USDA Rural Development 

Multi-Family Housing 

Comprehensive Property 

Assessment

Report date: March 1, 2016
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i

Acknowledgements

This report was prepared by CoreLogic, Inc. (CoreLogic) and RSM US LLP (RSM) consulting teams under 

contract to the U.S. Department of Agriculture (USDA) Rural Development (RD). The Rural Housing Service 

(RHS) is an agency of USDA RD. Special thank you to the USDA RD leadership and staff for their support 

of our analysis and for providing invaluable insight into the program’s history and how it could evolve to 

address its current challenges. The USDA’s State and Field Offices should also be commended for their 

support, especially during the capital needs assessments when they helped ensure our access to property 

managers and owners. 

Questions or comments on this report should be directed to:

RSM US LLP

1861 International Drive 

Suite 400

McLean, VA 22102

CoreLogic, Inc.

40 Pacifica, Suite 900

Irvine, California 92618
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iii

Table of contents

Acknowledgements ........................................................................................................................................ i

Table of contents...........................................................................................................................................iii

Glossary of terms .........................................................................................................................................vii

List of abbreviations ..................................................................................................................................... ix

Executive summary....................................................................................................................................... 1

Study background...................................................................................................................................... 1

Study findings ............................................................................................................................................ 2

A. RHS MFH portfolio has estimated reserves deficit of $5.596 billion over next 20 years ..............2

B. Section 515 reserves deficit increased since 2004.......................................................................3

C. MPR program improves property financial and physical conditions .............................................5

D. Conclusions on MFH portfolio....................................................................................................... 5

E. Conclusions on sample of 394 properties..................................................................................... 6

F. Summary of reserves deficits for MFH.......................................................................................... 6

1. Introduction ............................................................................................................................................ 7

1.1. Overview and report summary...................................................................................................... 7

1.2. Statement of work ......................................................................................................................... 7

1.3. Background of USDA RD.............................................................................................................. 8

1.4. Background of Comprehensive Capital Needs Assessment (CNA) .............................................9

2. Portfolio analysis methodology ............................................................................................................10

2.1. Capital Needs Assessment (CNA) methodology ........................................................................11

2.2. Financial analysis methodology ..................................................................................................17

2.3. Quality Assurance on CNA results..............................................................................................21

3. Results of the 2015 study ....................................................................................................................22

3.1. Summary of the results ...............................................................................................................22

3.2. Section 515 portfolio results........................................................................................................25

3.3. Section 514 Off-farm portfolio results .........................................................................................28

3.4. Section 538 portfolio results........................................................................................................30

3.5. MPR portfolio results...................................................................................................................34

3.6. Changes to the Section 515 portfolio over 12 years...................................................................37

3.7. Key findings among the sample data of 394 properties..............................................................42

3.7.1. Analysis of most costly components .......................................................................................42

3.7.2. Analysis of property age on PUPA reserves deficit ................................................................43

3.7.3. Analysis of MPR sample properties ........................................................................................47
iv

3.7.4. Analysis of property “overall conditions” .................................................................................49

4. Recommendations and next steps ......................................................................................................52

4.1. Recommendations ......................................................................................................................52

4.2. Next steps ...................................................................................................................................54

5. Possible use of existing RHS tools to reduce capital reserves deficits ...............................................56

Appendices .................................................................................................................................................63

Appendix A: Assumptions and limiting conditions...................................................................................63

Appendix B: Sample selection methodology detail .................................................................................65

Appendix C: Capital Needs Assessment template..................................................................................67

Appendix D: PUPA reserves deficit methodology ...................................................................................73
v

List of figures and tables

Figure 1 — Uninflated reserves for replacement deficit for MFH portfolio over 20 years.............................2

Figure 2 — Per unit per annum (PUPA) reserves deficit in MFH portfolio, by program, number of units ....3

Figure 3 — Bridging the gap between the 2004 v. 2015 reports for Section 515........................................4

Figure 4 —Three phases of the analysis methodology created this final report.........................................10

Figure 5 — Steps within the three phases of the portfolio analysis ............................................................11

Figure 6 — Actual overlap within MFH portfolio v. overlap within sample selected ...................................12

Figure 7 — Steps within the financial analysis methodology......................................................................17

Figure 8 — Basic concept of how annual costs can exceed reserves........................................................18

Figure 9 — Example calculation of PUPA reserves deficit/surplus ............................................................19

Figure 10 — Basic example of expanding a sample to a portfolio..............................................................19

Figure 11 — Quality Assurance Process ....................................................................................................21

Figure 12 — Uninflated reserves for replacement deficit for MFH portfolio over 20 years.........................23

Figure 13 — Uninflated average PUPA reserves deficit for MFH portfolio.................................................23

Figure 14 — PUPA reserves deficit in MFH portfolio, by program and number of units ............................24

Figure 16 — Distribution of near-term v. long-term capital needs for Section 515 portfolio.......................26

Figure 17 — Distribution of near-term v. long-term capital needs for Section 514 Off-farm portfolio.........29

Figure 18 — Distribution of near-term v. long-term capital needs for Section 538 portfolio.......................31

Figure 19 — Near-term v. long-term capital needs: MPR...........................................................................35

Figure 20 — Section 515 v. MPR PUPA reserves deficit ...........................................................................36

Figure 21 — Bridging the gap between Section 515 PUPA reserves deficit in 2004 v. 2015 ....................38

Figure 22 — Section 515 average PUPA reserves deficit in 2004 v. 2015 ................................................40

Figure 23 — PUPA reserve deficit compared to property year built...........................................................44

Figure 24 — Average number of units per property for each program, by year built .................................45

Figure 25 — Average age of the properties within the sample...................................................................46

Figure 26 — MPR v. Section 515 and PUPA reserves deficits based on year property was built ............48

Figure 27 — Distribution of property conditions for sample of 394 MFH properties...................................50

Figure 28 — PUPA reserves deficit by property condition for sample........................................................51

Figure 29 — Scenarios B, C impact to Section 515 portfolio......................................................................59

Figure 30 — Scenarios B, C impact to Section 514 portfolio......................................................................61

Figure 31 — Example pro forma to calculate reserves for replacement deficit ..........................................73

Table 1 — Comparison of Section 515 between the 2004 and the 2015 report...........................................5

Table 2 — Reserves deficits by program...................................................................................................... 6

Table 3 — Example of expanding Section 515 sample results to the portfolio ..........................................20

Table 4 — Section 515 units by bedroom size ...........................................................................................25

Table 5 — Section 514 Off-farm units by bedroom size .............................................................................28

Table 6 — Unit range as a proportion of the Section 538 sample..............................................................33

Table 7 — Most costly components among the sample properties ............................................................42

Table 8 — Scenarios applied to the MFH portfolio .....................................................................................58

Table 9 — MFH portfolio and sample selected for analysis .......................................................................65

Table 10 — Sample selected for Section 515.............................................................................................66

Table 11 — Sample selected for Section 514 Off-farm ..............................................................................66

Table 12 — Sample selected for Section 538.............................................................................................66

Table 13 — Sample selected for MPR........................................................................................................66
vi

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vii

Glossary of terms

Coefficient of variation (CV). A statistical measure of the dispersion of data points in a data series around 

the mean. 

Cost to maintain functionality. The estimated costs to replace the capital items necessary to maintain 

the operational utility of the property. 

Cost to maintain functionality per annum. The estimated annual costs to replace the capital items 

necessary to maintain the operational utility of the property. 

Cost to maintain functionality over 20 years. The estimated gross cost to replace the capital items 

necessary to maintain the operational utility of the property over the 20-year period relied upon for this 

analysis. This is the gross cost before factoring in existing reserves for replacement.

Economic life. The period over which improvements to real property contribute to property value.

Effective age. The age of a property that is based on the amount of observed deterioration and 

obsolescence it has sustained, which may be different from its chronological age.

Per unit per annum (PUPA). The estimated reserves for replacement that a property must set aside for 

each unit per year in order to maintain functionality.

Pro forma. Data or information based on financial assumptions or projections.

PUPA reserves deficit. The PUPA net of reserves for replacement. If PUPA is greater than available 

reserves, then additional funding is required to maintain capital items. If the reserves for replacement is 

greater than PUPA, then PUPA reserves deficit becomes a PUPA reserves surplus.

Remaining useful life. The estimated period during which improvements will continue to provide utility.

Useful life. The period of time over which a structure or component of a property may reasonably be 

expected to perform the function for which it was designed.
viii

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ix

List of abbreviations

ADA American with Disabilities Act

AMAS Automated Multi-Family Housing Accounting System 

CNA Capital Needs Assessment

CV Coefficient of variation 

FHA Fair Housing Act

HVAC Heating ventilation air conditioning

MFH Multi-Family Housing

MPR Multi-family Housing Preservation and Revitalization program

NPV Net present value

PUPA Per unit per annum

QA Quality Assurance

RA Rental Assistance

RD Rural Development 

RHS Rural Housing Service

RRH Rural Rental Housing

USDA U.S. Department of Agriculture

VCT Vinyl composition tile
x

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Executive summary

1

Executive summary

Study background

The mission of the United States Department of Agriculture (USDA) Rural Development (RD) is to 

improve the economy and quality of life in rural America. RD has multiple agencies that promote 

economic development of rural communities through loans, grants, and loan guarantees. The Rural 

Housing Service (RHS) is one of three agencies within RD and one of its purposes is to build or 

improve single-family housing, multi-family housing, and essential community facilities in rural 

areas. Today the RHS Multi-Family Housing Programs (MFH) supports a portfolio of 14,650 

properties throughout the United States, Puerto Rico, the Virgin Islands, and Guam.

In 2004, RHS contracted for a study to analyze the Section 515 Rural Rented Housing Program, 

identify problems, and provide recommendations for changes to address such problems. The 2004 

study focused on the Section 515 properties and how they could be better maintained and 

preserved to meet the needs of rural housing. Since that study, the Multi-family Housing 

Preservation and Revitalization (MPR) program was established as a way to provide flexible 

financing tools to modernize the properties. MPR can effectively extend properties’ functional utility

and restructure loans for existing Rural Rental Housing (RRH) and Off-farm Labor Housing projects 

to help revitalize and preserve the availability of affordable rental housing for economically 

disadvantaged residents. 

This study, referred to herein as the 2015 Study, performs a comprehensive capital needs 

assessment (CNA) of MFH programs’ portfolios of properties (henceforth “MFH portfolio”) in order

to understand the following: (1) the current conditions of the Section 515 portfolio; (2) a first-time 

review of the condition of the MFH’s other programs’ portfolios; and (3) determine the impact of the 

MPR program on reserves for replacement deficits since its implementation in 2006. Section 515 

properties that have participated in the MPR program have, on average, significantly reduced their

reserves for replacement deficits over the 20-year analysis period. Although the MPR program has 

been successful, the analyses concluded that on average the programs within the MFH portfolio 

are running reserves for replacement deficits over the 20-year analysis period. (In addition, RHS is 

assessing how it will meet the growing needs of the elderly and disabled population.)

RHS can assess the results of this comprehensive capital needs portfolio analysis to make 

informed decisions, including but not limited to: (1) determine the severity of the problem of unmet 

capital reserves in the MFH portfolio; (2) how to meet the needs of their owner/borrow constituents;

and (3) how to meet the specific housing demands of the varied type of rural renters, given the 

current state of the portfolio.
Executive summary

2

Study findings

A. RHS MFH portfolio has estimated reserves deficit of $5.596 

billion over next 20 years

This report analyzed the capital needs of the MFH portfolio of Sections 515, 514 Off-farm, 538, 

and MPR.1 The analysis determined that MFH has costs to maintain functionality that exceed

the available reserves for replacement.2 Over the next 20 years, the MFH portfolio will have an 

estimated combined need for additional funding of $5.596 billion uninflated3 to cover the 

reserves for replacement deficit.

Figure 1 — Uninflated reserves for replacement deficit for MFH portfolio over 20 years

 1 In summary, the precision of point estimates generated by program and property size for this study is approximately 

+/- 8.33% at a 95% level of confidence for a 4.25% coefficient of variation (CV). The most precise estimates are for Offfarm Farm Labor Housing properties with more than 100 units (CV = 0.9% for a precision of 1.76%), whereas the least 

precise estimates generated for this study are for Off-farm Farm Labor Housing properties with less than 12 units (CV 

= 8.10% for a precision of 15.88%).

2 The cost to maintain functionality net of reserves is the value of existing reserves plus annual reserve contributions, 

minus the estimated total capital costs.

3 The uninflated reserves for replacement deficit for the four programs over 20 years was discounted at 5% assuming 

the mid-year discounting convention to estimate the net present value of the total MFH portfolio reserves deficit of 

$5.596 billion.

Section 514 Off-farm

$187 million

15,839 units

Section 515 

$4.728 billion

384,216 units

Section 538

$481 million

32,184 units

MPR

$114 million

21,809 units

Per RHS, property counts for Section 515 and Section 514 Off-farm exclude 

properties that overlap currently with the MPR and Section 538 programs.
Executive summary

3

The following chart illustrates the reserves deficits on a per unit per annum (PUPA) basis. PUPA is the 

estimated reserves for replacement that a property must set aside for each unit each year in order to 

maintain functionality. The columns represent the PUPA reserves deficit—i.e., the additional funds required 

per unit per annum—on average, within each program.

