Market Absorpotion Study
Is the rate of absorption for the forthcoming CFD/Project based upon probable economic and real estate conditions, so that the Appraised value represents the Issuer’s policy regarding a Value to Lien, typically a minimum of 3 to 1?
If the rate of absorption used for the Appraisal turns out to be higher than the actual rate of absorption, then the amount of infrastructure funded may be more than the level required to meet the market demand. Since the developers/builders would then be liable for the Special Taxes on the improved but unsold properties, then there is a higher risk of default on the tax payments.
Example:
In a recent Market Absorption Study for a major Planed Community, Empire Economics arrived at a significantly different absorption schedule than that of the developer/builder. The use of an aggressive absorption schedule in a bond sizing could have resulted in an excessive amount of infrastructure being funded, thereby increasing the risk of a default on the special tax payments.
If the rate of absorption used for the Appraisal turns out to be higher than the actual rate of absorption, then the amount of infrastructure funded may be more than the level required to meet the market demand. Since the developers/builders would then be liable for the Special Taxes on the improved but unsold properties, then there is a higher risk of default on the tax payments.
Example:
In a recent Market Absorption Study for a major Planed Community, Empire Economics arrived at a significantly different absorption schedule than that of the developer/builder. The use of an aggressive absorption schedule in a bond sizing could have resulted in an excessive amount of infrastructure being funded, thereby increasing the risk of a default on the special tax payments.
