9005-ORCF Lender Narrative New Construction 2 Stage, Initial Fir

Comprehensive Listing of Transactional Documents for Mortgagors, Mortgagees and Contractors

9005_orcf_Final_Clean

Transactional Documents for Mortgagees and Contractors

OMB: 2502-0605

⚠️ Notice: This form may be outdated. More recent filings and information on OMB 2502-0605 can be found here:

2023-06-15 - No material or nonsubstantive change to a currently approved collection
2023-03-22 - No material or nonsubstantive change to a currently approved collection

Document [docx]

Download: docx | pdf

Lender Narrative –

New Construction

Section 232 – 2 Stage,

Initial Firm Submission

U.S. Department of Housing and Urban Development

Office of Residential

Care Facilities

OMB Approval No. 2502-0605

(exp. 03/31/2018)

Public reporting burden for this collection of information is estimated to average 63 hour(s). This includes the time for collecting, reviewing, and reporting the data. The information is being collected to obtain the supportive documentation which 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.

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>>

Executive Summary-New Construction Initial Submission 7

Portfolios 10

Special or Atypical Underwriting Considerations 11

Lender Loan Committee 12

Program Eligibility 12

Commercial Space/Income 13

Facility Type 13

Independent Units 14

Licensing/Certificate of Need/Keys Amendment 14

Identities-of-Interest 15

Lender’s Loan Committee Process 18

Recommendation to HUD 18

Project Description 19

Location/Proximity to Hospitals and Services 19

Improvement Description 20

Building Description 20

Landscaping 20

Parking 20

Unit Mix & Features 20

Services 21

Development Budget 21

Construction Costs 21

Offsite and Demolition 21

Appraisal 22

Hypothetical Conditions and Extraordinary Assumptions 23

Market Analysis 23

Market Analysis Overview 23

Primary Market Area 24

Target Population 24

Demand 24

Competitive Environment (Supply) 24

Conclusion 24

Income Capitalization Approach 25

Market Occupancy & Census Mix 25

Expenses 31

Net Operating Income 32

Capitalization Rate 33

Sales Comparison Approach 33

Price per Unit/Bed 34

Effective Gross Income Multiplier (EGIM) 34

Subject Past Purchases 34

Cost Approach 34

Development Cost 34

Depreciation 35

Major Movable Equipment 35

Land Value 35

Reconciliation 35

Lender Modifications 35

Initial Operating Deficit 36

ALTA/ACSM Land Title Survey 36

Phase I Environmental Site Assessment 38

Radon 40

Lender Comments 40

Other Environmental Concerns 40

Environmental-New Construction Project Requirements 42

State Historic Preservation Office (SHPO) Clearance 43

Area of Potential Effects 43

Flood Plain 44

Borrower 44

Organization 45

Experience/Qualifications 45

Credit History 45

Financial Statements 46

Conclusion 46

Principal of the Borrower 47

Organization 47

Experience/Qualifications 47

Credit History 48

Other Business Concerns 48

Financial Statements 49

Conclusion 49

Operator 50

Organization 50

Experience/Qualifications 50

Credit History 51

Financial Statements 51

Net Income Analysis 52

Conclusion 52

Parent of Operator (if applicable) 52

Organization 53

Experience/Qualifications 53

Credit History 54

Other Business Concerns/232 Applications 54

Other Facilities Owned, Operated or Managed 55

Financial Statements 55

Net Income Analysis 56

Conclusion 56

Management Agent (if applicable) 57

Previous HUD Experience 57

Management Agent’s Duties and Responsibilities 58

Experience/Qualifications 58

Credit History 58

Other Facilities Owned, Operated or Managed 58

Past and Current Performance 59

Management Agreement 59

Management Certification 60

Conclusion 60

Operation of the Facility 61

Risk Management Program 61

(Note both Tier and Internal/External) 61

Staffing 61

Operating Lease 62

Lease Payment Analysis 62

Responsibilities 63

Master Lease 63

Accounts Receivable (A/R) Financing 64

Terms and Conditions 65

Collateral/Security 66

Permitted Uses and Payment Priorities 66

Financial Analysis 67

Historical AR Loan Costs 67

Proposed AR Loan Costs 68

Recommendation 69

Tax Credits 69

Mortgage Loan Determinants 70

Overview 70

Criterion C: Amount Based on Replacement Cost 70

Criterion D: Amount Based on Loan-to-Value 70

Criterion E: Amount Based on Debt Service Coverage 70

Criterion L: Deduction of Grants, Loans, and Gifts 70

Sources & Uses 71

Secondary Sources 71

Other Uses 71

Circumstances that May Require Additional Information 71

Special Commitment Conditions 71

Conclusion 72

Signatures 72

Executive Summary-New Construction Initial Submission

FHA number:
Project name:
Project location:	<<street address, city, county, state, and zip>>
Lender’s name:
Lenders UW:		UW trainee:
Borrower:
Is the Borrower a Non-Profit? Yes No
Operator:
Parent of operator:
Management agent:
General contractor:
License holder:	Borrower Operator Management agent

Residents will contract with:	<<Entity with whom residents will contract for services>>
Section 38 of the Regulatory Agreement shall apply to the following individuals and/or entities (list name(s)):

Type of Facility:

	Licensed	Operating		Licensed	Operating
Skilled Nursing (SNF):			beds			units
Assisted Living (AL):			beds			units
Memory Care (AL):			beds			units
Board & Care (B&C):			beds			units
Independent Living (IL):			beds			units
Total:			beds			units

Mortgage Amount:	$	Loan-to-value:	%	Loan to transaction cost:	%
Mortgage Amount:	$	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 %. Medicaid Rate decreases $ or %. Medicaid Census decreases %.
Criterion C: Amount based on replacement cost:	$
Criterion D: Amount based on loan-to-value:	$
Criterion E: Amount based on debt service coverage:	$
Criterion L: Amount based on deduction of grant(s), loan(s), LIHTCs, and gift(s) for mortgageable items:	$

Shape3

UW Gross income:

UW occupancy rate:

UW Effective gross income:

UW Expenses & repl. res.:

UW Expense ratio:

UW Net operating income:

UW 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.