Figure 2 — Per unit per annum (PUPA) reserves deficit in MFH portfolio, by program, number of units

B. Section 515 reserves deficit increased since 2004

A capital needs assessment report from 2004 reported on the Section 515 portfolio. This 2015 

report will only make comparisons to the 2004 report in terms of the Section 515 portfolio. The 2004 

report concluded that the Section 515 portfolio had an estimated reserves deficit of $210 million 

annually. The Section 515 portfolio had 434,295 total units at the time of that report. The 2004 

report projected the $210 million annual reserves deficit over 20 years and discounted the total by 

5% assuming end-of-year discounting convention to calculate a net present value (NPV) reserves 

deficit of $2.600 billion. 

$1,230

$853

$977

$1,164

$1,165

$660

$765

$433

$1,142

$1,188

No properties in sample

$827

$1,205

$1,199

$1,220

$270

$209

$425

$677

$240

<12

12-24

25-50

51-100

>100

<12

12-24

25-50

51-100

>100

<12

12-24

25-50

51-100

>100

<12

12-24

25-50

51-100

>100

515 514 538 MPR

Uninflated average PUPA reserves deficit (in dollars)

Number of units per property

515 

514 

Offfarm 

538

MPR
Executive summary

4

The 2015 report concluded that the Section 515 portfolio had an estimated reserves deficit of $370

million annually, which was projected over 20 years and discounted by 5% assuming mid-year 

discounting convention to calculate a NPV of $4.728 billion. Importantly, this represents a nominal 

increase of $2.128 billion to the reserves deficit, but is not inflation adjusted. Figure 3 illustrates 

bridging the gap by translating the $2.600 billion from 2004 into 2015 dollars. Based on the 

Consumer Price Index, the inflation rate from 2004 to 2015 was approximately 1.9% annually.4

When applied to the $2.600 billion, inflation added $659 million and translated the 2004 figure to

$3.259 billion in 2015 dollars. The residual gap between the 2004 figure and the 2015 figure was

due to the portfolio aging and the corresponding costs of an incremental 12 years. Refer to section 

3.6, which explores the more complex reasons for the differences in reserves deficits.

Figure 3 — Bridging the gap between the 2004 v. 2015 reports for Section 515

 4 http://www.bls.gov/data/inflation_calculator.htm.

$2.600 

$4.728 

$0.659 

$1.469 

2004

(in year 2004

dollars)

Adjustment for

inflation to 2015

dollars

Costs due to

portfolio aging

over 12 years

and other

factors

2015

Section 515 NPV reserves deficit over 20 years 

(in billions)
Executive summary

5

Table 1 — Comparison of Section 515 between the 2004 and the 2015 report

Section 515 portfolio

2004 report data

(adjusted to 2015 

dollars)

2015 report data

Annual reserves for replacement deficit $263 million per annum $370 million per annum

Total units 434,295 units 384,216 units5

PUPA reserves deficit $647 per unit per 

annum

$964 per unit per 

annum

NPV of reserves deficit over 20 years $3.259 billion $4.728 billion

C. MPR program improves property financial and physical 

conditions

Starting in 2006, the MPR program was launched to offer several types of assistance to owners 

or purchasers of Section 515 properties. The most common types of MPR assistance include 

debt deferrals, as well as in some cases the issuance of grants, loans.

This study analyzed the reserves for represent for MPR properties. Key findings of the analysis 

include:

• MPR properties, on average, had a statistically significant lower PUPA reserve deficits

than Section 515 projects. 

• MPR properties, on average, had tail-end weighted capital needs. This indicates longterm capital needs are a higher percentage of the total 20-year capital needs. When 

compared to Section 515 properties, MPR is expected to have lower capital needs in

the near-term and medium-term.

• The success of the MPR program may partially explain the increase in reserves deficits 

of the Section 515 portfolio. Since the 2004 study, certain Section 515 properties 

participated in MPR if they met MPR’s strict physical and financial requirements. As a 

result, the Section 515 properties that did not participate in MPR were, on average,

more inclined to have higher capital needs.

D. Conclusions on MFH portfolio 

The 2004 report only analyzed Section 515. Therefore, historical comparisons within the MFH 

portfolio are limited to Section 515. The results of our analyses on the MFH portfolio are 

summarized below:

 5 Per RHS, property counts for Section 515 exclude properties that overlap currently with the MPR and Section 538 

programs.
Executive summary

6

• It appears that size (number of units) of a property influences the reserves deficit. 

Typically the larger the property, the more costly it is to maintain on a per unit basis.

• The longer properties postpone replacing capital needs/components, the more 

expensive it is to replace them. 

• MPR has a lower general PUPA reserves deficit. This is an indication that MPR is 

working from the perspective of supporting properties with maintaining functionality. It 

succeeds in tail-loading the capital cost to maintain functionality and thus reducing 

PUPA reserves deficit, and increasing the viability of the portfolio.

• Possible explanations for the high PUPA reserves deficits in other programs:

o Section 515 is aging and underfunded.

o Section 514 Off-farm has larger numbers of units, typically all family units with 

higher maintenance costs.

o Section 538 has more amenities and larger square footage.

E. Conclusions on sample of 394 properties

The results of our analyses on the sample of MFH properties are summarized below:

• MPR has a positive influence on reducing the PUPA reserves deficit.

• Property owners should consider replacing carpet with VCT once existing carpet 

reaches the end of its useful life.

• There appears to be a relationship between the age of the property and the greater 

average costs to maintain functionality. 

• The cost per unit per annum decreases among the better rated (excellent and above 

average) properties, which is a good trend.

F. Summary of reserves deficits for MFH

Table 2 — Reserves deficits by program

MFH portfolio Section 515 Section 514 

Off-farm

Section 538 MPR 

Annual reserves for 

replacement deficit

$370 million 

per annum

$15 million

per annum

$38 million 

per annum

$9 million 

per annum

NPV discounted at 5% midyear over 20 years $4.728 billion $187 million $481 million $114 million

Total units 384,216 units6 15,839 units6 32,184 units6 21,809 units6

PUPA reserves deficit $964 per unit 

per annum

$924 per unit 

per annum

$1,171 per unit 

per annum

$408 per unit 

per annum

 6 Per RHS, property counts for Section 515 and Section 514 Off-farm exclude properties that overlap currently with 

the MPR and Section 538 programs
Introduction 

7

1. Introduction

1.1. Overview and report summary

This report is an independent portfolio assessment based on a representative sample of 394 rural 

multi-family properties supported by the RHS MFH programs. RHS and their stakeholders are the 

intended audience of this report. The purpose of the report is to provide RHS with key financial 

information that might enable it to make informed operational decisions relating to the potential of 

unmet capital reserves in the MFH portfolio. 

1.2. Statement of work

The purpose and underlying scope of the contract was to provide on-site property assessments to 

support the development of a portfolio-wide property needs assessment by determining the amount 

of met and unmet capital needs required to ensure proper maintenance of the MFH portfolio over 

a 20-year analysis period. This report was prepared under Contract # AG-31ME-C-11-1010; Task 

Order # AG-31ME-D15-0029 with CoreLogic and a subcontract with RSM LLP. USDA RD executed 

this contract on September 11, 2015, with a no-cost modification to extend the due date executed 

on January 29, 2016.

In support of this final report, CoreLogic provided the program management and contractual 

oversight and as needed provided Marshall & Swift data as well as demographic data and mortgage 

data for 192 of the 394 sample properties (demographic analysis was not part of the scope).7 RSM 

provided the subject matter expertise through their Federal, real estate, and valuation practices to 

oversee and conduct on-site property assessments as well as provide quality assurance, financial 

analysis and the overall portfolio assessment leading to the publishing of this final report. 

RSM/CoreLogic (henceforth “we”) developed the assessment template via a Capital Needs 

Assessment (CNA) form, combined all qualitative and quantitative cost data from the on-site 

property assessments with the financial analysis calculations into an Excel model. We published 

the result per property and at the aggregate portfolio level via the 20-year tables. The team 

recognized that an effective CNA analysis would help RHS target their limited resources by: 

(1) objectively assessing property condition; (2) identifying and prioritizing needed improvements; 

(3) providing accurate costs estimates; and (4) leaving behind a comprehensive report and data 

that enable both planning of improvement projects and ability to track and monitor those 

improvements. The results of these four steps will provide RHS with not only the required data, but 

analysis and insights into the data to help drive decisions affecting the capital needs of its portfolio. 

The timetable for this study included time built-in for review of the CNA template, as well as an 

initial set of on-site property assessments called “rapid assessments.” Rapid assessments enabled 

 7 RSM used Marshall & Swift data for the remaining sample properties.
Introduction 

8

RSM to test the method for collecting the property data, as well as test the process of engaging the 

RD State Officers, contacting the property owners, and enabling RHS to review the results.

RHS will review the findings of this report along with other internal reviews to determine what 

actions, if any, should be taken to modify the current MFH portfolio. Any statements, 

recommendations, or conclusions made in this report do not represent the views of the Rural 

Development Mission Area, the Secretary of Agriculture, or the Administration. This is one of a 

number of options and data elements to be considered when contemplating changes to the 

program. 

1.3. Background of USDA RD

USDA RD has multiple agencies that promote economic development of rural communities through 

loans, grants, and loan guarantees (through banks, direct loans, credit unions, and communitymanaged lending pools). RD provides these financial instruments to businesses such as, for 

example, real estate property developers or agricultural producers. This enables the businesses in 

the community to support essential services such as housing, health care, first responder services 

and equipment, and utilities and infrastructure. RD also provides technical assistance and 

information to agricultural producers and helps rural residents obtain affordable housing.

RHS is one of three agencies within RD and its purpose is to build or improve single-family housing 

and multi-family housing and essential community facilities in rural areas. RHS MFH programs

“offer loans to provide affordable rental housing for very-low-, low-, and moderate-income residents, 

the elderly, and persons with disabilities. Funds also may be used to buy and improve land and to 

provide necessary facilities such as water and waste disposal systems. In addition, USDA offers 

rental assistance to help eligible rural residents with their monthly rental costs.”8 The MFH 

programs support properties throughout the United States, Puerto Rico, the Virgin Islands, and 

Guam, through various financial instruments described above. 

As of June 2015, there were 14,650 unduplicated properties representing 454,048 total units across 

all four MFH programs: Section 515, Section 514 Off-farm, Section 538, and MPR.9

• Section 515 Rural Rental Housing provides below-market interest rate loans of up to 30 

years (previously up to 50 years) for the construction, improvement, and purchase of multifamily rental housing in eligible rural areas for low-income individuals and families, 

including the elderly and people with disabilities. Eligible tenants can receive Section 521 

Rental Assistance to help reduce tenant rent contributions.

• Section 521 Rental Assistance (RA) is available to units within Section 515 Rural Rental 

Housing and Section 514 Off-farm Labor Housing properties leased to eligible tenants. RA 

 8 RHS website: http://www.rd.usda.gov/about-rd/agencies/rural-housing-service. 9 Per RHS, property counts for Section 515 and Section 514 Off-farm exclude properties that overlap currently with 

the MPR and Section 538 programs.
Introduction 

9

payments make up the difference between the rent charged and the tenant contribution to 

rent, which is capped at 30% of adjusted household income.

• Section 514 Off-farm Labor Housing provides below-market interest rate loans of up to 33 

years for the construction, improvement, repair, or purchase of housing for year-round and 

migrant or seasonal domestic farm laborers. Eligible tenants include US citizens or 

permanent residents—actively employed or retired—who receive or received a substantial 

portion of their income from farm labor activities, including growing, transporting, and 

processing agricultural and aqua cultural commodities. Eligible tenants can receive Section 

521 Rental Assistance to help reduce tenant rent contributions.

• Section 538 Guaranteed Rural Rental Housing provides a loan guarantee of up to 90% on 

loans of up to 40 years, made by eligible lenders to construct, improve, or purchase multifamily rental housing for low- to moderate-income families and individuals in eligible rural 

communities.

• MPR restructures loans for existing Section 515 Rural Rental Housing and Section 514

Off-farm Labor Housing projects to help improve and preserve the availability of safe 

affordable rental housing for low-income residents. It provides four mechanisms for 

preserving affordability and funding capital improvements: (1) grants to nonprofits to 

address immediate health and safety concerns; (2) new zero-interest loans; (3) new softsecond loans with deferred payments; and (4) loan modification to reduce existing debt 

payments.

1.4. Background of Comprehensive Capital Needs Assessment (CNA)

RHS performs CNAs on the portfolio of properties that it supports for the purpose of collecting and 

analyzing data for long-term planning needs. A CNA consists of an on-site property assessment of 

RHS-supported properties with the intent to identify physical components in need of repair and 

estimate the costs to maintain functionality over a 20-year period. The analysis and insights are

used as a strategic planning tool in the following ways:

• Enable property management to make informed decisions on the amount of reserves 

required per unit per annum to maintain functionality.

