9009-ORCF Lender Narrative - Fire Safety Equipment Installation, w
Comprehensive Listing of Transactional Documents for Mortgagors, Mortgagees and Contractors
9009_orcf_Final_Clean
Transactional Documents for Mortgagees and Contractors
OMB: 2502-0605
Lender Narrative Section 232/232(i) - Fire Safety Equipment Installation, without Existing HUD-Insured Mortgage |
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 15 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>>
Table of Contents
Licensing/Certificate of Need/Keys Amendment 10
Project Capital Needs Assessment (PCNA) 20
Completion and Inspection of Repairs 21
Principal of the Borrower – <<enter Principal Name>> 25
Organization (not applicable to individuals) 25
Other Business Concerns/232 Applications 26
Other Facilities Owned, Operated or Managed 31
Parent of the Operator (if applicable) 32
Other Business Concerns/232 Applications 33
Other Facilities Owned, Operated or Managed 34
Management Agent (if applicable) – 36
Management Agent’s Duties and Responsibilities 37
Other Facilities Owned, Operated or Managed 38
Past and Current Performance 38
Other Facilities Operated or Managed 42
Professional Liability Insurance (PLI) Coverage 44
Commercial General Liability Insurance 46
Amount Based on Required Debt Service Coverage (Criterion E of HUD-92264a-ORCF) 48
Legal and Organizational Costs 48
Deduction of Grants, Loans, and Gifts 49
Sources & Uses – Copied from HUD-92264a-ORCF 49
Special Commitment Conditions 49
Executive Summary
FHA Number: |
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Project Name: |
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Project Address: |
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City / State / Zip: |
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Lender Name: |
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Section of the Act: |
232(i) |
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Part of a small, medium, or large portfolio: |
Yes No |
If yes, describe: |
Unit Breakdown:
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Licensed |
Operating |
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Licensed |
Operating |
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Type of facility: |
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Skilled Nursing (SNF): |
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beds |
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units |
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Assisted Living (AL): |
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beds |
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units |
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Memory Care (AL): |
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beds |
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units |
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Board & Care (B&C): |
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beds |
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units |
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Independent Living (IL): |
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beds |
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units |
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Total: |
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beds |
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units |
Fire safety loan amount: |
$ |
LTV: |
% |
Loan to Transaction Cost: |
% |
Term: |
months |
Interest rate: |
% |
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Medicare.Gov Star Rating |
# stars |
DSCR
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% |
Principal & Interest |
$ per month |
Underwritten Value: |
$ |
Cap rate: |
% |
Value per bed/unit*: |
$ |
UW Effective gross income: |
$ |
UW occupancy rate: |
% |
UW Expenses & repl. res.: |
$ |
Expense ratio: |
% |
UW Net operating income: |
$ |
Expense per bed/unit*: |
$ |
*Use per bed for SNF, or facilities with multiple care types (e.g., SNF/AL). Use per unit for ALF only. |
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Critical Repairs: |
$ |
Non-Critical Repairs: |
$ |
Reserve for Replacement: |
$ |
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Note: Repairs that are not for the installation of fire safety equipment may not be included in the security instrument. |
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Borrower: |
<<Legal Name>> |
Operator: |
<<Legal Name>> Operating lease |
Parent of Operator: |
<<Legal Name>> |
Does the operating lease cover multiple properties or tenants (is it a master lease)? Yes No |
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Management Agent: |
<<Legal Name>> |
License held by: |
<<Legal Name>> |
Resident contracts with: |
<<Entity with whom residents contract for services>> |
Section 38 of the Regulatory Agreement shall apply to the following individuals and/or entities (list name(s)):
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Third-party reports provided:
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PCNA |
Conclusion is: |
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Accepted as is. |
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Modified by lender. |
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Other <<identify here>> |
Conclusion is: |
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Accepted as is. |
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Modified by lender. |
Transaction Overview
<<Provide a brief summary of the unique characteristics of the fire safety equipment installation project and any key deal points that HUD’s underwriter and loan committee should be aware of while reading the narrative. Examples of unique issues and key deal points include:
Facility is master leased
Timing issues for closing or pay-off
This section should not be a lengthy restatement of the rest of the narrative. It is merely to highlight key points. If there are no unique characteristics or key deal points to highlight, you can make a simple statement, such as “The purpose of this transaction is to finance the installation of fire safety equipment.”>>
Key Questions
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<<For each “yes” answer above, provide a narrative discussion regarding the topic. As applicable, discuss the issue and its effect on underwriting. Describe any potential risks and the mitigants.>>
Sensitivity Analysis
<<Provide a Sensitivity Analysis and identify sensitivities that exist in the proposed census mix. In addition, the analysis shall provide the following: >>
If everything else under consideration remains the same (ceteris paribus), then:
The average rental rate can drop by $ per month and still provide 1.0 debt cover.
