**Appendix I:**

Physical Condition Assessment Statement of Work

**[Qualifications]{.underline}:**

Contractor must:

1.  Be trained to evaluate building systems, health, and safety
    conditions, and physical and structural conditions, and to provide
    cost estimates for maintaining, rehabilitating, or improving
    deficiencies. Must also have environmental expertise, as inspection
    will include environmental issues as well. Must have any required
    licenses.

2.  Have acceptably completed written evaluation reports for similar
    types of multifamily rental housing projects in similar physical
    condition and age in the subject market or in similar areas,
    preferably including two (2) or more buildings that were receiving
    Section 8 or some other type of housing assistance when the report
    was prepared.

3.  Not be under suspension or debarment by HUD, or involved as a
    defendant in criminal or civil action with HUD.

4.  Produce reports that are well regarded in the marketplace in terms
    of content, timeliness and responsiveness. The inspector should have
    this personal experience, not just the company.

5.  Have the capacity to complete the project inspection and prepare the
    report in a time frame acceptable to the PAE.

**[Statement of Work]{.underline}**

The Contractor shall:

1.  Perform a Physical Condition Assessment (PCA) for each asset
    specified by the PAE and report the findings.

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a.  The report shall be prepared according to the Fannie Mae document:
    "Physical Needs Assessment Guidance To The Property Evaluator"
    (Attachment A), except as modified herein.

b.  The report shall include color photographs and a detailed narrative
    describing the property's exterior and interior physical elements
    and condition, including architectural and structural components,
    and mechanical systems.

c.  The Inspector will consult HUD Asset Management, Real Estate
    Assessment Center (REAC) and mortgagee (if available) files.

d.  The Contractor shall conduct site inspections of a minimum of 25% of
    all units. Units shall be randomly sampled while taking into
    consideration occupied and unoccupied units and the unit size mix,
    i.e. one bedrooms, two-bedrooms, etc. If a significant number of
    units are found to be in poor condition, the PAE may require that
    additional units be inspected.

e.  The report shall include:

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1.  **Critical items**: identify in detail, and report immediately to
    property management and the PAE, any repair item(s) that represents
    an immediate threat to health and safety;

2.  **Repair/Rehab items (Short Term Physical Needs)**: Identify and
    estimate the cost of the repairs, replacements, and significant
    deferred and other maintenance items that will need to be addressed
    within 12 months of closing (do not include items that are not
    broken but may need replacement in the near future).

3.  **Market Comparable Improvements**. After discussion with the PAE
    and the PAE's appraiser, the inspector may include repairs or
    improvements that are necessary for marketability in the list of
    Repair/Rehab needs. The repairs/improvements identified should be
    those necessary for the project to retain its original market
    position as an affordable project in a decent, safe and sanitary
    condition (recognizing any evolution of standards appropriate for
    such a project). The project should be able to compete in the
    non-subsidized market on the basis of rents rather than amenities.
    Where a range of options exists, the least costly options for repair
    or rehabilitation should be chosen, when both capital and operating
    costs are taken into consideration.

4.  **Long-term Physical Needs/Reserve items**: Identify and provide an
    estimate of the major maintenance and replacement items that are
    required to maintain the project's physical integrity over the next
    **twenty (20) years**. (Note that the *Fannie Mae Guidance to the
    Property Evaluator* only requires an 18-year assessment maximum.)

5.  **Environmental Concerns**: The report shall provide a description
    of directly observed potential on-site environmental hazards and
    include a completed Environmental Restrictions Checklist (Form 4.4).

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f.  The report shall identify any physical deficiencies as a result of:

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1.  a visual survey;

2.  a review of any pertinent documentation; and

3.  interviews with the property owner, management staff, tenants,
    interested local community groups and government officials, to the
    extent possible.

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g.  The report shall provide a cost-benefit analysis of any individual
    repair or improvement costing more than \$10,000 per work item that
    represents an upgrade to current elements or that could be
    considered to reduce the operating expenses. (For example,
    individual utility metering, extra insulation, thermopane windows,
    water savers on showers and toilets, automatic setback thermostats,
    and durable siding.) Compare the cost of the item with the long-term
    impact on rent and expenses, taking into account the remaining
    useful life of building systems, as needed. The Contractor should
    coordinate with the underwriter and appraiser on this analysis, as
    needed. (Note: This analysis does not apply to items proposed to
    address accessibility issues, discussed below.)

h.  The report shall explain how the project will meet the requirements
    for accessibility to persons with disabilities, to the extent
    applicable. (See Attachment B, Accessibility Law Compliance Chart,
    for specific guidance.) Paragraph 2-40 of HUD Handbook 4350.3
    (change 24 issued 1-19-93) requires owners to develop a transition
    plan that identifies physical obstacles that limit accessibility and
    describes methods to make the project accessible. The contractor
    shall include items in the transition plan in the list of repairs.

i.  If requested by the PAE, the contractor shall take part in
    discussions with the owner, tenants, or other interested parties,
    including neighborhood associations, members of local government,
    and representatives from the public housing authority, including
    attendance at a meeting to solicit oral and written comments to be
    incorporated into the PCA. The contractor shall assist the PAE in
    evaluating and responding to tenant and local community comments
    concerning the physical condition of the project and recommended
    repairs.

j.  The contractor shall act as an independent third-party on behalf of
    the PAE to review the completeness and accuracy of any PCA submitted
    by the owner.

k.  The contractor shall provide the PAE with weekly status reports
    (upon request) during the preparation phase to track and monitor the
    progress.

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2.  The PCA report should also include the following subcomponents:

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a.  Acknowledgments (who prepared report, when report was prepared, who
    received report and when report was reviewed).

b.  Appendices (color photographs, site plans, maps, etc.).

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3.  In addition to the above, the Contractor shall:

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a.  Recommend any additional professional reports needed, for example,
    to determine the presence or degree of structural defects, or to
    complete additional investigation into an environmental issue. (The
    PAE will be responsible for obtaining such reports.)

b.  If the services of a subcontractor were secured to perform the PCA,
    the Contractor shall review the inspection for quality, consistency
    and agreed upon format and conformance with Fannie Mae's and these
    requirements.

c.  If requested by the PAE, attend a formal kick-off meeting to clarify
    the requirements and scope of the work to be performed.

**Deliverables**

1.  A draft report shall be submitted to the PAE for review prior to
    completion of the final report.

2.  The final report shall be completed in the number of originals and
    copies requested by the PAE or its designee.