• Serve as documentation for a long-term grant or loan with more restrictive or contingent 

protocols (only for properties in the sample).

• Serve as a starting point for other analysis and portfolio decisions, including: alter policy to 

get out ahead of near-term and future challenges; seek funding sources to fund 

modernization and development requirements; and successful long-term management of 

RHS housing.

RHS aims to perform a CNA approximately every ten years for its MFH portfolio. The previous CNA 

was performed in 2004 by an independent contractor that focused on a sample of properties within 

the Section 515 portfolio. In 2015, CoreLogic and RSM performed CNAs on a sample of properties

from all four programs: Sections 515, 514 Off-farm, 538, and MPR.
Portfolio analysis methodology

10

2. Portfolio analysis methodology

As shown below, we designed the portfolio analysis methodology to be repeatable for future MFH 

portfolio assessments. The basic three phases of the portfolio analysis ultimately are summarized

into a two-part final deliverable. The final deliverables are (1) the capital needs assessment reports 

on all sample properties and (2) the financial analysis of the MFH portfolio, which is this report.

Figure 4 —Three phases of the analysis

methodology created this final report

1. Arrangements phase. RHS selected 

sample properties from the MFH program 

portfolios and the team made plans for onsite visits.

2. Data collection phase. We performed onsite property assessments to collect data in 

the form of written observations and 

photographs, and estimated costs to 

maintain operational functionality of the 

property over a 20-year period.

3. Financial analysis phase. The data from 

the sample property assessments were 

compared to each property’s beginning 

reserves for replacement balance and 

annual reserves deposits. The results of 

this calculation were the estimated reserves 

deficit/surplus for each property. We 

expanded the results to the MFH portfolio 

and performed analyses and documented 

observations about the results.
Portfolio analysis methodology

11

2.1. Capital Needs Assessment (CNA) methodology

This section describes how we created a consistent and repeatable methodology to plan physical 

on-site assessments, collect all data, and perform the analyses to produce the two final 

deliverables.

Figure 5 — Steps within the three phases of the portfolio analysis

Phase 1: Planning

Step 1: Overview of sample property selection

The MFH portfolio has 14,650 unduplicated properties (counting only properties that do not 

overlap programs) and it was not feasible from a cost and time perspective to inspect all. 

Therefore, it was necessary for RHS to choose a representative sample of the portfolio. A 

representative sample is a subset of a population that, when expanded using statistical 

methodologies, will reasonably reflect the entire population. A representative sample should 

be an unbiased indication of the population. 

Determine sample methodology

RHS selected a representative sample of 394 properties from the MFH portfolio of Sections 

515, 514 Off-farm, 538, and MPR. The sample was selected based on the number of total 

properties within each of the four programs as of June 2015 (March 2015 for Section 538). As 

of June 2015, there were 14,650 unduplicated properties representing 454,048 total units 

across all four programs. To avoid double-counting properties, each property was only counted 

in one program category even if currently financed by multiple MFH programs, as follows: 

• Section 515 — excluding any projects with Section 538 or MPR loans.

• Section 514 Off-farm — excluding any projects with Section 514 On-farm, Section 

538, or MPR loans.

Estimate costs

Select sample 

properties

Communicate 

with properties

Schedule 

physical 

assessments

1. Planning

2. Data 

collection

3. Analysis and 

reporting

Perform physical 

assessments Data entry

CNA reports Financial 

analyses Final report

Quality Assurance check
Portfolio analysis methodology

12

• Section 538 — including any overlap with Section 515, Section 514 Off-farm

and/or MPR.10

• MPR — excluding Section 514 Off-farm or Section 538 loans (all overlap with

Section 515 or Section 514 by statute, thus are excluded from Section 515 

category above).

Figure 6 — Actual overlap within MFH portfolio v. overlap within sample selected

Determine sample size and level of precision

To select an appropriate sample of properties within each program, properties were stratified 

by their size according to total units. These size categories mirror those used for the 2004 

report: 12 units or less, 12-24 units, 25-50 units, 51-100 units, or more than 100 units. The total 

number of properties and total number of units within each size category were first used to 

calculate the sample size, and then to expand the assessment findings of the sample properties 

to the entire portfolio. 

The USDA National Agricultural Statistical Service designs its samples to achieve a high level 

of statistical confidence in calculated estimates at a relevant level of precision (the coefficient 

of variation (CV)). In a population with a normal distribution where values cluster around the 

average and spread out from there evenly on both sides, it can be assumed that 95%—referred 

to as the level of confidence—of sample observations drawn from the population will fall close 

to the true population values (within 1.96 standard deviations). The CV provides an additional 

measure of precision for each estimate. CV values closer to 0 indicate greater precision, 

whereas values closer to 100% indicate more variation. 

 10 Section 538 properties with multiple USDA loan types were included in the count. Section 538 is utilized for Section 

515 preservation, although it started out and continues to be a new-construction program.

Section 

515 

portfolio

Section 

514

portfolio

Section 

538

portfolio MPR

portfolio

Section 

515 

sample MPR

MPR

Section 

514

Off-farm

sample

MPR

sample

Section 

538

sample
Portfolio analysis methodology

13

Select the sample properties

Once the sample sizes were calculated, properties were selected for the sample by program 

and property size using two methods. First, a panel of Section 515 properties was randomly 

selected from those that had participated in the 2004 study. This allows for future comparisons 

of their assessments, a task beyond the scope of this specific study and report. Second, an 

additional random sample was selected to complete the Section 515 sample, as needed, as 

well as to select properties from the other three programs. An oversample was drawn and used 

for each program to (1) ensure that most states and territories with funded USDA multi-family

properties were included in the study, and (2) select additional properties for addition to the 

study in the event that owners of selected properties declined to participate.

There were 161 sample properties selected from the Section 515 portfolio for the 2015 study 

sample. Of those 161 sample properties, 98 properties representing 5,264 units were selected 

from the 2004 study sample, while another 63 sample properties with 4,777 units were 

randomly selected from the Section 515 portfolio to fill the remaining sample according to unit 

size.

For this study, a stratified simple random sample was drawn by program and property size 

using a 95% level of confidence and a CV of 4.25%.11 This means that RHS can be fairly certain 

that the estimates based on program and property size in this study fall within approximately 

+/- 8.33% of the actual amounts. These values were selected in order to balance the need to 

minimize error and maximize the precision of estimates within budgetary constraints. Due to 

some post-selection data cleaning and slight changes in the number of properties that were 

able to be reasonably assessed by the end of the study period, actual CVs differ slightly from

those targeted. The calculated sample and the actual sample selected is provided within 

Appendix B on page 65.

Compare the sample to additional portfolio characteristics

Based on the sampling method used, study conclusions can only be expanded and generalized 

to the multi-family portfolio by program and unit size category. However, there are other 

property characteristics of interest that may be useful to consider, even though the sample was 

not selected to be representative of these. 

 11 The sample size required for a stratified simple random sample (SRS) with a 100(1 – α)% level of confidence and

specified target CV is given by:

 nnh = NNhssh

2

�CCCChTTh�

2

NNh +ssh

2

Where: h is the stratum, n is the sample size for stratum h, Nh is the stratum population, sh is the 

stratum standard deviation, CVh is the target stratum coefficient of variation, and Th is the stratum total.
Portfolio analysis methodology

14

Step 2: Communicate with properties

RD leadership contacted their state offices and notified each State Program Director of the 

sample properties that were in their state. Together with RD leadership, we contacted the RD 

area specialist and property manager for each property. Property managers were given the 

option to decline to participate.

Out of the original 394 properties selected, 12 owners chose not to participate. Some properties 

had been through recent on-site property assessments for other purposes and did not want to 

inconvenience tenants, while others were in the midst of paying-off their mortgage, transferring 

to a new owner, and/or launching rehabilitation projects and chose not to participate due to the 

timing of those events. Those properties were replaced by others from the same program and 

unit size category, with an effort made to also select a property within the same state or region 

as the original property sampled.

Step 3: Schedule on-site property assessments

We deployed on-site property assessment specialists and scheduled their visits with property 

managers. We created a property plan to monitor and report on the scheduling, completed onsite property assessments, and completed analyses and 20-year tables of cost estimates. 

Lastly, we distributed the CNA template to the assessors for data collection. 

Phase 2: Data collection

Step 1: Perform on-site property assessments

Trained personnel performed an on-site property assessment of the sample properties’ major 

building systems. Major building systems include the building envelope, exterior and interior 

finishes, architectural items, and site improvements (parking lots and fences, for example). 

Each major building system has various different components. Lastly, we performed a Quality 

Assurance (QA) check. 

The on-site property assessments were different from a typical RD physical inspection. RD 

regularly performs physical inspections on the properties to evaluate maintenance and safetyline conditions. RD will issue findings on any violations that need to be corrected. In contrast, 

the assessments performed for this report are a point-in-time estimate of the useful life of 

building components. This point-in-time estimates were used to determine the capital needs to 

meet and/or maintain operational functionality over the next 20 years.

Step 2: Data entry

The property components listed in Appendix C on page 67 were documented during the onsite property assessments. The property assessment template was filled-out and photographs 

were taken to support the written observations. Lastly, we performed a QA check.
Portfolio analysis methodology

15

Step 3: Estimate cost to maintain the properties

Each sample property required replacement of capital items at various points in the future. The 

cost to maintain or replace each component depends on its effective age, remaining useful life, 

and market price. The effective age of a property is based on the amount of observed 

deterioration and obsolescence it has sustained, which may be different from its chronological 

age. Remaining useful life is the estimated period during which improvements will continue to 

provide utility. The market price of each component was provided by data from the Marshall & 

Swift cost valuation manual. The cost of all replacements were estimated in present-day dollars 

with adjustments for local considerations, then projected for 20 years. The results of the 

analysis provided estimations of the total costs to maintain operational functionality of the 

property over the 20-year analysis period. Next, the estimated total cost was adjusted by the 

properties’ State Cost Multiplier provided by Marshall & Swift. This cost multiplier attempts to 

account for variations in cost between properties in different states. Estimated costs were

tabulated as uninflated and inflated with an assumed inflation rate of 3%. The CNA workflow 

summary is provided within Appendix C on page 67.

Step 4: Collect sample properties’ financial data from RHS

The sample properties’ historical financial operating data and projected budgets were 

necessary to estimate whether there would be a reserves-for-replacement deficit/surplus for 

MFH’s portfolios. The financial operating data may include, but are not limited to: 

• Prior fiscal year actuals for 2014, provided by the Automated Multi-Family Housing 

Accounting System (AMAS).

• Prior year audited financial statements, if available, for 2014, 2013, 2012 (collected for 

Section 538 properties only).

• Future fiscal year budget/projections for 2015 from AMAS.12

• Loan amortization schedules from AMAS.

• Tenant rent subsidies and unit occupation data from AMAS.

• Property types (family, elderly, etc.).

 12 Some properties’ financial statements and/or budgets were unavailable in AMAS. In the absence of data, we made 

estimations to fill-in the gaps to complete the financial analysis.
Portfolio analysis methodology

16

Phase 3: Analysis and reporting

Step 1: Prepare CNA reports for the sample properties

A completed CNA contains: 

• The assessors’ written observations regarding the quality and quantity of the property 

components; 

• The 20-year estimated cost analysis; and 

• The property assessment photographs.

Step 2: Financial analysis

The financial analysis follows a three-step methodology:

1. Estimate the capital cost to maintain, net of projected reserves based on the balance 

and projected reserves transfers, on a per unit per annum (PUPA) basis;

2. Expand the results of the sample data to the entire MFH portfolio; and

3. Arrive at conclusions.

Step 3: Final report

This document is the final report. It contains an executive summary, an explanation of all

methodologies used to collect and analyze the data from the property assessment, results and 

conclusions about the analysis, graphics and charts to support the conclusions, and 

recommendations that align with the scope of the study.
Portfolio analysis methodology

17

2.2. Financial analysis methodology

We created a four-step methodology for the financial analysis portion within Phase 3: Analysis and 

reporting of the CNA methodology. 

Figure 7 — Steps within the financial analysis methodology

Step 1: Estimate the reserves deficits or surpluses

If a property’s annual cost to replace components exceeds the available funds in reserves for 

replacement, the property will have a reserves deficit and will require additional funds to maintain

functionality. Conversely, when a property’s available funds in reserves for replacement exceeds

the annual cost to replace components, then the property will have a surplus of reserves for 

replacement. Figure 8 illustrates this concept with an example property called “Paradise.” The 

timeline arrow represents annual capital needs and the columns on the top and bottom represent 

the balance of reserves for replacement at the end of each year. In the following example, the red 

columns under the timeline arrow represent a deficit. 

Step 2. Expand 

results of sample 

data to MFH

portfolio

Step 1. Estimate 

reserves deficits/ 

surpluses

Step 3. Arrive at 

conclusions and 

create solutions

3. Analysis and 

reporting CNA reports Financial 

analysis

Final 

report
Portfolio analysis methodology

18

Figure 8 — Basic concept of how annual costs can exceed reserves

We created a financial pro forma—a projection based on assumptions—of estimated costs and 

reserves for all sample properties. The detailed pro forma is provided within Appendix D on page 

72. We performed the following steps for each sample property:

1. Reserves: Calculate the amount of reserves the property has available to replace and 

maintain the property components. Sum the reserves balance as of December 31 of the 

prior fiscal year and the budget/projections for reserves deposit transfers.