**UW EGI, Expenses and NOI should be consistent with the HUD-92264A-ORCF, Criterion E.


Initial Operating Deficit:	No. Preleased units:
	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 Escrow:	$
Other:	$
TOTAL Equity Without Land:	$		% of total project cost: %*
TOTAL Equity with Land:	$		% of total project cost: %*
*Total project cost is the total uses on the Form HUD-92264a-ORCF.

Land Equity (Calculation of Warranted Price of Land): <<Describe whether land is currently owned or will be acquired, purchase price, date of purchase, part of larger parcel or planned unit development, etc.>>
Front Money Escrow (Total Cash Requirement minus Escrows):
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 $ .

Estimates at Initial Submission Construction contract:

$ 

Offsites

$ 

Demolition

$ 

Total construction costs:

Major Movable Equipment Budget:

Construction Period:

# of months: 

Architectural contract:

Multiple AIA Agreements

Anticipated First Year of Stabilized Occupancy

FTE’s

As reported on Form HUD-91125-ORCF

Operating Revenues

SWB

As reported on Form HUD-91125-ORCF

Operations - post construction

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

Portfolios

Program Guidance: Handbook 4232.1, Section II Production, Chapter 17.

It is the lender’s responsibility to read the handbook chapter and provide HUD with full disclosure of all other HUD insured projects of the borrower and operator utilizing Forms HUD-90013-ORCF, Consolidated Certifications - Borrower and HUD-90014-ORCF Consolidated Certifications – Operator.

Key Questions

	Yes	No
Is the subject project part of a small, medium or large portfolio? (If yes, specify type) Small (two or more projects, up to $90 Million) Medium ($90 Million to $250 Million) Large (> $250 Million)
Have principals of the borrower disclosed participation in any other HUD-insured projects in completing Form HUD-90013-ORCF, Consolidated Certification – Borrower?
Have principals of the Operator disclosed participation in any other HUD-insured projects in completing Form HUD-90015-ORCF, Consolidated Certification – Operator?
Have principals of the borrower submitted any applications for HUD mortgage insurance or TPA in the past 18 months OR do they plan to submit any applications for HUD mortgage insurance or TPA in the next 18 months?
Have principals of the operator submitted any applications for HUD mortgage insurance or TPA in the past 18 months OR do they plan to submit any applications for HUD mortgage insurance or TPA in the next 18 months?

<< For Medium and Large Portfolios (>$90 Million) provide name/number of portfolio and date Corporate Credit Review approval was granted by ORCF.

Provide listing of projects, for the borrower and/or operator, that have been insured by HUD in the past 18 months, that are currently in application or TPA processing, or projects that the borrower and/or operator plans to submit for mortgage insurance or TPA in the next 18 months.>>

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. Shared costs/expenses with other facilities The proposed project will be part of a building with shared walls/floors with non-HUD insured or other HUD-insured project and underwritten expenses/or capital costs were based on allocations. 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.

Lender Loan Committee

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

Program Eligibility

Key Questions

	Yes	No
Will the facility charge “founder’s fees,” “life care fees,” or other similar charges associated with “buy-in” facilities?
Has the facility, borrower, operator, or any of their affiliates renamed or reformulated companies, or filed for or emerged from bankruptcy within the last 5 years?
Will less than continuous protective oversight be provided at the facility?
Are there any “minimum assistance” requirements necessary to qualify under the Section 232 mortgage insurance program that the facility does not plan to offer?
If an ALF, are there residents who will not meet the statutory definition of frail elderly (at least age 62 and in need of assistance with at least three (3) Activities of Daily Living)? N/A
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.) N/A
Are there floodways or coastal high hazard areas located onsite*?
Is the project a hospital, clinic, diagnostic center, group practice facility, halfway house, or other type of facility that does not meet 232 program intent?
Has construction or site work commenced without prior HUD approval?
Is the project designated by the Centers for Medicare and Medicaid Services (CMS) as a Special Focus Facility or similar future designation?
Is the project a long-term acute care facility?
Does the owner or operator/management agent lack the relevant experience (with similar type of facility, regulatory environment, payor mix, etc.) to lease-up and operate the subject project?

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

*Exception: The floodway and coastal high hazard area prohibitions do not apply if only an incidental portion of the project is in the 100-year floodplain, or for critical actions, the 500-year floodplain, and certain conditions are met in accordance with 24 CFR 55.12(c)(7).

Commercial Space/Income

Program Guidance: Handbook 4232.1, Section II Production, 2.6.E.

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 10% of the gross floor area of the project and 15% of the effective project income.

a. Total gross floor area:		d. Effective Project Income:
b. Gross floor commercial area:		e. 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.>>

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 20 accommodations.
		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 20 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.
		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

Program Guidance: Handbook 4232.1, Section II Production, 2.5.F.

