9006-ORCF Lender Narrative – Substantial Rehabilitation Single Sta

Lender Narrative – Substantial Rehabilitation Section 232 – Single Stage

U.S. Department of Housing and Urban Development Office of Residential Care Facilities

OMB Approval No. 9999-9999 (exp. mm/dd/yyyy)

Public reporting burden for this collection of information is estimated to average 93 hours. This includes the time for collecting, reviewing, and reporting the data. The information is being collected to obtain the supportive documentation that must be submitted to HUD for approval, and is necessary to ensure that viable projects are developed and maintained. The Department will use this information to determine if properties meet HUD requirements with respect to development, operation and/or asset management, as well as ensuring the continued marketability of the properties. This agency may not collect this information, and you are not required to complete this form unless it displays a currently valid OMB control number. 

Warning: Any person who knowingly presents a false, fictitious, or fraudulent statement or claim in a matter within the jurisdiction of the U.S. Department of Housing and Urban Development is subject to criminal penalties, civil liability, and administrative sanctions

Privacy Act Notice: The Department of Housing and Urban Development, Federal Housing Administration, is authorized to collect the information requested in this form by virtue of: The National Housing Act, 12 USC 1701 et seq. and the regulations at 24 CFR 5.212 and 24 CFR 200.6; and the Housing and Community Development Act of 1987, 42 USC 3543(a). The information requested is mandatory to receive the mortgage insurance benefits to be derived from the National Housing Act Section 232 Healthcare Facility Insurance Program. No confidentiality is assured.

INSTRUCTIONS:

The narrative is a document critical to the Lean Underwriting process. Each section of the narrative and all questions need to be completed and answered. If the lender’s underwriter disagrees and modifies any third-party report conclusions, provide sufficient detail to justify. The narrative should identify the strengths and weaknesses of the transactions and demonstrate how the weaknesses are mitigated by the underwriting.

• Charts: The charts contained in this document have been created with versatility in mind; however they will not be able to accommodate all situations. For this reason, you are allowed to alter the charts as the situation demands. Be sure to state how you have altered the charts along with your justification. Include all the information the form calls for. Charts that include blue text indicate names that should be modified by the lender as the situation dictates.

• Applicability: If a section is not applicable, state so in that section and provide a reason. Do not delete a section heading that is not applicable. The narrative will be checked to make certain all sections are provided. If a major section is not applicable, add “ – Not Applicable” to the heading and provide the reason. For instance:

Parent of the Operator – Not Applicable

This section is not applicable because there is no operator.

The rest of the subsections under the inapplicable section can then be deleted. This instruction page may also be deleted.

• Format: In addition to submitting the PDF version of the Lender Narrative to HUD, please also submit an electronic Word version.

• Historical Information: Substantial rehabilitation can encompass a wide range of renovations—from “gut” rehabilitations that replace or newly construct nearly everything, to replacements and renovations that barely exceed the substantial rehabilitation threshold. Because of these types of variables, historical financial data on the previous operations may not be available or applicable. In those instances where historical information is not applicable, the underwriter should follow the above instructions for inapplicable sections and provide the reason. Acceptable reasons for not providing historical data include: the lack of data due to a sale or previous use or a significant change in use. Be cautioned that changes in census mix without a change in the type of license will likely not warrant elimination of the historical data as an underwriting tool.

Instead of pasting large portions of text from third-party reports into the narrative, it is preferred that the lender simply reference the page number and the report. The focus of this document is for lender conclusions, analyses, and summaries.

Italicized text found between these characters <<EXAMPLE>> is instructional in nature, and may be deleted from the lender’s final version. Please use the gray shaded areas (e.g.,      ) for your response. Double click on a check box and then change the default value to mark selection (e.g., ).

<<Insert Project Photo>>

Table of Contents

Executive Summary 7

Portfolios 9

Special or Atypical Underwriting Considerations 10

Labor Relations 11

Program Eligibility 11

Substantial Rehabilitation 11

Commercial Space/Income 12

Facility Type 13

Independent Units 14

Licensing/Certificate of Need/Keys Amendment 14

Identities-of-Interest 15

Risk Factors 15

Strengths 17

Underwriting Team 17

Lender 17

Lender’s Loan Committee Process 18

Recommendation to HUD 18

Third Party Reviewers 18

Housing Consultant (if applicable) 20

Project Description 20

Site 20

Neighborhood 21

Zoning 21

Utilities 21

Improvement Description 21

Building Description 21

Landscaping 21

Parking 21

Unit Mix & Features 21

Services 22

Obsolescence/Depreciation and Remaining Economic Life 23

Scope of Rehabilitation 23

Architectural Review 23

Architectural Overview 24

Soils Report 25

Construction Progress Schedule 25

Conclusion 25

Cost Review 25

Cost Overview 26

Construction Costs (Form HUD-2328) 26

General Requirements 27

Other Fees – General Contractor 28

Bond Premium/Assurance of Completion 29

Unusual Site Improvements 29

Architect’s Fees 29

Other Fees - Borrower 29

Off-Site and Demolition 30

Major Movable Equipment 30

Contingency Reserve 30

Underwritten Reserve for Replacement 31

Conclusion 32

Appraisal 33

Hypothetical Conditions and Extraordinary Assumptions 34

Market Analysis 34

Market Overview 34

Primary Market Area 35

Target Population 35

Demand 35

Competitive Environment (Supply) 35

Conclusion 35

Income Capitalization Approach – As-Is 35

Financial Statements 35

Occupancy 36

Census Mix – As Is 37

Rents - As Is 38

Historical Revenue Summary 38

Expenses – As Is 44

Net Operating Income (NOI) 46

Capitalization Rate – As Is 48

Sales Comparison Approach – As Is 49

Price Per Unit/Bed – As Is 49

Effective Gross Income Multiplier (EGIM) – As Is 50

Subject Purchases 50

Cost Approach 50

Development Costs 50

Depreciation 50

Major Movable Equipment 50

Marketing Allowance 50

Land Value 50

Overall Value Reconciliation – As Is 50

Lender Modifications – As Is 51

Income Capitalization Approach – As Proposed 51

Census Mix – As Proposed 51

Rents - As Proposed 52

Expenses – As Proposed 57

Net Operating Income – As Proposed 58

Capitalization Rate – As Proposed 61

Sales Comparison Approach – As Proposed 61

Price Per Unit/Bed – As Proposed 61

Effective Gross Income Multiplier (EGIM) – As Proposed 62

Cost Approach – As Proposed 62

Development Cost 62

Depreciation 62

Major Movable Equipment 62

Land Value 62

Reconciliation – As Proposed 63

Lender Modifications – As Proposed 63

Initial Operating Deficit 63

ALTA/ACSM Land Title Survey 65

Title 65

Title Search 65

Pro-forma Policy 66

Environmental 67

Phase I Environmental Site Assessment 67

Lender Comments 68

Other Potential Environmental Concerns 68

State Historic Preservation Office (SHPO) Clearance 69

Flood Plain 69

Borrower 70

Organization 71

Experience/Qualifications 71

Credit History 71

Financial Statements 72

Conclusion 72

Principal of the Borrower – <<enter name of principal here>> 72

Organization 73

Experience/Qualifications 73

Credit History 74

Other Business Concerns 74

Other Section 232 Projects 75

Conclusion 75

Operator 76

Organization 76

Experience/Qualifications 76

Credit History 77

Financial Statements 77

Net Income Analysis 78

Conclusion 79

Parent of Operator (if applicable) 79

Organization 80

Experience/Qualifications 80

Credit History 80

Other Business Concerns 80

Other Section 232 Projects 81

Other Facilities Owned, Operated or Managed 82

Financial Statements 82

Net Income Analysis 83

Conclusion 83

Management Agent (if applicable) – <<insert name here>> 84

Management Agent’s Duties and Responsibilities 84

Experience/Qualifications 84

Credit History 85

Other Facilities Owned, Operated or Managed 85

Past and Current Performance 86

Management Agreement 86

Conclusion 87

General Contractor 87

Experience/Qualifications 88

Credit History 88

Other Business Concerns 88

Financial Statements 89

Working Capital Analysis 90

Conclusion 91

Operation of the Facility 92

Administrator 92

Subject’s State Surveys 92

Other Facilities Operated or Managed 93

Staffing 93

Operating Lease 93

Lease Payment – During Rehabilitation Period 94

Lease Payment – During Lease Up 94

Lease Payment Analysis – Stabilized, As Rehabilitated 95

Responsibilities 96

Master Lease 96

Accounts Receivable (A/R) Financing 96

Terms and Conditions 97

Collateral/Security 97

Permitted Uses and Payment Priorities 98

Financial Analysis 98

Historical AR Loan Costs 98

Proposed AR Loan Costs 99

Recommendation 99

Insurance 100

Professional Liability Coverage 100

Lawsuits 102

Recommendation 102

Property Insurance 103

Builder’s Risk 103

Fidelity Bond / Employee Dishonesty Coverage 104

Mortgage Loan Determinants 104

Overview 104

Mortgage Term 104

Type of Financing 104

Criterion C: Amount Based on Replacement Cost 104

Criterion D: Amount Based on Loan-to-Value 104

Criterion E: Amount Based on Debt Service Coverage 105

Criterion F: Cost of Rehabilitation Plus 105

Criterion L: Deduction of Grants, Loans, LIHTCs, and Gifts 106

Existing Indebtedness 106

Sources & Uses – Copied From HUD 92264a-ORCF 109

Secondary Sources 109

Surviving Debt 110

Cash Requirements 111

Circumstances that May Require Additional Information 111

Special Commitment Conditions 111

Conclusion 112

Signatures 112

Executive Summary

FHA number:	     
Project name:	     
Project location:	<<street address, city, county, and state>>
Lender’s name:	     
Lenders UW:	     	UW trainee:	     
Borrower:	     
Operator:	     
Parent of operator:	     
Management agent:	     
General contractor:	     
License holder:	Borrower Operator Management agent

Type of facility:		Skilled Nursing (SNF):		beds		units
		Assisted Living (AL):		beds		units
		Board & Care (B&C):		beds		units
		Dementia Care:		beds		units
		Independent Living (IL):		beds		units
		Total:		beds		units

Mortgage Amount:	$     	Loan-to-value:	     %	Loan to transaction cost:	     %
		Term:	      years	Interest rate:	     %
Principal & interest: (without MIP)	$     	DSCR (with MIP):	     %	Market value per bed/unit*:	$     
Underwritten market value:	$     	Cap rate:	     %	Mortgage amount per bed/unit*:	$     

*Use per bed for SNF, or facilities with multiple care types (e.g., SNF/ALF). Use per unit for ALF only.

Mortgage Criteria:		Sensitivity Analysis:
Criterion A: Requested loan amount:	$     	A 1.0 debt service coverage is still realized if: Average rental drops $      per month. Occupancy rate decreases      %. Operating expenses increase      % per year. Annual net operating income (NOI) decreases $      or      %.
Criterion C: Amount based on replacement cost:	$     
Criterion D: Amount based on loan-to-value:	$     
Criterion E: Amount based on debt service coverage:	$     
Criterion F: Amount based on estimated cost of rehabilitation plus:	$     
Criterion L: Amount based on deduction of grant(s), loan(s), LIHTCs, and gift(s) for mortgageable items:	$     

As rehabilitated:

Gross income:	$     	UW occupancy rate:	     %
Effective gross income:	$     
Expenses & repl. res.:	$     	Expense ratio:	     %
Net operating income:	$     	Expense per bed/unit*:	$     
Total project cost:	$     	Total project cost per bed/unit*:	$     
*Use per bed for SNF, or facilities with multiple care types (e.g., SNF/ALF). Use per unit for ALF only.

Operating deficit:	$     	Absorption rate (# beds per month):	     
Number of months to cover shortfall:	     
		Break-even occupancy:	     %
Borrower’s working capital:	$     
Special escrows (describe below):	$     	Minor movables:	$     
<<describe special escrows here>>

Major movable equipment budget:

$     

Major movable amount per bed:

$     

Construction contract:	$     	Offsites			$     	Demolition	$     
Total construction costs: As reported on HUD-2328, Line 53 plus Offisites and Demolition Costs	$     
Construction contingency:	$     
Relocation escrow:	$     	Construction period:				# of months:      
Architectural contract:	$     			Multiple AIA Agreements

	Year	FTE’s	Operating Revenues	SWB
Operations – Base year	     	     	$     	$     
Operations – Post construction	     	     	$     	$     

<<Definitions:

Base year: Year before construction.

Year: First year of stabilized occupancy after completion of construction. Example: Add the number of months to reach stabilized occupancy (as reported on the IOD spreadsheet “Output-Summary Exhibit” tab) to the completion date. For a completion date of June 1, 2013 and 12 months to reach stabilized occupancy, enter 2014.

FTE’s: As reported on the “Staffing Schedule”- Exhibit in the Operations Section of the application checklist.

SWB (Salaries, Wages, Benefits): As reported on the “Staffing Schedule”- Exhibit in the Operations Section of the application checklist.>>

	Yes	No	Comments:
Secondary Financing:			(If yes, provide details.)      
A/R Financing:			     
Master Lease:			     
Waivers: (list, as applicable)			     

Portfolios

Program Guidance – Portfolio Definitions:

Portfolio: Two or more borrower entities that are under common control.

Small portfolio: Up to 49 facilities and aggregate mortgage loan amount less than or equal to $90,000,000.

Midsize portfolio: Up to 49 facilities and a total mortgage loan amount greater than $90,000,000 and less than or equal to $250,000,000.

Large portfolio: 50 or more facilities and/or aggregate mortgage loan amount greater than $250,000,000.

Common control: Business entities that are ultimately controlled by the same party or parties. Examples of common control may include, but are not limited to:

• Each entity has the same managing member, general partner, or other person or entity in a controlling role
  {OR}

• 50% or more of each entity is owned by the same persons or entities.

Same ownership: Different properties or business entities that are wholly-owned by the same natural person, entity, or group—generally 100% common ownership among the properties. In the case of not-for-profit entities, “ownership” will be evaluated based on the principals identified through the HUD previous participation (2530/APPS) process. The ownership structure may be a corporation, limited liability company, partnership or limited partnership, or other legal structure. This term applies to master lease requirements.

Key Questions

	Yes		No
Do any of the principals of the borrower own any other projects insured or held by HUD? .
Do any of the principals of the borrower plan to submit an application for mortgage insurance to HUD in the next 18 months?
Have any of the principals of the borrower submitted an application for mortgage insurance to HUD in the past 18 months?

<<For each “yes” answer above, provide a narrative discussion regarding the topic. Identify the size of the portfolio and complete the “Other Section 232 Applications” chart in the “Consolidated Certification – Parent of the Operator.”>>      

Special or Atypical Underwriting Considerations

	There are NO special or atypical underwriting considerations.
	The following are unique characteristics, key deal points, special, or atypical underwriting
	considerations: << Examples: Facility will be master leased Identity-of-interest issues Timing issues for closing or permits, land, licensing, etc. This section should not be a lengthy restatement of the rest of the narrative. It is merely to highlight key points.>>      

Third-party reports provided:

	Market Study (if required)	Conclusion is:		Accepted as is.		Modified by underwriter.
	Appraisal	Conclusion is:		Accepted as is.		Modified by underwriter.
	Phase I Environmental	Conclusion is:		Accepted as is.		Modified by underwriter.
	Architecture/Cost Review	Conclusion is:		Accepted as is.		Modified by underwriter.

Labor Relations

Wage Decision:
Type:	Residential Building (commercial)
Number:	     	No. of buildings:	     
Modification date:	     	No. of stories:	     
Modification number:	     	No. of units:	     
		No. of self-contained units*:	     
*Self-contained means that the units contain both a kitchen/kitchenette and a bathroom. This criterion, in addition to the number of stories, affects whether the construction type will be “residential” or “building.”

Lenders Pre-Construction Conference Coordinator Information:

Name:	     
Email:	     
Phone:	     
Mailing address:	     
	     

General Overview

<<Provide narrative of rationale for selection of Wage Decision specified. Be specific about configurations of kitchens and bathrooms (e.g., kitchenette includes a sink, microwave, and refrigerator and bathroom includes a commode, sink, and shower, etc.).>>      

Program Eligibility

Substantial Rehabilitation

This project qualifies for substantial rehabilitation because:

The hard costs of rehabilitation/construction $<<amount>>, represents      % of the value as rehabilitated, which exceeds 15% of the project’s value after completion. (Note: the hard costs of an addition to the building are included in this calculation.)

The scope of rehabilitation includes substantial replacement of two or more major building components, including: <<list all applicable components here>>.

Key Questions

	Yes		No
Will the facility charge “founder’s fees,” “life care fees,” or or other similar charges associated with “buy-in” facilities? .
Will the facility require more than four residents share a full bathroom (see 24 CFR 232.3)? (Not applicable for SNFs.)
Are any residents required to access a qualifying bathroom by moving through a public corridor or area (see 24 CFR 232.3)? (Not applicable for SNFs.)
Has the borrower, operator, or any of their affiliate’s renamed or reformulated companies, filed for or emerged from bankruptcy within the last five (5) years?
Is the borrower, operator, or any of their affiliate’s renamed or reformulated companies, currently in bankruptcy?
Are there floodways or coastal high hazard areas, other than incidental portions, located onsite?

<<If you answered “yes” to any of the questions above, this facility is not eligible under this program. >>

Commercial Space/Income

Select one of the following:

There will be no commercial space at the subject.

There will be commercial space at the subject; however, it will not exceed the program limitations of 20% of the total net rentable area of the project and 20% of the effective gross income.

a. Total net rentable area :	     		d. EGI:	     
b. Net rentable commercial area:	     		e. Eff. commercial income:	     
c. % of commercial area:	<<b / a>>		f. % of commercial income:	<<e / d>>

<<Provide further explanation, if necessary. If the facility does not meet either of the criteria above, the loan is not eligible under this program.>>      

Program Guidance:

The commercial limits are a maximum of 20% of the gross floor area of the project and 20% of the gross project income. Commercial space that is intended to exclusively serve the residents of the facility is not counted toward the 20% space and income limitations. Non-resident adult day care space will not be considered commercial space. However, the adult day care space may not be located on a separate site, the space may not exceed 20% of the gross floor area of the facility, and the income may not exceed 20% of gross income. (Provide a Certificate of Need or operating license, if applicable.)