2. Net reserves: Calculate the cost to maintain functionality net of reserves. Subtract the 

annual projections of the estimated cost to maintain functionality obtained in Step 1. A 

negative balance is a deficit, which indicates the property has inadequate reserves for 

replacement. Figure 9 illustrates the basic concept of estimating the reserves deficit. In this 

example, the reserves for replacement over 20 years is $800,000, but the cost to maintain 

operational functionality over 20 years is $1,000,000, which would create a reserves deficit

of $200,000 over 20 years.

3. PUPA: Calculate the net PUPA reserves deficit/surplus. Divide the reserves deficit/surplus

over 20 years by 20 to obtain the annual figure. Then divide the annual figure by the number 

of units at the project to calculate the PUPA reserves deficit/surplus. For example, if the 

sample property in Figure 9 had 20 units, the PUPA reserves deficit would be the $200,000

reserves deficit ÷ 20 years ÷ 20 units = $500.

Example property

“Paradise”

Annual costs incurred year after year

In this example, the forecast of reserves 

over 20 years is a deficit.

Paradise does not have enough reserves 

to maintain functionality.

Therefore, funds are required to 

increase reserves $$$.

$ Surplus of available reserves

($) Deficit of available reserves
Portfolio analysis methodology

19

Figure 9 — Example calculation of PUPA reserves deficit/surplus

Step 2: Expand the results of the sample data to the entire portfolio

Step 1 estimated the PUPA reserves deficits/surpluses to maintain functionality for 394 sample 

properties. The annual reserves deficits for the whole portfolio needed to be calculated to 

understand severity of the problem and to perform analyses between MFH program portfolios. 

Therefore the sample PUPA reserves deficits were expanded to the whole portfolio to obtain the 

portfolio’s reserves deficit. Figure 10 illustrates a basic example where a sample of 100 properties

were taken from a portfolio of 50,000 total units. The 100 sample properties have an average PUPA 

reserves deficit of $500. The $100 PUPA reserves deficit is multiplied by the 50,000 total number

of units in the portfolio, which equals a total annual reserves deficit of $25,000,000 for the whole 

portfolio.

Figure 10 — Basic example of expanding a sample to a portfolio

Portfolio of 

50,000 units

100

Sample 

units

$500 

average 

PUPA 

reserves 

deficit

50,000 units

X $500

= $25 million

Annual reserves for 

replacement deficit 

for the portfolio 
Portfolio analysis methodology

20

The weighted average mean was used to calculate the samples’ average PUPA reserves deficits

over 20 years for each program. The weighted average mean limits the influence of the outliers. 

The weighted average PUPA reserves deficits by unit count was then scaled to the portfolio for 

each program. Each portfolio’s annual reserves deficits were projected over 20 years and 

discounted at 5% percent assuming mid-year discounting convention.13 The results represented

the estimated total present value of the 20-year reserves deficit. The expansion methodology for 

Section 515 is shown below as a visual example of the expansion process.

Table 3 — Example of expanding Section 515 sample results to the portfolio

Section 515 (MPR and 538 removed)

Unit range Total units

Sample PUPA 

reserves deficit 

(surplus)

Program total 

per annum by 

total units

<12 9,246 $1,209 $11,177,930

12-24 114,349 $870 $99,533,964

25-50 191,320 $942 $180,263,999

51-100 57,198 $1,130 $64,651,279

>100 12,103 $1,209 $14,628,372

ALL 384,21614 Total annual $370,255,543

NPV total 20-year $4,728,150,539

Step 3: Arrive at conclusions and create solutions

We analyzed the results of the portfolio expansion and made conclusions for the primary metrics 

of program type and property size. Additional analyses were performed on other data that is not 

statistically representative of the portfolio, including, but not limited to, most expensive components, 

property type (elderly, family, etc.), construction year, and overall property condition. The 2004 

report only analyzed Section 515 properties, therefore historical comparisons with the MFH portfolio 

are limited to Section 515, and some data and conclusions are not available for non-515 properties 

in this report.

 13 The discount rate of 5% reflects the long-term systemic risk to the cash flows of a property within the RHS MFH 

portfolio. 14 Per RHS, property counts for Section 515 and Section 514 Off-farm properties that overlap currently with the MPR 

and Section 538 programs.
Portfolio analysis methodology

21

2.3. Quality Assurance on CNA results 

Together with RHS, we agreed upon a methodology for Quality Assurance on CNA results.

Figure 11 — Quality Assurance Process

Step 1: Establish consistent on-site property assessment process

Assessors used a CNA template in which they recorded a significant number of data points and 

commentary, as well as took extensive photographs of the property. 

Step 2: Collect CNA data and build database

Assessors uploaded photographs and CNA templates into a centralized location for organization 

and analysis.

Step 3: Perform three-part data review

Data review was a three-part approach performed by the most experienced personnel. First, we 

used the photographs to verify the property descriptions documented in the CNA template. Second, 

we used the assessor’s narratives and photographs to verify the quantities and effective ages of 

the property components on the 20-year assessment tables. QA reviewers contacted assessors 

immediately when questions arose. Finally, calculations were re-verified by validating totals and 

cost per unit formulas.

A. Physical: We reviewed the title page and property description and compared to the 

photographs to verify they matched. Examples of the review included the following: type of 

construction; overall physical condition; utilities in place; type of heating, ventilation, and air 

conditioning (HVAC) systems; parking lot(s); reported amenities (laundry rooms vs. laundry 

hookups, playgrounds, business centers, etc.); utility master- or multi-metered; appliances; 

finishes (types of flooring, wall coverings, bathroom fixtures); and drainage (storm water ponds 

or drains).

B. Logical: We reviewed the 20-year assessment table to verify that components accounted for 

in the narrative portion of the report matched components listed in the table, and the amounts 

entered are logical. We validated that effective ages were corroborated by the photographs

and aligned to the overall condition reported, and are not in excess of the economic life of the 

specific components.

C. Mathematical: We validated the calculations behind the first row of every table, as well as the 

total costs and cost per unit calculations.

3. Data review: 

Physical, 

Logical, 

Mathematical

1. Establish consistent 

physical assessment 

process

2. Collect CNA 

data and build 

database
Results of the 2015 study

22

3. Results of the 2015 study

3.1. Summary of the results

This section of the report contains the results of the analyses we performed on the MFH portfolio. 

Sections 515, 514 Off-farm, 538, and MPR each have a dedicated sub-section. Within each subsection we described the purpose of the analyses, how we performed the analyses, and charts and 

commentary on the results. All sub-sections provide the distribution of the capital costs to maintain 

functionality over time and a comparison of PUPA reserves deficits. The 2004 report only analyzed 

Section 515 properties. Therefore, historical comparisons with the MFH portfolio are limited to 

Section 515. 

Page 19 explained that the results from the financial analysis of the sample of 394 properties 

were expanded to the MFH portfolio. Therefore, the results in the sub-sections on each program 

below are statistically representative of the MFH portfolio with 95% confidence that actual 

reserves deficits fall within 8.33% of estimated reserves deficits.

In addition to these statistically representative analyses, we also performed analyses that only 

applied to the sample of 394 properties. The results of the sample-specific analyses do not apply 

to the MFH portfolio. For example, a sample-specific analysis that is not statistically representative 

of the portfolio would be a comparison of the sample of 394 properties that were built before 1989

to properties built after 1989. The representative sample was not chosen by the year the properties 

were built, it was chosen by program and number of units per property, and therefore the results of 

this example analysis cannot be expanded to the portfolio. The key results of our sample-specific 

analyses begin on page 42.

Total NPV of the uninflated reserves for replacement deficits over 20 years

for the MFH portfolio

The total uninflated reserves for replacement deficit, discounted at 5% mid-year over 20-years, for 

the MFH portfolio is $5.510 billion. This $5.510 billion figure represents the combined additional 

reserves for replacement funds that the Sections 515, 514 Off-farm, 538, and MPR portfolios will 

require over the 20-year analysis period. Figure 12 illustrates the distribution of reserves deficits 

across the four programs, where Section 515 is the largest at $4.728 billion.
Results of the 2015 study

23

Figure 12 — Uninflated reserves for replacement deficit for MFH portfolio over 20 years

Figure 13 — Uninflated average PUPA reserves deficit for MFH portfolio

Section 514 Off-farm

$187 million

15,839 units

Section 515 

$4.728 billion

384,216 units

Section 538

$481 million

32,184 units

MPR

$114 million

21,809 units

Per RHS, property counts for Section 515 and Section 514 Off-farm exclude 

properties that overlap currently with the MPR and Section 538 programs.

$964 $924

$1,171

$408

Section

515

Section

514

(off-farm)

Section

538

MPR

PUPA reserves deficit (in dollars) 
Results of the 2015 study

24

The columns represent the uninflated PUPA reserves deficit—i.e., the additional funds required per unit 

per annum—on average, within each program. Additional analyses on the implications of the high-level 

average PUPA reserves deficits by program are discussed in the forthcoming sections of this report. 

Figure 14 — PUPA reserves deficit in MFH portfolio, by program and number of units

$1,230

$853

$977

$1,164

$1,165

$660

$765

$433

$1,142

$1,188

No properties in sample

$827

$1,205

$1,199

$1,220

$270

$209

$425

$677

$240

<12

12-24

25-50

51-100

>100

<12

12-24

25-50

51-100

>100

<12

12-24

25-50

51-100

>100

<12

12-24

25-50

51-100

>100

515 514 538 MPR

Uninflated average PUPA reserves deficit (in dollars)

Number of units per property

515 

514 

Offfarm 

538

MPR
Results of the 2015 study

25

3.2. Section 515 portfolio results

The purpose of this analysis

The purpose of this analysis was to understand the current conditions of the Section 515 portfolio. 

First, we plotted the capital costs to maintain operational functionality over time. Then, we 

compared the PUPA reserves deficits by the size of the properties within the programs.

Context

• In 2004, the Section 515 average PUPA reserves deficit was $647 (figure is inflated to 

2015 dollars).

• Some properties have transferred over to MPR since its inception in 2006.

• Section 515’s unduplicated property count is 13,077, with a total of 384,216 units, which is 

the largest in MFH.15

• 50% of the unduplicated properties have 25-50 units.

• 3% of the unduplicated properties have more than 100 units.

• Approximately 95% of properties in Section 515 have units with 1 to 2 bedrooms.16

Table 4 — Section 515 units by bedroom size

Section 515 ALL PROPERTY TYPES 

(Includes overlap with Section 538 and 

MPR)16

Studio 1 bdrm 2 bdrm 3 bdrm 4 bdrm 5+ bdrm

Number of properties 104 12,297 11,027 2,737 222 3

Number of units16 737 215,708 175,252 20,464 1,042 8

Proportion of total properties with bedroom 

sizes

1% 89% 79% 20% 2% 0%

Percent of Section 515 units with 3 bedrooms 

or more

5%

 15 Per RHS, property counts for Section 515 and Section 514 exclude properties that overlap currently with the MPR 

and Section 538 programs.

16 In this instance only, the bedroom data for Section 515 in the table includes several properties that overlap with 

Section 538 and MPR and the figures are representative of entire Section 515 portfolio, rather than the reduced 

unduplicated count from which the sample for Section 515 was selected for this report.
Results of the 2015 study

26

Distribution of costs over 20 years

The following chart illustrates the distribution of the portfolio’s estimated capital needs over the 20-

year analysis period. The columns represent the distribution of uninflated capital needs in the nearterm (1 to 5 years), medium-term (6 to 10 years), and long-term (11 to 20 years). The orange trend 

line represents the near-term, medium-term, and long-term as a percentage of the portfolio’s total 

cost of capital needs over 20 years. The purpose was to compare the three periods to determine 

whether the capital needs were front-end or tail-end weighted.

Figure 15 — Distribution of near-term v. long-term capital needs for Section 515 portfolio

Observations and discussion 

Based on the data, 26% of Section 515 portfolio’s 20-year capital needs could occur in the nearterm and 53% of capital needs will occur in the first 10 years. By contrast, is it estimated that MPR

could incur 47% of capital needs in its first ten years. If the capital needs were evenly weighted, 

the near-term and medium-term would each be 25% and the long-term would be 50% of Section 

515’s total 20-year capital needs. However, the data indicated that Section 515 properties’ capital 

needs are, on average, slightly front-end weighted, meaning more than 50% of capital needs could 

occur in the first 10 years. In general, if a portfolio’s near-term capital needs are a large percentage 

of its total 20-year capital needs, it could suggest higher levels of deferred maintenance, or indicate 

a correlation between the advancing age of the portfolio and increasing costs to maintain 

functionality. This could increase the risk of the portfolio lacking adequate reserves for replacement. 