Select all applicable statements:

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

There will be unlicensed/independent beds 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>>

Licensing/Certificate of Need/Keys Amendment

Number of Beds to be Licensed:

Lender has verified that the beds or units in operation are in compliance with the State licensing agency.

<<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 on projects with new construction or added units/beds.) If a new/updated CON is required by the local regulatory authorities, it is to be issued to the current license holder. 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 the addition of XX beds…”>>

<<(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). Discuss documentation provided in the application that shows that the state where the facility is located is in compliance with Section 1616(e) of the Social Security Act (Keys Amendment) AND that the facility itself is regulated by the state pursuant to Section 1616e. Note on this last point that the requirement is not only that the facility be regulated, but that it be regulated specifically pursuant to 1616e. >>

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 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)?
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?
Is this an Intermediate Care Facility (ICF), Institution for Mental Diseases (IMD), or any other type of facility that caters to a significant population with mental illness (MI), developmental disabilities (DD) or individuals with intellectual disabilities (IID)?
Is the project in a state with an Olmstead Plan, pending Olmstead cases, Olmstead settlement agreements, or is the project’s state active in initiatives to “right-size” nursing facilities or otherwise working to “rebalance” long-term supports and services toward home and community-based settings?
Does the project rely on Medicaid Waivers or State Plan Options for a significant portion of its resident population, MI/DD residents, or for residents in the assisted living portion of a combined SNF/ALF Facility, subjecting it to HCBS Settings requirements?
Is the operator, parent company, affiliates or subsidiaries the subject of an ongoing investigation or judicial or administrative action involving any Federal, State, municipal and/or other regulatory authority, which could have a detrimental impact on the operator’s financial condition or may jeopardize the operator’s license and or its provider agreements?

<<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.} >> 

If you answer “yes” to question 3, the narrative discussion should include an analysis of the following: 1. The long-term viability of funding sources for this client group; 2. The facility’s ability to maintain stabilized occupancy over the long term, and/or the ability to fill the beds occupied by residents with the special use diagnosis, should the funding source cease; this analysis should include a demonstration that a market exists for increasing reliance on a more “traditional” SNF resident; 3. The extent of the successful experience of the operator in dealing with the contemplated population; 4. How the principals of this facility address the higher risk associated with the targeted population (e.g. higher Professional Liability Insurance, etc.); 5. The facility’s capacity to continue servicing the debt in the event that market/provider payment changes dictate that alternative/modified uses of the subject portion of the facility be pursued; and 6. Risk Mitigation.

If you answer “yes” to question 5, the narrative discussion should include a discussion of any of the state’s efforts above that might have an impact on the subject facility and what efforts the owner and/or operator will take to respond to these impacts. Be sure to reference the state’s strategy for moving the following populations: the elderly from skilled nursing facilities, individuals with intellectual or developmental disabilities (ID/DD) from ICFs, the physically disabled, non-elderly from skilled nursing facilities or the mentally ill from psychiatric facilities or other facilities, as appropriate.

If you answer “yes to question 6, the narrative discussion should include a discussion of the facility’s compliance with the HCBS Settings requirements. The discussion might include the State’s progress in implementing the HCBS Settings Rule, references to the Statewide Transition Plan, CMS responses to or approval of the Plan, State Regulatory language, or State Medicaid Agency input. If it appears that the facility will not, or will not be able, to comply with the Rule, the Lender should provide a Sensitivity Analysis showing the project’s ability to operate without these residents.

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. >> 

Underwriter Trainee (if applicable)

<<Brief description of qualifications.>>

Inspecting Underwriter (if applicable)

<<Brief description of qualifications. The Lean-approved Section 232 Underwriter of record, employed by the lender, must visit the site AND sign this narrative.>>

Program Guidance: Handbook 4232.1, Section II Production, 2.5N

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.>>

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 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.

Project Description

Location/Proximity to Hospitals and Services

<<Brief narrative description about nearby hospitals and services.>>

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 number of proposed buildings; construction types; floor area; describe common areas; etc. >>

Landscaping

<<Provide narrative description about the proposed landscaping>>

Parking

<<Provide narrative description about the proposed 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 table or provide equivalent detail.>>

(Double click inside the Excel Table to add information)

Living Unit Description

<<Provide brief narrative description if the units including: bathrooms, appliances, flooring, included furnishings, hook-ups, patios, etc. >>

Services

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

Development Budget

Construction Costs

<<Discuss the estimated construction budget assumed by the developer for the initial submission.>> 

Offsite and Demolition

<<Describe any offsite 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 related costs or hookup fees. Describe any demolition that may apply; discuss costs and any other requirements or issues.>>

Appraisal

Date of valuation:
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 atypical 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 Analysis 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, independent, 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

Market Occupancy & Census Mix

(Double click inside the Excel Table to add information)

<<The number of competitors will depend on the size of the market. Please expand or reduce the chart above as needed. Discuss the reliability of the market averages.>>

Effective Gross Income

<< Above you are asked to report the number of resident days, not occupied units. Although Assisted Living is typically reported on an occupied unit basis, we ask that you convert that number to resident days. Do not enter potential gross incomes here, but rather effective gross income, wherein vacancy has already been accounted for.>>

<<Provide narrative discussion and support for each other income category as appropriate

A few examples follow:

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 based on his analysis of comparable data <<insert comparable data as appropriate. Identify any modification from the appraiser’s concluded fees and provide justification.>>

Second Occupant Income

The appraiser has included a net annual projection of X second occupants at $X 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 market, the underwriter concurs with the appraiser’s conclusion for a net annual income of $X. Identify any modification from the appraiser’s concluded fees and provide justification.

