ACQUISITION COSTS POLICY FOR NEW REAL ESTATE PURCHASES AND FOR PRESERVATION OF CURRENTLY OWNED PROPERTIES

Policy Statement: 
Acquisition costs reflected in a development budget may not exceed the fair market “as is” valueⁱ of the property.

Establishment of Value and timing of appraisals:

For any property acquisition, the following applies:

• The sales price of the acquired property must be supported by an “as is” appraisal.
•  Appraisals must be obtained from an unrelated third party appraiser.
• An appraisal of the property must be submitted at the time of application, and if the acquisition transaction has not closed may need to be updated at the time of the actual acquisition or before DND commits funding.
• The acquisition line item in the final development budget shall always reflect the lesser of the actual sales price or the as-is appraised value at the time of acquisition.

Where there is an identity-of-interestⁱⁱ between the parties, the acquisition is considered to be a “Non-Arm’s Length Transaction.”  For these types of transactions, the acquisition cost may include the following:

• The principal balance of the existing debt on the property, including pre-payment penalties, fees, and unpaid accrued interest as documented in the annual audited financial statements;
• Current balance of sponsor-paid capital improvements or capital contributions as documented in the annual audited financial statements;
• Unpaid principal balance of any remaining deferred developer fee payments (due from the original development) as reflected in both the annual audited financial statements and a developer fee note;

If the “as-is” appraised value of the property exceeds the total of the above three items and there are sources, such as private debt or private equity to cover the full appraised value , then  DND shall require proceeds  be applied to pay down any existing City or State subordinate debt or reduce the amount of any new public subsidy being requested of either DND or the State.