26% 27%

47%

Near-term

capital needs

(years 1-5)

Medium-term

capital needs

(years 6-10)

Long-term

capital needs

(years 11-20)

Percentage of the program's total 20-year cost

Capital needs
Results of the 2015 study

27

Relative PUPA cost compared to other programs 

Refer to the chart on page 24 of the uninflated PUPA reserves deficits for Sections 515, 514 Offfarm, 538, and MPR portfolios.

One of the potential reasons why Section 515 indicated relatively high PUPA reserves deficits is 

because there is a possible correlation between the aging of the portfolio and the increased

likelihood of higher PUPA reserves deficits. 

The introduction of MPR in 2006 has had an impact on the PUPA reserves deficit for Section 515. 

As previously explained, when Section 515 properties participate in the MPR program they are 

considered part of the MPR portfolio even though the properties technically overlap both programs. 

However, in order to make a clear comparison between MPR and non-overlapping Section 515, all 

duplicated properties were excluded from the total property population cited for Section 515 in this 

report. Section 515 properties that participated in MPR benefit from a restructured or new 

mortgage/loan that could be used, for example, to fund capital improvements. We compared 

Section 515 to MPR and concluded that MPR has lower reserves deficits because its portfolio has 

higher reserves for replacement and/or lower costs to maintain functionality.
Results of the 2015 study

28

3.3. Section 514 Off-farm portfolio results

The purpose of this analysis

The purpose of this analysis was to understand the current conditions of the Section 514 Off-farm

portfolio. First, we plotted the capital costs to maintain operational functionality over time. Then, we 

compared the PUPA reserves deficit by the size of the properties within the portfolio.

Context

• Two-thirds of unduplicated properties have more than 50 units.

• The unduplicated property count is 292, with a total of 15,839 units, which is the smallest

program in MFH.17

• Off-farm Labor Housing are larger properties with more units and more bedrooms per unit, 

on average, than properties within Sections 515, 538, and MPR.

• The following table illustrates that approximately 59% of properties in Section 514 Off-farm

have units with three bedrooms or more.18 By contrast, approximately 5% of properties in 

Section 515 have units with three or more bedrooms.

Table 5 — Section 514 Off-farm units by bedroom size

Section 514 Off-farm (Includes overlap with 

Section 538)18

Studio 1 bdrm 2 bdrm 3 bdrm 4 bdrm 5+ bdrm

Number of properties 6 77 236 277 209 14

Number of units18 114 1,122 5,302 7,555 1,993 49

Proportion of total properties with bedroom 

sizes

2% 26% 79% 93% 70% 5%

Percent of Section 514 Off-farm units with 3 

bedrooms or more

59%

Distribution of costs over 20 years

The following chart illustrates the distribution of the portfolio’s estimated capital needs over the 20-

year analysis period. The columns represent the distribution of uninflated capital needs in the nearterm (1 to 5 years), medium-term (6 to 10 years), and long-term (11 to 20 years). The orange trend 

line represents the near-term, medium-term, and long-term as a percentage of the portfolio’s total 

cost of capital needs over 20 years. The purpose was to compare the three periods to determine 

whether the capital needs were front-end or tail-end weighted.

 17 Per RHS, property counts Section 514 exclude properties that overlap currently with the Section 538 program.

18 In this instance only, the bedroom data for Section 514 Off-farm in the table includes several properties that 

overlap with Section 538 and the figures are representative of the entire Section 514 portfolio, rather than the 

reduced unduplicated count from which the sample for Section 514 was selected for this report.
Results of the 2015 study

29

Figure 16 — Distribution of near-term v. long-term capital needs for Section 514 Off-farm portfolio

Observations and discussion 

Based on the data, 53% of the Section 514 Off-farm portfolio’s 20-year capital needs could occur 

in the first 10 years, with 28% in the near-term (years 1-5). Section 514 Off-farm’s capital needs 

are, on average, slightly front-end weighted, meaning more than 50% of capital needs could occur 

in the first 10 years. Section 514 Off-farm had the highest near-term capital needs (as a percentage 

of portfolio) when compared to the other programs. In general, higher near-term capital needs

suggest higher levels of deferred maintenance.

Relative PUPA cost compared to other programs 

Refer to the chart on page 24 of the uninflated PUPA reserves deficits for Sections 515, 514 Offfarm, 538, and MPR portfolios.

Within Section 514 Off-farm, mid-size properties (with 25-50 units) had the lowest PUPA reserves 

deficit of $433. Among mid-size properties across all program, Section 514 Off-farm is roughly 

equal to MPR. Within Section 514 Off-farm, the largest properties (with more than 100 units) had

the highest PUPA reserves deficit of $1,188, approximately on par with both Sections 515 and 538. 

A reason why Section 514 Off-farm has high PUPA reserves deficits is due to the higher 

concentration of family-focus properties. Family-focus properties typically have larger units, which 

have more bedrooms, and therefore more estimated capital needs.

28% 25%

47%

Near-term

capital needs

(years 1-5)

Medium-term

capital needs

(years 6-10)

Long-term

capital needs

(years 11-20)

Percentage of the program's total 20-year cost

Capital needs
Results of the 2015 study

30

3.4. Section 538 portfolio results

The purpose of this analysis

The purpose of this analysis was to understand the current conditions of the Section 538 portfolio. 

First, we plotted the capital costs to maintain operational functionality over time. Then, we 

compared the PUPA reserves deficit by the size of the properties within the portfolio.

Context

• The portfolio contains 644 properties with a total of 32,184 units.

• 51% of the portfolio’s properties have 25-50 units.

• 3% of the portfolio’s properties have more than 100 units.

• As illustrated on Figure 6, the actual Sections 515, 538 and MPR portfolios have some 

overlapping properties. To avoid double-counting, the selected samples for Section 515 

and MPR removed any properties that overlap with Section 538 and included those 

overlapping 515/MPR/538 properties in the selected sample for Section 538.

Distribution of costs over 20 years

The following chart illustrates the distribution of the portfolio’s estimated capital needs over the 20-

year analysis period. The columns represent the distribution of uninflated capital needs in the nearterm (1 to 5 years), medium-term (6 to 10 years), and long-term (11 to 20 years). The orange trend 

line represents the near-term, medium-term, and long-term as a percentage of the portfolio’s total 

cost of capital needs over 20 years. The purpose was to compare the three periods to determine 

whether the capital needs were front-end or tail-end weighted.
Results of the 2015 study

31

Figure 17 — Distribution of near-term v. long-term capital needs for Section 538 portfolio

Observations and discussion 

Based on the data, 14% of the Section 538 portfolio’s 20-year capital needs could occur in the 

near-term and 44% of capital needs could occur in the first 10 years. The data indicated Section 

538’s capital needs are, on average, slightly tail-end weighted, meaning more than 50% of capital 

needs could occur 11-20 years from now. Section 538’s relatively lower near-term capital needs

corroborate the fact that Section 538 properties are newer and therefore have less deferred 

maintenance compared to other programs. 

Relative PUPA cost compared to other programs 

Refer to the chart on page 24 of the uninflated PUPA reserves deficits for Sections 515, 514 Offfarm, 538, and MPR portfolios.

Within Section 538, smaller properties (with 12-24 units) had the lowest PUPA reserves deficit of 

$824. A comparison of Section 538 to other programs revealed that Section 538 had the highest 

PUPA reserves deficit among all programs. Within Section 538, the largest properties (with more 

than 100 units) had the highest PUPA reserves deficit of $1,220, approximately on par with

Sections 515 and 514 Off-farm.

14%

30%

56%

Near-term

capital needs

(years 1-5)

Medium-term

capital needs

(years 6-10)

Long-term

capital needs

(years 11-20)

Percentage of the program's total 20-year cost

Capital needs
Results of the 2015 study

32

The relatively high PUPA reserves deficits for Section 538 could be due to one of more of the

following reasons:

1. Scattered sites. The first explanation is that the portfolio includes properties with scattersite housing developments and they include detached residences that are built on single 

tax parcels. For example, a property in Florida has 80 detached residences on a single tax 

parcel, with modern amenities such as a business room, computer room, and events room. 

All these factors add surface area and increase costs of maintenance/replacements.

2. Amenities. The second explanation is that multi-family properties within the Section 538 

portfolio are, on average, newer, with larger units, higher-quality amenities, and more akin 

to market-rate apartments. Also, compared to other programs, Section 538 has certain 

amenities that are not permitted for properties in other programs.

3. Overlap in the selected sample. The third explanation is that the selected sample for 

Section 538 contains some properties that overlap with Section 515. The results of the 

analyses on Section 515 indicated a correlation between the Section 515 properties and a 

higher PUPA reserves deficit. Therefore, if the overlapping 515/538 properties mirror the 

high PUPA reserves deficits observed for the non-overlapping Section 515 properties, it

could have an impact on the high PUPA reserves deficits for Section 538. 

4. Large size. The fourth explanation is that the sample of Section 538 properties were

weighted heavily toward larger properties. Table 6, below, compares the selected sample

of Section 538 in box #1, to the Section 538 portfolio in box #2. The sample properties with 

a high number of units (50 units or more) had a greater proportion (53%) than the actual 

portfolio (38%). This factor may have had a minor contribution to a higher PUPA reserves

deficit for the Section 538 portfolio.
Results of the 2015 study

33

Table 6 — Unit range as a proportion of the Section 538 sample

Section 538 sample

Unit range Number of 

properties

Proportion of 

sample

Number of 

units

Proportion of 

units in the 

sample

Sample 

reserve deficit

per annum, all 

properties

Sample PUPA 

reserves 

deficit

<12 - - - - - -

12-24 11 20% 243 6% $199,476 $821

25-50 15 27% 609 16% $732,336 $1,203

51-100 17 30% 1,188 31% $1,397,562 $1,176

>100 13 23% 1,772 46% $2,126,459 $1,200

ALL 56 100% 3,812 100% $4,455,834

Section 538 portfolio

Unit range Number of 

properties

Proportion of 

portfolio

Number of 

units

Proportion of 

units in the 

portfolio

Sample PUPA 

reserves deficit

Portfolio 

reserve deficit

per annum, all 

properties

<12 - - - - - -

12-24 75 11% 1,633 5% $821 $1,340,514

25-50 331 51% 13,380 42% $1,203 $16,089,753

51-100 220 34% 14,798 46% $1,176 $17,408,346

>100 18 4% 2,373 7% $1,200 $2,847,680

ALL 644 100% 32,184 100% $37,686,293
Results of the 2015 study

34

3.5. MPR portfolio results

The purpose of this analysis

The purpose of this analysis was to understand the current conditions of the MPR portfolio. First, 

we plotted the capital costs to maintain operational functionality over time. Then, we compared the 

PUPA reserves deficit by the size of the properties within the portfolio.

Context

• MPR began in 2006. Some Section 515 properties have participated in MPR since its 

inception.

• Section 514 properties are also eligible to participate in MPR, if they qualify. However, for 

the purposes of this report they were excluded from this part of the analysis per the 

sampling methodology. 

• The unduplicated property count is 637, with a total of 21,809 units.

• 83% of the unduplicated properties had 25-50 units.

Distribution of costs over 20 years

The following chart illustrates the distribution of the portfolio’s estimated capital needs over the 20-

year analysis period. The columns represent the distribution of uninflated capital needs in the nearterm (1 to 5 years), medium-term (6 to 10 years), and long-term (11 to 20 years). The orange trend 

line represents the near-term, medium-term, and long-term as a percentage of the portfolio’s total 

cost of capital needs over 20 years. The purpose was to compare the three periods to determine 

whether the capital needs were front-end or tail-end weighted.
Results of the 2015 study

35

Figure 18 — Near-term v. long-term capital needs: MPR

Observations and discussion 

Based on the data, 22% of the MPR portfolio’s 20-year capital needs could occur in the near-term 

and 47% of capital needs could occur in the first 10 years. By contrast, is it estimated that Section 

515 could incur 53% of capital needs in its first ten years. MPR’s capital needs are, on average, 

slightly tail-end weighted, meaning more than 50% of costs could occur 11-20 years from now. This 

indicates that MPR properties, on average, are less inclined to have near-term capital needs when 

compared to the other programs. 

MPR comparison to Section 515

The MPR program began in 2006. The Section 515 properties that participated in the MPR program 

received additional RHS assistance, which could be used to maintain their functionality, and they 

were categorized as part of the MPR portfolio from that point on. The following chart illustrates how 

much lower the PUPA reserves deficits are for MPR, no matter the size of the property. 

22% 25%

53%

Near-term

capital needs

(years 1-5)

Medium-term

capital needs

(years 6-10)

Long-term

capital needs

(years 11-20)

Percentage of the program's total 20-year cost

Capital needs
Results of the 2015 study

36

Figure 19 — Section 515 v. MPR PUPA reserves deficit

Relative PUPA cost compared to other programs 

As illustrated on Figure 13, the PUPA reserves deficit for MPR was, on average, 57% lower than 

Section 515. The PUPA reserves deficit for MPR among properties with more than 100 units was

79% lower than Section 515.