Miscellaneous Income <<delete paragraph if not applicable>>

In addition to room rents, additional care, and second occupant income, the project will receive miscellaneous income from <<list miscellaneous>>. The appraiser has included a net annual projection of $X. Typically, 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). Identify any modification from the appraiser’s concluded fees and provide justification.>>

Rents

The rent schedule will be 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.>>

<<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 RENTS

Private Pay Rates Comparability Analysis

(Double click inside the Excel Table 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 conclusion, 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. Identify any modification from the appraiser’s concluded rent and provide justification.>>

ASSISTED LIVING & MEMORY CARE

Private Pay

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. Delete or add rows as needed. This table can be used for either Assisted Living or Memory care, or duplicated to separate the two.)

<<Provide narrative discussion of the private pay conclusion.>>

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 prospective rate. If rate is based on resident care requirements, provide an analysis of how the concluded rent was determined. Identify and discuss any other sources or copayments that are required (e.g., SSI). Identify any modification from the appraiser’s concluded rent and provide justification. >>

Independent Units

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.>> 

Expenses

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. >

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

<<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.>>

Capitalization Rate

<<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, as appropriate.>>

Sales Comparison Approach

<<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.>>

(Double click inside the Excel Table to add information)

Price per Unit/Bed

<<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)

<<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 Past 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

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

(Double click inside the Excel Table to add information)

<<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

<<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

<< Use form 91128-ORCF to calculate the Initial Operating Deficit. Enter a summary above and a narrative explanation below as needed below.>> 

Key Questions

	Yes		No
Has the lender revised the expense floors in the Form HUD-91128-ORCF Template?

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 pro forma title policy, third party appraisal, Phase I and Exhibit A of the Firm Commitment?
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 effect 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? If so, are any covenants, liens or restrictions related to environmental factors?
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

Program Guidance: Handbook 4232.1, Section II, Production, Chapter 7.

It is the lender’s responsibility to review the Phase I and all other environmental review documentation to ensure that all environmental requirements are met.

Assistance Prior to Application Submission: Many Federal agencies require contact directly from HUD. This list includes, but is not limited to, State Coastal Zone Management councils, U.S. Fish and Wildlife service, and local/regional Native American tribes. In this instance, please contact [email protected] in advance of the application submission.

Phase I Environmental Site Assessment

Date of inspection:
Firm:
Consultant:
Key Questions
Was the Phase I Environmental Site Assessment (ESA) performed in conformance with the scope and limitations of ASTM Practice E 1527-13 (or the most current version)?	Yes	No
Was the Phase I consultant provided with an accurate description of all repairs, site work, construction and/or demolition to be completed?
Does the Phase I investigation include all of the following? 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, a survey of water sources, and a review of historical information.

<< Explain any “no” answer above. >>

Key Questions

	Yes	No
Does the Phase I ESA recommend a Phase II assessment, other reports, or additional testing?
Does the Phase I or Phase II assessment indicate that remediation is required or ongoing?
Does the Phase I ESA indicate that a monitoring well or testing well (operating or non-operating) is located on the site?
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 II reports recommend any required repairs?
Does the Vapor Encroachment Screen identify a “vapor encroachment condition” (VEC)? (The vapor encroachment screen must be performed using Tier 1 “non-invasive” screening pursuant to ASTM E 2600-10 or most recent edition.)
Is the Phase I site inspection date more than 180 days before the date the firm commitment application was submitted? A Phase I that was conducted more than 180 days before the application’s submission, but not more than one-year before the submission, must be updated pursuant to ASTM E 1527-13 or the most recent edition. (A Phase I ESA that was originally conducted more than one year prior to the application’s submission date, even if updated within 180 days of submission, is not acceptable. ORCF is not able to waive this requirement.)
Does the land area in the Phase I differ from the land area in the survey and Exhibit A to the Firm Commitment?

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

Radon

Program Guidance: Handbook 4232.1, Section II, Production, Chapter 7.8.

Firm:
Radon Professional:
Certification/License Information:
EPA Radon Zone:

Key Questions

	Yes		No
Does the construction scope of work include radon resistant construction as required by Chapter 7.8?

<<Provide narrative discussion of radon risk applicable to the subject project.>>