Occupancy rate could decrease by % and still provide a 1.0 debt cover.
Operating expenses could increase % per year and still provide a 1.0 debt cover.
The NOI could drop by $ ( %) and still provide a 1.0 debt cover.
Medicaid Rate could decrease by $ ( %) and still provide a 1.0 debt cover.
Medicaid Census could decrease by % and still provide a 1.0 debt cover.
Program Eligibility
Key Questions
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No |
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<<If you answered “yes” to any of the questions above, this facility is not eligible under this program. >>
Lender Loan Committee
Date held:
<<Provide a brief narrative summary of loan committee, including information provided and any pertinent requirements/conditions of the loan committee to gain the committee’s recommendation.>>
Commercial Space/Income
Program Guidance: Handbook 4232.1, Section II Production, 2.9.F.
Select one of the following:
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There is no commercial space at the subject.
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There is commercial space at the subject; however, it does not exceed the program limitations of 20% of the total net rentable area of the project and 20% of the effective gross income.
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<<Provide further explanation, if necessary. If the facility does not meet either of the criteria above, the loan is not eligible under this program.>>
Independent Units
Program Guidance: Handbook 4232.1, Section II Production, 2.5.F
Select all applicable statements:
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There are NO unlicensed/independent units at the subject.
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There are unlicensed/independent units at the subject; however, the total does not exceed 25% of the total beds at the facility.
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A waiver is requested to exceed 25% of the total beds at the facility. |
Licensing/Certificate of Need/Keys Amendment
<<Provide affirmative statement along the lines of: “The facility is licensed by the State of {State}’s Department of Health and Welfare as a {Type of Facility} for {X} beds. The license is issued to {Name of Entity on License}. 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…”>>
<<(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).”>>
<<Affirmative statement along the lines of: “The improvements are certified to be in compliance with Medicare and Medicaid Programs: Fire Safety Requirements for Long-Term Care Facilities, Fire Safety Equipment and Automatic Sprinkler Systems.>>
Identities-of-Interest
Program Guidance: Handbook 4232.1, Section I, Chapter 1.6 and Section II Production, Chapter 2.9.A.2.
Key Questions
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No |
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<<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
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No |
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<<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 XXX: {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 HQ.}>>
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. This is an appropriate place to talk about any capital improvements that have been made in recent years.>>
Underwriting Team
Lender
Name: |
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Underwriter: |
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Underwriter trainee: |
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Lender #: |
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Site inspection date: |
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Inspecting underwriter: |
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Lender’s Underwriter
<<Brief description of qualifications. >>
Underwriter Trainee (if applicable)
<<Brief description of qualifications.>>
Inspecting Underwriter (if applicable)
<<Brief description of qualifications. A MAP-approved 232 Underwriter or Lean-approved 232 Underwriter employed by the lender must visit the site AND sign this narrative.>>
Needs Assessor
<<Brief description of qualifications.>>
Environmental Consultant
<<Brief description of qualifications.>>
Property Description
Site
<<Brief narrative description about site to include location, topography, size, frontage, access, etc. >>
Neighborhood
<<Brief narrative description about neighborhood area to include major cross streets and access routes; distance to services, hospitals, etc.; adjacent property uses; predominant character or neighborhood; etc.>>
Zoning
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Legal Conforming |
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Legal Non-Conforming |
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Other |
<<Narrative description: identify local jurisdiction; zoning designation; results of Zoning Letter provided in Exhibit 8-5 of application submission; and discuss any variances, conditional uses, non-conformance or other pertinent issues affecting zoning. If the building is not a legal conforming use, discuss the adequacy of the zoning ordinance insurance coverage and/or recommend a condition to mitigate this risk.>>
Utilities
<<Narrative description - Identify utilities in 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
Buildings
<<Brief narrative description to include number of buildings; construction types; building size; describe common areas; amenities, etc. >>
Parking
<<Narrative description about the 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
(Double click inside the Excel Table to add information)
<<Brief narrative description of the units including: bathrooms, appliances, flooring, included furnishings, hook-ups, patios, etc. >>
Services
<<Narrative description of services provided - Identify which services are included in rent and which services are available for extra charges, as applicable. >>
Occupancy
A summary of the subject’s occupancy is provided below.