Observations and discussion 

The data indicate that since the introduction of MPR in 2006, properties that currently participate in 

the MPR program demonstrate significantly lower average reserves deficits.19 The most likely

reason why MPR properties have lower reserves deficits is because they either have more reserves 

for replacement, or their cost to maintain functionality is lower than Section 515 due to recent 

rehabilitations. Based on the data, this is an indication that the MPR program is working from the 

perspective of supporting properties with maintaining functionality.

 19 As illustrated on Figure 6, when Section 515 properties participate in the MPR program they are considered part of 

the MPR portfolio even though the properties technically overlap both programs. However, in order to make a clear 

comparison between unduplicated Section 515 and MPR, overlapping properties were excluded from the 13,077

properties cited for the Section 515 portfolio in this report.

$1,230

$270

$853

$209

$977

$425

$1,164

$677

$1,165

$240

515

MPR

515

MPR

515

MPR

515

MPR

515

MPR

<12 <12 12-24 12-24 25-50 25-50

51-

100

51-

100 >100 >100

Uninflated average PUPA reserves deficit

Number of units per property

<100

>12 

units

12-

24

25-

50

51-

100
Results of the 2015 study

37

3.6. Changes to the Section 515 portfolio over 12 years

The 2004 report concluded the Section 515 portfolio’s estimated uninflated cost to maintain 

functionality net of reserves was $210 million annually ($262 million20 in adjusted 2015 dollars). 

The 2004 report added the annual cost of $210 million for 20 years and calculated a NPV (5% 

discount rate at year-end) of $2.600 billion over 20 years ($3.529 billion20 in adjusted 2015 dollars). 

The 2004 report estimated the average PUPA reserves deficit to be $43 per unit per month or $516 

per unit per annum ($64720 adjusted to 2015 dollars).

The 2015 report concluded the Section 515 portfolio’s estimated uninflated cost to maintain 

functionality net of reserves was $370 million annually. The NPV (5% discount rate at mid-year) of 

the annual cost of $370 million for 20 years was $4.728 billion. Annual cost of $370 million was 

divided by 384,216 units21 in the Section 515 portfolio (unduplicated property count) to calculate 

an estimated average uninflated PUPA reserves deficit of $964. 

 20 Based on the Consumer Price Index, the inflation rate from 2004 to 2015 was approximately 1.9% annually. 

http://www.bls.gov/data/inflation_calculator.htm. 21 Per RHS, property counts for Section 515 exclude properties that overlap currently with the MPR and Section 538 

programs.

In 2004:

Section 515 PUPA 

reserves deficit was

$647 

(adjusted to 2015 dollars) 

In 2015:

Section 515 PUPA 

reserves deficit was 

$964

an increase of 49%
Results of the 2015 study

38

Figure 20 — Bridging the gap between Section 515 PUPA reserves deficit in 2004 v. 2015

Select explanatory factors for increasing deficit over 12 years

• Changes in portfolio characteristics and property mix.

o In 2004 the total number of units in the Section 515 portfolio was calculated to 

be 434,296, but in 2015 that figure was calculated to be 384,216 units.22 The 

change in the unit count is a result of using a stratified sampling methodology

versus a proportional sampling methodology.

o Despite the lower number of units, total portfolio cost as well as the average 

PUPA reserves deficit increased. Since there has been limited new 

construction of Section 515 projects, there are offsetting factors leading to the 

total increase. These include the “survivor” bias of properties that were not 

selected for MPR rehabilitation as well as Section 515 properties that exited 

the program through prepayment or fulfilling their mortgage 

obligation. Survivor bias is the logical error of concentrating on the data that 

"survived" some process and inadvertently overlooking those that did not 

because of their lack of visibility. In this instance, the selected sample of 

Section 515 excluded properties that are being “helped” by MPR, and 

therefore the remaining sample Section 515 properties are the ones that would 

be more likely have higher reserves deficits. Therefore, the increase to PUPA 

reserves deficit is partially explained because all the data behind this 

 22 Per RHS, property counts for Section 515 and Section 514 exclude properties that overlap currently with the MPR 

and Section 538 programs.

$516 

$964 

$131 

$317 

2004

(in year 2004

dollars)

Adjustment for

inflation to 2015

dollars

Costs due to

portfolio aging

over 12 years

and other

factors

2015

Section 515 PUPA reserves deficit (in dollars)
Results of the 2015 study

39

observation is based on these “surviving” properties that are more likely to 

have higher reserves deficits to begin with.

• The impact of inflation and deferred maintenance over 12 years.

o Based on the Consumer Price Index, the inflation rate from 2004 to 2015 was 

approximately 1.9% annually.23 When applied to the $2.600 billion, inflation 

adds $659 million and translates the 2004 figure to $3.259 billion in 2015 

dollars. The residual gap between the 2004 figure and the 2015 figure is due 

to the portfolio aging and the corresponding costs of an incremental 12 years.

• The impact of more realistic time value of money calculations.

o The 2004 report used the end of year discounting convention assuming a 5% 

annual discount rate to estimate the NPV of the total 20-year reserves deficit. 

We used mid-year discounting at 5%, which is more realistic because it 

assumes the properties’ costs are spread evenly throughout the year as 

opposed to only occurring at year-end. 

o As a result of assuming cash outflows occur evenly throughout the year, 

utilizing mid-year discounting accounts for an increase of $100 million in the 

NPV of the total 20-year reserves deficit, which was included in its current total 

reserves deficit of $4.728 billion. 

o It is important to understand that mid-year discounting convention increased 

the NPV over 20-years, but it has no impact to the PUPA reserves deficit of 

$964 in 2015. This is because the $964 PUPA was calculated using a simple 

weighted average of the annual reserves deficit of $370 million divided by the 

total number of units. The annual reserves deficit is a smoothed average of 

the total costs over 20 years and it should not be discounted. 

Comparison of Section 515 properties analyzed in 2004 and 2015 studies

There are 98 sample properties within Section 515 that were assessed in both the 2004 report and 

our 2015 report. The 2004 CNAs for the 98 properties were unavailable, and therefore a one-forone comparison to 2015 CNAs could not be performed. Instead, we took the average PUPA 

reserves deficit of the 333 sampled properties from the 2004 report and compared it the average

PUPA reserves deficit of the 98 properties in 2015. 

 23 http://www.bls.gov/data/inflation_calculator.htm
Results of the 2015 study

40

Context

• Of the 98 properties, three properties were originally built 80 or more years ago. These 

properties were since converted before they joined the Section 515 portfolio, but due to the 

large age difference compared to the other 95 properties, the three were determined to be 

outliers and were excluded from the 98.

• The physical ages of the remaining 95 properties were greater than 18 years.

• Each blue data point on the chart below represents one of the 95 properties, by age and 

by PUPA reserves deficit in 2015.

• The orange line passes through the blue data points at their average. 

• The 2004 average PUPA reserves deficit for the entire sample of 333 properties was $647 

(in 2015 dollars).

• The 2004 average PUPA reserves deficit of $647 is represented by the red line.

Figure 21 — Section 515 average PUPA reserves deficit in 2004 v. 2015

34 year-old property with 

PUPA reserves deficit $2,130

$0

$500

$1,000

$1,500

$2,000

$2,500

0 10 20 30 40 50

PUPA reserves deficit (in dollars)

Age of the property in years (as of 2015)

2004 Average 

PUPA reserves 

deficit of $647

2015 Average 

PUPA reserves 

deficit of $1,242
Results of the 2015 study

41

Observations and discussion 

• The 95 properties had an average PUPA reserves deficit of $1,242. By contrast, the 2015 

Section 515 portfolio (unduplicated) average PUPA reserves deficit was $964.24

• The $1,242 mean of the 2015 PUPA reserves deficit for the 95 properties was 92% greater

than the $647 mean of the 2004 PUPA reserves deficit. This was a statistically significant 

difference that is unlikely to occur by chance. 

Given the lower PUPA reserves deficits among MPR, it was logical to assume that Section 515 

properties that did not participate in MPR would have continued to experience rising costs to 

maintain functionality, and therefore more inclined to have a higher reserves deficit. The 95 

properties that did not participate in MPR as of 2015 were on a trend that indicated PUPA reserves 

deficits increases with property age. Due to the fact that the PUPA reserve deficit was lower for 

MPR, the implication is that “healthy” properties—i.e., those with a lower reserves deficit—have 

participated in MPR. 

 24 Per RHS, property counts for Section 515 and Section 514 exclude properties that overlap currently with the MPR 

and Section 538 programs.
Results of the 2015 study

42

3.7. Key findings among the sample data of 394 properties

The results of the following analyses are not statistically representative of the portfolio and pertain 

only to the sample of 394 properties. Although, the results cannot be scaled to the whole portfolio, 

the implications could have broad implications on the MFH portfolio.

3.7.1. Analysis of most costly components

HVAC, carpets, cabinets, water heaters, and parking lots account for 

approximately 50% of the sample properties’ cost to maintain functionality.

The purpose of this analysis

This analysis identified which components will require the largest proportions of the reserves

among the sample properties within Sections 515, 514 Off-farm, 538, and MPR. We examined the

cost to maintain functionality by component as a percentage of the overall cost for the sample 

properties. Table 7 is a list of 24 components (with the remainder grouped under entry “Other”) 

ranked largest to smallest in terms of the percentage of the overall cost to maintain functionality.

Table 7 — Most costly components among the sample properties

Components 515 514 538 MPR

Common HVAC 29% 30% 26% 24%

Carpet 9% 6% 9% 10%

Cabinets 7% 7% 8% 8%

Plumbing Systems Water Heater 4% 4% 4% 4%

Parking Paving Re Surfacing 4% 5% 4% 3%

Countertops 3% 3% 4% 4%

Windows Vinyl sash 3% 4% 3% 3%

Doors 3% 3% 4% 4%

Windows Steel sash 4% 4% 1% <1%

Gutters Aluminum 4% 1% 5% 5%

Roofing asphalt shingles 3% 4% 3% 3%

Ranges 3% 2% 3% 3%

Soffit 2% 3% 2% 3%

Bathtub Shower 2% 2% 2% 2%

Exterior Walls Brick or Block 3% <1% <1% 3%

Refrigerators 2% 2% 2% 2%

Vanity 2% 2% 2% 2%

Site Fencing <1% 3% <1% <1%

Fascia 1% 2% 2% 2%

Exterior Walls Stucco <1% 4% <1% <1%

Sidewalks 1% 2% 1% 1%

Range Hoods 1% 1% 1% 1%

VCT Vinyl 1% 1% 1% 1%

Front Metal Doors <1% <1% <1% <1%

Other 6% 4% 9% 8%

Top 10 most costly 
Results of the 2015 study

43

Observations and discussion 

• The top five components—HVAC, carpets, cabinets, plumbing/water heaters, and parking 

lot maintenance—account for approximately 50% of the sample properties’ cost to maintain 

functionality. 

• HVAC cost of replacement was the largest, accounting for approximately 25%-30%.

• Carpet was the second most costly at 6%-10% of total cost to maintain functionality.

• Components with high costs had the following in common: they were found in every 

property; they will have shorter relative useful lives; and they will experience high usage.

3.7.2. Analysis of property age on PUPA reserves deficit

Based on the data, there appears to be a relationship between older 

properties and higher costs to maintain functionality. 

The purpose of this analysis

The purpose of this analysis was to examine the relationship between the year of construction of 

the sample properties and the PUPA reserves deficit. We grouped the sample properties into four

periods and compared the results across the four programs: built before 1979; built between 1979 

and 1989; built between 1989 and 1999; and built after 2000.25

Context

• The following charts were organized by the period when the properties were built, not the 

year they joined the programs. 

• The year of construction ranges were selected because properties constructed before 1989 

can pre-pay their mortgages and properties constructed after 1989 cannot. 

• MPR started obligations in 2006. 

• The Section 538 program started in 1996. The properties listed under Section 538 were 

Section 515 properties that refinanced with a private RHS-guaranteed loan and currently 

count among Section 538. 

• Properties within Section 514 Off-farm and Section 538 have both continued to fund new 

construction annually, whereas Section 515 has not funded significant new construction in 

quite a few years.

 25 The date of construction for the properties was sourced from property tax records at the time of the physical 

assessments of the properties.
Results of the 2015 study

44

Figure 22 — PUPA reserve deficit compared to property year built

Observations and discussion

• Properties built after 1989 had a lower PUPA reserves deficit then older properties 

constructed before 1979, with the exception of Section 538.

• MPR portfolio had the lowest PUPA reserves deficits among all other programs.

• Further analysis on MPR determined that there is a significant relationship between MPR 

and a lower PUPA reserves deficit. 

• Section 514 Off-farm peaked in the category of built “Before 1979” before falling and

leveling-out.

In the sample of MPR properties selected, none were built after 2000. The PUPA reserves deficit 

for Section 515 trended down among newer construction, which could indicate it is less costly to 

maintain the newer properties, and therefore they might be less likely to require use of an MPR 

tool. This is further supported by the difference between PUPA reserves deficits for all four periods

of time, analyzed in the chart above. Section 515 properties that were built after 1989, but 

eventually participated in MPR, have on average up to seven times lower PUPA reserves deficits. 