Lender Comments

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

Other Environmental Concerns

Key Questions

	Yes	No
Is the subject located within a designated coastal barrier resource area? (If no, provide evidence.)
Noise:
Is the subject 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?
Is the subject’s marketability impacted by noise?
Are there existing or proposed stationary tanks containing explosive or fire-prone materials on the site or nearby the site that are visible from satellite images or site reconnaissance?
Are there any wetlands on or adjacent to the subject site?
If so, will the project impact or disturb wetland areas or their buffer zones?
Is any construction or site work likely to affect any listed or proposed endangered or threatened species or critical habitats?
Is the subject located on a sole source aquifer?
Are there any known landfills within ½-mile of the site?
Is the project subject to an Activity and Use Limitation, Engineering Control, and/or Institutional Control related to an environmental concern? (If so, provide the information to the Phase I environmental consultant.)
Does the project utilize a private water supply? (If so provide evidence that the water quality meets local, state or Federal standards; for example, evidence that the water meets the EPA Primary Drinking Water Standards.)
Does the project involve a private sewage treatment system?
Are or will any on-site structures be located within the easement of an overhead high voltage transmission line?
Are or will there be any buildings located in the fall zone of a support structure for high voltage transmission lines or any other towers?
Is or will any structure be located within 10 feet of an easement for a high-pressure gas or liquid petroleum transportation pipeline?
Is or will a residential structure be located within 300 feet of an operating or abandoned oil or gas well? (If so, refer to Handbook 4232.1, Section II, Production, 7.5.K.3.)
Does the project site include a structure that was built before 1978? (If no, move on to question 16)
Was a comprehensive asbestos survey performed by a qualified asbestos inspector pursuant to the “baseline survey” requirements of ASTM E 2356-10 (or most recent edition) NOT provided? (Required for all buildings constructed before 1978. If provided, check “No.”)
Did the asbestos survey identify any friable and/or damaged asbestos?
Does the project involve asbestos removal? (Asbestos removal may involve additional risk, and may have a direct impact on residents and workers and ongoing facility operations. An operating deficit, for example, may need to be required if removal is to occur after endorsement.)
Does the proposal include demolition of a structure that was built before 1978? (If no, move on to question 17)
Was a comprehensive asbestos survey performed by a qualified inspector pursuant to the “pre-construction survey” requirements of ASTM E 2356-10 (or most recent edition) NOT provided?
Other than the aforementioned, are there any other environmental issues identified by the Phase I or II reports or lender’s due diligence?
Was a floodplain map with the subject site clearly marked on it NOT provided?
Was a preliminary or pending flood map of the project’s location available on the FEMA website? If so, provide a copy of this map with the subject site marked on it.
Was a wetland map with the subject site clearly marked on it NOT provided?

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

Environmental-New Construction Project Requirements

Program Guidance: Handbook 4232.1, Section II Production, 7.5.

If the project includes any ground disturbance, contact [email protected] in advance of application submission so that ORCF may initiate agency to agency contact. Include a project description including type of project, purpose of the project, the proposed activities/site work, and the current condition of the site (what is on the site now) as well as a location map, aerial view map, site layout map and a topographic map in your request to Lean Thinking.

Examples of ground disturbance include, but are not limited to, tree removal, burying a tank, new parking, increases in building footprint, adding a new fence, etc. If there is uncertainty regarding what may constitute ground disturbance, contact [email protected] in advance of application submission.

Key Questions

	Yes	No
Was a request for Tribal Consultation submitted to [email protected] in advance of application submittal?
Was a site plan provided showing where site work, ground disturbance and/or digging will occur?
Was documentation provided showing that a Section 7 Endangered Species review was completed?
Was evidence that the project is in compliance with the State’s Coastal Zone Management Program provided if located in a designated coastal zone?
Did the correspondence with the State Historic Preservation Office (SHPO) accurately reflect the proposed site work, ground disturbance or digging as well as any planned repairs and/or construction?
Are there any wetlands on or adjacent to the site that could be potentially impacted by the construction or site work either directly or indirectly via drainage, etc.?
If yes, was HUD contacted in advance to conduct an 8 step?
Are there any current Aboveground Storage Tanks (ASTs) on or directly visible from the site?
Will any Aboveground Storage Tanks be added?
Was an ASD calculation or mitigation plan submitted for all current or proposed ASTs? (Note that a tank safety letter IS NOT sufficient for projects that are increasing in units or beds. Refer to Handbook chapter 7.5.F.)
Was a HUD compliant noise analysis provided?

State Historic Preservation Office (SHPO) Clearance

Program Guidance:

The lender may submit a Section 106 request to SHPO in order to expedite the process.

<<Provide narrative description indicating that the SHPO has been contacted, information sent to SHPO, and any response received.>> 

Key Questions

	Yes	No
Was the SHPO contacted?
Was the SHPO website for the project’s state reviewed for any specific information required by that SHPO and was this information provided?
Was all correspondence with the SHPO provided in the application?
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 Preservation Office, dated XXXX. It was determined that the site is of no historical or suspected cultural significance. No additional investigation was recommended by the State.” Please indicate if a response has not been received. If the SHPO concluded that the project will have an adverse effect, please explain how this will be mitigated.>>

Area of Potential Effects

Program Guidance: Handbook 4232.1, Section II Production, Chapter 7.

In situations where the SHPO was contacted, provide a description of the Area of Potential Effects (APE) that was included in the correspondence that was sent to the SHPO.

<<Provide a narrative discussion on the Area of Potential Effects. For example: “The subject is located in the X Historic District, so we have determined that the APE is the entire Historic District.” Or, “The subject is not located near any properties that are on or eligible for the National Register of Historic Places, so the APE is only the subject site., etc. >> 

Flood Plain

NFIP Map Panel #:		Date:
Flood Zone:

<< When in Zone X, indicate whether it is designated as X “(shaded)” or “(unshaded)”. When the site is located in multiple flood zones, identify each zone designation. For example: “X (unshaded), X (shaded), AE”.>>

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 flood insurance required for this property?
Is the subject site located within a100- year floodplain (1% annual chance flood) or 500-year floodplain(0.2% chance of annual flood)? (If no, move on). (Use the effective FEMA Flood Insurance Rate Map (FIRM) or, when FEMA provides interim flood hazard data such as Advisory Base Flood Elevations, preliminary or pending maps, use the latest of these sources except when the base flood elevations from interim data are lower than the elevations on the current FIRM.)
If located in a 100-year or 500-year floodplain, was is the 8-step documentation not provided to [email protected] in advance of application submission?