Historical Occupancy Analysis
(Double click inside the Excel Table to add information)
Revenue
Census Mix
An analysis of the subject’s historical census mix is provided below.
<< The following table is not required for projects with one type of payor, such as an ALF with 100% private pay. Those may be described in narrative. You may modify the following table as necessary to accommodate your project mix.>>
Census Mix – Subject History
(Double click inside the Excel Table to add information)
Historical Revenue Summary
The following chart compares the historic revenue sources to the conclusions.
<<Please adapt the chart to show the income sources specific to your facility. Bad debt can either be included in the table below or dealt with as an expense. >>
History by Revenue Source
(Double click inside the Excel Table to add information)
<<Discuss any departures from historical reimbursements, mix, and trends here.>>
<<Each type of care should have its own subsection below and discuss each payor source identified in the rent schedule, as demonstrated below. You may delete the sections (i.e., skilled nursing, assisted living, and independent living) that do not apply to your subject.>>
Historic Comparison
<<The data in the following table must be in totals, not per resident day or per occupied unit. Cells with grey shading will calculate automatically. You are given some latitude in defining the expense categories. The expense categories in black text are required items. You have the option of presenting the current year’s expense data in an annualized amount or in the form of trailing 12 months (T-12) of expense. The trailing 12 months is proffered because it captures any expenses that only occur once a year, whereas the annualized figure may not.>>
(Double click inside the Excel Table to add information)
<<Provide narrative discussion of historical information. An equivalent analysis of the information provided above is required. For skilled nursing and other facilities, resident days may be more appropriate than units or beds. For continuum of care facilities (e.g., skilled and assisted living), it may be appropriate to provide a separate schedule for each care type. Address any significant fluctuations/anomalies in the historical data. Also, address adjustments made to historical data for one-time expenditures, capital expenditures, etc. Additional analysis can be provided at the lender’s option, as appropriate.>>
ALTA/ACSM Land Survey
Date: |
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Firm: |
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Key Questions
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Yes |
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No |
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If you answer “no” to all of the above questions, copies of the most recent signed and certified “as-built” survey, accepted by HUD, must be provided (originals are not required). No further review is needed. If copies are not available, a current “as-built” survey, confirming to the HUD Survey Instructions & Owner’s Certification may be required and the ALTA/ASCM Land Title Survey addendum must be attached to this narrative. If a current “as-built” survey is submitted, COMPLETE THE KEY QUESTIONS BELOW.>>
<<If you answer “yes” to any of the above questions, a current “as-built” survey, confirming to the HUD Survey Instructions & Owner’s Certification is required. COMPLETE THE QUESTIONS BELOW.>>
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<<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: |
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Firm: |
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File Number: |
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Key Questions
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<<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: |
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Firm: |
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Policy Number: |
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Key Questions
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<<For each “yes” answer above, provide a narrative discussion regarding the topic. 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
<<Provide certification affirming that borrower is not aware of any property condition(s) that would necessitate a Phase I or Phase II Environmental review.>>
Project Capital Needs Assessment (PCNA)
<<Provide certification affirming that borrower is not aware of any project condition(s) that would necessitate a Project Capital Needs Assessment (PCNA).>>
Automatic Fire Sprinkler Systems Compliance: This nursing home is not currently in compliance with the 1999 edition of the National Fire Protection Association’s (NFPA) “Standard for the Installation of Sprinkler Systems” (NFPA 13). Non-critical repairs are proposed to bring the facility into compliance prior to the August 13, 2013, deadline.
Repairs
<<Please note that repairs that are not for the installation of fire safety equipment may not be included in the security instrument.>>
Critical Repairs
<<Provide a brief summary of the required critical repairs. If none, state none. See example for non-critical repairs below. Critical repairs must be completed prior to endorsement of the security instrument.>>
Non-Critical Repairs
<<Provide a brief summary of the required critical repairs. If none, state none. For example:
The needs assessor identified the following non-critical repair items totaling $XXXX:
Remove and replace XXX. Estimated cost: $XXXX.
Remove and replace XXX. Estimated cost: $XXXX.>>
<<provide brief summary here>>
Borrower Proposed Repairs
<<Provide a brief summary of the borrower proposed repairs. If none, state none. See example for non-critical repairs above.>>
Completion and Inspection of Repairs
The repair list attached to Exhibit C of the Draft Firm Commitment clearly describes the location of the repairs and what is required. The description is sufficiently detailed so that an experienced person can perform the work and that an experienced inspector can inspect with minimal additional direction or consultation.
All critical repairs must be completed prior to endorsement of the security instrument.
