the MAV of the specially assessed property (MSAV) is found by multiplying the SAV determined using the method chosen by the property owner by the changed property ratio (CPR). The assessor must use the same CPR that is used for similar unrestricted multiunit housing.
(9) Following the initial year, the SAV may be redetermined using the income approach method or the ratio method (whichever the property owner elected) as follows:
(a) The property owner may request a redetermination of the SAV. The owner must make a written request to the assessor by April 1 of the assessment year and must provide necessary income statements.
(b) The assessor may decide to redetermine the SAV. No later than April 1 of the assessment year, the assessor will notify the property owner in writing and request income statements for the three most recent years (if not already provided).
(c) If the SAV is not redetermined under (9)(a) or (9)(b), the assessor may leave the SAV unchanged or may use an appropriate trend or index.
(10) For years after the initial year, the MSAV is 103% of the prior year's AV or 100% of the prior year's MSAV, whichever is greater.
(a) If omitted property is assessed or there is a lot line adjustment, the MSAV is calculated as provided in ORS 308.149 to 308.166.
(b) If new improvements are made to the property, and the owner applies for special assessment of the new improvements, the MSAV of the new improvements as determined by this rule is added to the existing MSAV.
(c) If the property is disqualified from special assessment, and the property is not requalified, a new MAV, based on RMV, will be determined under ORS 308.149 to 308.166.
(d) If the property is disqualified from special assessment, and the property is later requalified, the MSAV will be determined using the same method as prescribed in this rule for the initial application.

Notes

Or. Admin. R. 150-308-0720
REV 6-2001, f. & cert. ef. 12-31-01; REV 10-2002, f. & cert. ef. 12-31-02; REV 10-2002, f. & cert. ef. 12-31-02; REV 7-2008, f. 8-29-08, cert. ef. 8-31-08; Renumbered from 150-308.712, REV 59-2016, f. 8-13-16, cert. ef. 9/1/2016

Stat. Auth.: ORS 305.100

Stats. Implemented: ORS 205.320, 308.027, 308.156, 308.205, 308.234, 308.704, 308.709, 308.712, 308.714, 309.200, 311.806, 309.200 & 457.450

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