<<Provide a narrative discussion evaluating the floodplain exhibits r>> 

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 subject property or participate in any other businesses?
Is or has the borrower been delinquent on any federal debt?
Is or has the borrower been a defendant in any suit or legal action?
Has the borrower ever filed for bankruptcy or made compromised settlements with creditors?
Are there judgments recorded against the borrower?
Are there any unsatisfied tax liens?
Is the single asset borrower entity registered outside the United States and/or in a state other than where their corporate office is located?
Does the single asset borrower entity fail to have at least one principal, with operational decision-making authority, as a United States citizen?

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

Program Guidance: Handbook 4232.1, Section II Production, Chapter 6.1.D, Foreign National and Corporate Entity Participation

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?

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

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?
Are there any debts on the balance sheet that will survive closing?

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

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
Is or has the principal of the borrower been delinquent on any federal debt?
Is or has the principal of the borrower been a defendant in any suit or legal action?
Has the principal of the borrower ever filed for bankruptcy or made compromised settlements with creditors?
Are there judgments recorded against the principal of the borrower?
Are there any unsatisfied tax liens against the principal of the borrower?
Is this principal a principal of any other HUD-insured projects or principals of a project(s) applying for HUD insurance or TPA within the next 18 months?

<<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

Program Guidance: Handbook 4232.1, Section II Production, Chapter 2.5FF.

<<Provide narrative description of principal’s experience with development, lease-up and operations of facilities similar to the proposed project in resident type, regulatory environment, size and complexity of project. Discussion should highlight direct experience and involvement in other transactions. Provide key operating metrics from initial lease-up to stabilization, including fill pace, occupancy and net operating income.>>

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?

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

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
Does the Principal identify any other Section 232 program (i.e., 223(f), 241(a), 223(a)(7), 232(i), or 223(d)) loans on the Consolidated Certification – Principal of Borrower (form HUD-90014-ORCF) and Attachment 2 thereof?

<<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 – For Party(ies) Responsible for
Financial Requirements for Closing and Beyond –
<<enter name(s) of responsible party(ies) here>>

<<Complete this section if the borrower entity does not have sufficient financial capacity.>>

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>>

<<Include a discussion on the borrower’s financial capacity. Include the percentage of owner’s equity into the project. The discussion must address: (1) the borrower’s net worth; (2) liquidity; (3) the borrower’s ability to meet the cash requirements of the project; and (4) the borrower’s ability to meet the financial obligations of the project for the long term.>>

<<If Form HUD-92417-ORCF is included, provide discussion on the individual’s financial capacity, net worth and liquidity.>> 

Effective date

(of HUD-92417-ORCF)

Total assets

Net worth

Total liquidity (cash available)

Comments

Conclusion

<<Provide narrative discussion of underwriter’s conclusion and recommendation. For example, “XXXXX 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 any assets other than the property or participate in any other businesses?
Does the operator intend to have shared expenses with other facilities?
Does the operator intend to contract out nursing services, exclusive of temporary staffing, through an agency and/or contracting for ancillary services (e.g., therapies, pharmaceuticals)?
Is or has the operator been delinquent on any federal debt?
Is or has the operator been a defendant in any suit or legal action?
Has the operator ever filed for bankruptcy or made compromised settlements with creditors?
Are there judgments recorded against the operator?
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

Program Guidance: Handbook 4232.1, Section II Production, Chapter 2.5FF.

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?

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

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? (Note: Projects with material accounts receivables over 120 days that do not intend to have Accounts Receivable Financing should address the project State’s recent trends in length of time until reimbursement is made. The Lender should address these projects’ ability to handle delayed payments, e.g. access to sources of liquidity in an amount comparable to material accounts receivable 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 was NOI negative or declining?

<<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

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
Is the parent of the operator rated by S&P or another rating agency?
Is or has the parent of the operator been delinquent on any federal debt?
Is or has the parent of the operator been a defendant in any suit or legal action?
Has the parent of the operator ever filed for bankruptcy or made compromised settlements with creditors?
Are there judgments recorded against the parent of the operator?
Are there any unsatisfied tax liens?
Does the parent of the operator have other HUD properties which 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

Program Guidance: Handbook 4232.1, Section II Production, Chapter 2.5FF.

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?

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

Other Business Concerns/232 Applications

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
Do the credit reports on the 10% sampling of the other business concerns indicate any material derogatory information?
Does the Principal identify any other Section 232 program (i.e., 223(f), 241(a), 223(a)(7), 232(i), or 223(d)) loans on the Consolidated Certification – Parent of Operator (form HUD-90016-ORCF) and Attachment 2 thereof?

<<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:

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

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? N/A
Do any of the other facilities have any open professional liability insurance claims? N/A
Do any of the other facilities have any open state findings related to instances of actual harm and/or immediate jeopardy (G or higher)? N/A
Is the parent of the operator a participant in 50+ residential healthcare facilities?
Does the parent of the operator carry one Professional Liability Insurance policy for its residential healthcare facilities?
Does the parent of the operator carry multiple Professional Liability Insurance policies for its residential healthcare facilities?

<<For each “yes” answer above, provide a narrative discussion on the topic describing the risk and how it will be mitigated. Example: Other Facilities: XXXXX identified XX other facilities it owns, operates, or manages in addition to the subject facility. PLI Insurance: XXXXXX identified XX facilities which are carried on the same PLI policy as the subject project. Other facilities of the parent of the operator are covered on XX separate PLI policies.>> 

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

Net Income Analysis

Net Income*

In total $

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)

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

Key Questions

	Yes	No
Does the management agent have experience managing other HUD-insured properties?
Has the agent received any “unsatisfactory” management reviews from HUD?
Have any managed, owned, or operated properties received REAC scores lower than 60?
Does the management agent have less than 3-years of experience managing similar properties?
Is or has the management agent been delinquent on any federal debt?
Is or has the management agent been a defendant in any suit or legal action?
Has the management agent ever filed for bankruptcy or made compromised settlements with creditors?
Are there judgments recorded against the management agent?
Are there any unsatisfied tax liens?
Does (or will) the Management Agent hold the certificate of need, license to provide care, enter into provider agreement(s) with third party payor(s) such as Medicare, Medicaid, or Private Payors, or enter into contracts for patient services? (If yes to any of these circumstances, the Key Question answer should be marked Yes and a narrative discussion is required below.)