Replacement Reserves
Replacement Reserve Summary |
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Amount |
Per Unit |
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Initial Deposit |
$ |
$ |
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Annual Deposit |
Years: |
1-15 |
$ |
$ |
<<The above table should identify all changes in the annual deposit from year to year.>>
General Overview
The replacement reserve analysis includes a combined analysis of both capital items and major movable equipment. The underwriter has reviewed the replacement reserve schedule and provided a summary analysis below. The full 15-year replacement reserve schedule, including the major movable analysis, is provided as Exhibit B to the Draft Firm Commitment submitted with this narrative.
In the analysis below, the underwriter spreads the anticipated replacements by year based on the needs assessor’s replacement reserve analysis and assumes an interest of % and an inflation rate of %.
Reserve for Replacement Fund Schedule
(Double click inside the Excel Table to add information)
As you can see, the year-end balance for each year through year 15 is positive, indicating that the initial and annual deposit are sufficient based on these assumptions. The HUD program requires the lender to re-analyze the capital needs in year 10.
Borrower
Name: |
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State of Organization: |
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Date Formed: |
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Termination Date: |
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FYE Date: |
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Key Questions
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<<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
<<Provide narrative description of borrower experience and qualifications. For example: “The borrower entity is a single-asset entity that was established in {date} to develop and own the subject project. It has owned the facility since its inception…”>>
Credit History
Report Date: |
<<within 60 days of submission>> |
Reporting Firm: |
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Score: |
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<<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
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Yes |
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No |
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<<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:
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
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<<For each “yes” answer above, provide a narrative discussion on the topic describing the risk and how it will be mitigated. Example: Tenant Security Deposits: The tenant security deposits do not appear to be fully funded. At closing, however, the borrower will not be the operator and the tenant deposit obligation will fall to the new operator. Therefore, the underwriter has included a commitment condition requiring the new operator to set up project accounts by closing and to provide an acceptable, certified Balance Sheet showing that the tenant security deposits are fully funded.>>
General Overview
<<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 entity has demonstrated an acceptable financial and credit history. The borrower has the experience to continue to successfully own this facility. The underwriter recommends this borrower for approval as an acceptable participant in this transaction.”>>
Principal of the Borrower – <<enter Principal Name>>
<<Provide this section for each principal of the borrower.>>
Key Questions
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<<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 information:>>
State of organization: |
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Date formed: |
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Termination date: |
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<<Provide organization chart and narrative, as applicable.>>
Experience/Qualifications
<<Provide narrative description of principal’s experience and qualifications. Discussion should highlight direct experience and involvement in other HUD transactions. This section should clearly demonstrate that the borrower has sufficient expertise to successfully own the facility. >>
Credit History
Report Date: |
<<within 60 days of submission>> |
Reporting Firm: |
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Score: |
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<<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. >>
Program Guidance: Program Guidance: Handbook 4232.1, Section II Production, Chapter 6.1.F, The Credit Investigation. |
Key Questions
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Yes |
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No |
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<<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
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<<For each “yes” answer above, provide a narrative discussion on the topic describing the risk and how it will be mitigated. Example: Other Business Concerns: XXXXX identified XX other business concerns in addition to the borrower and the newly formed operator discussed in this narrative. The underwriter reviewed Dunn and Bradstreet credit reports for XX Other Business Concerns identified by XXXX. {Discuss each report}. No reports indicated derogatory information that would prohibit XXXXX participation in this loan transaction.
Example: Other Section 232 Applications: XXXXX identified XX other Section 232 loan application – {projects}. The applications were submitted XXX and closed in XXX. As this is only XXXXX’s Xth HUD-insured healthcare loan, no additional reviews are required>>
Financial Statements
<<If borrower has sufficient financial strength, no review of a principal’s financials is required. If a review of the principal’s financials is required to support approval of the loan, provide an analysis similar to the one provided for the borrower, above. >>
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 this and other facilities. The underwriter recommends this principal as an acceptable participant in this transaction.”>>
Operator
Name: |
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State of Organization: |
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Date Formed: |
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Termination Date: |
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FYE Date: |
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Key Questions
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<<For each “yes” answer above, provide a narrative discussion on the topic describing the risk and how it will be mitigated. >>
Organization
<<Provide organization chart and narrative, as applicable. >>
Experience/Qualifications
<<Provide narrative description of operator’s experience and qualifications. Discussion should highlight direct experience and involvement in other HUD transactions, if any. This section should clearly demonstrate that the operator has the expertise to successfully operate the facility.>>
Credit History
Report Date: |
<<within 60 days of submission>> |
Reporting Firm: |
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Score: |
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<<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
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<<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
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No |
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<<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 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.
