Underwriting rents with HCV

[Danielle Bennett]

I am looking for recommendations on underwriting a deal.

100-units with 60% occupied by tenants with LA County housing choice vouchers (HCV) - many of which rents are below current HCV payment standards, 10% vacant, 25% occupied below market.

LACDA publishes HCV payment standards annually. 2021 PS are approximately 15% below market. LACDA PS was flat for 2010-2012, and again 2018-2020. The PS increased in 2021 by 5.45%. LACDA will also increase contract rent to the lesser of current PS or amount capped by CA rent control (5%+CPI).

Back to my underwriting question:

I am assuming rents for vacant units at leased at market, occupied non-HCV units at increased up to market (over 1-2 years), HCV units increased to max allowable (current PS or rent control increase). This may be conservative since it does not assume any turnover of HCV units (which do not turn regularly).

Am I missing something here?