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

Previous HUD Experience

Project Name	Project City	Project State	Type of Facility

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

Program Guidance: Handbook 4232.1, Section II Production, Chapter 2.5FF.

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?

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

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? N/A
Do any of the other facilities have any open professional liability insurance claims? N/A
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)? N/A

Program Guidance: Handbook 4232.1, Section II Production, 8.8.

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 fail to sufficiently describe the services the agent is responsible for performing and for which the agent will be paid management fees?
Does the agreement fail to state that the management fees will be computed and paid according to HUD requirements?
Does the agreement fail to state 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 fail to state that HUD’s rights and requirements will prevail in the event the management agreement conflicts with them?
Does the agreement fail to state 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?
Does the agreement exempt the agent from gross negligence and or willful misconduct?
Is the Form HUD-9839-ORCF inconsistent with the Management Agreement?

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

Management Certification

<<Provide narrative review. For example: “The form HUD-9839-ORCF, Management Agent Certification, provided in the application package indicates a management fee of XX percent of the residential, commercial and miscellaneous income collected, which is in line with industry standards for projects of this size. The term of the agreement is for XX-years. The stated fee and term match those stated in the management agreement. The fee calculations on page 4 are coordinated with the underwriting conclusions.”>>

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.”>>

Operation of the Facility

Risk Management Program

Program Guidance: See Risk Management Program grid on the Section 232 program website for additional guidance. Note that the below tier descriptions are general descriptions and HUD retains discretion to require additional risk management measures, as warranted, on a case by case basis.

Risk Management Tier General Descriptions:

Tier 1 Baseline: For most assisted living and low-risk skilled nursing projects with no more than one incident of actual harm/immediate jeopardy in the past three years. In these instances, the risk management program may be administered internally or by a third party provided the party administering the program is qualified.

Tier 2 Elevated Risk: Higher risk projects with two more incidents of actual harm/immediate jeopardy within the past three years. In these instances, the risk management program should be administered by a third party.

(Note both Tier and Internal/External)

Tier 1 Baseline	Internally Administered Risk Management Program
Tier 2 Elevated Risk	External 3^rd Party Administered Risk Management Program

Describe the Risk Management Program and how it meets the following requirements

Real-time incident reporting and tracking that informs senior management:

Experience of Staff:

Training:

Continuous Improvement:

<<If a third party is involved, describe the contractual arrangement, what company has been contracted, what the contract provides for, when the contract was entered into, when it expires, what results have been seen thus far if the contract has been in place, etc..>>

Staffing

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

Operating Lease

Program Guidance: Handbook 4232.1, Section II Production, Chapter 8.6, Operating Lease Requirements

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 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?

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

Lease Payment Analysis

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.”>> 

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

Program Guidance: Handbook 4232.1, Section II Production, Chapter 13. It is the lender’s responsibility to read the handbook chapter and provide HUD with a full set of documents for review of the proposed master lease or alternative master lease structure.

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?
Have projects under common control or with the same ownership applied for mortgage insurance or a TPA within the past 18-months OR will projects under common control or with the same ownership apply for mortgage insurance or a TPA within the next 18 months? 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 or master lease alternative is required.

	Yes	No
Is a new master lease proposed for the subject project?
Will the subject project be joined to an existing HUD master lease?
Do the borrower principals currently participate in any other HUD master leases?
Does the parent of the operator currently participate in any other HUD master leases?

<<Provide a narrative describing the terms and conditions of the master lease proposed payments to and from the master tenant, lease agreements between borrower, master tenant and subtenants, the flow of funds from the subtenants to the master tenant and the borrower (including the AR lender if applicable), and any waivers or requests for modification to standard requirements.

If the subject is being joined to an existing master lease, list projects/project numbers already included in the master lease.

Describe any other HUD master leases the principals of the borrower or parent of the operator are party to, list projects/project numbers, and indicate the HUD lender who is party to the lease(s).>>

Accounts Receivable (A/R) Financing

Program Guidance: For New Construction projects that will have a new AR Financing Line put into place prior to occupancy, and the specific AR Financing Terms have not yet been determined, documents may be submitted to HUD for review no later than 70% construction completion. The Firm Commitment should include a special condition requiring that AR financing documents be submitted to HUD prior to 70% construction completion.

Yes

The subject will have an AR line; however, the AR documents are not yet available and will be submitted prior to 70% construction completion.

(If yes, skip to the next section. If no, complete the rest of this section).

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, 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-HUD-insured properties?
DIs the subject being added to an existing HUD-Insured AR line that has already been reviewed/approved by HUD?
Is there an identity of interest between the AR lender and the AR borrower?
Is there a conflict of interest between the AR lender and the borrower or its principals (as defined in Handbook 4232.1, 15.4.E or its successors)?
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? N/A
Does the AR lender have less than 3 years of experience providing AR financing?
Does the AR lender monitor the borrowing base on a daily/weekly/monthly basis?
Are the borrower or operator out of compliance with any business agreements or loan covenants (i.e., in default on those agreements, not current on financial submissions, etc.)?
Is the AR loan being syndicated or participated?
Does the Intercreditor Agreement (ICA) propose additional obligations beyond those allowed as the types of AR Loan Obligations that may be secured by project collateral?
Does the ICA propose loan extensions or interest rate changes?
Does the ICA include any cross-default or cross-collateralization provisions?
Does the ICA identify a flow of funds inconsistent with the cash flow chart?