Facility Type

Select ALL that apply:

	Nursing Home
		Consists of at least 20 beds.
		Considered a “Skilled Nursing Facility” by Department of Health & Human Services.
	Intermediate Care Facility
		Consists of at least 20 beds.
		Considered an “Intermediate Care Facility” by Department of Health & Human Services.
	Board and Care
		Consists of at least 5 beds.
		Provides “Continuous Protective Oversight.”
		Provides areas for central dining.
		Offers three meals per day to each resident.
		Resident must take at least one meal a day.
		Regulated by the state in accordance with Section 1616(e) of the Social Security Act (Keys Amendment)
	Assisted Living
		Consists of at least 5 units.
		Provides “Continuous Protective Oversight.”
		Provides areas for central dining.
		Offers three meals per day to each resident.
		Resident must take at least one meal a day.
		Caters to frail elderly persons (62 years and older) who need assistance with 3 or more activities of daily living (ADLs).
	Other - Requires explanation. <<describe here>>      

<<NOTE: The above reflect HUD’s definitions of facility or care types. Those definitions may not align with state licensing definitions.>>

Independent Units

Select all applicable statements:

There will be NO unlicensed/independent units at the subject.

There will be unlicensed/independent units at the subject; however, the total does not exceed 25% of the total beds at the facility.

a. Total beds:	     
b. Unlicensed independent beds:	     
c. Independent beds as % of total:	<<b / a>>

A waiver is requested to exceed 25% of the total beds at the facility.

Program Guidance:

It has been longstanding policy that HUD will allow up to 25% of the units in a Section 232 facility to be Independent Living (IL) units. This policy remains unchanged under Lean. However, please note the following:

• The facility must offer services to all residents in the project comparable to those found in a skilled nursing facility, assisted living facility, board and care, or intermediate care facility.

• A license is not required for the IL units; however, all of the other units in the facility must be licensed.

• Waivers to exceed the 25% limit will be considered on a case-by-case basis for good cause. Please note that waivers have not been provided when the number of IL units exceeds 30% of the total project units.

Licensing/Certificate of Need/Keys Amendment

<<Provide affirmative statement along the lines of: “The facility is to be licensed by the State of {State}’s Department of Health and Welfare as a {Type of Facility} for {X} beds. The license is to be issued to {Name of Entity on License}.” Describe the licensing process.It is effective {date}, through {date}. The license covers {number of beds}.”>>      

<<Provide affirmative statement along the lines of: “There is no Certificate of Need (CON) requirement in {State} for {Type of Facility}.” – OR – “A Certificate of Need (CON), dated {XXX} was issued by the State of {State} authorizing XX beds…”>> For skilled nursing, where the state does not require a CON, discuss the required independent study conducted by the state or commissioned by the state of market need and feasibility. Include in the discussion the number of beds and the date through which it is current.      

<<(Applicable to B&C’s.) Provide affirmative statement along the lines of: “The State of {State} has certified its compliance with Section 1616(e) of the Social Security Act (Keys Amendment).”>>      

Identities-of-Interest

Key Questions

	Yes		No
Have you, as the lender, identified any identities of interest on your certification? .
Does the borrower’s certification indicate any identities of interest?
Do any of the certifications provided by principals of the borrower identify any identities of interest?
Does the operator’s certification (if applicable) indicate any identities of interest? N/A
Does the management agent’s certification (if applicable) indicate any identities of interest? N/A
Does the general contractor’s certification indicate any identities of interest
Does the HUD Addendum to the AIA Agreement of the Design Architect identify any identities of interest?
Does the lender know, or have any reason to believe, that any of the assertions in the other Consolidated Certifications submitted herewith, are inaccurate or incomplete?

<<For each “yes” answer above, provide a narrative discussion regarding the topic. As applicable, describe the risk and how it will be mitigated. For example: The borrower and operator are related parties – John Doe has ownership in both entities. No other identities of interest are disclosed.>>      

Risk Factors

Key Questions

	Yes		No
If the project is proposing new construction of assisted living units, is the proposed mortgage higher than the maximum loan-to-value (LTV) identified in the guidance below? .
Is the debt service coverage of the loan less than 1.45?
Is this a “special use facility”–one that serves a “niche” type of market (e.g., psychiatric facilities; drug, alcohol, or eating disorder recovery facilities; hospice facilities; or short-term rehabilitation facilities?
Will the combined underwritten occupancy percentage of Medicare and private pay beds (of the total SNF beds in the project) exceed 30%?* N/A
Will the percentage of private pay beds used in the underwriting exceed the average percentage demonstrated in the market, defined as the average of no less than 5 competing facilities in the primary and secondary market?* N/A
Will the underwritten occupancy percentage of Medicare beds (of the total SNF beds in the project) exceed 10% or the average percentage demonstrated in the market, defined as the average of no less than 5 competing facilities in the primary and secondary market?* N/A

*If the answer to question 4, 5, or 6 is “yes,” a waiver must be requested.

<<For each “yes” answer above, provide a narrative discussion on the topic describing the risk and how it will be mitigated.

Example: Debt Service Coverage Lower than 1.45: {If the debt service coverage of the loan is less than 1.45, the lender must provide sufficient justification/mitigation to support the additional risk associated with the loan. The HUD underwriter will be required to specifically approve this item and may ask for additional input and request a discussion with the lender and/or HUD headquarters.}>>      

<<Below is a summary of the Lean underwriting benchmarks for loan-to-value (LTV) and debt service coverage ratio (DSCR).

Type of Unit	New/Existing Units	Borrower Type	Max. LTV*	Min. DSCR*
SNF/ILU	Both	For Profit	80%	1.45
SNF/ILU	Both	Non-Profit **	85%	1.45
ALF	New	For Profit	75%	1.45
ALF	New	Non-Profit **	80%	1.45
ALF	Existing	For Profit	80%	1.45
ALF	Existing	Non-Profit **	85%	1.45

_________

*Maximum loan-to-values and minimum debt service coverage ratios are set by the Section 232 Statute and Regulations. Any submittal above the LTV’s listed or below the DSCR’s listed will require justification/mitigation.

**To qualify for the higher non-profit benchmarks, the owner/operator must demonstrate a successful operating track record, significant project operating and management experience, an a solid financial track record.>>

Other Risk Factors Identified by Lender

Additionally, the lender has identified the following risk factors:

<<Provide discussion on other risk factors identified by the lender and how they are mitigated.>>      

Strengths

<<Provide discussion of the strengths of the transaction.>>      

Underwriting Team

Lender

Name:	     
Underwriter:	     
Underwriter trainee:	     
Lender number:	     
Site inspection date:	     
Inspecting underwriter:	     
Broker:	     

Lender’s Underwriter

<<Brief description of qualifications. The inspecting underwriter must be underwriter of record that is assigned to the project. >>      

Underwriter Trainee (if applicable)

<<Brief description of qualifications.>>      

Inspecting Underwriter (if applicable)

<<Brief description of qualifications. A MAP-approved 232 Underwriter or Lean-approved 232 Underwriter employed by the lender must visit the site AND sign this narrative.>>      

Program Guidance:

On projects involving the addition of beds/units, the Lender’s Approved Underwriter of record on the project must inspect not only the subject site, but also the market competitors and/or comparables from the appraisal/market study. HUD is not requiring inspection of all comparables listed in the appraisal/market study; it is up to the Underwriter to determine which comparables will give them enough information to become familiar with the market.

Lender’s Loan Committee Process

Date of loan committee:	     
Loan committee process:	     
Loan committee conditions:	     

<<Provide brief narrative summary of loan committee, including: information provided; any pertinent requirements/conditions of the loan committee to gain the committee’s recommendation.>>      

Recommendation to HUD

<<Based on analysis and underwriting, XXXXX recommends that HUD issue a firm commitment to insure the proposed mortgage for the subject transaction, subject to the terms and conditions identified in this narrative and the accompanying application exhibits.>>      

Third Party Reviewers

Role	Name	Firm	Phone	E-mail
Architectural reviewer	     	     	     	     
Cost analyst	     	     	     	     
Environmental consultant	     	     	     	     
Market analyst	     	     	     	     
Appraiser	     	     	     	     

Key Questions – Architectural Reviewer

	Yes		No
Does the architectural reviewer have experience with construction within the healthcare field? .
Is the architectural reviewer knowledgeable and experienced with local building standards and construction methods for the type of project proposed, including the Federal Fair Housing Accessibility Guidelines and the Uniform Federal Accessibility Standards?
Is the architectural reviewer a registered architect or engineer?

Key Questions – Cost Analyst

	Yes		No
Does the cost analyst have experience in the healthcare field? .
Is the cost analyst knowledgeable and experienced with local building standards and construction costs for the type of project proposed?

Key Questions – Environmental Consultant(s)

	Yes		No
Does the environmental consultant(s) meet all the qualification requirements of Appendix X2 of ASTM E 1527-05? .
Does the environmental consultant(s) meet the license/certification, educational, and experiential requirements of Section X.2.1.1(2)(i), (ii), or (iii) of Appendix X2 of ASTM E 1527-05?
Were any Phase II investigations performed by environmental investigator(s) specifically qualified to meet the responsibilities for the issue(s) of concern?

Key Questions – Market Analyst

	Yes		No
Does the market analyst have the knowledge and experience to complete the assignment competently? .
Is the market analyst currently active in the market analysis of other healthcare properties?
Is the market analyst experienced in the market area that the subject property is located in or established expertise by a thorough investigation of the market?
Did the market analyst personally inspect the property, perform the market analysis, and prepare and sign the market study?

Key Questions - Appraiser

	Yes		No
Is the appraiser is a Certified General Appraiser under the appraiser certification requirements of the state where the subject property is located as of the effective date of the appraisal? (See note below this section.) .
Does the appraiser meet the requirements of the Competency Rule described in USPAP?
Did the appraiser sign the appraisal and the required certifications?
Is the appraiser currently active in the appraisal of other healthcare properties?
Is the appraiser experienced in the market area in which the subject property is located, or establish competency as per USPAP?
Did the appraiser meeting the above qualifications, personally inspect the property being appraised?
If more than one appraiser worked on the appraisal, did they all sign the report and certifications?

NOTE: If you answer “no” to any of the questions above, the appraiser does not meet HUD requirements. The appraiser must be a Certified General Appraiser under the appraiser certification requirements of the state that the subject property is located, as of the effective date of the appraisal (temporary certifications are permissible) and must meet all requirements of the Competency Rule of the USPAP. Lender verification of an appraiser’s current standing can be done at http://www.asc.gov.

Housing Consultant (if applicable)

Name of consultant:	     
Relation to borrower, if any:	     

Key Questions

	Yes		No
Will the project have a housing consultant? (If so, please provide a copy of the consultant’s agreement with the firm commitment application and provide a narrative discussion that addresses the following: (a) terms of the agreement (i.e., fees charged, start and end date, etc.); and (b) consultant’s responsibilities.) .
Will the housing consultant’s responsibilities overlap with those responsibilities provided by other development team members (i.e., the lender, architect, contractor, attorney, etc.)? If yes, please explain.
Has the lender determined that the fees charged are competitive in the market and considered necessary and reasonable? If no, please explain.

<<Please provide a brief narrative discussion, as applicable, in response to the questions above.>>      

Project Description

Site

<<Brief narrative description about site to include location, topography, size, frontage, access, etc. >>      

Neighborhood

<<Brief narrative description about neighborhood area to include major cross streets and access routes; distance to services, hospitals, etc.; adjacent property uses; predominant character or neighborhood; etc.>>      

Zoning

Legal Conforming

Legal Non-Conforming

Other

<<Provide narrative description: identify local jurisdiction; zoning designation; results of Zoning Letter provided in application submission; and discuss any variances, conditional uses, non-conformance or other pertinent issues affecting zoning.>>      

Utilities

<<Provide narrative description: identify utilities proposed for use at site. Discuss any limitations in service and any other issues that would affect the operation of the facility. Also, clearly identify the utilities to be paid by the residents.>>      

Improvement Description

Building Description

<<Provide narrative description to include “as-is” and “as-rehabilitated” number of buildings; construction types; floor area; describe common areas; etc. >>      

Landscaping

<<Provide narrative description about the “as-is” and “as-rehabilitated” landscaping>>      

Parking

<<Provide narrative description about the “as-is” and “as-rehabilitated” parking including the number of spaces, compliance with accessibility, adequacy of the parking, and any parking easements. Also, discuss any zoning or marketability issues.>>

Unit Mix & Features

<<Complete “as-is” and “as-rehabilitated” tables or provide equivalent detail.>>

As-is Unit Mix

(Double click inside the Excel Table to add information)

As-rehabilitated Unit Mix

(Double click inside the Excel Table to add information)

Living Unit Description

<<Provide brief narrative description of the “as-is” and “as-rehabilitate” units including: bathrooms, appliances, flooring, included furnishings, hook-ups, patios, etc. >>      

Services

<<Provide narrative description of “as-is” and “as-rehabilitated” services to be provided. Identify which services will be included in rent and which services will be available for extra charges, as applicable.>>      

Obsolescence/Depreciation and Remaining Economic Life

<<There are three categories that need to be addressed. Each should be discussed before and after the rehabilitation..>>      

Functional Obsolescence

<<How the physical plant compares to an optimally configured project and how does that impact income potential? (Discuss for example, 3 and/or 4 bed wards, unusual design issues, etc.)>>      

External Obsolescence

<<How do the market, economic environment, and location impact the income potential of the project? >>      

Remaining Economic Life

<<The appraiser has estimated the economic life of the property at XX years. The appraiser has estimated the effective age of the property at XX years. Therefore, the remaining economic life is XX years. Explain the basis for this estimate. Discuss any physical depreciation associated with any improvements that are not new construction. >>      

Scope of Rehabilitation

<<Provide narrative description of the planned rehabilitation. The description should be sufficiently detailed to provide the HUD underwriter and review appraiser a reasonable understanding of the work involved to assess the impact on underwriting and value concerns.>>      

Architectural Review

Date of report:	     
Review firm:	     
Reviewer:	     

Key Questions

	Yes		No
Are any drawings or specifications to be “deferred submissions?” If yes, explain below. .
Does the architectural reviewer recommend any commitment conditions?
Are the plans and specification incomplete?
Is there an identity of interest between the design architect and any other project participant (i.e., borrower, principal of borrower, operator, and/or general contractor)?
Are there architectural review comments that have not been incorporated into the plans and specifications?
Are there any architectural drawings and specifications that do not comply with local building code standards, minimum property standards, or any other HUD requirements?
After reviewing the plans, did the architectural reviewer confirm that the plans are not in conformance with FHAG and UFAS requirements?
Is the design architect providing supervision services?
After reviewing the AIA agreement, did the architectural reviewer find the agreement was not complete?
After reviewing the Geotechnical Engineering Evaluation Report, did the architectural reviewer find the report unacceptable showing an insufficient number of borings provided?
After reviewing the soils report, did the architectural reviewer find the structural design not in compliance with the findings of the report?
After reviewing the survey, did the architectural reviewer find the survey not in compliance with HUD requirements?
Were any repairs recommended that were not incorporated into the plans and specifications?

<<If you answer “yes” to any of the above questions, please address below. For example, Item 1 – Fire sprinkler system engineering will be completed by XXX, Item 3 – The completed plans and specifications will be submitted prior to closing. The architectural reviewer’s inspector has identified minor revisions to the plans and specifications that will be completed and submitted to HUD prior to closing. A list of the minor revisions includes XXX. The contractor has provided confirmation acknowledging the required revisions and confirms that they do not result in changes to the costs reflected on the HUD 2328 submitted with this application package. We (the lender) recommend a Special Condition to the Firm Commitment requiring that completed acceptable plans and specifications will be submitted prior to closing.

Item 4 – There is an identity of interest between the design architect and the borrower. The design architect is a principal of the borrower entity. Therefore, to meet HUD requirements, a separate AIA B108 is submitted with this package for an unrelated architect to provide the supervision services. Provide narrative describing the supervising architect’s name, experience, etc. >>      

Architectural Overview

<<Provide narrative describing the architectural reviewers report and conclusions and if the lender’s underwriter concurs with the conclusions. Identify any modifications to the report conclusions and provide justification. Confirm if the review complies with the statement of work. Identify deliverables included in the application package. Include a narrative concerning key elements of the reviews, the appropriate HUD forms, and their correspondence with the design architect.>>      

Program Guidance:

Construction specification template (CSI Master Format 2010), addressed in Mortgagee Letter 2010-41, must be used for all firm applications submitted after April 25, 2011.

Soils Report

<<A Geotechnical Investigation Report by ABC Engineering, Inc. is provided in the application; however, only five boring samples were taken, which does not meet the minimum HUD standard of 1 boring per 2,500 square feet required by HUD Handbook XXXX . (Identify the specific HUD requirement(s) that are to be waived.) ABC‘s conclusion was that five borings were more than sufficient based on the consistency of the samples and they have provided a letter to that affect. Based on this letter and the design architect’s certification that the foundations have been designed to conform to the geotechnical report, (Lender’s Architectural Reviewer) and (Lender Name) find this acceptable and recommend that HUD accept the soils report and design architect’s certification in lieu of requiring additional samples that will in all likelihood lead to the same conclusion. >>      

Construction Progress Schedule

<<Provide narrative discussion of the construction period as projected by the general contractor and project architect. Indicate if architectural reviewer agrees. Typically, an updated Construction Progress Schedule that accurately reflects the month and date of construction start and completion will be needed prior to closing.>>      

Conclusion

<<Indicate if the review architect has appropriately addressed all architectural aspects of the development and the firm commitment application.>>      

Cost Review

Date of report:	     
Review firm:	     
Cost analyst:	     

Key Questions

	Yes		No
Are there any variances in excess of 10% between the general contractor’s form HUD-2328 line items and the cost analyst’s form HUD-92326? .
Is the total reflected on the cost analyst’s form HUD-92326 more than 10% higher or lower than the total cost breakdown on form HUD-2328?
Will any one subcontractor, material supplier, or equipment lessor be awarded more than 50% of the construction contract?
Will three or fewer subcontractors, material suppliers, or equipment lessors be awarded more than 75% of the construction contract in aggregate?
Does or will the contractor have any identities of interest with any subcontractors, material suppliers, or equipment lessors?
Did the cost analyst find any evidence of front-loading in the contractor’s cost estimate?