Section 538 had an upward trend over time, which could be explained by the recent construction 

$1,047

$1,107

$1,038

$575

$1,189

$752

$881

$771

$1,166

$470

$958

$1,290

$426

$198

$105

No sample properties built after 2000 have been added to MPR

Before 1979

1979—1989

1990—1999

After 2000

Before 1979

1979—1989

1990—1999

After 2000

Before 1979

1979—1989

1990—1999

After 2000

Before 1979

1979—1989

1990—1999

After 2000

515 514 538 MPR

Timeframe when property was built, regardless of 

when it joined the programs

Uninflated average PUPA reserves deficit (in dollars)

515 

514

(Offfarm)

538

MPR
Results of the 2015 study

45

of properties that might cost more to maintain due to reasons explained within section 3.4 on page

32.

We performed additional analysis to compare to the average number of units per property over the 

same periods. The purpose was to determine whether it was possible to identify any trends over 

time between PUPA reserve deficit and average number of units.

Figure 23 — Average number of units per property for each program, by year built

Observations and discussion

The average number of units per property was on a downward trend over time across all four 

programs, except Section 538. Section 515 had fewer properties in the category of built “After 2000” 

because fewer properties were added to the portfolio in recent years. Section 515’s average units 

and PUPA reserves deficit were both trended down, which have several possible explanations. The 

costs to maintain a unit at a Section 515 property could potentially be scaling down as the properties 

get smaller, or, more likely, the older construction have more maintenance/replace costs. This 

begged the question of why a PUPA reserves deficit can increase at a property that was 

constructed more recently, while the average number of units declined during the same 

construction period. For example, Section 538 had this happen between “1979 to 1989” and “1990 

to 1999.” Taken at face value, it appeared that it was more expensive to maintain units at Section

70 units

55

52

9

141

107

83

44

91

82

33

63

47

33

25

No sample properties built after 2000 have been added to MPR

Before 1979

1979—1989

1990—1999

After 2000

Before 1979

1979—1989

1990—1999

After 2000

Before 1979

1979—1989

1990—1999

After 2000

Before 1979

1979—1989

1990—1999

After 2000

515 514 538

Timeframe when property was built, regardless of 

MPR

when it joined the programs

Average number of units per property

515 

514 

(Offfarm)

538

MPR
Results of the 2015 study

46

538 properties and there is partial truth to this assumption. As explained within section 3.4 on page

32, the reason for this is that multi-family properties within the portfolio are, on average, newer with 

larger units, higher-quality amenities, and more akin to market-rate apartments.

Figure 24 — Average age of the properties within the sample

Observations and discussion

Section 538 properties were, on average, the newest among the sample properties within MFH, 

and almost half the age of Sections 515 or MPR. MPR were, on average, older than Section 515,

which could indicate that despite having older properties, MPR is either in better physical 

condition (i.e., lower cost to maintain), or it has healthier reserves, or a combination of both. 

5 4 3 2 1 0 Average property age within the sample

Average 

age 34 

years

Average 

age 24 

years Average 

age 18 

years

Average 

age 37 

years

Section 

515 

Section 

514 (Off-farm)

Section 

538

MPR
Results of the 2015 study

47

3.7.3. Analysis of MPR sample properties

The data appear to indicate MPR successfully lowers PUPA reserves deficits.

The purpose of this analysis

The MPR program started in 2006 and the properties currently within the MPR portfolio were 

Section 515 properties that refinanced and currently count among the MPR portfolio. MPR appears 

to have lower PUPA reserves deficits compared to Section 515 and RHS was seeking to 

understand whether the MPR program is effective in maintaining its properties’ operational 

functionality and reducing the reserves deficit. 

Context

• We grouped the sample properties into four periods and compared the results of the PUPA 

reserves deficits across the four programs: constructed before 1979; constructed between 

1979 and 1989; constructed between 1989 and 1999; and constructed after 2000.26 The 

following charts are organized by the year the properties were constructed and by program, 

not the year they joined the programs. 

• The year of construction ranges were selected because properties constructed before 1989 

can pre-pay their mortgages and properties constructed after 1989 cannot. 

We performed hypothesis testing to prove whether MPR was effective at reducing reserves deficits. 

In simple terms, hypothesis testing is the use of statistics to determine the probably that a given 

assumption (a hypothesis) is true. There are two parts to a hypothesis. The null hypothesis—i.e., 

that the observations are the result of pure chance—and the alternative hypothesis—i.e., that the 

observations show a real effect combined with a component of chance variation. We chose a null 

hypothesis that there is no difference in PUPA reserves deficit between Section 515 and MPR 

(based on the sample of the MFH properties, not the whole MFH portfolio). The analysis began 

with calculation of the mean PUPA reserves deficit for Section 515 and MPR, followed by a test to 

determine whether the means differ. If the test proved that the mean PUPA reserves deficit for 

MPR was lower than the mean for Section 515, then it would disprove the null hypothesis that both 

were equal. If there was further evidence from the test that supported a significant relationship 

between MPR and a lower PUPA deficit, then we could confidently conclude that MPR had lower

PUPA reserves deficits.

 26 The date of construction for the properties was sourced from property tax records at the time of the physical 

assessments of the properties.
Results of the 2015 study

48

Figure 25 — MPR v. Section 515 and PUPA reserves deficits based on year property was built

The chart controls for variations in the year the properties were built—not the year the properties 

joined the programs. To demonstrate the impact of the MPR program on PUPA reserves deficits,

we did a two-sample t-test of the means of the PUPA reserves deficits for MPR and Section 515. 

We tested the hypothesis that there is a statistical difference in the mean PUPA for MPR compared 

to Section 515. The hypotheses were as follows:

• Null hypothesis = the Section 515 mean PUPA = the MPR mean PUPA.

• Alternative hypothesis = the Section 515 mean PUPA ≠ the MPR mean PUPA.

Observations and discussion

Based on the data, there was enough evidence to reject the null hypothesis at the 95% confidence 

level. Based on the data, there appeared to be a statistically significant relationship that the mean 

PUPA reserves deficit of MPR was different (and does not occur by chance) than the mean PUPA 

reserves deficit of Section 515. Therefore, based on this measure, MPR was considered 

“successful” in terms of it meeting its objective as a program.

$1,296

$450

$1,123

$438

$885

$122

$614

No sample properties built after 2000 have been added to MPR

515

MPR

515

MPR

515

MPR

515

MPR

Before 1979 1979

—1989 1990

—1999 After 2000

Timeframe when property was built, regardless 

of when it joined the programs

Uninflated average PUPA reserves deficit

Before 

1979

1979 

to 

1989

1990

to 

1999

After 

2000
Results of the 2015 study

49

Since the sample was not chosen to be representative of the population based on the year 

properties were built, observations related to this metric were not expandable to the portfolio, but 

were illustrative to the trends in the sample. However, because the sample PUPA by program is a 

statistically representative measure of the portfolio, the results of our test indicate that the mean 

PUPA reserves deficit for MPR was statistically significant from the mean of Section 515. Therefore, 

the impact that MPR could have on effectively decreasing PUPA reserves deficit when compared 

to Section 515 was statistically valid at the portfolio level. 

3.7.4. Analysis of property “overall conditions” 

The PUPA reserves deficits decreased among the higher-rated properties, 

which was a good trend.

The purpose of this analysis

This analysis identified the distribution of overall property condition—excellent, above average, 

average, below average, and poor—among the sample 394 properties. 

Context

The sample properties were assigned a qualitative property condition based on the assessors work 

in the field. This work was summarized in the 20-year assessment table for each property. Life 

safety/code conditions include, but are not limited to, observed issues with known applicable fire, 

construction, material, and ingress/egress building codes. An explanation of each rating is as 

follows:

• Excellent: The component is new or maintained in like-new condition with proactive 

maintenance practices, exhibiting no deferred maintenance or life safety/code issues.

• Above Average: The component is fully functional, well maintained, exhibits minimal wear 

and tear and no deferred maintenance or life safety/code issues. Any identified repairs are 

due to recent events (for example, a windstorm or a burst pipe) or are very limited in scope 

(routine maintenance). Low reserves are required.

• Average: The component is fully functional and generally well maintained. It may exhibit 

customary wear and tear based on age and may have minimal deferred maintenance. Any 

life/safety code issues can be readily corrected as part of the operating budget and are 

isolated in nature. Moderate reserves are required.

• Below Average: The component exhibits pervasive wear and tear, some limits in 

functionality and deferred maintenance issues. Life safety/code issues are significant 

and/or numerous and involve substantial cost. High reserves are required.

• Poor: The component exhibits inferior/deteriorating conditions and some limits 

functionality. Deferred maintenance is pervasive and will costly to cure. Multiple life 

safety/code issues are identified and involve significant cost. Extensive repairs are 

required.
Results of the 2015 study

50

Figure 26 — Distribution of property conditions for sample of 394 MFH properties

Observation and discussion

For Section 515, in terms of percentage of the sample, 17% (25 properties) were “below average” 

or “poor.” This was the highest among all programs. 15% (21 properties) were “above average” or 

“excellent.” This was the lowest among all programs. For Section 514 Off-farm, 15% (19 

properties) were “above average” or “excellent” and 23% (13 properties) were “below average” or 

“poor.” For Section 538, 55% (25 properties) were “above average” or “excellent.” The remainder 

were all “average.” For MPR, in terms of percentage of the sample, 95% (84 properties) of MPR 

was “average” or “above average.” 

It is important to reiterate that the overall conditions are only representative of our subjective 

opinions. The increase in recent construction among Sections 514 Off-farm and 538 contributed to 

the seemingly high portion of “above average” or “excellent,” especially for Section 538. As 

previously discussed, many of the Section 538 properties we inspected were newer with nicer 

amenities.

We performed additional analysis on the overall property condition by eliminating the break-out by 

program to determine whether it was possible to identify any trends between PUPA reserve deficits

and average age of the properties. In Figure 27, the columns represent average PUPA reserves 

deficit. The text within the columns provide the average age of the sample properties, the property 

total, and unit total.

1

2

24

11

4

115

properties

57

31

55

20

16

22

29

1

3

3

Section

515

Section

514

(Off-farm)

Section

538

MPR

0% 20% 40% 60% 80% 100%

Distribution of property conditions

Poor Below Average Average Above Average Excellent
Results of the 2015 study

51

Figure 27 — PUPA reserves deficit by property condition for sample

Observations and discussion 

If the average age of the properties increased in relation to the overall condition moving in the 

direction from “excellent” to “poor,” it could indicate that newer properties have a lower cost to 

maintain functionality. The PUPA reserves deficit decreased in relation to the overall condition 

moving in the direction from “poor” to “excellent,” which confirmed our expectation that the better 

properties would be less inclined to have a reserves deficit. 

$710

$698

$1,036

$1,476

$1,316

Excellent

Above

Average

Average

Below

Average

Poor

Property condition among all sample 

properties

Uninflated average PUPA reserves deficit (in dollars) 

7 properties, 314 units,

average age 7 years

87 properties, 5,007 units, 

average age 27 years

258 properties, 14,967 units, 

average age 31 years

39 properties, 2,883 units, 

average age 35 years

3 properties, 840 units, 

average age 33 years
Recommendations and next steps

52

4. Recommendations and next steps

The majority of the work on this project involved gathering qualitative and quantitative data, and 

analyzing this data to provide the reader with observations regarding the capital needs of the RHS 

MFH portfolio. In addition, direct feedback was solicited from stakeholders of the RHS MFH

programs on recommendations that could enhance RHS’s MFH portfolio. The majority of this 

feedback came from property owners, property managers and RHS field officers, and was collected 

during the site inspections for the CNA portion of this project. Additional feedback from property 

owners and managers was solicited subsequent to the inspection period. This feedback, along with 

the observations provided in the previous Sections of this report, were scrutinized to provide a list 

of recommendations and next steps that could improve or enhance the RHS MFH portfolio in a 

variety of ways. 

4.1. Recommendations

Continue using the MPR program to maintain the functionality of existing properties. The 

average PUPA reserve for replacement deficits for properties in the MPR program was the lowest 

of all the programs, and 58% less than properties in Section 515. This is a strong indication that 

the MPR program has been effective in reducing the reserve for replacement deficit of existing 

properties. Properties participating in the MPR program undergo various levels of rehabilitation. 

Based on field observations and discussions with some property owners/managers, funds from 

MPR loans are often used to replace large, long-lived capital items. These items included roofs, 

windows, doors, and cabinets/countertops. The replacement of such long-lived items can help 

property owners maintain the functionality of their properties and the viability of the RHS MFH 

portfolio. The continued use of the MPR program by RHS would require appropriations from 

Congress.

Consider the use of existing RHS tools to help reduce the reserves for replacement deficit

over the 20-year analysis period. In searching for ways to reduce the PUPA reserves for 

replacement deficit across the portfolio, RHS should consider the use of available mortgage tools 

to divert cash flows from mortgage payments to fund such deficits over the 20-year analysis period. 