<<For each “yes” answer above, provide a narrative discussion regarding the topic. For projects being added to an existing HUD-Insured AR line, provide specific information on when the AR line was originated (date), when documents were reviewed/approved by HUD, which HUD OGC field office performed he review, and provide a listing of projects participating in the line (project name, FHA#) >>

Terms and Conditions

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

Describe term and renewal options:

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

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. 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.>>

Financial Analysis

Borrowing Base Analysis

(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 HUD-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.>> 

Tax Credits

Program Guidance: If the proposed documents do not currently comply with the requirements, outline the differences, what changes are required, and how they are justified. Note that proposed changes to OMB form documents must go through the ORCF document change protocol. Also, documents previously negotiated Multifamily documents are not automatically approved for use in Section 232 transactions, and must receive specific ORCF approval for use.

	Yes		No
Will the subject have tax credits? (If no, skip this section)

Key Questions

	Yes	No
Do the tax credits require the project to comply with an affordability restriction?
Does the lender have any concerns with the experience or financial strength of the proposed tax credit syndicator?
Will there be an equity bridge loan? If there will be an equity bridge loan, will it be retired after final closing?
Do the tax credit documents conflict with ORCF requirements in any way?
Does the proposed funding schedule depart from the guidelines set out in the handbook?
Does the funding schedule propose that any borrower funds required for completion of the project be escrowed after initial closing?
Does the funding schedule propose that any borrower funds escrowed for completion of the project be disbursed after mortgage proceeds are disbursed?
Does the funding schedule propose that equity be contributed to construction draws according to any method other than a pro rata share?
Will there be a lack of funds needed to meet the borrower’s cash contribution be in the transaction, and any equity bridge loan NOT be retired by final closing?

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

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 total indebtedness:	$
Amount based on deduction of loans, grant(s), loan(s), LIHTCs, and gift(s) for mortgageable items:	$

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 a value of $ .

Criterion E: Amount Based on Debt Service Coverage

The $ debt service limit was calculated using the underwritten NOI of $ .

Criterion L: Deduction of Grants, Loans, 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.

Sources & Uses – Copied from HUD 92264a-ORCF

Program Guidance: In the case of tax credit transactions, the individual sources must be spelled out, as well as any non-mortgageable costs. Details regarding the requirements of those sources and uses should be discussed in the tax credit section, or under Secondary Sources, as applicable.

<<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.>>

Source	Entity Receiving Funds	Public or Private	% of Equity Coverage	% FMV	Non-mortgageable costs?

Other Uses

<<Discuss any uses not previously discussed in this narrative.>>

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.”>>

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 71 of 71 Form HUD-9005-ORCF (03/2018)

File Type	application/vnd.openxmlformats-officedocument.wordprocessingml.document
Author	H22192
File Modified	0000-00-00
File Created	2021-07-15

9005-ORCF Lender Narrative  New Construction 2 Stage, Initial Fir

Comprehensive Listing of Transactional Documents for Mortgagors, Mortgagees and Contractors

9005_orcf_Final_Clean

Transactional Documents for Mortgagees and Contractors

OMB: 2502-0605

Table of Contents

Executive Summary-New Construction Initial Submission

Portfolios

Special or Atypical Underwriting Considerations

Lender Loan Committee

Program Eligibility

Commercial Space/Income

Facility Type

Independent Units

Licensing/Certificate of Need/Keys Amendment

Identities-of-Interest

Risk Factors

Strengths

Underwriting Team

Lender

Lender’s Loan Committee Process

Recommendation to HUD

Project Description

Location/Proximity to Hospitals and Services

Site

Neighborhood

Zoning

Utilities

Improvement Description

Building Description

Landscaping

Parking

Unit Mix & Features

Services

Development Budget

Construction Costs

Offsite and Demolition

Appraisal

Hypothetical Conditions and Extraordinary Assumptions

Market Analysis

Market Analysis Overview

Primary Market Area

Target Population

Demand

Competitive Environment (Supply)

Conclusion

Income Capitalization Approach

Market Occupancy & Census Mix

Expenses

Net Operating Income

Capitalization Rate

Sales Comparison Approach

Price per Unit/Bed

Effective Gross Income Multiplier (EGIM)

Subject Past Purchases

Cost Approach

Development Cost

Depreciation

Major Movable Equipment

Land Value

Reconciliation

Lender Modifications

Initial Operating Deficit

ALTA/ACSM Land Title Survey

Title

Title Search

Pro-forma Policy

Environmental

Program Guidance: Handbook 4232.1, Section II, Production, Chapter 7.

Phase I Environmental Site Assessment

Radon

Lender Comments

Other Environmental Concerns

Environmental-New Construction Project Requirements

 

State Historic Preservation Office (SHPO) Clearance

Area of Potential Effects

Flood Plain

Borrower

Organization

9005-ORCF Lender Narrative New Construction 2 Stage, Initial Fir

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

Financial Statements – For Party(ies) Responsible for
Financial Requirements for Closing and Beyond –
<<enter name(s) of responsible party(ies) here>>

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