<<For each “yes” answer above, provide a narrative explanation and justification regarding the topic.>>      

Cost Overview

<<Confirm the cost reviewer performed the cost review pursuant to Section 232 standards. The deliverables in the application package include a narrative concerning the cost analysis, the appropriate HUD forms, and cost data. For example, “The cost analyst performed a comparison analysis and compared them to the contractor’s final schedules of values (form HUD-2328). The cost analyst ultimately concludes to the contractor’s schedule of values. The underwriter concurs.”>>      

Construction Costs (Form HUD-2328)

<<Discuss the cost analyst’s review of the final forms HUD-2328 supplied by the contractor and owner after completing an independent cost analysis. Confirm the analyst found no front-loading in the final costs reflected in the HUD-2328 submitted. Indicate the analyst completed the HUD 9236 in accordance with HUD guidelines and those forms are included in the appropriate section of the application package.

Provide a breakdown of the costs from the form HUD-2328, Contractor’s and/or Borrower’s Cost Breakdown, included in the application package. The form totals $XXX and is summarized as follows (complete the following table or provide equivalent detail):>>

Description	Cost	% of Contract	Per Sq ft of GBA	Per bed
Structures
Accessory structures
Land improvements
General requirements
Builder’s overhead
Builder’s profit
Other fees
Bond premium
Total construction contract

Construction Contract Type:

Cost Plus

Lump Sum

General Requirements

<<The contractor’s estimate of general requirements totals $XXX. The cost analyst has determined that the proposed cost of the general requirements and the sub-items included in it are reasonable. The underwriter concurs.>>      

Program Guidance:

The cost for “General Requirements” will include the costs for those items incurred in the construction of the project and directly pertaining to a specific project. It will not include general overhead expense of operating the contractor’s home office. Items of cost to be considered in determining General Requirements allowance include, but are not limited to, items such as:

• Supervision

• Field engineering to provide grades and lines for locating buildings, streets, and walks on the site.

• Field office, phones, office supplies and equipment, and clerical help

• Temporary sheds and toilets

• Temporary heat, water, light, and power for construction

• Cleaning and rubbish removal

• Watchmen’s wages

• Medical and first aid facilities

• Temporary protection and fences

Other Fees – General Contractor

Program Guidance:

On Form HUD-2328, “Other Fees” is reserved for fees and allowances not normally included in General Requirements. Such fees might be:

• Special engineering fees such as test borings not provided for by the project architect.

• Special taxes based on cost of the buildings (i.e., school taxes, utility taxes or assessments, excise taxes, tap fees, etc.).

• Contractor’s cost certification (a cost certification is required when a “Cost Plus” construction contract is used)

• Building permits

The form HUD-2328 includes other fees to be paid the general contractor totaling $      . The other fees to be paid by the general contractor include the following:

Schedule of Other Fees included in Construction Contract

(Double click inside the Excel Table to add information)

<<Narrative discussion – Example #1: The cost analyst has reviewed the schedule of other fees and determined the items and the total cost to be reasonable. The underwriter concurs.

Example #2: The construction contract includes $XX in other fees. The other fees include building permits, electric service hook-up charges, and cost certification. It is assumed that the general requirements budget includes appropriate amounts for items such as surveys, municipal inspections and the like during the course of construction. The cost analyst is aware of this likelihood and has adjusted his general requirements budget accordingly.

The underwriter is confident there are adequate budgets built in to the underwriting to cover anticipated other fees. >>      

Bond Premium/Assurance of Completion

<<Provide narrative discussion of either construction bond (bonding company, contractor’s bond capacity, etc.) or the Assurance of Completion escrow (15% or 25% of contract, cash or letter of credit, etc. Also, address whether the surety is listed on the Treasury Circular and is authorized to issue bonds in the state for the required amount.>>      

Unusual Site Improvements

<<Describe unusual site improvements and applicable costs, if any.>>      

Architect’s Fees

<<Provide narrative describing architect fees (design/supervision ). For example: “The Owner-Architect Agreement (AIA document B108 with HUD Addendum) sets a total design fee of $XXX and a construction supervision fee of $XXX, for a total contract amount of $XXX. The design fee currently represents XX% of the total architectural fee and XX% of the total cost of total structures, land improvements, and general requirements. The construction supervision fee is XX% and XX% of the same, respectively.”

Confirm there is not an identity of interest between the borrower and the architect or if there is, discuss the separate supervising architect and his/her B108. Confirm if the cost analyst and underwriter find the architectural fees to be reasonable in total and for the cost of design/supervision.>>      

Other Fees - Borrower

Schedule of Other Fees to be paid by Borrower

(Double click inside the Excel Table to add information)

The cost analyst has reviewed the schedule of other fees to be paid by the borrower and determined the items and the total cost to be reasonable. The underwriter concurs.

Off-Site and Demolition

<<Describe any off-site work to be accomplished and who will be performing the work. If the general contractor is responsible, describe the cost attributed to it and the cost reviewer’s conclusions about the work and the cost. If the city will be performing the work, describe any cost or hookup fee related.      

Describe any demolition that may apply; discuss costs and any other requirements or issues.>>      

Major Movable Equipment

The borrower has provided a major movable list and budget totaling:	$     
The amount per unit is:	$     

Key Questions

	Yes		No
The cost analyst found the list acceptable and the budget is reasonable. .
The underwriter concurs with the analyst’s conclusion or has provided justification for any differences.
The underwriter notes that a copy of the major movable list is included as an Exhibit to the Draft Firm Commitment submitted with this package.

<<For each “no” answer above, provide a narrative explanation and justification regarding the topic.>>      

Contingency Reserve

Program Guidance:

The contingency reserve amount is based on available data for the type and condition of structure. Calculate as percentage of the sum of structures, land improvements, and general requirements. Percentage ranges from 1% to 10%, depending on the condition of the project, extent of rehabilitation, and experience and financial capacity of the borrower and contractor.

The contingency reserve can only be used to cover unanticipated costs, such as discovering more extensive dry rot than was expected. The contingency reserve is not available for items such as an increase in cost of carpet.

<<The architectural and cost reviewer concluded that a contingency reserve of XX% is sufficient based on the site visit, the type of construction of the existing buildings, and the developer’s knowledge of the existing buildings. The underwriter agrees (explain modification).>>      

Underwritten Reserve for Replacement

Program Guidance:

Substantial rehabilitation can encompass a wide range of renovations—from “gut” rehabilitations that replace or newly construct nearly everything, to replacements and renovations that barely exceed the substantial rehabilitation threshold. In lieu of requiring total replacement of everything that will require replacement within the next 5 years, the lender can provide a replacement reserve analysis prepared in accordance with the 232/223(f) Statement of Work for Project Capital Needs Assessments to determine an appropriate initial and annual deposit to the replacement reserve.

In the case of “gut” rehabilitation, this analysis is not required and the lender and cost analyst can depend on the calculation of 0.004 times the mortgage amount plus 10% of the major movable cost for the annual deposit and not require an initial deposit to the replacement reserve.

As the scope of rehabilitation narrows (fewer replacements and fewer areas are involved), the necessity of providing a replacement reserve analysis increases.

Replacement Reserve Summary
	Annually		Per Unit
Reserve for replacement
Realty	$     		$     
Major movables	$     		$     
Total	$     		$     
Was the standard HUD formula used to calculate the annual reserve for replacement deposits? (A “no” answer requires a waiver.)		Yes No

General Review

The replacement reserve analysis includes a combined analysis of both capital items and major movable equipment. The underwriter has reviewed the replacement reserve schedule and provided a summary analysis below. The full 15-year replacement reserve schedule, including the major movable analysis, is provided as Exhibit B to the Draft Firm Commitment submitted with this narrative.

In the analysis below, the underwriter spreads the anticipated replacements by year based on the needs assessor’s replacement reserve analysis and assumes an interest of      % and an inflation rate of      %.

(Double click inside the Excel Table to add information)

As you can see, the year-end balance for each year through year 15 is positive, indicating that the initial and annual deposit are sufficient based on these assumptions. The HUD program requires the lender to re-analyze the capital needs in year 10.

Conclusion

<<Provide lender’s conclusions and wrap-up of the cost review. Reiterate if any of the cost analyst’s conclusions were modified and justified in the lender’s underwriting.>>      

Appraisal

Date of valuation:	     
Date of report:	     
Appraisal firm:	     
Appraiser:	     
License no./State:	     

The report was prepared to comply with the reporting requirement outlined under the USPAP as a self-contained report. The report also complies with the requirements of the Code of Professional Ethics of the Appraisal Institute and the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA), Title XI Regulations

The report was prepared in accordance with the ORCF Appraisal Guidelines.

Key Questions

	Yes		No
Will there be a ground lease? .
Are any tax credits involved in this transaction?
Are any real estate tax abatement or exemptions included in the underwriting assumptions?
Are there any special escrows or reserves proposed for this transaction?
Does the underwriting include income from adult day care? (Note: Non-resident adult day care space may not be located on a separate site. The adult day care space will not be considered commercial space; however, the space may not exceed 20% of the gross floor area of the facility and the income may not exceed 20% of gross income. Provide a Certificate of Need or operating license, if applicable.)
Are there any other issues that require special or a-typical underwriting considerations?
Does the submission date of the application (date the application enters the queue) exceed the 120-day timeframe from the effective date of the appraisal?

<<For each “yes” answer above, provide a narrative discussion regarding the topic. For example, Item 3, Real Estate Tax Abatement – The borrower will be receiving an abatement of real estate taxes for at least two years after opening the facility. The abatement is to be 70% of the taxes due. We have not assumed the abatement for valuation purposes. The underwriter has, however, excluded 70% of the underwritten taxes from the debt service calculation and from the initial operating deficit calculation.>>      

Hypothetical Conditions and Extraordinary Assumptions

Hypothetical Conditions

<<Identify any conditions that are contrary to what exists but are supposed for the purpose of analysis. For example, “The appraisal assumes that the proposed construction is complete and the property has attained the operating levels concluded by the appraiser. There are no other hypothetical conditions.”>>      

Extraordinary Assumptions

<<Identify any assumptions specific to this assignment that if found to be false, could alter the appraiser’s opinions or conclusions. For example, “The appraisal assumes the subject project meets the state licensing requirements and that the facility is constructed as planned. There are no other extraordinary assumptions.>>      

Jurisdictional Exceptions

<<These are rare and should be discussed with HUD before invoking. >>      

Market Analysis

<<The Market Study may be an integral part of the appraisal and need not appear under separate cover. If under separate cover, the Market Study should have the same author as the appraisal, so the valuation is consistent with the market conclusions.>>

Date of analysis:	     
Market analysis firm:	     
Market analyst:	     

Key Questions

	Yes		No
Is the subject located in a declining market in terms of population, target population, real estate values, or employment? .
Are there any negative market influences that require special consideration?
Is there a projected or current oversupply that could affect the subject?

<<For each “yes” answer above, provide a narrative discussion regarding the topic, describing the risk and how it is mitigated. For example, “Oversupply: The projected oversupply is specifically addressed in the Risk Factors section of this narrative.”>>      

Market Overview

<<Provide an overview of the market analysis, including general growth and population information, barriers to entry, unique market influences, etc. Please be brief in this section and refrain from pasting large sections from the market study here.>>      

Primary Market Area

<<Describe primary market area and method of selection (e.g., distance, zip codes, etc.). When making your conclusions about the size of the PMA, pay close attention to where the existing competitors are drawing their tenants from.>>      

Target Population

<<Describe age, income, and type of resident (i.e., assisted living, independent, dementia, etc.) and acuity of care.>>      

Demand

<<Describe age, income, and type of resident (i.e., assisted living, indenepdent, dementia, etc.) and acuity of care of the target population. Describe target population demographics and demand factors.>>      

Competitive Environment (Supply)

<<Describe and identify competing facilities, planned facilities, facilities under construction, and other supply factors that compete with the subject facility. Description of supply should include types of facilities, acuity, and occupancy. Discuss recent and/or historic absorption of competitive units. Discuss any perceived changes to competitive environment.>>      

Conclusion

<<Provide conclusion of market analysis: summarize demand, market saturation, continued health of market, negative and positive factors impacting the continued demand for the subject’s units/beds.>>      

Income Capitalization Approach – As-Is

Financial Statements

The appraiser and underwriter have analyzed the following historical financial statements pertaining to the operation of this facility:

<<If less than three years financial information is available for the project’s operations, provide a narrative justifying why the data is not available. Even in the cases where there was an acquisition within the past 3 years, the owners will usually have been supplied with the income and expense information from the previous owner.>>      

Occupancy

A summary of the subject’s occupancy is provided below.

(Double click inside the Excel Table to add information)

A summary of the market occupancy is provided below.

(Double click inside the Excel Table to add information)

<<Indicate if the market percentages quoted represent a single day survey, or are a year over average. The number of competitors will depend on the size of the market. Please expand or reduce the chart above as needed. Provide brief narrative discussion of conclusion. The narrative should address any decline in or below average occupancy. For skilled nursing and other facilities, resident days may be more appropriate than units or beds. For continuum of care facilities (e.g., skilled and assisted living), it may be appropriate to provide a separate schedule for each care type.>>      

Census Mix – As Is

An analysis of the subject and market comparable census mix is provided below.

Census Mix – Subject History

(% of beds)

(Double click inside the Excel Table to add information)

Census Mix – Market Comparables

(% of beds not revenue)

(Double click inside the Excel Table to add information)



<<Provide narrative discussion of conclusion. For continuum of care facilities (e.g., skilled and assisted living), it may be appropriate to provide the above analysis for each care type. An equivalent analysis of the information provided above is required. Additional analysis can be provided at the lender’s option to support its conclusion, as appropriate.>>      

Rents - As Is

The rent schedule is currently as follows:

<<Insert a summary chart of the rent schedule here that shows rents, number of units, and room/service types.>>      

<<Discuss the subject Rent Schedule. For skilled nursing and other facilities, a daily rate may be more appropriate than a monthly conclusion. For continuum of care facilities (e.g., skilled and assisted living), it may be appropriate to provide a separate schedule for each care type.>>      

Historical Revenue Summary

<<Please adapt the chart to show the income sources specific to your facility. Bad debt can either included in the table below or dealt with as an expense. >>

History by Revenue Source

(Double click inside the Excel Table to add information)

<<In the chart above, the most recent reporting period may be presented as the annualization of the first months of the year (Annualized YTD), or presented as the 12 trailing months (T-12) of income that overlaps into the prior reporting period. Please indicate which you are showing and the months covered by the T-12 or YTD.

Above you are asked to report the number of resident days or occupied units. Nursing homes should be reported by resident day, the total of which should be equal to the number of operating beds x 365 x occupancy percentage. Assisted living may be reported by occupied unit, the total of which should equal the number of operating units x 12 x occupancy percentage. Do not enter potential gross incomes here, but rather effective gross income, wherein vacancy has already been accounted for.>>      

<<Discuss any departures from historical reimbursements, mix, and trends here.>>      

<<Instructions: Each type of care should have its own subsection below discussing the payor source identified in the rent schedule, as demonstrated below. You may delete the sections (Skilled Nursing, Assisted Living, and Independent Living) that do not apply to your subject. >>

Skilled Nursing – as Is

Private Pay

In addition to an analysis of the subject’s rent roll, the appraiser and underwriter analyzed the private pay rates at X comparable facilities. A summary of their analysis is provided below.

Private Pay Rates Comparability Analysis

(Double click inside the Excel Tables to add information)

<<Provide narrative discussion of private pay rate conclusion. Discuss how the rate conclusion compares to the achieved rents shown on the rent roll. Expand or shorten the table above as needed to accommodate the types of rooms or the number of comparables used. Additional analysis can be provided at the Lender’s option to support its conclusions, as appropriate. Identify any modification from the appraiser’s concluded rent and provide justification. >>      

Medicare

Daily rate – Underwriting:	$     	Appraisal:	$     
Subject’s historical average RUG Rate:	$     	Time period of quoted average:	     

<<Identify any anticipated changes to the reimbursement rate. Provide narrative discussion of conclusion. For example: “The appraiser provided a detailed Resource Utilization Group (RUG) rate analysis of the facility’s operation over the last 12-month operating period. The analysis concluded a weighted average Medicare rate of $XX PRD. The RUG Rates used to determine the average rate are based on the <<DATE>> rates. The underwriter concurs with the appraiser’s conclusion.”>>      

Medicaid

Daily Rate – Underwriting:	$     	Appraisal:	$     
Published Rate:	$     	Date of Rate	     

<<Provide narrative discussion of the state’s reimbursement system and how the subject’s or tenant’s rate is determined. If rate is facility specific, discuss evidence of current or prospective rate. If rate is based on resident care requirements, provide an analysis of the last 12-months of rates for this payor source, as appropriate. Identify and discuss any other sources or copayments that are required, e.g., Supplemental Security Income (SSI). Identify any anticipated changes to the reimbursement rate, such as when rates are tied to depreciating capital components .>>      

Veteran’s Administration (VA)

Daily Rate – Underwriting:

$     

Appraisal:

$     

<<If applicable, provide narrative discussion of how the rate is determined. Discuss review of evidence (e.g., rate letter) or historical precedent for the underwritten rate. >>      

HMO or Other Private Insurance

Daily Rate – Underwriting:

$     

Appraisal:

$     

<<If applicable, provide narrative discussion of how the rate is determined. Discuss review of evidence (e.g., rate letter) or historical precedent for the underwritten rate. >>      

Other

<<If applicable, provide narrative discussion of other types of payor sources. Describe source and how the rate is determined. Discuss review of evidence (e.g., rate letter) or historical precedent for the underwritten rate. >>      

Assisted Living – As Is

Private Pay

In addition to an analysis of the subject’s rent rolls, the appraiser and underwriter analyzed the assisted living rents at       comparable facilities. A summary of their analysis is provided below.