These tools include the ability of RHS to lower existing mortgage debt payments by deferring 

mortgage payments, re-amortizing mortgage payments, or a combination of both. Not all properties 

and existing mortgages would qualify or need such adjustments, but the staff at RHS is confident 

that such tools could be utilized to reduce the deficit in the reserves for replacement across the 

portfolio. Section 5 of this report provides an example of how these tools could be used, and the 

possible impacts on the reserves for replacement deficits across the RHS MFH portfolio. The use 

of these tools are not without costs. RHS would need to ask for Congressional appropriations to 

fund the cost of any deferred payments and new loans.

Strategic sourcing of long-lived items through national purchasing agreements to obtain 

wholesale pricing. It is not a new idea for affordable housing groups to use national purchasing 

agreements to obtain wholesale pricing on items commonly replaced during routine and preventive 

maintenance. The typical savings with such programs are +/- 20% from the retail price. These 

purchasing agreements are most commonly used on items such as flush valves, door knobs and 

air filters, and allow the property owner to obtain wholesale pricing on small or single-item 
Recommendations and next steps

53

quantities. However, it is not common for affordable housing groups to obtain such purchase 

agreements for long-lived items such HVAC units and water heaters. It is recommended that RHS

explore the option of leveraging its national presence and size to negotiate a national wholesale 

purchasing agreement of these long-lived items. This purchasing agreement would not be a binding 

contract on property owners, or an endorsement of a particular retailer. The intent of this 

recommendation is to explore the possibility of RHS providing property owners the ability to 

purchase these long-lived items at a wholesale discount regardless of the size of the purchase. It 

is anticipated that the savings generated by such a purchasing agreement would be substantial 

across the portfolio. For example, in the CNA analysis the average cost of an HVAC unit and water 

heater was estimated to be $7,632 and $754, respectively. Reducing the costs of these two items

by 20% equates to a $1,526 savings per HVAC unit and $151 per water heater. Multiply these 

savings across the RHS MFH portfolio and the anticipated impact is expected to be material in 

reducing PUPA reserves deficits. 

The most quoted reasons by stakeholders for not using national purchase agreements for longlived items include the irregularity of such purchases on a property level, and a push by government 

agencies to buy local. National retailers can offer purchasing programs with wholesale pricing at 

retail locations across the United States. The large number of apartment units in the portfolio could 

offer these retailers a reliable source of wholesale purchasers, and these retailers provide large 

numbers of local jobs through a network of stores across the country. 

Property owners should consider replacing carpet with VCT once existing carpet reaches 

the end of its useful life. Based on the 394 properties in the sample, carpet was one of the largest, 

single-item contributors to the capital needs over the 20-year analysis period. The relative cost and 

economic life of carpet versus the VCT provides impetus for an owner to consider removing carpet 

from apartment units and replacing it with VCT. We estimated that carpet had an average economic 

life of 7-years versus 15-years for VCT. Verbal feedback from property owners who had converted 

apartment units from carpet to vinyl indicated that maintenance costs related to flooring were lower, 

and the savings in cost for floor finishes were expected to be substantial over the economic life of 

the VCT. Optimizing the finishes in a unit based on durability and replacement costs could lead to 

substantial savings over time. 
Recommendations and next steps

54

4.2. Next steps

Perform additional analysis as to the impact on the MFH portfolio of complying with 

accessibility and ADA regulations. Over the last two years the Department of Justice has been 

aggressively enforcing accessibility actions against property owners of affordable multi-family

housing. Generally, these cases involve compliance issues with the Fair Housing Act (FHA), 

Section 504 and the American with Disabilities Act (ADA) Compliance with the requirements within 

both of these Acts has caused anxiety within the AH community. Each Act establishes minimum

standards for compliance. Some states, counties and municipalities have additional compliance 

standards that contribute to increased costs with owning and operating an affordable housing unit. 

Determining if a property within the sample was compliant with minimum accessibility and ADA 

standards was beyond the scope of work on this project. However, at the request of RHS, an 

estimated cost to bring an elderly apartment up to the minimum Federal accessibility standards 

under the FHA and ADA Acts was estimated. The cost estimate is based on a 720+/- square foot 

elderly apartment located in the Southeastern United States. The estimate includes the costs for 

bringing interior and dedicated exterior space into compliance. It does not include the cost to bring 

common area buildings, parking lots, and other exterior areas of property into compliance with the 

two Acts. Based on data provided by property owners who have performed such compliance work, 

the estimated cost is approximately $10,000 per unit to meet the minimum federal requirements. 

Differences in cost between apartment units are mostly driven by such variables as:

• Relocating walls.

• Demolition of concrete slabs for plumbing relocation.

• Selection of appliances and floor coverings.

• Modification of door widths and interior openings.

• Access to the unit (sloped walkways and handrails).

• The design of the apartment building.

The financial impact of complying with accessibility and ADA minimum standards must be 

quantified for each property within the MFH portfolio. 

Follow up case study on the effectiveness of the four MPR tools. The analysis previously 

presented indicates that the MPR program has been successful in lowering the PUPA reserve for 

replacement deficits. RHS could benefit from understanding which tool(s) are most effective at 

reducing these deficits by allocating future resources to the most effective tools. A study focusing 

on the effectiveness of the MPR tools is a logical next-step for RHS.
Recommendations and next steps

55

Expand upon stakeholder engagement to generate additional ideas on revitalizing existing 

properties, as well as expanding the portfolio through new construction. Feedback from 

property owners indicated a need for increased dialog with RHS in four general areas:

• Financial reporting requirement and financial assessments of properties.

• Consistency by RHS in the management of the portfolio. 

• Strategic services, especially in the areas of technical assistance and training.

• Reducing the number of property inspections and assessments by government 

agencies (RHS and others).

Expand on the capacity to determine whether a property should be kept in the MFH portfolio. 

Establish a process and criteria to determine whether a property should be kept in the MFH 

portfolio. The criteria would include, at a minimum, the following:

• Financial feasibility test that establishes a framework to identify properties that are good 

candidates for rehabilitation. 

• Demographic analysis to determine if a property’s location and tenant-mix support the 

mission of RHS.

• Analysis of cost-to-build new versus cost to rehabilitate an existing property to ensure that 

RHS financing mechanisms are being efficiently allocated. 
Possible use of existing RHS tools to reduce capital reserves deficits

56

5. Possible use of existing RHS tools to reduce capital reserves 

deficits

All MFH portfolios are facing PUPA reserves for replacement deficits to varying degrees. 

RHS is considering the current options available to it that can help remedy the reserves 

deficits. 

To help alleviate the reserves for replacement deficit across the portfolios, RHS could consider 

requesting additional appropriations from Congress and/or using internal tools at its disposal to

reduce or eliminate the deficit in reserves for replacement.

For the purposes of this report, RHS has requested a scenario 

analysis using internal tools at its disposal. Specifically, RHS 

asked to consider the use of mortgage underwriting tools that 

could be used to reduce a current mortgage payment on a 

property. The difference between the existing and reduced 

mortgage payment could then be applied to the deficit in the

reserves for replacement.

RHS has three key tools to assist property owners with such reductions in mortgage payments: 

• Interest rate reduction on existing RHS mortgages; and/or

• Reducing the payments by amortizing existing mortgages over a longer term; and/or

• Deferring mortgage payments until the properties can complete necessary renovations. 

Some projects may already have utilized one or more of the tools noted above while others may 

find it beneficial to consider the impact of utilizing one or more of these tools to free up cash flow 

in the near-term. The net impact of the use of these tools are intended to redirect cash flows toward

reserves for replacement, which would assist property owners in maintaining the functionality of a 

property over the 20-year analysis period. 

RHS requested that we analyze the impact that three mortgage scenarios would have on the overall 

reserves for replacement deficit of its MFH’s portfolio. The three scenarios are as follows:

• Scenario A: No change to existing debt payments.

• Scenario B: Reduce RHS debt payments by 50%.

• Scenario C: Reduce RHS debt payments to $100 per month. 

Reserves

Mortgage 

payment

$$$
Possible use of existing RHS tools to reduce capital reserves deficits

57

These three scenarios include the simplifying assumptions and limiting conditions 

described below:

1. The reductions to the mortgage payments in Scenarios B and C are simplifying

assumptions that were used to explore the possible impacts on the reserves deficits of the 

four MFH programs. 

2. The 50% payment reduction in Scenario B was based on the assumption that RHS could 

do a combination of any of the three options—interest rate reductions, payment deferrals 

or re-amortizations—to reduce debt payments by 50% over 20 years. 

3. Scenarios B and C are not intended to be one-size-fits-all solutions because the 

compositions of properties and their underlying mortgages are project-specific. Some 

properties carry multiple mortgages that began at different times, and with different terms. 

4. Scenario B and C, while not direct cash outlays by RHS, could require additional 

Congressional appropriations because deferrals and re-amortizations have a budget cost. 

5. Scenario C is based on the potential to defer essentially all RHS debt or re-amortize older, 

low-balance RHS loans.

6. The results of these scenarios’ analyses are for discussion purposes only and may differ 

materially from actual results if RHS were to implement one or more of the scenarios.

Performing the analysis

Scenario A did not require any adjustments to the mortgage payments, therefore the PUPA 

reserves deficit for Scenario A are the same results presented within Results of the 2015 study

beginning on page 22.

We performed the analyses using Scenarios B and C on RHS programs that were classified as 

Likely in Table 8 below. The methodology for these analyses was described on page 17. The pro 

forma calculations were modified to reduce the existing mortgage payments by 50% for Scenario 

B, and down to $100 total for Scenario C. The cost to maintain functionality over 20 years, net of 

reserves, was projected over 20 years. The results of modified pro formas for Scenarios B and C 

created the adjusted reserves deficit data for the programs in the Likely category. Then the adjusted 

reserves deficits under Scenarios B and C were compared to Scenario A, which was the baseline 

for determining the impacts on a program’s PUPA reserves for replacement deficit.
Possible use of existing RHS tools to reduce capital reserves deficits

58

Table 8 summarizes the likelihood of a Scenario being effective when applied to the different 

programs within RHS.

Key categories of impact of a Scenario: 

• “Likely” means that a scenario could be effective in reducing the reserves deficit given

the nature of the underlying mortgages in a program’s portfolio.

• “Limited” means that a scenario could be effective in reducing the reserves deficit for a 

small number of mortgages in a program’s portfolio. 

• “Unlikely” means that a scenario would not be effective in reducing the reserves deficit.

Table 8 — Scenarios applied to the MFH portfolio

Scenario A

No change

Scenario B

Reduce mortgage payment by 50%

Scenario C

Reduce mortgage payment to $100 total per 

month

Section 515 RHS will not 

make any 

changes to the 

properties’ 

mortgages.

Likely 

Based on the nature of the underlying 

mortgages in this portfolio, RD determined 

that a reduction of 50% in the mortgage 

payment could increase cash flows 

available to reduce the reserves for 

replacement deficits. 

Likely

Based on the nature of the underlying 

mortgages in this portfolio, RD determined

that a mortgage payment of $100 per month 

could increase cash flows available to 

reduce the reserves for replacement 

deficits. 

Section 514

Off farm

Likely 

(Same as 515)

Likely 

(Same as 515)

Section 538 Unlikely because...

While some savings could be generated, a significant reduction in mortgage payments is 

unlikely because the majority of Section 538 properties do not have significant RHS 

mortgages. Further, the impact is limited since RHS cannot ask lenders to alter non-RHS 

mortgage payment or defer non-RHS mortgages.

Key considerations: 

For Section 515 properties that have not already gone through MPR but have a Section 

538 mortgage, there could be an option to defer payments on the existing Section 515 

mortgage, re-amortize the MPR mortgage, or consider other tools such as interest rate 

reductions or payment deferrals.

MPR Limited

Only possible if RHS can re-amortize or 

defer newer mortgages including the recent 

MPR mortgages.

Unlikely because...

RHS has already deferred the existing pre1992 mortgage debt on properties within the 

MPR portfolio. Additional savings are not 

possible, unless post 1992 mortgage debt 

and MPR mortgages are also deferred.
Possible use of existing RHS tools to reduce capital reserves deficits

59

The impact of Scenarios B and C on the Section 515 portfolio PUPA reserves 

deficit

Both scenarios could divert cash flows from mortgage payments to apply toward the 

reserves for replacement deficits. Scenario B could reduce the Section 515 portfolio’s

average reserves deficit by 60% over the 20-year analysis period. Scenario C could erase 

the average reserves deficit and create a surplus over the analysis period. 

The net impact of Scenarios B and C on MFH’s overall portfolio would be high because of the 

absolute number of properties in the Section 515 portfolio that have not already been recapitalized 

through other RHS programs include MPR and Section 538—85% of units within the MFH portfolio 

are Section 515. The Section 515 portfolio (unduplicated) has 13,077 properties and 384,216 units 

with an average PUPA reserves deficit of $964.27 Scenario B—reducing existing mortgage 

payments by 50%—could reduce the PUPA reserves deficit from $964 to $402. Scenario C—

reducing existing mortgage payments to a total of $100 per month—could erase the PUPA reserves 

deficit and create a PUPA reserves surplus of $122. Figure 28 is a chart of the outcomes of 

Scenarios B and C on the Section 515 portfolio. 

Figure 28 — