How to determine discrete IRR/return for affordable and market components of integrated mixed-income rental multifamily development?
Here's a fun one: as part of a public source financing application, we have to prove that the deal wouldn't work without those public funds. We're facing this hurdle because of the mixed-income nature of the deal (this is the trigger for the subsidy review). Ideally, we'd be able to demonstrate that the project is not feasible and/or we cannot achieve a reasonable return by, e.g., calculating discreet IRR for the components, etc.

Specs:

* 50% market (6%-18% rent advantage) and 50% affordable (20%-60% AMI) in suburban market
* Garden-style walkups; market and affordable units integrated across development
* Shared amenities (community building, grounds, etc).
* 45-year affordability compliance period (for affordable units)

One capital stack for the whole project, no discreet sources and uses for market vs affordable units. Phased and built as a single project with single GC doing buyouts and orders together for the whole deal. Shared utility taps. No separate amenities. Even the sf split is pretty even (47.7% affordable, 52.3% market). Effective minimum hold period is 15-yrs.

And therein is the challenge: How to 'separate' (verb) the return or value of the two components when there are no separate (adj.) components? Would you run another model for a wholly market deal and juxtapose to current model? Different methods of evaluating just the market half? If IRR is going to be trash regardless, is that obviously\* enough evidence this deal wouldn't happen without public monies? Taking all ideas, let's throw it all against the wall.

\* Doesn't seem obvious to regulators, they're being fussy.
[{"id": "hyveu7n", "text": "Would just make 2 models, 1 has no public source funding and another with. What\u2019s the difference when you plug those numbers in? Could also say with your trash IRR, you could invest in XYZ instead of investing in the community. So give the dang money. Combine the two above and I\u2019d say that\u2019s a convincing argument.", "replies": [], "depth": 1}, {"id": "hyxzd7l", "text": "I would run two quick sets of two models and compare the stories they tell \u2014 one comparing public funding vs. no public funding, and one as you suggest comparing mixed-income to fully market-rate.", "replies": [], "depth": 1}]