Rent Comparability Analysis

(Double click inside the Excel Tables to add information)

<<Provide narrative discussion of the private pay conclusion. Include a discussion on achieved rents shown on the rent roll versus asking rates. >>      

Medicaid

<<If applicable, provide narrative discussion of state’s reimbursement system and how the subject’s or tenant’s rate is determined. If rate is facility specific, discuss evidence of current or prospective rate. If rate is based on resident care requirements, provide an analysis of the last 12-months of rates for this payor source, as appropriate. Identify and discuss any other sources or copayments that are required (e.g., SSI). >>      

Independent Units

In addition to an analysis of the subjects rent rolls, the appraiser and underwriter analyzed the independent living rents at       comparable facilities. A summary of their analysis is provided below.

Rent Comparability Analysis

(Double click inside the Excel Tables to add information)

<<Provide narrative discussion of conclusion. Include a discussion on achieved rents shown on the rent roll versus asking rates. >>      

Other Income Breakdown

<<Input effective income conclusions, not gross income.>>

(Double click inside the Excel Tables to add information)

<<Provide narrative discussion and support for each other income category as appropriate. An equivalent analysis of the information provided above is required. Additional analysis can be provided at the lender’s option to support their conclusion, as appropriate.

Example: Additional Personal Care Fees: The project bases additional care fees on levels of care needed as determined by the initial assessment and subsequent assessments as needed. The appraiser concludes to a net amount of $X annually. The underwriter has analyzed the history to determine the average monthly charge of $X, net of vacancie. Insert historical or comparable data as appropriate.

Example: Second Occupant Income: The appraiser has included a net annual projection of X second occupants at $X per month. Over the last 12 months, the facility has averaged X second occupants per month. Competitive facilities in the market place report second occupant charges ranging between $X and $X with a range of X to X second occupants. Based on the history and the market, the underwriter concurs with the appraiser’s conclusion for a net annual income of $X.      

Example: Miscellaneous Income: In addition to room rents, additional care, and second occupant income, the project receives miscellaneous income from X (list miscellaneous). The appraiser has included a net annual projection of $X. Historically, typical miscellaneous income is between x and x percent of effective income. The appraiser’s conclusion is x. The underwriter has concluded to a net $X per annum (calculation shown). >>      

Expenses – As Is

The appraiser concludes to total expenses of $      including reserve for replacement of $     . The underwriter concludes to total expenses of $      including reserve for replacement of $     . An analysis of subject’s history is provided below. The appraiser also compared the subject’s expense conclusions to       comparable projects located in      .

<<Explain how the appraiser’s expenses used for valuing the facility differ from the expenses used by the lender for the Debt Service Coverage analysis. Typically, these may differ in the categories of reserves, management fee, and taxes. The appraiser’s numbers will represent market expenses and the lender’s expenses for DSC analysis will represent what will actually be paid. >      

Historic Comparison

<<The data in the following table must be in totals, not per resident day or per occupied unit. Cells with grey shading will calculate automatically. You are given some latitude in defining the expense categories. The expense categories in black text are required items. You have the option of presenting the current year’s expense data in an annualized amount or in the form of trailing 12 months (T-12) of expense. The lender must include the most current historical income and expense data available to them, and not the dated information from the appraisal.>>

Expense Analysis –Subject

(use totals not per patient day/occupied bed)

(Double click inside the Excel Table to add information)

Comparable Expense Data

<<Unlike the previous table, the information for the expense comparables should be entered on a per resident day basis (# beds x 365 x occupancy rate) or per occupied unit basis (# units x 12 x occupancy rate). A minimum of three expense comps are required. More columns or tables can be added if needed.>>

Expense Analysis –Comparables

(Double click inside the Excel Tables to add information)

<<Provide narrative discussion of comparable information. The appraiser should trend the expense comparables to the effective date of the appraisal. An explanation of the adjustments should be included here. Explain any other adjustments made to the comparables such as for normalization of reserves, management fee, taxes, etc., required to put the comparables on the same footing as the subject. For skilled nursing and other facilities, resident days are more appropriate than occupied units. For continuum of care facilities (e.g., skilled and assisted living), it may be appropriate to provide a separate schedule for each care type.>>      

Net Operating Income (NOI)

<<Provide narrative discussion as necessary. Summarize and compare the NOI of the appraiser and the lender’s NOI that incorporates all potential changes to incomes and expenses. Typically, the lender would explain here that the appraiser’s “market” NOI was used for valuation and loan sizing based on value. The lender’s NOI, which may vary from the appraiser’s due to the Office of Residential Care Facilities (ORCF) requirements (e.g., specific reserve requirements, tax abatements that the appraiser was not allowed to recognize, or unusual management fees) will be used for loan sizing based on Debt Service Coverage.>>      

<<Reproduce or paste the pro forma that follows. If the lender disagrees with the appraiser’s value conclusion, present a separate pro forma for both the lender’s conclusions and the appraiser’s conclusions. A separate pro forma is not required to show the underwriter’s conclusions for debt coverage (i.e., when expnses for management fee, reserves, or taxes will differ from the appraiser’s market conclusion).

At a minimum, the pro forma supplied needs to:

• Summarize the income by source. The income detail needs to be sufficient to show a line item for each source that a specific rate was concluded. Include the payor type (i.e., Medicare, Medicaid, private pay, etc.) and the care type (i.e., AL, MC, IL, SNF), and the room type (i.e., private, ward, one-bedroom, studio, etc.). A count of each type should also be shown.

• Show occupancy assumptions and the assumed number of resident days OR occupied units.

• Show the conclusions for the major expense categories.

• Show the NOI, EGI, expense per bed OR unit, and the overall expense percentage. It is not necessary to show the Potential Gross Income.

If the appraiser’s pro forma does not include sufficient detail, the following table may be used or adapted to produce a pro forma acceptable to ORCF. The input fields are shaded. Non shaded fields are automatic calculations. Double click the table to open for editing.>>

<<Provide narrative discussion as necessary. An equivalent analysis of the information provided above is required. Additional analysis can be provided at the lender’s option to support its conclusion, as appropriate.>>      

Capitalization Rate – As Is

<<The selection of the capitalization rate should be primarily based on recent sales rather than from investment models. Ideally, these rates would come from the Building Sales Comparables. However, these are often chosen by location before sale date. Recent cap rate data should be included every time, even if an additional set of cap rate comps or a survey needs to be introduced. In the table below, please add columns or duplicate the table as needed to accommodate additional comps.>>

(Double click inside the Excel Tables to add information)

<<Provide narrative discussion as necessary. If the subject was sold within the past 3 years, include the cap rate analysis here. An equivalent analysis of the information provided above is required. For continuum of care facilities (e.g., skilled and assisted living), it may be appropriate to provide a separate schedule for each care type. Additional analysis can be provided at the lender’s option to support its conclusion, as appropriate.>>      

Sales Comparison Approach – As Is

<<If large adjustments are required in the sales comparison approach, extra attention and explanation are required to support the determination of the adjustments. Generally, those sales that require the smallest adjustment are the most desirable.>>

Summary of Comparable Sales Data

(Double click inside the Excel Tables to add information)

Price Per Unit/Bed – As Is

<<Provide narrative discussion and summary of the appraisal conclusions. For continuum of care facilities (e.g., skilled and assisted living), it may be appropriate to provide a separate analysis for each care type. Include a general discussion of adjustments made to the sales and the comparables that best represent the subject facility. Additional analysis can be provided at the lender’s option to support its conclusion, as appropriate.>>      

Effective Gross Income Multiplier (EGIM) – As Is

<<Provide narrative discussion. An equivalent analysis of the information provided above is required. For continuum of care facilities (e.g., skilled and assisted living), it may be appropriate to provide a separate analysis for each care type. Additional analysis can be provided at the lender’s option to support its conclusion, as appropriate. >>      

Subject Purchases

<<Provide analysis of subject’s purchase price for all sales that have occurred within the last 3 years. (The analysis should provide: date of purchase; purchase price; whether the purchase was an arms-length transaction; and the financing term. In addition, the analysis should also state whether the sale was a market price. If not, explain.)>>      

Cost Approach – As Is

Development Costs

<<Provide narrative discussion. If this approach was not expanded by the appraiser, indicate so here. Instead of deleting the remainder of the subsection, provide any lender insights in each category.>>      

Depreciation

<<Provide narrative discussion of depreciation assumptions and conclusion.>>      

Major Movable Equipment

<<Provide narrative discussion of assumptions and conclusion. Address discrepancies between appraiser and cost analyst. Additionally, address ownership of the major movable equipment (e.g., borrower or operator). >>      

Marketing Allowance

<<Provide narrative discussion.>>      

Land Value

<<Provide narrative discussion of assumptions and conclusion. A land valuation is no longer required if the cost approach is not utilized.>>      

Overall Value Reconciliation – As Is

<<Provide narrative discussion of how the value approaches were reconciled to reach the final conclusions. The statement may be simple. For example: “As demonstrated in the Appraisal Overview section above, the underwritten value conclusion is based on the income approach to value.” If the value conclusion is based on weighting multiple approaches provide an explanation of the rationale.>>      

(Double click inside the Excel Tables to add information)

Lender Modifications – As Is

<<State if the lender concurs or not with the appraiser’s value conclusion. When there is a disagreement, summarize the valuation modifications made by the lender underwriter. Insert a pro forma to highlight the differences in conclusions as needed. View the appraisal as a tool to do your underwriting and loan sizing correctly. Lenders should not use a value they disagree with and are allowed to use a lower value/NOI for loan sizing purposes. If lenders feel they are prohibited from doing this, they should cite the FIREA rule at issue in the narrative.>>      

Income Capitalization Approach – As Proposed

Census Mix – As Proposed

An analysis of the subject and market comparable census mix is provided below.

Census Mix – Subject History

(% of beds)

(Double click inside the Excel Table to add information)

Census Mix – Market Comparables

(% of beds not revenue)

(Double click inside the Excel Table to add information)



<<Provide narrative discussion of conclusion. For continuum of care facilities (e.g., skilled and assisted living), it may be appropriate to provide the above analysis for each care type. An equivalent analysis of the information provided above is required. Additional analysis can be provided at the lender’s option to support its conclusion, as appropriate.>>      

Rents - As Proposed

The rent schedule is currently as follows:

<<Insert a summary chart of the rent schedule here that shows rents, number of units, and room/service types.>>      

<<Discuss the subject Rent Schedule. For skilled nursing and other facilities, a daily rate may be more appropriate than a monthly conclusion. For continuum of care facilities (e.g., skilled and assisted living), it may be appropriate to provide a separate schedule for each care type.>>      

Skilled Nursing – As Proposed

Private Pay

In addition to an analysis of the subject’s rent roll, the appraiser and underwriter analyzed the private pay rates at X comparable facilities. A summary of their analysis is provided below.

Private Pay Rates Comparability Analysis

(Double click inside the Excel Tables to add information)

<<Provide narrative discussion of private pay rate conclusion. Discuss how the rate conclusion compares to the achieved rents shown on the rent roll. Expand or shorten the table above as needed to accommodate the types of rooms or the number of comparables used. Additional analysis can be provided at the Lender’s option to support its conclusions, as appropriate. Identify any modification from the appraiser’s concluded rent and provide justification. >>      

Medicare

Daily rate – Underwriting:	$     	Appraisal:	$     
Subject’s historical average RUG Rate:	$     	Time period of quoted average:	     

<<Identify any anticipated changes to the reimbursement rate. Provide narrative discussion of conclusion. For example: “The appraiser provided a detailed Resource Utilization Group (RUG) rate analysis of the facility’s operation over the last 12-month operating period. The analysis concluded a weighted average Medicare rate of $XX PRD. The RUG Rates used to determine the average rate are based on the <<DATE>> rates. The underwriter concurs with the appraiser’s conclusion.”>>      

Medicaid

Daily Rate – Underwriting:	$     	Appraisal:	$     
Published Rate:	$     	Date of Rate	     

<<Provide narrative discussion of the state’s reimbursement system and how the subject’s or tenant’s rate is determined. If rate is facility specific, discuss evidence of current or prospective rate. If rate is based on resident care requirements, provide an analysis of the last 12-months of rates for this payor source, as appropriate. Identify and discuss any other sources or copayments that are required, e.g., Supplemental Security Income (SSI). Identify any anticipated changes to the reimbursement rate, such as when rates are tied to depreciating capital components .>>      

Veteran’s Administration (VA)

Daily Rate – Underwriting:

$     

Appraisal:

$     

<<If applicable, provide narrative discussion of how the rate is determined. Discuss review of evidence (e.g., rate letter) or historical precedent for the underwritten rate. >>      

HMO or Other Private Insurance

Daily Rate – Underwriting:

$     

Appraisal:

$     

<<If applicable, provide narrative discussion of how the rate is determined. Discuss review of evidence (e.g., rate letter) or historical precedent for the underwritten rate. >>      

Other

<<If applicable, provide narrative discussion of other types of payor sources. Describe source and how the rate is determined. Discuss review of evidence (e.g., rate letter) or historical precedent for the underwritten rate. >>      

Assisted Living – As proposed

Private Pay

In addition to an analysis of the subject’s rent rolls, the appraiser and underwriter analyzed the assisted living rents at       comparable facilities. A summary of their analysis is provided below.

Rent Comparability Analysis

(Double click inside the Excel Tables to add information)

<<Provide narrative discussion of the private pay conclusion. Include a discussion on achieved rents shown on the rent roll versus asking rates. >>      

Medicaid

<<If applicable, provide narrative discussion of state’s reimbursement system and how the subject’s or tenant’s rate is determined. If rate is facility specific, discuss evidence of current or prospective rate. If rate is based on resident care requirements, provide an analysis of the last 12-months of rates for this payor source, as appropriate. Identify and discuss any other sources or copayments that are required (e.g., SSI). >>      

Independent Units

In addition to an analysis of the subjects rent rolls, the appraiser and underwriter analyzed the independent living rents at       comparable facilities. A summary of their analysis is provided below.

Rent Comparability Analysis

(Double click inside the Excel Tables to add information)

<<Provide narrative discussion of conclusion. Include a discussion on achieved rents shown on the rent roll versus asking rates. >>      

Other Income Breakdown

<<Input effective income conclusions, not gross income.>>

(Double click inside the Excel Tables to add information)

<<Provide narrative discussion and support for each other income category as appropriate. An equivalent analysis of the information provided above is required. Additional analysis can be provided at the lender’s option to support their conclusion, as appropriate.

Example: Additional Personal Care Fees: The project bases additional care fees on levels of care needed as determined by the initial assessment and subsequent assessments as needed. The appraiser concludes to a net amount of $X annually. The underwriter has analyzed the history to determine the average monthly charge of $X, net of vacancie. Insert historical or comparable data as appropriate.

Example: Second Occupant Income: The appraiser has included a net annual projection of X second occupants at $X per month. Over the last 12 months, the facility has averaged X second occupants per month. Competitive facilities in the market place report second occupant charges ranging between $X and $X with a range of X to X second occupants. Based on the history and the market, the underwriter concurs with the appraiser’s conclusion for a net annual income of $X.      

Example: Miscellaneous Income: In addition to room rents, additional care, and second occupant income, the project receives miscellaneous income from X (list miscellaneous). The appraiser has included a net annual projection of $X. Historically, typical miscellaneous income is between x and x percent of effective income. The appraiser’s conclusion is x. The underwriter has concluded to a net $X per annum (calculation shown). >>      

Expenses – As Proposed

Comparable Expense Data – As Proposed

Expense Analysis –Comparables

(Double click inside the Excel Table to add information)

(Double click inside the Excel Table to add information)

<<Provide narrative discussion of comparable information. The appraiser should trend the expense comparables to the effective date of the appraisal. An explanation of the adjustments should be included here. Explain any other adjustments made to the comparables such as for normalization of reserves/management fee/taxes, etc. required to put the comparables on the same footing as the subject. For skilled nursing and other facilities, resident days are more appropriate than occupied units. For continuum of care facilities (e.g., skilled and assisted living), it may be appropriate to provide a separate schedule for each care type. >>      

Net Operating Income – As Proposed

<<Provide narrative discussion as necessary. Summarize and compare the NOI of the appraiser and the lender’s NOI that incorporates all potential changes to incomes and expenses. Typically, the lender would explain here that the appraiser’s “market” NOI was used for valuation and loan sizing based on value. The lender’s NOI, which may vary from the appraiser’s due to ORCF requirements (e.g., specific reserve requirements, tax abatements that the appraiser was not allowed to recognize, or unusual management fees) will be used for loan sizing based on debt service coverage. >>      

<<Below reproduce or paste the appraiser’s pro forma. If the lender disagrees with the appraiser’s value conclusion, a separate pro forma with the lender’s conclusions should be added in section entitled “Lender Modifications of Value.” A separate lender’s pro forma is not required to show ORCF required revisions to items such as management fee, reserves, or taxes as part of the Debt Coverage analysis. Those changes will be summarized later in the expense section.

At a minimum the pro forma supplied needs to:

• Summarize the income by source. The income detail needs to be sufficient to show a line item for each source that a specific rate was concluded. Include the payor type (i.e., Medicare, Medicaid, private pay, etc.), the care type (i.e., AL, MC, IL, or SNF), and the room type (i.e., private, ward, one-bedroom, or studio). A count of each type should also be shown.

• Show occupancy assumptions and the assumed number of resident days or occupied units.

• Show the conclusions for the major expense categories.

• Show the net operating income, effective gross income, expense per bed or unit, and the overall expense percentage. It is not necessary to show the potential gross income.