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.
Example: Tenant Security Deposits: The tenant security deposits do not appear to be fully funded. At closing, however, the borrower will not be the operator and the tenant deposit obligation will fall to the new operator; therefore, the underwriter has included a commitment condition requiring the new operator to set up project accounts by closing and to provide an acceptable, certified Balance Sheet showing that the tenant security deposits are fully funded.
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.)
>>
General Overview
<<Provide narrative and analysis of financial statements as appropriate. In addition to the Key Questions above, working capital should be discussed along with the general financial stability and strength of the entity. >>
Net Income Analysis
Net Income*
In total $
20XX |
20XX |
20XX |
YTD (Indicate time frame) |
$ |
$ |
$ |
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*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.>>
Other Business Concerns
Key Questions
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No |
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<<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 |
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Other Section 232 Projects
Key Questions
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No |
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<<For each “yes” answer above, provide a narrative discussion on the topic describing the risk and how it will be mitigated. Example: Other Business Concerns: XXXXX identified XX other business concerns in addition to the borrower and the newly formed operator discussed in this narrative. The underwriter reviewed Dunn and Bradstreet credit reports for XX Other Business Concerns identified by XXXX. {Discuss each report}. No reports indicated derogatory information that would prohibit XXXXX participation in this loan transaction.
Example: Other Section 232 Applications: XXXXX identified XX other Section 232 loan application – {projects}. The applications were submitted XXX and closed in XXX. As this is only XXXXX’s Xth HUD-insured healthcare loan, no additional reviews are required>>
Other Facilities Owned, Operated or Managed
Key Questions
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<<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.>>
Program Guidance:
For other projects/facilities owned, operated, or managed, the lender must submit copies of inspection reports for the facilities that have open level “G” or higher citations/deficiencies. The lender must address any issues/risks associated with the reports and show how they would be mitigated. If no open/unresolved level G or higher deficiencies, this should be stated. Note: If any facility has recent (within last 2 years) resolved “G” or higher citations/deficiencies, the lender must address this in the narrative; however, a copy of the report is not required.
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Conclusion
<<Provide narrative discussion of underwriter’s conclusion and recommendation. For example, “XXX has demonstrated an acceptable credit history and sufficient experience owning and operating other facilities. The underwriter recommends this principal as an acceptable participant in this transaction.”>>
Parent of the 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: |
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State of organization: |
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Date formed: |
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Termination date: |
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Key Questions
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Yes |
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No |
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<<For each “yes” answer above, provide a narrative discussion on the topic describing the risk and how it will be mitigated. Example: S&P Rating: The entity is rated X by S&P. The rating agency indicates the outlook for the company is X.>>
Organization
<<Provide organization chart and narrative, as applicable.>>
Experience/Qualifications
<<Provide narrative description of experience and qualifications. Discussion should highlight direct experience and involvement in other HUD transactions. This section should clearly demonstrate the expertise to successfully operate the facility. >>
Credit History
Report date: |
<<within 60 days of submission>> |
Reporting firm: |
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Score: |
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<<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
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Yes |
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No |
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<<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
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No |
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<<For each “yes” answer above, provide a narrative discussion on the topic describing the risk and how it will be mitigated. Example: Other Business Concerns: XXXXX identified XX other business concerns in addition to the borrower and the newly formed operator discussed in this narrative. The underwriter reviewed Dunn and Bradstreet credit reports for XX Other Business Concerns identified by XXXX. {Discuss each report}. No reports indicated derogatory information that would prohibit XXXXX participation in this loan transaction.
Example: Other Section 232 Applications: XXXXX identified XX other Section 232 loan application – {projects}. The applications were submitted XXX and closed in XXX. As this is only XXXXX’s Xth HUD-insured healthcare loan, no additional reviews are required.>>
Other Facilities Owned, Operated or Managed
Key Questions
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No |
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Does the parent of the operator participate 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.>>
Program Guidance: Handbook 4232.1, Section II Production, 8.8.
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Financial Statements
The application includes the following parent of the 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
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Yes |
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No |
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<<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 risks to the new project. Discuss your analysis of these issues and how the lender determined they are an acceptable risk. >>
General Overview
<<Provide narrative and analysis of financial statements as appropriate. In addition to the Key Questions above, working capital should be discussed along with the general financial stability and strength of the entity.>>
Net Income Analysis
Net Income*
In total $
20XX |
20XX |
20XX |
YTD (Indicate time frame) |
$ |
$ |
$ |
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*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 three 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 as discussed in our analysis of their financial statements and credit history above. The parent of the operator has the experience to continue to successfully operate this facility. The underwriter recommends this parent of the operator for approval as an acceptable participant in this transaction.”>>
Management Agent (if applicable) –
<<Provide this section if (1) the facility is not leased, and/or (2) the management agent contracts in its own name with the residents, and/or (3) the management agent is the sole entity named on the license for the facility.>>
Name: |
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Relation to borrower: |
<<owner managed/IOI entity/independent/other>> |
Principals/officers: |
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Key Questions
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Yes |
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No |
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<<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 |
Type of Facility |
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Management Agent’s Duties and Responsibilities
<<Briefly describe/list the management agent’s duties and responsibilities (i.e., will the management agent control the operating accounts; contract for services; recruit, select or train employees; take responsibility for the management of the functional operation of the facility or the execution of the day-to-day policies of the facility; etc.).>>
<<Also describe the nature of the management agent’s compensation and how it was calculated.>>
Experience/Qualifications
<<Provide narrative description of experience and qualifications. Discussion should highlight direct experience and involvement in other HUD transactions, if any. Include a discussion/ explanation of any current REAC scores less than 60. This section should clearly demonstrate the expertise to successfully manage the facility and meet the obligations of the management agreement. This section should clearly demonstrate that the management agent has the expertise to successfully lease up a new facility and operate a facility.>>
Credit History
Report date: |
<<within 60 days of submission>> |
Reporting firm: |
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Score: |
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Key Questions
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Yes |
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No |
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<<If you answer “yes” to any of the above questions, identify the risk factor and how it is mitigated below. Provide an explanation of the credit score in terms of low, medium, or high risk, etc. Also, if the score is evaluated numerically, explain the value the credit agency places on the score.>>
Other Facilities Owned, Operated or Managed
Key Questions
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Yes |
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No |
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<<As applicable, for each “yes” answer above, provide a narrative discussion on the topic describing the risk and how it has been or will be mitigated.
Program Guidance: Handbook 4232.1, Section II Production, 8.8. |
Past and Current Performance
Indicator |
Findings |
Billing |
<<acceptable>> |
Controlling operating expenses |
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Vacancy rates |
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Resident turnover |
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Rent collection and accounts receivable |
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Physical security |
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Physical condition and maintenance |
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Resident relations |
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<<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: |
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Agreement expires: |
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Management fee: |
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Key Questions
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Yes |
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No |
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<<For each “yes” answer above, provide a narrative discussion on the topic describing the risk and how it will be mitigated. >>
HUD Documents
Form HUD-9839-ORCF
<<Provide narrative review. For example, “The form HUD-9839-ORCF, Management Agent Certification provided in the application package indicates a management fee of XX% 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
Administrator
Name: |
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Employed by: |
<<Name of entity who employs/pays administrator>> |
Facility Start Date: |
<<Date started at this facility as Administrator>> |
<<Narrative description of experience and qualifications - For example, “{Administrator} has been a licensed administrator since XXXX. Her current Residential Care Administrator’s license No. XXXXXXX expires XXXXX. It was issued by XXXXXX in the State of XXXX. Her experience includes… Since arriving at the facility, XXXX has helped to increase the revenues and profitability of the project, as evidenced by the increasing effective gross income and net operating income (NOI). XXXXX is well qualified and has demonstrated her ability to act as Administrator for the subject facility.”>>
Subject’s State Surveys
The application includes the following state surveys issued on the following dates over the last three (3) years of operations: (State when the survey was conducted and when the project was found in compliance.)
3 Years of Survey Inspections
Date of survey/inspection |
Date state issued letter approving POC |
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Key Questions
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No |
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<<For each “yes” answer above, provide a narrative discussion on the topic describing the risk and how it will be mitigated. Example: General Review and Findings: Provide narrative description of review. For example: “The {date} state survey inspection letter indicates that there were X deficiencies. The deficiencies constitute a pattern of findings, or repetitive findings from survey to survey, resulting in repeat deficiencies and civil money penalties of $XXX…”>>
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 3rd 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.>>
Other Facilities Operated or Managed
<<This section is only applicable for skilled nursing facilities.>>
Key Questions
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Yes |
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No |
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<<For each “yes” answer above, provide a narrative discussion regarding the topic.>>
General Review and Findings
<<Provide a narrative description of review. For example, “The most recent state survey inspections are provided for XX skilled nursing facilities that are owned, operated, or managed by XXXX. The underwriter has reviewed the findings and found….”>>
Staffing
<<Provide narrative description of review. For example: “The appraiser and underwriter have reviewed the current and proposed staffing to be charged to the facility and found it to be acceptable and within reason…”>>
Operating Lease
Program Guidance: Handbook 4232.1, Section II Production, Chapter 8.6, Operating Lease Requirements |
Date of agreement: |
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Current lease term expires: |
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Description of renewals: |
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Current lease payment: |
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Major movable equipment ownership: |
<<borrower/operator>> |
Key Questions
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Yes |
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No |
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<<For each “yes” answer above, provide a narrative discussion regarding the topic. For example: Item 10 – Leased Facility The facility will be leased to XXX. The lease and the operator are discussed in the appropriate sections of this narrative. There are no known special provisions or considerations involved with this lease that require special consideration in the underwriting.>>
Lease Payment 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 |
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c. |
Annual replacement reserves |
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d. |
Annual property insurance |
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e. |
Annual real estate taxes |
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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.>>
Insurance
Professional Liability Insurance (PLI) Coverage
Program Guidance: Handbook 4232.1, Section II Production, Appendix 14.1. |
Commercial insurance: |
Yes No |
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Self insurance: |
Yes No |
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If self insurance, describe: |
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Is there a fronting policy? |
Yes No |
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Name of insured: |
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Insurance company: |
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Rating: |
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Rater: |
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Insurance company is licensed in the United States: |
Yes No |
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Statute of limitations: |
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Current coverage: |
Per occurrence: |
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Aggregate: |
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Deductible: |
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OR |
Self insurance retention: |
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Policy Basis: |
Per occurrence Claims made |
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Current Expiration: |
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Retroactive Date: |
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Policy Premium: |
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Summary of Six-Year Loss History for Operator or its Parent of Operator |
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Year |
Total claims paid under this policy (dollars) |
Total claims paid under this policy (no. of claims) |
Total bed count covered under the policy |
Dollars paid in claims per bed |
1 |
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2 |
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3 |
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5 |
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6 |
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Total/average |
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Key Questions
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Yes |
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No |
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If you answer “yes” to any of the above questions, please address here. Examples:
Multiple properties: The underwriter notes that the professional liability policy is a “blanket” policy covering XXX facilities, including the subject… {Address potential impact of other facilities on the subject’s coverage}
Less than 6-year loss history: The claims history reports were examined for the period XX through XX. The underwriter determined that there were no professional liability XX claims during that period… {address claims and sufficiency of coverage, etc. based on history}.
Claims made coverage: The project’s previous professional liability insurance coverage was a “claims made” form policy with XXXX, which expired XXXX, when the current policy was put in place. In XXXX, the borrower purchased a “nose coverage” policy, which is the coverage needed when going from a “claims made” form of insurance to a “per occurrence” form of insurance. The premium for this “nose” coverage liability was a one-time charge and was paid in XXX. Because of that additional insurance coverage, the insurance expense for XXXX was substantially higher than the current expense. The current “per occurrence basis” insurance policy covers the entire statute of limitations. The project’s professional liability insurance is in compliance with HUD’s requirements.>>
Lawsuits
<< Identify all potential or expected professional liability insurance (PLI) claims in excess of $35,000 that have been or may be filed for all periods within the statute of limitations for the state where the claim occurred. Identify any reserves held for potential claims. Discuss the risk associate with each potential PLI claim. Discuss how that risk is mitigated. Describe the circumstances, identify the potential award amount, provide evidence and analysis showing that the suits are covered by PLI insurance, and if the insurance is not sufficient, does the insured demonstrate adequate funds to cover the potential excess? Describe any other information that mitigates the risk.
As applicable, discuss other types of lawsuits (non PLI) and describe the potential risk related to the party’s participation in the proposed project. Discuss how that risk is mitigated. If the suit is closed, does it contribute to a pattern? Does it materially affect the party’s ability to participate in the project? If not closed, describe the circumstances, identify the potential award amount, provide evidence and analysis showing that the suits are covered by insurance (general liability), and if the insurance is not sufficient, do they demonstrate adequate funds to cover the potential excess? Describe any other information that mitigates the risk.>>
Commercial General Liability Insurance
<<Provide narrative discussion of policy coverage for bodily injury, property damage and personal injury. For example: General liability insurance will be provided by XX. The underwriter has confirmed estimates of the cost and coverage for underwriting and will re-verify this information prior to closing. The insurance coverage will comply with HUD requirements prior to closing.>>
Recommendation
<<Provide narrative recommendation regarding acceptability of general and professional liability insurance. For example, “The mortgagor’s professional and general liability insurance was analyzed in accordance with Handbook 4232.1, Section II Production, Chapter 14 and Appendix 14.1. The property has XX current potential (threatened) insurance claims at this time as reflected on the certification provided by the borrower. It is {lender}’s opinion that the information provided above and in the application sufficiently demonstrates that the existing professional liability coverage meets HUD’s requirements and that the risk from professional liability issues is sufficiently addressed. No modifications to the current coverage are recommended.”>>
Property Insurance
<<Provide narrative discussion of policy coverages as applicable, including property damage, ordinance and law coverage, and boiler and machinery/equipment breakdown insurance. For example, “Property insurance has been and/or will be provided by XX. The underwriter has confirmed estimates of the cost and coverage for underwriting and that it complies with HUD requirements.”>>
Mortgage Loan Determinants
Overview
The mortgage criteria shown on the form HUD-92264a-ORCF are summarized as follows:
Requested amount: |
$ |
Debt service coverage: |
$ |
Transactions costs: |
$ |
Deduction of loan(s), grant(s), and gift(s) for mortgageable items: |
$ |
Mortgage Term
The underwriter concluded to a mortgage term of years.
Type of Financing
The type of financing available to the borrower upon issuance of the commitment will likely be in the form of .
Amount Based on Required Debt Service
Coverage
(Criterion E of HUD-92264a-ORCF)
The $ debt service limit was calculated using HUD’s guidelines. This is based on % of the underwriter’s net operating income of $ , interest rate of % and a -year term. The proposed mortgage is constrained by ; therefore, the underwritten debt service coverage is , which is % of the estimated net operating income for debt service and MIP payments.
<<Note: If the debt service coverage rate is less than 1.45, justification/mitigation of the additional risk to HUD must be addressed in the Risk Factors section of this narrative.>>
Legal and Organizational Costs
The borrower’s legal and organization costs are estimated to total $ ($ for legal and $ for organizational expenses). The underwriter concluded that the budgeted amounts are reasonable.
Title and Recording Fees
Title and recording fees are estimated to cost $ . The underwriter concluded that the budgeted amount is reasonable.
Other Fees
A total of $ in third-party report fees has been included in the mortgage calculation and the fees include .
HUD Fees
<<This section pertains to the transaction cost calculation and may not match the actual fees in the sources and uses.>> The HUD fees total $ and are comprised of MIP totaling 1.0% of the mortgage amount ($ ); the HUD application fee totaling 0.3%of the mortgage amount ($ ); and the HUD inspection fee ($ ). The HUD inspection fee is $5 per $1,000 of the fire safety mortgage amount.
Financing Fees
<<This section pertains to the transaction cost calculation and may not match the actual fees in the source and use.>> The financing fees payable to the lender total $ . The total is made up of a fee of % of the mortgage amount ($ ; plus, fixed lender fees totaling $ . The total cannot exceed a fee of 3.5% of the mortgage amount ($ ).
A broker <<select one>> is / is not involved in this transaction. The broker fee is $ and will be paid by , using <<select one>> mortgaged / non-mortgaged funds.
Deduction of Grants, Loans, and Gifts
The limit was calculated in accordance with HUD guidelines as follows:
-
Transaction estimated cost of rehabilitation
$
Grants/loans/gifts
Line a minus line b
$
The secondary sources are discussed in detail below in the Sources & Uses section of the narrative.
Sources & Uses – Copied from HUD-92264a-ORCF
<<Provide a Statement of Sources and Uses of actual estimated cost at closing. Include all eligible and ineligible transaction 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, etc. >>
Surviving Debt
<<List and discuss all existing long-term debt that will survive closing. >>
Other Uses
<<Discuss any Uses not previously discussed in this narrative. >>
Special Commitment Conditions
<<List any recommended special conditions. If none, state “None.”>>
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.
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: |
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HUD Mortgagee/Lender No.: |
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This report was prepared by:
|
Date |
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This report was reviewed by:
|
Date |
<<Name>> <<Title>> <<Phone>> <<Email>> |
|
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<<Name>> <<Title>> <<Phone>> <<Email>> |
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This report was reviewed, and the site inspected by:
|
Date |
<<Name>> <<Title>> <<Phone>> <<Email>> |
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| File Type | application/vnd.openxmlformats-officedocument.wordprocessingml.document |
| Author | H22192 |
| File Modified | 0000-00-00 |
| File Created | 2021-10-07 |
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