If the appraiser’s pro forma does not include sufficient detail, the following table may be used or adapted to produce a pro forma acceptable to ORCF. The input fields are shaded. Non-shaded fields are automatic calculations. Double click the table to open for editing.>>

<<Provide narrative discussion as necessary. Summarize and compare the NOI of the appraiser and the lender’s NOI that incorporates all potential changes to incomes and expenses. Typically the lender would explain here that the appraiser’s “market” NOI was used for valuation and loan sizing based on value. The lender’s NOI, which may vary from the appraiser’s due to HUD requirements (e.g., specific reserve requirements, or for tax abatements that the appraiser was not allowed to recognize, or unusual management fees) will be used for loan sizing based on Debt Service Coverage. Additional analysis can be provided at the lender’s option to support its conclusion, as appropriate. >>      

Capitalization Rate – As Proposed

<<The selection of the capitalization rate should be based primarily on recent sales rather than from investment models. Ideally, these rates would come from the Building Sales Comparables. However, these are often chosen by location before sale date. Recent cap rate data should be included every time, even if an additional set of cap rate comps or a survey needs to be introduced. In the table below, please add columns or duplicate the table as needed to accommodate additional comps.>>

(Double click inside the Excel Table to add information)

<<Provide narrative discussion as necessary. An equivalent analysis of the information provided above is required. For continuum of care facilities (e.g., skilled and assisted living), it may be appropriate to provide a separate schedule for each care type. Additional analysis can be provided at the lender’s option to support its conclusion

Sales Comparison Approach – As Proposed

(Double click inside the Excel Table to add information)

Price Per Unit/Bed – As Proposed

<<Provide narrative discussion. An equivalent analysis of the information provided above is required. For continuum of care facilities (e.g., skilled and assisted living), it may be appropriate to provide a separate analysis for each care type. Include a general discussion of adjustments made to the sales and which comparables best represent the subject facility. Additional analysis can be provided at the Lender’s option to support its conclusion, as appropriate.>>      

Effective Gross Income Multiplier (EGIM) – As Proposed

<<Provide narrative discussion. An equivalent analysis of the information provided above is required. For continuum of care facilities (e.g., skilled and assisted living), it may be appropriate to provide a separate analysis for each care type. Additional analysis can be provided at the lender’s option to support its conclusion, as appropriate.>>

Cost Approach – As Proposed

Development Cost

<<Provide narrative discussion. This section is a place for the lender to summarize the cost conclusions of the appraisal. The costs in this section will be different than those in the Cost Review Section. This section will focus on market costs, as opposed to the Cost Reviewer Section that will be geared toward HUD-specific costs, such as Davis-Bacon wages.>>      

Depreciation

<<With new construction this will normally be not applicable, but if the appraiser concludes there is external obsolescence, or depreciation associated with a preexisting structure, it should be discussed here.>>      

Major Movable Equipment

<<Provide narrative discussion of assumptions and conclusion. Address discrepancies between appraiser and cost analyst. Additionally, address ownership of the major movable equipment (e.g., borrower or operator).>>      

Land Value

<<Provide narrative discussion of assumptions and conclusion. Include an analysis of the comparable data.>>      

Reconciliation – As Proposed

<<Provide narrative discussion of how the value approaches were reconciled to reach the final conclusions. The statement may be simple. For example, “As demonstrated in the Appraisal Overview section above, the underwritten value conclusion is based on the income approach to value.” If the value conclusion is based on weighting multiple approaches provide an explanation of the rationale.>>      

Lender Modifications – As Proposed

<<State if the lender concurs, or not, with the appraiser’s value conclusion. When there is a disagreement, summarize the valuation modifications made by lender underwriter. Insert a pro forma to highlight the differences in conclusions as needed. View the appraisal as a tool to do your underwriting and loan sizing correctly. Lenders should not use a value they disagree with and are allowed to use a lower value/NOI for loan sizing purposes. If lenders feel they are prohibited from doing this, they should cite the FIRREA rule at issue in the narrative.>>      

Initial Operating Deficit

<<Below is the “output screen” of ORCF’s required IOD model. Double click to open. There are 3 tabs, the first of which is the “Input” screen. At this early stage, the first tab is the only area you will make entries (entry cells are shaded in light blue). Once finished with the entries, return to the “Output – Summary Exhibit” tab and click your mouse outside the excel chart to close. All three tabs are to be included as exhibit 1-3A.1. The electronic version of exhibit 1-3A.1, should be submitted as a functioning Excel (or equivalent) workbook. After construction is complete, this workbook will again be used to make draw requests on the IOD escrow account (Details and Draw Request tab). Enter narrative explanations below as needed below.>>      

ALTA/ACSM Land Title Survey

Date:	     
Firm:	     

Key Questions

	Yes		No
Are there any differences between the legal description on the survey and legal description included in the pro forma title policy? .
Are there any revisions or modification required to the survey prior to closing?
Does the survey indicate any boundary encroachments?
Does the survey evidence any buildings encroaching on utility or other easements or rights-of-way?
Are there any unusual circumstances or items that require special attention or conditions?

<<For each “yes” answer above, provide a narrative discussion on the topic describing the risk and how it will be mitigated and the affect on value or the marketability of the project. For example, “Encroachments: The survey indicates an encroachment of the adjoining property fence on the easterly portion of the property. An encroachment endorsement will be received at closing. There is no impact on the value or marketability of the project.>>      

Title

Title Search

Date of search:	     
Firm:	     
File number:	     

Key Questions

	Yes		No
Is the title currently vested in an entity or individual other than the proposed borrower? .
Does the report indicate that delinquent real estate taxes are owed?
Does the report indicate any outstanding special assessments?
Does the report identify any outstanding debt that is not disclosed on the borrower’s listing of outstanding obligations?
Are there or will there be any Use and Maintenance Agreements associated with this facility?

<<For each “yes” answer above, provide a narrative discussion on the topic describing the risk and how it will be mitigated.>>      

Pro-forma Policy

Date/time:	     
Firm:	     
Policy number:	     

Key Questions

	Yes		No
Is the title vested in an entity or individual other than the proposed borrower? .
Are there any covenants, , encumbrances, liens, restrictions, or other exceptions indicated on Schedule B-1? .
Are there any use or affordability restrictions remaining in effect on the property?
Are there any easements or rights-of-way listed that are not indicated on the survey?
Are there any endorsements included aside from the standard HUD-required endorsements?
Are there any subordination agreements, encroachments or similar issues that require HUD’s approval?
Are there any other matters requiring special consideration, agreements, or conditions that require HUD’s attention?
Are there any easements, rights-of-way, encroachments, etc., identified on Schedules B-1 and B-2 that, in the lenders opinion, affect value or the marketability of the project?

<<For each “yes” answer above, provide a narrative discussion regarding the topic. For example, “Additional Endorsements: As described in the Risk Factors section of the narrative, the XXXX does not conform to the past or current zoning requirements. The lender recommends…>>      

Environmental

Phase I Environmental Site Assessment

Date of inspection:	     
Firm:	     
Consultant:	     

Key Questions

	Yes		No
Does the report recommend a Phase II assessment, other reports, or additional testing? .
Does the vapor encroachment screen amendment to the Phase I identify a “vapor encroachment condition” (VEC)? (The vapor encroachment screen must be performed using the Tier 1 “non-invasive” screening pursuant to ASTM E 2600-10.)
Does the report indicate evidence of any soil staining or distressed vegetation, unusual odors, pools of liquid, leaking containers or equipment, hazardous materials or other unidentified substances?
Does the report indicate evidence of any chemical misuse or unlawful dumping at the site?
Does the report indicate the presence or suspected presence of any underground storage tanks or aboveground storage tanks on the site?
Does the report’s review of all major governmental databases for listings of potentially hazardous sites within the ASTM required search distances from the property identify any potential contamination concerns for the property?
Do the Phase I or Phase II reports recommend any required actions or conditions?
Was the Phase I ESA conducted more than 180 days before the firm commitment application was submitted? (This report must not be more than 180 days old at the time of submission. ORCF is not able to waive this requirement.)

<<For each “yes” answer above, provide a narrative discussion on the topic describing the risk and how it will be mitigated.>>      

Program Guidance – Above-ground storage tanks (ASTs):

HUD is required to qualitatively evaluate the risks associated with proximity to hazardous facilities. ORCF reviews on Section 232 applications will consider the potential danger presented by liquid fuel and gas aboveground storage tanks (ASTs). When existing or proposed ASTs are located onsite or when offsite tanks are visible from the property, a calculation of the Acceptable Separation Distance must be included in the application.

General Overview

The Phase I Environmental Site Assessment (ESA) was performed in conformance with the scope and limitations of ASTM Practice E 1527-05 <<Because ASTM may amend these requirements, please reference the most current version.>> The investigation specifically included a reconnaissance of the subject site and the immediate surrounding area, a review of regulatory agency information, a survey of local geological and topographical maps, a review of aerial photographic studies, survey of water sources, a review of historical information, and a limited visual inspection for suspect asbestos containing materials (ACMs).

Lender Comments

<<Provide a brief summary of comments made by underwriter. If none, state none.>>      

Other Potential Environmental Concerns

Key Questions

	Yes		No
Is the project located within a designated coastal barrier resource area .
Is the project located within 5 miles of a civil airport or within 15 miles of a military airfield?
Is the project located within 1,000 feet of major highways or busy roads
Is the project located within 3,000 feet of a railroad?
Are there existing or proposed stationary tanks containing explosive or fire-prone materials of 100 gallons or larger on the site or nearby the site that are visible from satellite images or site reconnaissance?
Are there any wetlands on the subject site?
If so, will the project impact or disturb wetland areas or their buffer zones? N/A
Is any construction of the project likely to affect any listed or proposed endangered or threatened species or critical habitats?
Is the project located on a sole source aquifer?
Are there any known landfills within ½-mile of the site?
Are any buildings located in the fall zone of any high voltage power transmission or other towers?
Does the project include a structure that was built before 1978?
If so, was a comprehensive asbestos survey performed by a qualified asbestos inspector pursuant to the “baseline survey” requirements of ASTM E 2356-10 provided (required for all buildings constructed before 1978)? N/A

<< For each “yes” answer above, provide a narrative discussion on the topic describing the risk and how it will be mitigated. For example: Item 11 - Existing Structures on Site: A vacant one-story house and two storage sheds currently occupy the site. The current owner of the land will be relocating these structures prior to initial closing, at no cost to the Borrower. Therefore, no off-site or demolition costs are anticipated.

Because of the existing structures, we have addressed potential asbestos and lead-based paint concerns. A qualified assessor evaluated the house and outbuildings for asbestos containing materials. A comprehensive asbestos survey was performed pursuant to the “baseline survey” requirements of ASTM E 2356-10 and no asbestos containing materials were identified. A visual inspection by the environmental assessor also indicated that there is no evidence of peeling paint and no suspect lead-based paint containing surfaces were identified. Given the condition of the paint, the fact that the buildings are not occupied, and the fact that they will be relocated prior to the start of construction, the underwriter and the assessor conclude that no further action is warranted.>>      

State Historic Preservation Office (SHPO) Clearance

<<Provide narrative description indicating whether or not SHPO has been contacted, information sent to SHPO, and any response received. For example: “Since we are not making changes to the exterior of the building, there is no impact on any historical property.”>>      

Key Questions

	Yes		No
Are there any known historic preservation issues related to the subject? .
Have any other archeological or cultural resource centers been consulted?

<<As applicable, for each “yes” answer above, provide a narrative discussion on the topic. For example, “We have received a letter from the XXXX State Historic Society, dated XXXX. It was determined that the site is of no historical or suspected cultural significance. No additional investigation was recommended by the State.”>>      

How did the SHPO respond regarding the Historic Preservation Review?
	No potential to cause effect.
	No adverse effect.
	Adverse effect (explain below).
	Other (please describe):      
	Not applicable; response has not yet been received.

<<If the SHPO concluded that the project will have an adverse effect, please explain how this will be mitigated.>>      

Flood Plain

NFIP Map Panel #:	     	Date:	     
Flood Zone:	     

Key Questions

	Yes		No
Does the community participate in the National Flood Insurance Program (NFIP)? (A project located in a FEMA-identified special flood hazard area, where the community has been suspended for or does not participate in the NFIP, is not eligible for mortgage insurance.)
Is the subject located within the 100- or 500-year floodplain?*
Does the Standard Flood Hazard Determination Form indicate that the subject is located within the 100- or 500-year floodplain?*
Is flood insurance required for this property?

<<*If the project is in a 100- or 500-year floodplain, provide a narrative discussion evaluating exhibits required on the application checklist with detailed information about how the property will be altered and improvements designed. Include the elevation of the property, the elevation of the floodplain, and the location of life support systems.)>>      

Borrower

Name:	     
State of organization:	     
Date formed:	     
Termination date:	     
Fiscal year-end date:	     

Key Questions

	Yes		No
Does the borrower currently own any assets other than the property or participate in any other businesses? .
According to the application exhibits, is or has the borrower been delinquent on any federal debt?
According to the application exhibits, is or has the borrower been a defendant in any suit or legal action?
According to the application exhibits, has the borrower ever claimed bankruptcy or made compromised settlements with creditors?
According to the application exhibits, are there judgments recorded against the borrower?
According to the application exhibits, are there any unsatisfied tax liens?

<<As applicable, for each “yes” answer above, provide a narrative discussion on the topic describing the risk and how it will be mitigated.>>      

Organization

<<Provide organization chart and narrative, as applicable. At a minimum, all principals of the borrower should be identified.>>      

Experience/Qualifications

<<Narrative description of borrower (experience, if any) and qualifications. For example, “The borrower entity is a newly formed single-asset entity that was established in {date} to develop and own the subject project.”>>      

Credit History

Report Date:	      <<within 60 days of submission>>
Reporting Firm:	     
Score:	     

<<Provide an explanation of the credit score in terms of risk level (i.e., low, medium, or high). Also, if the score is evaluated numerically, explain what value the credit agency places on the score.>>     

Key Questions

	Yes		No
Does the credit report identify any material derogatory information not previously discussed? .
Does the underwriter have any concerns related to their review of the credit report?
Is the credit report dated more than 60 days before the application date?

<<For each “yes” answer above, provide a narrative discussion on the topic describing the risk and how it will be mitigated.>>      

Program Guidance:

Dunn & Bradstreet (D&B) or other acceptable commercial credit report for business entities and RCMR “residential” for individuals are required. If not using D&B, an acceptable commercial credit report must include the following:

1. Public filings that includes suits, liens, judgments, bankruptcies, and federal debt.

2. UCC filings

3. Credit payment history

4. Industry standards showing how the facility compares in the areas of financial stress and payment trends

5. A credit payment delinquency risk score over a 12-month period.

Credit reports can be no more than 60 days old at the time of the firm application submission.

Financial Statements

The application includes the following Borrower financial statements:

Balance Sheet as of:

     

Key Questions

	Yes		No
Is the balance sheet missing any required information or schedules? .
Does the balance sheet provided include financial data from assets or liabilities not related to owning and operating this facility?
Did your review and analysis of the balance sheet indicate any other material concerns or weaknesses that need to be addressed?

<<For each “yes” answer above, provide a narrative discussion regarding the topic.>>      

General Review

<<Provide Narrative and analysis of financial statements as appropriate. In addition to the Key Questions above, working capital should be discussed along with the general financial stability and position of the entity.>>      

Conclusion

<<Provide narrative discussion of underwriter’s conclusion and recommendation. For example, “The borrower is a single-asset entity registered in the state of XXX on {date}. It was formed solely to own and operate the subject project. The organizational documents have been reviewed by counsel and comply with HUD requirements in order to participate as an acceptable borrower in this transaction.”>>      

Principal of the Borrower – <<enter name of principal here>>

<<Provide this section for each principal of the borrower.>>

Key Questions

	Yes		No
According to the application exhibits, is or has the principal been delinquent on any federal debt? .
According to the application exhibits, is or has the principal been a defendant in any suit or legal action?
According to the application exhibits, has the principal ever filed for bankruptcy or made compromised settlements with creditors?
According to the application exhibits, are there judgments recorded against the principal?
According to the application exhibits, are there any unsatisfied tax liens against the principal?

<<For each “yes” answer above, provide a narrative discussion on the topic describing the risk and how it will be mitigated. >>      

Organization

<<Not applicable to individuals. If the principal is an entity, provide the following:>>

Name:	     
State of organization:	     
Date formed:	     
Termination date:	     

<<As applicable, please provide organization chart and narrative discussion.>>      

Experience/Qualifications

<<Provide narrative description of principal’s experience and qualifications. Discussion should highlight direct experience and involvement in other HUD transactions. This section should clearly demonstrate that the borrower will have sufficient expertise from which to draw to successfully on to own the facility.>>

<<Narrative must also include a discussion on the available working capital of the party (or parties) who will be responsible for providing the financial requirements for closing and beyond. The discussion must clearly show that this party has the ability to support the project over the long-term. In addition, include the percentage of owner’s/principal’s equity into the project, net worth, and liquidity. See Program Guidance below.>>      .

Program Guidance – Supporting Documentation of Appropriate Experience:

The application for firm commitment must include complete information on the individuals and/or entity that will bring the appropriate experience to the project. Appropriate experience is 3 to 5 years successful practice in developing, owning and/or operating board and care facilities, assisted living facilities, and/or skilled nursing facilities. If an entity or its principal does not have the appropriate experience, it may contract with a third-party experienced operator. Evidence of appropriate experience must be provided that includes specific project examples including project name, type of care provided, location, unit/bed count, year opened and key operating metrics (fill pace, occupancy, net operating income margins), and specific responsibilities for the management and operation of the example health care facility. The ORCF is seeking assurance that the developers and other stakeholders are committed to the long-term success of their project and have the requisite experience to operate and manage the project.

In addition to the requirements of the application package, the Lender Narrative must also provide a complete discussion on the borrower’s commitment to the project, both financially and in a business sense, over the long-term as well as the borrower’s experience.

Credit History

Report date:	      <<within 60 days of submission>>
Reporting firm:	     
Score:	     

Key Questions

	Yes		No
Does the credit report identify any material derogatory information not previously discussed? .
Does the underwriter have any concerns related to their review of the credit report?
Is the credit report dated more than 60 days before the application date?

<<If you answer “yes” to any of the above questions, identify the risk factor and how it is mitigated below. Provide an explanation of the credit score in terms of low, medium, or high risk, etc. Also, if the score is evaluated numberically, explain the value the credit agency places on the score.>>      

Other Business Concerns

Key Questions

	Yes		No
Does the principal identify any other business concerns? .
Do any of the other business concerns have pending judgments, legal actions/suits, or bankruptcy claims? (If so, a credit report must be obtained on the business concern.) N/A
If so, was a credit report obtained on the business concern? N/A
Do the credit reports on the 10% sampling of the other business concerns indicate any material derogatory information? N/A

<<As applicable, a “yes” answer requires a narrative discussion on the topic describing the risk and how it will be mitigated.>>      

Credit Reports for Other Business Concerns:

<<Provide narrative discussion on other business concerns. For example, “XXX identified XX other business concerns. The underwriter reviewed Dunn and Bradstreet credit reports for XX other business concerns identified by XXXX. {discuss each report}. No reports indicated derogatory information that would prohibit XXXXX from participation in this loan transaction.>>      

Name of Entity	Report Type (Commercial, etc.)	Report Date	Comments (i.e., any derogatory information, etc.)
     	     	     	     
     	     	     	     

Other Section 232 Projects

Key Questions

	Yes		No
Does the principal identify any other Section 232 program (i.e., 223(f), 241(a), 223(a)(7), 232(i), or 223(d)) applications on their consolidated certification?
Does the principal identify any other existing Section 232 program (i.e., 223(f), 241(a), 223(a)(7), 232(i), or 223(d)) projects on their consolidated certification?

<<For each “yes” answer above, provide a narrative discussion on the topic describing the risk and how it will be mitigated.  Example: Other Business Concerns: XXXXX identified XX other business concerns in addition to the borrower and the newly formed operator discussed in this narrative. The underwriter reviewed Dunn and Bradstreet credit reports for XX Other Business Concerns identified by XXXX. {discuss each report}.  No reports indicated derogatory information that would prohibit XXXXX participation in this loan transaction.

Example: Other Section 232 Applications: XXXXX identified XX other Section 232 loan application – {projects}.  The applications were submitted XXX and closed in XXX.  As this is only XXXXX’s Xth FHA-insured healthcare loan, no additional reviews are required>>      

Conclusion

<<Provide narrative discussion of underwriter’s conclusion and recommendation. For example, “XXX has demonstrated an acceptable credit history and sufficient experience owning and operating other facilities. The underwriter recommends this principal as an acceptable participant in this transaction.”>>      

Operator

Name:	     
State of organization:	     
Date Formed:	     
Termination date:	     

Key Questions

	Yes		No
Does the operator currently own, operate, or manage any other facilities? (If you answer “yes,” a waiver is required.).
Does the operator contract out nursing services, exclusive of temporary staffing, through an agency and/or contracting for ancillary services (e.g., therapies, pharmaceuticals)?
According to the application exhibits, is or has the operator been delinquent on any federal debt?
According to the application exhibits, is or has the operator been a defendant in any suit or legal action?
According to the application exhibits, has the operator ever filed for bankruptcy or made compromised settlements with creditors?
According to the application exhibits, are there judgments recorded against the operator?
According to the application exhibits, are there any unsatisfied tax liens?

<<As applicable, for each “yes” answer above, provide a narrative discussion on the topic describing the risk and how it has been or will be mitigated. >>      

Organization

<<Provide organization chart and narrative, as applicable.>>      

Experience/Qualifications

<<Provide narrative description of operator’s experience and qualifications. Discussion should highlight direct experience and involvement in other FHA transactions, if any. This section should clearly demonstrate that the operator has the expertise to successfully lease up a new facility and operate a facility.>>      

Program Guidance – Supporting Documentation of Appropriate Experience:

The application for Firm Commitment must include complete information on the individuals and/or entity that will be bringing appropriate experience to the project. Appropriate experience is 3 to 5 years successful practice in developing, owning and/or operating board and care facilities, assisted living facilities, and/or skilled nursing facilities. If an entity or its principal does not have the appropriate experience, it may contract with a third-party experienced operator. Evidence of appropriate experience must be provided that includes specific project examples including project name, type of care provided, location, unit/bed count, year opened and key operating metrics (fill pace, occupancy, net operating income margins) and specific responsibilities for the management and operation of the example health care facility. ORCF is seeking assurance that the developers and other stakeholders are committed to the long-term success of their project and have the requisite experience to operate and manage the project.

In addition to the requirements of the application package, the Lender Narrative must also provide a complete discussion on the borrower’s commitment to the project, both financially and in a business sense over the long-term as well as his/her experience.

Credit History

Report date:	      <<within 60 days of submission>>
Reporting firm:	     
Score:	     

Key Questions

	Yes		No
Does the credit report identify any material derogatory information not previously discussed? .
Does the underwriter have any concerns related to their review of the credit report?
Is the credit report dated more than 60 days before the application date?

<<If you answer “yes” to any of the above questions, identify the risk factor and how it is mitigated below. Provide an explanation of the credit score in terms of low, medium, or high risk, etc. Also, if the score is evaluated numberically, explain the value the credit agency places on the score.>>      

Financial Statements

The application includes the following operator financial statements:

Year to date:	     <<dates for start and end of period>>
Fiscal year ending:	     <<date – end of period>>
Fiscal year ending:	     <<date – end of period>>
Fiscal year ending:	     <<date – end of period>>

Key Questions

	Yes		No
Are less than 3-years of historical financial data available for the operator? .
Are the financial statements missing any required information or schedules?
Do any of the financial statements indicate a loss prior to depreciation?
Do the Aging of Accounts Payable schedules show any material accounts payables (amount in excess of 5% effective gross income) over 90 days?
Do the Aging of Accounts Receivable schedules show any material accounts receivables (amounts in excess of 2% of gross income) over 120 days?
Are there any issues or discrepancies related to tenant deposit accounts (e.g., not fully funded)?
Did your review and analysis of the financial statements indicate any other material concerns or weaknesses that need to be addressed?
Within the last 3 fiscal years (as applicable) are there any negative or declining NOI?

<<If you answer “yes” to any of the above questions, identify the risk factor and how it is mitigated below. The Accounts Payable and Accounts Receivable analysis provides information regarding an entity’s collection and payment practices, policies, and potential risks to the new project. Discuss your analysis of these issues and how the lender determined they are an acceptable risk. For example: “No Financial Statements: The operator is a newly formed entity and does not have a financial history to report. At this time, the operation of this facility is the new entity’s sole purpose, so there is no need to review financial data from other facilities or sources.”>>      

General Review

<<Provide narrative and analysis of financial statements as appropriate. In addition to the Key Questions above, net working capital should be discussed along with the general financial stability and strength of the entity.>>      

Net Income Analysis

Net Income*

In total $

20XX	20XX	20XX	YTD (Indicate time frame)
$     	$     	$     	     

*before depreciation, amortization, and any other non-cash expense

<<Provide an explanation of any Net Losses or declining Net Incomes for the year-to-date and last 3 fiscal years, as applicable.>>      

Conclusion

<<Provide narrative discussion of underwriter’s conclusion and recommendation. For example, “The operator entity has demonstrated an acceptable financial and credit history as demonstrated in our analysis of their financial statements and credit history as discussed above. The operator has the experience to successfully operate this facility. The underwriter recommends this operator for approval as an acceptable participant in this transaction.”>>      

Parent of Operator (if applicable)

<<Provide this section for each parent organization of the operator. This section is not applicable to individuals who are principals unless you are depending on the person or persons for approval of the operator (e.g., newly formed entity). In that instance (individuals), follow the Principal of the Borrower template and modify it appropriately for an operator. >>

Name:	     
State of organization:	     
Date formed:	     
Termination date:	     

Key Questions

	Yes		No
Does the parent of operator currently own, operate, or manage any other facilities? .
According to the application exhibits, is or has the parent of operator been delinquent on any federal debt?
According to the application exhibits, is or has the parent of operator been a defendant in any suit or legal action?
According to the application exhibits, has the parent of operator ever filed for bankruptcy or made compromised settlements with creditors?
According to the application exhibits, are there judgments recorded against the parent of operator?
According to the application exhibits, are there any unsatisfied tax liens?
Does the parent of operator have other HUD properties that are master leased separately from the subject project?

<<As applicable, for each “yes” answer above, provide a narrative discussion on the topic describing the risk and how it has been or will be mitigated. Example: S&P Rating: The entity is rated X by S&P. The rating agency indicates the outlook for the company is X.>>      

Organization

<<Provide organization chart and narrative, as applicable.>>      

Experience/Qualifications

<<Provide narrative description of experience and qualifications. Discussion should highlight direct experience and involvement in other FHA transactions. This section should clearly demonstrate the expertise to successfully lease up a new facility and operate the facility.>>      

Credit History

Report date:	      <<within 60 days of submission>>
Reporting firm:	     
Score:	     

Key Questions

	Yes		No
Does the credit report identify any material derogatory information not previously discussed? .
Does the underwriter have any concerns related to their review of the credit report?
Is the credit report dated more than 60 days before the application date?

<<If you answer “yes” to any of the above questions, identify the risk factor and how it is mitigated below. Provide an explanation of the credit score in terms of low, medium, or high risk, etc. Also, if the score is evaluated numberically, explain the value the credit agency places on the score.>>      

Other Business Concerns

Key Questions

	Yes		No
Does the parent of the operator identify any other business concerns? .
Do any of the other business concerns have pending judgments, legal actions/suits, or bankruptcy claims? (If so, a credit report must be obtained on the business concern.) N/A
If so, was a credit report obtained on the business concern? N/A
Do the credit reports on the 10% sampling of the other business concerns indicate any material derogatory information? N/A

<<As applicable, a “yes” answer requires a narrative discussion on the topic describing the risk and how it will be mitigated.>>      

Credit Reports for Other Business Concerns:

<<Provide narrative discussion on other business concerns. For example, “XXX identified XX other business concerns. The underwriter reviewed Dunn and Bradstreet credit reports for XX other business concerns identified by XXXX. {discuss each report}. No reports indicated derogatory information that would prohibit XXXXX from participation in this loan transaction.>>      

Name of Entity	Report Type (Commercial, etc.)	Report Date	Comments (i.e., any derogatory information, etc.)
     	     	     	     
     	     	     	     

Other Section 232 Projects

Key Questions

	Yes		No
Does the parent of the operator identify any other Section 232 program (i.e., 223(f), 241(a), 223(a)(7), 232(i), or 223(d)) applications on their consolidated certification?
Does the parent of the operator identify any other existing Section 232 program (i.e., 223(f), 241(a), 223(a)(7), 232(i), or 223(d)) projects on their consolidated certification?

<<For each “yes” answer above, provide a narrative discussion on the topic describing the risk and how it will be mitigated.  Example: Other Business Concerns: XXXXX identified XX other business concerns in addition to the borrower and the newly formed operator discussed in this narrative. The underwriter reviewed Dunn and Bradstreet credit reports for XX Other Business Concerns identified by XXXX. {discuss each report}.  No reports indicated derogatory information that would prohibit XXXXX participation in this loan transaction.

Example: Other Section 232 Applications: XXXXX identified XX other Section 232 loan application – {projects}.  The applications were submitted XXX and closed in XXX.  As this is only XXXXX’s Xth FHA-insured healthcare loan, no additional reviews are required>>      

Other Facilities Owned, Operated or Managed

Key Questions

	Yes		No
Does the parent of the operator own, operate, or manage any other facilities? .
Do any of the other facilities have pending judgments; legal actions or suits; or, bankruptcy claims?
Do any of the other facilities have any open professional liability insurance claims?
Do any of the other facilities have any open Citations or state findings related to instances of actual harm and/or immediate jeopardy (G or higher)?

<<As applicable, for each “yes” answer above, provide a narrative discussion on the topic describing the risk and how it has been or will be mitigated.      

Program Guidance:

For other projects/facilities owned, operated, or managed, the lender must submit copies of inspection reports for the facilities that have open level “G” or higher citations/deficiencies. This includes negative inspection results for ALF and B&C facilities. The lender must address any issues/risks associated with the reports and show how they would be mitigated. If no open/unresolved level G or higher deficiencies, this should be stated.

Note: If any facility has recent (within last 2 years) resolved “G” or higher citations/ deficiencies, the lender must address this in the narrative; however, a copy of the report is not required.

Financial Statements

The application includes the following financial statements for the Parent of the Operator:

Year to date:	     <<dates for start and end of period>>
Fiscal year ending:	     <<date – end of period>>
Fiscal year ending:	     <<date – end of period>>
Fiscal year ending:	     <<date – end of period>>

Key Questions

	Yes		No
Are less than 3-years of historical financial data available for the parent of operator?
Are the financial statements missing any required information or schedules?
Do the Aging of Accounts Payable schedules show any material accounts payables (amount in excess of 5% effective gross income) over 90 days?
Did your review and analysis of the financial statements indicate any other material concerns or weaknesses that need to be addressed?

<<If you answer “yes” to any of the above questions, please identify each risk factor and how it is mitigated below. The Accounts Payable and Accounts Receivable analysis provides information regarding an entities collection and payment practices, policies, and potential risk to the subject. Discuss your analysis of these issues and how the lender determined they are an acceptable risk. >>      

General Review

<<Provide narrative and analysis of financial statements as appropriate. In addition to the Key Questions above, working capital should be discussed along with the general financial stability and strength of the entity.>>      

Net Income Analysis

Net Income*

In total $

20XX	20XX	20XX	YTD (Indicate time frame)
$     	$     	$     	     

*before depreciation, amortization, and any other non-cash expense

<<Provide an explanation of any Net Losses or declining Net Incomes for the year-to-date and last 3 fiscal years, as applicable.>>      

Conclusion

<<Provide narrative discussion of underwriter’s conclusion and recommendation. For example, “The parent of the operator entity has demonstrated an acceptable financial and credit history. The underwriter’s review of the parent of the operator does not reveal any material derogatory information that would prohibit the approval of the operator entity as an acceptable participant in this transaction.”>>      

Management Agent (if applicable) – <<insert name here>>

Name:	     
Relation to borrower:	<<owner managed/IOI entity/independent/other>>
Principals/officers:	     
	     
	     
	     

Key Questions

	Yes		No
According to the application exhibits, is or has the management agent been delinquent on any federal debt? .
According to the application exhibits, is or has the management agent been a defendant in any suit or legal action?
According to the application exhibits, has the management agent ever filed for bankruptcy or made compromised settlements with creditors?
According to the application exhibits, are there judgments recorded against the management agent?
According to the application exhibits, are there any unsatisfied tax liens?

<<For each “yes” answer above, provide a narrative discussion on the topic describing the risk and how it has been or will be mitigated.>>      

Management Agent’s Duties and Responsibilities

<<Briefly describe/list the management agent’s duties and responsibilities (i.e., will the management agent control the operating accounts; contract for services; recruit, select or train employees; take responsibility for the management of the functional operation of the facility or the execution of the day-to-day policies of the facility; etc.).>>      

<<Also describe the nature of the management agent’s compensation and how it was calculated.>>      

Experience/Qualifications

<<Provide narrative description of experience and qualifications. Discussion should highlight direct experience and involvement in other FHA transactions, if any. Include a discussion/ explanation of any current REAC scores less than 60. This section should clearly demonstrate the expertise to successfully manage the facility and meet the obligations of the management agreement. This section should clearly demonstrate that the management agent has the expertise to successfully lease up a new facility and operate a facility.>>      

Credit History

Report date:	      <<within 60 days of submission>>
Reporting firm:	     
Score:	     

Key Questions

	Yes		No
Does the credit report identify any material derogatory information not previously discussed? .
Does the underwriter have any concerns related to their review of the credit report?
Is the credit report dated more than 60 days before the application date?

<<If you answer “yes” to any of the above questions, identify the risk factor and how it is mitigated below. Provide an explanation of the credit score in terms of low, medium, or high risk, etc. Also, if the score is evaluated numberically, explain the value the credit agency places on the score.>>      

Other Facilities Owned, Operated or Managed

Key Questions

	Yes		No
Does the management agent own, operate, or manage any other facilities? .
Do any of the other facilities have pending judgments; legal actions or suits; or, bankruptcy claims?
Do any of the other facilities have any open professional liability insurance claims?
Do any of the other facilities have any open Citations or state findings related to instances of actual harm and/or immediate jeopardy (G or higher)?

<<As applicable, for each “yes” answer above, provide a narrative discussion on the topic describing the risk and how it has been or will be mitigated.      

Program Guidance:

For other projects/facilities owned, operated, or managed, the lender must submit copies of inspection reports for the facilities that have open level “G” or higher citations/deficiencies. This includes negative inspection results for ALF and B&C facilities. The lender must address any issues/risks associated with the reports and show how they would be mitigated. If no open/unresolved level G or higher deficiencies, this should be stated.

Note: If any facility has recent (within last 2 years) resolved “G” or higher citations/ deficiencies, the lender must address this in the narrative; however, a copy of the report is not required.

Past and Current Performance

Indicator	Findings
Billing	      <<acceptable>>
Controlling operating expenses	     
Vacancy rates	     
Resident turnover	     
Rent collection and accounts receivable	     
Physical security	     
Physical condition and maintenance	     
Resident relations	     

<<Provide narrative support for review and finding. For example, “Based on interviews with the principals of the Borrower and management agent, as well as a review of the management policies and procedures, the underwriter has concluded that the management agent has demonstrated acceptable past and current performance with regard to all of the above indicators.”>>      

Management Agreement

Date of agreement:	     
Agreement expires:	     
Management fee:	     

Key Questions

	Yes		No
Does the agreement sufficiently describe the services the agent is responsible for performing and for which the agent will be paid management fees? .
Does the agreement provide that the management fees will be computed and paid according to HUD requirements?
Does the agreement provide that HUD may require the owner to terminate the agreement without penalty and without cause upon written request by HUD and contain a provision that gives no more than a 30-day notice of termination?
Does the agreement provide that HUD’s rights and requirements will prevail in the event the management agreement conflicts with them?
Does the agreement provide that the management agent will turn over to the owner all of the project’s cash trust accounts, investments, and records immediately, but in no event more than 30 days after the date the management agreement is terminated?
The agreement does not exempt the agent from gross negligence and or willful misconduct?
Is the Form HUD-9839-ORCF consistent with the Management Agreement?

<<For each “no” answer above, provide a narrative discussion on the topic describing the risk and how it will be mitigated. >>      

Conclusion

<<Provide narrative discussion of underwriter’s conclusion and recommendation. For example, “The management agent has demonstrated an acceptable credit history and has the experience to continue to successfully manage this facility. The underwriter recommends this management agent for approval as an acceptable participant in this transaction.”>>

General Contractor

Name:	     
State of organization:	     
License number/state:	     
Surety:	     

Key Questions

	Yes		No
According to the application exhibits, is or has the general contractor been delinquent on any federal debt? .
According to the application exhibits, is or has the general contractor been a defendant in any suit or legal action?
According to the application exhibits, has the general contractor ever filed for bankruptcy or made compromised settlements with creditors?
According to the application exhibits, are there judgments recorded against the general contractor?
According to the application exhibits, are there any unsatisfied tax liens?
Is the general contractor a joint-venture?
If the general contractor is a subsidiary of another entity, are they relying upon the parent to demonstrate financial capacity? (If yes, provide financial analysis of parent.)

<<If you answer “yes” to any of the above questions, identify the risk factor and how it is mitigated below.>>      

Experience/Qualifications

<<Provide narrative description of general contractor’s experience and qualifications. Discussion should highlight the contractor’s experience constructing similar type and size projects. It should discuss the architectural and cost reviewer’s analysis of the contractor’s experience, bonding capacity, financial capacity, etc.>>      

Credit History

Report date:	      <<within 60 days of submission>>
Reporting firm:	     
Score:	     

Key Questions

	Yes		No
Does the credit report identify any material derogatory information not previously discussed? .
Does the underwriter have any concerns related to their review of the credit report?
Is the credit report dated more than 60 days before the application date?

<<If you answer “yes” to any of the above questions, identify the risk factor and how it is mitigated below. Provide an explanation of the credit score in terms of low, medium, or high risk, etc. Also, if the score is evaluated numberically, explain the value the credit agency places on the score.>>      

Other Business Concerns

Key Questions

	Yes		No
Does the general contractor identify any other business concerns? .
Do any of the other business concerns have pending judgments, legal actions/suits, or bankruptcy claims? (If so, a credit report must be obtained on the business concern.) N/A
If so, was a credit report obtained on the business concern? N/A
Do the credit reports on the 10% sampling of the other business concerns indicate any material derogatory information? N/A

<<As applicable, a “yes” answer requires a narrative discussion on the topic describing the risk and how it will be mitigated.>>      

Credit Reports for Other Business Concerns:

<<Provide narrative discussion on other business concerns. For example, “XXX identified XX other business concerns. The underwriter reviewed Dunn and Bradstreet credit reports for XX other business concerns identified by XXXX. {discuss each report}. No reports indicated derogatory information that would prohibit XXXXX from participation in this loan transaction.>>      

Name of Entity	Report Type (Commercial, etc.)	Report Date	Comments (i.e., any derogatory information, etc.)
     	     	     	     
     	     	     	     

Financial Statements

The application includes the following General Contractor financial statements:

Year to date:	     <<dates for start and end of period>>
Fiscal year ending:	     <<date – end of period>>
Fiscal year ending:	     <<date – end of period>>
Fiscal year ending:	     <<date – end of period>>

Key Questions

	Yes		No
Are less than 3-years of historical financial data available for the general contractor? .
Are the financial statements missing any required information or schedules?
Is there a pattern of significant downward income prior to depreciation over the years as demonstrated in the general contractor’s Income & Expense statements?
Do the Aging of Accounts Payable schedules show any material accounts payables (amount in excess of 5% effective gross income) over 90 days?
Do the Aging of Accounts Receivable schedules show any material accounts receivables (amounts in excess of 2% of gross income) over 120 days?
Did your review and analysis of the financial statements indicate any other material concerns or weaknesses that need to be addressed?
Does the general contractor have less than the required 5% adjusted working capital?

<<If you answer “yes” to any of the above questions, identify the risk factor and how it is mitigated below. For example: Item 7 – Contractor has less than 5% working capital. Contractor may hypothecate fixed assets. The contractor has a sale pending on another building that they have constructed. Lender will provide evidence prior to closing that funds are available to meet the 5% working capital.>>      

General Review

<<Provide narrative and analysis of financial statements as appropriate. In addition to the Key Questions above, net working capital should be discussed along with the general financial stability and strength of the entity.>>      

Working Capital Analysis

<<Provide narrative and analysis of contractor’s working capital. Analysis should discuss appropriate adjustments to current assets and liabilities; how you account for work-in-progress; lines-of-credit; verifications of deposit; etc.

Example: XXXX current balance sheet is summarized below.

			Financial		Working
			Statement		Capital
			As of XXXXXXXX		Analysis
Current Assets
	Cash Accounts		$        1,200,000		$        1,200,000
	Retainage Receivable		3,600,000		3,600,000
	Accounts Receivable		4,900,000		4,700,000
	Accounts Receivable - Employees		110,000		-
	Accounts Receivable - RELATED		5,000		-
	Accounts Receivable - RELATED		25,000		-
	Cost & Profit in Excess of Bill		650,000		650,000
	Prepaid Insurance		150,000		-
	Total Current Assets		$      10,640,000		$      10,150,000
Current Liabilities
	Retainage Payable		$        2,680,000		$        2,680,000
	Accounts Payable		4,720,000		4,720,000
	Profit Sharing Payable		-		-
	Current Portion of Notes Payable		66,000		66,000
	Accrued Payables		445,000		445,000
	Total Current Liabilities		$        7,911,000		$        7,911,000

The underwriter has made the following modification for the working capital analysis:

Example:

• Only used accounts receivable less than 90 days old

• Did not use accounts receivable from related parties.

• Did not include prepaid expenses.

The underwriter’s analysis of Work in Progress is as follows:

Job	Contract Amount	% Complete	Contract Balance		Used for Work In Progress
Project A	$     309,875	87.0%	$       40,284		$       40,284
Project B	25,790,007	92.6%	1,908,461		-
Project C	11,050,619	99.6%	44,202		-
Project D	1,673,600	66.5%	560,656		560,656
Project E	5,935,000	77.0%	1,365,050		1,365,050
:	8,807,800	61.0%	3,435,042		3,435,042
:	196,200	42.2%	113,404		113,404
:	244,429	39.2%	148,613		148,613
:	833,806	98.0%	16,676		-
:	100,164	16.8%	83,336		83,336
:	2,063,500	4.6%	1,968,579		1,968,579
:	74,434	36.5%	47,266		47,266
:	922,400	25.7%	685,343		685,343
	$ 58,001,834		$ 10,416,912		$   8,447,572
	5% of Work in Progress			=	422,379

The underwriter calculated the working capital necessary for the work in progress as 5% of the contract balances for all work that was less than 90% complete. The working capital for the planned sister facility in XXXXX is 5% of the contract amount of $6,356,426. The working capital for the subject is 5% of the contract amount of $6,502,743.

Based on the above adjustments and analysis, the underwriter concludes to the following working capital analysis:

Current Assets		10,150,000
Current Liabilities		(7,911,000)
Working Capital		$        2,239,000
Working Capital for Other Work in Progress		(422,379)
Working Capital for planned SISTER Facility		(317,821)
Working Capital for Subject		(325,137)
Excess Working Capital		$        1,173,663

The contractor clearly demonstrates sufficient working capital for the current work in progress and the planned sister facility and the subject facility. In addition to the above working capital, the contractor also has a $XXXXM revolving line of credit that currently has no balance. The line of credit is available to supplement the above working capital, if necessary, during construction. >>      

Conclusion

<<Provide narrative discussion of underwriter’s conclusion and recommendation. For example, “The general contractor has demonstrated an acceptable financial and credit history. The general contractor has the experience to continue to complete the construction. The underwriter recommends this general contractor for approval as an acceptable participant in this transaction.” >>

Operation of the Facility

Administrator

Name:	     
Employed by:	      <<Name of entity who employs/pays administrator>>
Facility Start Date:	      <<Date started at this facility as Administrator>>

<<Narrative description of experience and qualifications - For example, “{Administrator} has been a licensed administrator since XXXX. Her current Residential Care Administrator’s license No. XXXXXXX expires XXXXX. It was issued by XXXXXX in the State of XXXX. Her experience includes… Since arriving at the facility, XXXX has helped to increase the revenues and profitability of the project, as evidenced by the increasing effective gross income and net operating income (NOI). XXXXX is well qualified and has demonstrated her ability to act as Administrator for the subject facility.”>>      

Subject’s State Surveys

The application includes the following state surveys issued on the following dates over the last three (3) years of operations: (State when the survey was conducted and when the project was found in compliance.)

3 Years of Survey Inspections

Date of survey/inspection	Date state issued letter approving POC
     	     
     	     
     	     

Key Questions

	Yes		No
Do the state surveys identify any instances of actual harm and/or immediate jeopardy (during last 3 year period)? .
Are there currently any open findings?

<<For each “yes” answer above, provide a narrative discussion on the topic describing the risk and how it will be mitigated. Example: General Review and Findings: Provide narrative description of review. For example: “The {date} state survey inspection letter indicates that there were X deficiencies. The deficiencies…”>>      

Other Facilities Operated or Managed

<<This section is only applicable for skilled nursing facilities.>>

Key Questions

	Yes		No
Do any state surveys identify any instances of actual harm and/or immediate jeopardy? .
Are there currently any open findings at any of the facilities?

<<For each “yes” answer above, provide a narrative discussion regarding the topic.>>      

General Review and Findings

<<Provide a narrative description of review. For example, “The most recent state survey inspections are provided for XX skilled nursing facilities that are owned, operated, or managed by XXXX. The underwriter has reviewed the findings and found….”>>      

Staffing

<<Provide narrative description of review. For example: “The appraiser and underwriter have reviewed the current and proposed staffing to be charged to the facility and found it to be acceptable and within reason…”>>      

Operating Lease

Date of agreement:	     
Current lease term expires:	     
Description of renewals:	     
Current lease payment:	     
Major movable equipment ownership:	<<borrower/operator>>

Key Questions

	Yes		No
Will the facility be leased? .
Will the facility be subleased (master lease)?
At closing, will the lease have a term that will expire within 5 years with no lease renewal options?
Does the lease contain any non-disturbance provisions?
Does the lease require the borrower to escrow any funds other than those associated with this loan?
Has the lender recommended any special conditions concerning the lease?
Is the lease payment adequate to provide sufficient debt coverage after the costs of the mortgage?

<<For each “yes” answer above, provide a narrative discussion regarding the topic. For example: Item 10 – Leased Facility The facility will be leased to XXX. The lease and the operator are discussed in the appropriate sections of this narrative. There are no known special provisions or considerations involved with this lease that require special consideration in the underwriting.>>      

Lease Payment – During Rehabilitation Period

Program Guidance – Lease Payment/Net Income During Construction Period

1. At the time of cost certification, an audited operating statement covering the period from the beginning of marketing and rent-up activities (or date of initial endorsement in rehabilitation projects involving insurance of advances or start of construction for rehabilitation projects involving insurance upon completion) to the cost certification cut-off date, must be submitted by:

1. The borrower entity, in all cases.

2. The lessee, when an identity-of-interest exists between the borrower and lessee and the lessee has executed the Regulatory Agreement, Form HUD-92466-ORCF.

3. The borrower entity only, where no identity-of-interest exists between the borrower and lessee and the lessee has executed the Regulatory AgreementForm HUD-92466-ORCF. The borrower’s income statement should reflect a market comparable lease payment as income.

4. The borrower, where the borrower and the administrator are the same entity and Form HUD-92466-ORCF has not been executed.

2. Treat net income resulting from review of the operating statement as a recovery of construction costs for a profit-motivated borrower and for a non-profit borrower as:

1. At cost certification, as a recovery of construction costs to the extent it was used to reduce liquidated/actual damages.

2. As an offset for any eligible mortgage increase.

<<Provide narrative explaining the terms of the lease and the payments to be made during the rehabilitation.>>      

Lease Payment – During Lease Up

<<Provide narrative explaining the terms of the lease and the payments to be made while the project is in lease-up.>>      

Lease Payment Analysis – Stabilized, As Rehabilitated

The lease payments must be sufficient to (1) enable the borrower to meet debt service and impound requirements and (2) enable the operator to properly maintain the project and cover operating expenses. The minimum annual lease payment must be at least 1.05 times the sum of the annual principal, interest, mortgage insurance premium, reserve for replacement deposit, property insurance and property taxes.

The underwriter has prepared an analysis demonstrating the minimum annual lease payment.

a.	Annual principal and interest	$     
b.	Annual mortgage insurance premium	     
c.	Annual replacement reserves	     
d.	Annual property insurance	     
e.	Annual real estate taxes	     
f.	Total debt service and impounds	$     
h.	Minimum annual lease payment	$     

<<Compare the minimum annual lease payment to the current lease payment. If the lease payment needs to increase, add the following language: “The lease payment must be increased to $XX per year ($XX per month). The underwriter has included a special condition to the firm commitment requiring the lease payment be revised to meet or exceed this minimum.” If the lease payment does not need to increase, add the following language: “The current lease payment is sufficient. The recommended annual lease payment also provides the operator with an acceptable profit margin.”>>      

Program guidance:

• Clarification of minimum lease payments. The annual lease payment must be calculated using a minimum of a 1.05 coverage ratio (e.g., the sum of the annual principal, annual interest, annual mortgage insurance premium, annual reserve for replacement deposit, annual property insurance, and annual property taxes times a multiplier of 1.05). This minimum coverage level required for executed leases is different than the test measurement used in the 223(f) Lender’s Narrative, which remains unchanged; it will continue at the 1.17 coverage level.

• Subordination, non-disturbance and attornment agreement (SNDA). If there is an identity of interest between the borrower and the operator, a SNDA is not permitted.

Responsibilities

<<Provide a description of the responsibilities of the lessor and lessee under the terms of the lease with regard to the following: payment of real estate taxes, maintenance of building, capital improvements, replacement of equipment, property insurance, etc.>>      

Master Lease

Key Questions

	Yes		No
Are three or more projects (or two projects with an aggregate total mortgage loan amount greater than $15 million) being submitted to HUD that are under common control or have the same ownership? .
Will the projects be submitted within an 18-month window? N/A
Is the parent of the operator the same for all of these projects? N/A

<<If you answered “yes’ to all three questions, a master lease is required. Provide a narrative describing the terms of the master lease, lease payments, all parties involved, renewal provisions, etc. The HUD Lease Addendum must be attached to the Subleases. Refer to definitions of Common Control and Same Ownership previously provided in this lender narrative.>>      

Accounts Receivable (A/R) Financing

AR lender:	     
AR borrower:	     
Maximum loan amount:	     
Current balance:	     
Current maturity date:	     

Key Questions

	Yes		No
Does the AR loan require any guarantees from the borrower, operator, or parent of the operator, or any of those entities’ principals? .
Are the guarantors guaranteeing performance on any other AR loans? .
Does the AR loan involve multiple facilities or borrowers? .
Does the AR loan involve any non-FHA-insured properties? N/A
Does the AR loan involve facilities located in multiple states or HUD field office jurisdictions? N/A
Is there an identity of interest between the AR lender and the AR borrower?
Is there any conflict of interest between the AR lender and the borrower or its principals as defined in Notice H 08-09?
Does the maximum AR loan amount exceed 85% of the Medicaid, Medicare, and other governmental accounts receivable less than 121 days old?
Of the total Medicaid, Medicare and other governmental accounts receivable less than 121 days old, are more than 30% over 90 days old?
Does the AR lender have less than 3 years of experience providing AR financing?
Does the AR lender lack the financial controls and capability to monitor the operator’s performance?
Is the borrower or operator out of compliance with any business agreements with HUD (i.e., in default on those agreements, not current on financial submissions, etc.)?
Is the AR loan being syndicated or participated?
Is the lockbox associated with the DAISA Government Receivables account a “springing lockbox”?

<<For each “yes” answer above, provide a narrative discussion regarding the topic.>>      

Terms and Conditions

1. Describe the borrowing base formula (e.g., XX% of the AR borrowers accounts receivable up to 120 days):      

2. Describe term and renewal options:      

3. Describe the rate applied to the used and unused portion of the AR loan:      

4. Other fees (i.e., financing fees, late payment fees, etc.):      

Mechanisms for operator receipts, disbursements and control of operator funds:

<<Describe the flow of all funds, into and out of accounts (i.e., point of origination to final destination). Describe how deposit accounts are controlled (e.g., number of controlled accounts, hard or springing lockbox, daily sweeps, etc.). Attach cash flow chart.>>      

Collateral/Security

<Provide narrative description of the AR lender’s collateral/security. Explain any unsecured AR financing.>>      

Permitted Uses and Payment Priorities

<<Provide descriptions of the permitted uses of the AR loan funds in order of priority. For example: (1) debt service incurred in connection with the AR loan; (2) operating costs; and (3) distributions to the operator’s shareholders. See Attachment C of Notice H 08-09, Rider to Intercreditor, Paragraph 3 or any other successor guidance.>>      

Financial Analysis

Maximum AR Loan Calculation

(Double click inside the Excel Table to add information)

Historical AR Loan Costs

<<If there is an existing AR loan that is not yet approved by HUD, provide a financial analysis that explains how the cost of the AR loan has been factored into the NOI calculation. Complete the Historical AR Loan Costs table.>>

Historical AR Loan Costs

(Double click inside the Excel Table to add information)

Proposed AR Loan Costs

<<If the AR borrower is obtaining AR financing for the first time, provide a financial analysis that demonstrates that the AR borrower has sufficient financial capacity to pay all projected operating expenses, AR financing costs and loan payments, and all rent or debt service payments. The analysis must assume the maximum AR loan amount to stress test the AR financing based on the lesser of the operator’s 12-month trailing operating statements or the underwritten NOI. Calculate the impact on the borrower’s debt coverage after payment of the AR loan expenses and payments.>>

Assuming the $      maximum AR loan limit, an annual interest rate of      %, and that the entire amount is outstanding for the year, the maximum annual interest expense would be $     . In addition to the interest, the other associated fees are the       fees <<list types of fees>>, that total $      per year for the same assumed balance. An analysis of the operator’s 12 month trailing financial statement (Month 20XX – Month 20XX) is below:

12-Month Trailing Operating History
Operating revenue	$     
Less: Operating expenses	     
Net operating income (NOI)	$     
Annual P&I + MIP	$     
AR fee: Interest	     
AR fee: Other	     
Total annual mortgage & AR debt service	$     
DSCR including AR	     

The underwriting assumed an NOI of $     . The 12-month trailing NOI is $     . The annual debt service including the MIP amount is $      per year. Adding the AR fees equates to a total mortgage and AR debt service expense of $      per year. This equates to       prospective debt service coverage.

<<If multiple FHA-insured facilities have access to the AR loan, repeat the analysis above with the consolidated revenues and expenses for all those facilities.>>      

Recommendation

<<The lender recommends approval of the AR loan.>>      

Insurance

Professional Liability Coverage

Program Guidance:

The PLI insurance policy must be in the name of the entity that is conducting the day-to-day operations of the subject facility. The PLI policy can be issued to the parent operator as long as each operating entity that is conducting the day-to-day operations of the facility is listed on the policy.

Commercial insurance:	Yes No
Self insurance:	Yes No
If self insurance, describe:	     
Is there a fronting policy?	Yes No
Name of insured:	     
Insurance company:	     
Rating:	     	Rater:	     
Insurance company is licensed in the United States:	Yes No
Statute of limitations:	     
Current coverage:	Per occurrence:		     
	Aggregate:		     
	Deductible:		     
OR	Self insurance retention:		     
Policy Basis:	Per occurrence Claims made
Current Expiration:	     
Retroactive Date:	     
Policy Premium:	     

Summary of Six-Year Loss History for Operator or its Parent of Operator
	Year	Total claims paid under this policy (dollars)	Total claims paid under this policy (no. of claims)	Total bed count covered under the policy	Dollars paid in claims per bed
1	     	     	     	     	     
2	     	     	     	     	     
3	     	     	     	     	     
4	     	     	     	     	     
5	     	     	     	     	     
6	     	     	     	     	     
Total/average		     	     	     	     

Key Questions

	Yes		No
Will the insurance policy cover multiple properties? (If yes, complete questions a through e below.) .
Is less than 6 years of loss history available?
Does the loss history indicate any professional liability claims over $35,000?
Does the loss history or potential claims certification indicate any uncovered claims?
Does the loss history or potential claims certification indicate any claims that would exceed the per occurrence or aggregate coverage limits?
Have the facilities been covered by a “claims made” policy at any time during the statute of limitations for the states where the facilities are located?
Is the policy funded on a “cash front” basis?
Is an actuarial study applicable (self-insurance)? (If yes, discuss results below.)
For all facilities identified on the insured’s Schedule of Facilities Owned, Operated or Managed, are there any surveys/reports that have open G-level or higher citations outstanding? (As appropriate, provide a complete analysis of the surveys.)
Are any entities that provide resident care (as discussed in the Provider Agreements and “Resident Care Agreements/Rental Agreements) not covered by the PLI policy?
Are there any PLI issues that require special consideration?

If you answer “yes” to any of the above questions, please address here. Examples:

Multiple properties: The underwriter notes that the professional liability policy is a “blanket” policy covering XXX facilities, including the subject… {Address potential impact of other facilities on the subject’s coverage}

Less than 6-year loss history: The claims history reports were examined for the period XX through XX. The underwriter determined that there were no professional liability XX claims during that period…{address claims and sufficiency of coverage, etc. based on history}.

Claims made coverage: The project’s previous professional liability insurance coverage was a “claims made” form policy with XXXX, which expired XXXX, when the current policy was put in place. In XXXX, the borrower purchased a “nose coverage” policy, which is the coverage needed when going from a “claims made” form of insurance to a “per occurrence” form of insurance. The premium for this “nose” coverage liability was a one-time charge and was paid in XXX. Because of that additional insurance coverage, the insurance expense for XXXX was substantially higher than the current expense. The current “per occurrence basis” insurance policy covers the entire statute of limitations. The project’s professional liability insurance is in compliance with HUD’s requirements.>>      

Lawsuits

<<As applicable, discuss each lawsuit and describe the potential risk related to the party’s participation in the proposed project. Discuss how that risk is mitigated.

If the suit is closed, does it contribute to a pattern? Does it materially affect the party’s ability to participate in the project? If not closed, describe the circumstances, identify the potential award amount, provide evidence and analysis showing that the suits are covered by insurance (general or professional liability—identify which one), and if the insurance is not sufficient, do they demonstrate adequate funds to cover the potential excess? Describe any other information that mitigates the risk.>>      

Recommendation

<<Provide narrative recommendation regarding acceptability of professional liability insurance. For example, “The mortgagor’s professional liability insurance was analyzed in accordance HUD requirements. The property has XX current potential (threatened) insurance claims at this time as reflected on the certification provided by the borrower. It is {lender}’s opinion that the information provided above and in the application sufficiently demonstrates that the existing professional liability coverage meets HUD’s requirements and that the risk from professional liability issues is sufficiently addressed. No modifications to the current coverage are recommended.”>>      

Program Guidance:

State licensing surveys of all individual facilities of the operator for the last 3 years, are to be transmitted as part of the application submission. These surveys will be used to determine the quality of care provided by the operator. The operator or its parent must also submit a 6-year loss history of all professional liability claims filed against it for all facilities controlled by the operator or its parent. This loss history should be provided in annual summary form and should:

1. Provide a current inventory of all paid or settled claims.

2. Break out the expected cost of claims in a year-by-year summary. In separate line items, list the amount of the actual and/or anticipated awards, claims expenses, and any funds reserved for estimated claims.

3. List total actual or estimated claims costs for compensatory damages, medical expenses, punitive damages, and legal expenses incurred processing the claim.

4. Identify potential or expected professional liability claims in excess of $35,000 that have been or may be filed for all periods within the statute of limitations for the state where the claim occurred.

5. Include a brief discussion or chart that provides the timeframe for the statutes of limitations for filing claims of negligence, injuries, wrongful death, and/or improper care based on the law in the states where the parent operator’s facilities are located.

6. Include a certification from the parent operator (or operator, if no parent) as to the accuracy of this documentation. The certification must be signed and dated by a senior officer of the parent operator (or operator, if no parent), and include the following statement:

“HUD will prosecute false claims and statements. Convictions may result in criminal and/or civil penalties. (18 U.S.C. 1001, 1010, 1012; 31 U.S.C. 3729, 3802)”

Property Insurance

<<Provide narrative discussion of review. For example, “Hazard and Liability insurance has been and/or will be provided by XX. The underwriter has confirmed estimates of the cost and coverage for underwriting and that it complies with HUD requirements.”>>      

Builder’s Risk

<<If contractor is paying, show in contractor’s other fees. If borrower is paying, show in borrower’s other fees.>>      

Fidelity Bond/Employee Dishonesty Coverage

<<Provide narrative discussion of review. For example, “The current insurance policy reflects fidelity (crime) insurance with the limit of $XX and $XX deductible. The HUD requirement for at least two months gross income receipts would total $XX. The current level of coverage is sufficient for this project.” If not sufficient, recommend commitment condition.>>      

Mortgage Loan Determinants

Overview

The mortgage criteria shown on the form HUD-92264a-ORCF are summarized as follows:

Requested amount:	$     
Amount based on replacement cost:	$     
Amount based on loan-to-value:	$     
Amount based on debt service coverage:	$     
Amount based on cost of rehabilitation plus:	$     
Amount based on deduction of loan(s), grant(s), LIHTCs, and gift(s) for mortgageable items:	$     

Mortgage Term

The underwriter concluded to a mortgage term of       years.

Type of Financing

The type of financing available to the borrower upon issuance of the commitment will likely be in the form of      .

Criterion C: Amount Based on Replacement Cost

The amount based on replacement cost limit is $     . This is based on 90% of the replacement cost of the improvements of $     .

Criterion D: Amount Based on Loan-to-Value

The $      value of improvement limit was calculated in accordance with HUD guidelines. This is based on      % of the underwriter’s value of improvements $      (as-proposed value minus as-is value).

Criterion E: Amount Based on Debt Service Coverage

The $      debt service limit was calculated using HUD’s guidelines.

The underwriter’s NOI for the project after improvement is $      <<indicate if this amount differs from the appraiser’s NOI for the project after improvement>>. Annual debt service payments on outstanding indebtedness related to the property is $     . There is no annual ground rent or annual special assessments on the property. Therefore, the NOI available for the supplemental loan is $     . There is an interest rate of      % and an assumed remaining term of       months. <<the insured loans must be coterminous>>

(Double click inside the Excel Table to add information)

Criterion F: Cost of Rehabilitation Plus

The estimated cost of rehabilitation limit is $     . This amount is based on      % of the total estimated rehabilitation cost of $      plus the offsite costs of $      plus the lesser of 90.0% of as-is value of $      or the allowable existing debt $     .

Program Guidance:

• Property held in fee: 100% of the estimated cost of rehabilitation less grant/loan funds attributable to replacement costs items.

• Property subject to existing mortgage: Lender’s estimated cost of rehabilitation, plus the lesser of:

1. Secured indebtedness, or

2. 90% (95% for non-profit borrowers) of the sum of lender’s estimate of the fair market (as-is) value of the property before rehabilitation less:

1. The value of the leased fee, if leasehold, and

2. The amount of non-prepayable special assessments.

• Property to be acquired: 90% (95% for non-profit borrowers) of the sum of lender’s estimated cost of rehabilitation plus the lesser of:

1. 90% (95% for non-profit borrowers) of the actual purchase price of the property,

2. 90% (95% for non-profit borrowers) of the sum of lender’s estimate of the fair market (as-is) value of the property before rehabilitation less:

1. The value of the leased fee, if leasehold and

2. The amount of nonprepayable special assessments.

Criterion L: Deduction of Grants, Loans, LIHTCs, and Gifts

The limit was calculated in accordance with HUD guidelines as follows:

Amount based on estimated cost of rehabilitation	$     
(1) Grants/loans/gifts	     
(2) Tax credits	     
(3) Value of leased fee	     
(4) Excess unusual land improvement cost	     
(5) Unpaid balance of special assessment	     
(6) Sum of lines (1) through (5)	$     
Line a minus line b (6)	$     

The secondary sources are discussed in detail below in the Sources & Uses section of the narrative.

Program Guidance:

The grants, loans, gifts, and tax credits to be deducted are those credits for mortgageable cost only. Sources for non-mortgageable cost are not included in the calculations and are also not reflected in any of the other criterion on Form HUD-92264a-ORCF. The sources and uses statement provided by the borrower should outline all mortgageable and non-mortgageable costs and the source(s) to fund each.

Existing Indebtedness

<<For a purchase, this section should be titled “Purchase Price” and the information below should be replaced by an appropriate narrative section describing the pertinent terms of the purchase transaction, generally including: purchase price, itemization of costs to be paid by seller, date of agreement and addendums, expiration date, date by which sale must occur, etc.>>      

<<Provide detailed breakdown of all existing debt(s) being included in requested mortgage amount below. Include similar detail on HUD-92264a-ORCF.>>

Schedule of Debt to Refinance

Lender	Pay-off Amount
     	$     
     	$     
     	$     
Total:	$     

Key Questions

	Yes		No
Are there any debts on the borrower’s balance sheet or recorded against the property, other than the primary mortgage, that will survive closing? .
Are any of the debts to be paid off less than 2 years old? (Refer to Program Guidance below.)
Does the borrower have any identities of interest with any of the existing lenders or noteholders? (Refer to Program Guidance below.)
Do any of the debts to be paid off have prepayment penalties or other significant cost associated with them?
Is any of the existing debt cross-collateralized with other assets (pooled debt or master leased) or financed with a line of credit? (If yes, explain how you allocated the debt between the facilities cross-collateralized.)
Are delinquent real estate taxes included as an eligible transaction cost?

<<For each “yes” answer above, provide a narrative discussion on the topic describing the risk and how it will be mitigated. >>

<<If Swap Fees are not applicable to subject transaction this section may be deleted>>

Swap Fees:

If Swap Fees are eligible and will be included in the FHA-insured mortgage, please answer the following questions:

Key Questions

	Yes		No
If the original financing is tax exempt, is there a legal opinion from qualified counsel that states the swap meets the definition of a “Qualified Hedge” or is substantially in conformance with that definition? (Check N/A if financing is taxable.) . N/A
For interest rate swap contracts related to taxable financing, was the swap integrated with the original financing and entered into as an interest rate hedge within 15 days of the original financing? (Check N/A if financing is tax exempt.) N/A
Is the loan-to-value with the swap termination costs included at or below 80%
Is the swap termination cost proposed no more than 10% of the insured mortgage proceeds?
Was the interest rate swap contract put into place prior to January 1, 2009?
Does the Fairness Certification acceptably address the requirements outlined in Mortgagee Letter 2012-08?

Program Guidance – Eligible Debt on a Refinance:

1. Definition of Eligible Debt. Project debt that meets any of the below definitions may be included as a mortgageable item in calculating the Maximum Insurable Mortgage.

1. Outstanding mortgage(s). Outstanding mortgage(s) on the property that are at least two years old at the time that HUD begins processing the loan are considered eligible debt. If the mortgage was generated less than two years before the date HUD begins processing the application, the lender must determine that there was no cash out to the mortgagor of the proposed FHA-insured loan or its principals in order for the debt to be considered eligible debt. Debt incurred as a result of an identity-of-interest purchase or as a result of buying out a partner is not considered eligible debt and must meet the two-year debt seasoning requirement. An identity-of-interest purchase is defined as one where there is an identity of interest, however slight, between the seller and purchaser that survives the sale transaction. An owner operator that continues to operate the facility after the sale constitutes an identity of interest.

2. Other recorded indebtedness. Other recorded indebtedness such as mechanic's liens and tax liens, provided they did not result from personal obligations of the mortgagor.

3. Unrecorded debt. Unrecorded debt directly connected with the project that is supported by documentation from the mortgagor. If the indebtedness is not recorded, the mortgagor must provide the lender with documentation that substantially verifies that the obligation is directly connected to the project. Examples include:

1. Indebtedness incurred in making needed improvements and betterments to the property.

2. Indebtedness incurred or advances made to cover operating deficits.

4. Other eligible costs associated with paying off the eligible debt. Examples of other eligible costs associated with paying off the eligible debt are:

1. Reasonable delinquent and accrued interest.

2. Reasonable prepayment penalties on the mortgage.

3. Recording, release, and re-conveyance fees.

4. Documentation or processing fees.

Note: Program penalties arising from the defeasance of tax-exempt and taxable bonds cannot be recognized.

2. Swap Fees: Swap Fees may be included as an eligible mortgageable item when reviewed and approved by HUD in accordance with Mortgagee Letter 2012-08.

3. ORCF does not recognize indebtedness:

1. Recently placed against the project to increase the mortgage or circumvent program intent.

2. On operating debts of the operating entity.

3. Created by wrap mortgages:

1. Unless the mortgagor and Lender give a detailed explanation of the purpose of the wrap and a documented accounting of disbursement of the loan proceeds.

2. Loan proceeds used for capital improvements or project operations qualify for inclusion as eligible debt.

General Overview

<<Narrative review of debt and pay-off information. For example, “Per the statement from XXX dated XXXX, the current existing indebtedness is $XXXX. The pay-off balance will be reconfirmed prior to closing and only eligible pay-off charges will be included in the cost certification.”>>      

Sources & Uses – Copied From HUD 92264a-ORCF

<<Provide a statement of Sources and Uses of actual estimated cost at closing. Include all eligible and ineligible costs.>>      

Secondary Sources

<<List and discuss all secondary sources, including terms and conditions of each. Secondary sources include surplus cash notes, grants/loans, tax credits, and the like.>>      

Program Guidance:

Government Sources

1. Secondary financing may be on a form of promissory note and mortgage lien as is prescribed by the governmental funding source and reviewed and approved by ORCF.

2. Secondary financing or grants lent to the property as a secondary loan may be used to cover up to 100% of the applicable Section of the Act equity requirements.

3. Secondary financing or grants advanced to the property as a secondary loan may also be used to finance non-mortgageable costs and when added to the HUD mortgage and required equity contribution, may exceed 100% of the project’s fair market value (FMV) or replacement cost.

4. Non-mortgageable costs (i.e., replacement cost items not eligible for inclusion in the HUD insured loan) to be covered by governmental secondary loans, or grants advanced to the property as a secondary loan, must be certified by the funding source to be reasonable and necessary to complete the project and that the project costs to be covered by the secondary financing are reasonable. Documentation to this effect must be included with the application submission.

5. The governmental secondary financing lender must agree to and enter into a HUD-prescribed form of Subordination Agreement that details the rights and legal relationship between the FHA-insured first mortgage and the secondary financing loan.

Private Sources

Secondary financing from a private source is not permitted on Section 232 new construction, substantial rehabilitation, and blended rate projects.

Surviving Debt

<<List and discuss all existing long-term debt that will survive closing.>>      

Cash Requirements

Initial operating deficit:	     
	Absorption rate/no. units per month:      
	No. months to cover shortfalls:      
	Breakeven Occupancy %:      
Working capital:	$     
Cash investment:	$     
Debt service reserve escrow:	$     
	No. months of principal & interest payments:      
Offsite escrow:	$     
Minor movable equipment escrow:	$     
Demolition:	$     
Other:	$     
TOTAL:	$     		% of total project cost:      %*
*Total cash requirements divided by total project cost.
Cash requirement will be met by:		      <<pre-paids, letter of credit, sponsor, etc. Example: “Borrower’s cash and letters of credit.”>>
Based on a review of the principals <<identify principal(s)>> their net worth is estimated at $     ; their liquidity meets/exceeds $     .

Circumstances that May Require Additional Information

In addition to the information required in this narrative, depending upon the facility for which mortgage insurance is to be provided, the mortgagor, operator, management agent and such other parties involved in the operation of the facility, current economic conditions, or other factors or conditions as identified by HUD, HUD may require additional information from the lender to accurately determine the strengths and weaknesses of the transaction.  If additional information is required, the questions will be included in an appendix that accompanies the narrative.

Special Commitment Conditions

<<List any recommended special conditions. If none, state “None.”>>

1.      

2.      

Conclusion

<<Provide narrative conclusion and recommendation.>>      

Signatures

Lender hereby certifies that the statements and representations of fact contained in this instrument and all documents submitted and executed by lender in connection with this transaction are, to the best of lender’s knowledge, true, accurate, and complete. This instrument has been made, presented, and delivered for the purpose of influencing an official action of HUD in insuring the loan and may be relied upon by HUD as a true statement of the facts contained therein.

Lender:	     
HUD Mortgagee/Lender No.:	     

This report was prepared by:	Date		This report was reviewed by:	Date
     <<Name>>      <<Title>>      <<Phone>>      <<Email>>			     <<Name>>      <<Title>>      <<Phone>>      <<Email>>

This report was reviewed and the site inspected by:	Date
     <<Name>>      <<Title>>      <<Phone>>      <<Email>>

Previous versions obsolete Page 111 of 111 Form HUD-9006-ORCF (mm/dd/yyyy)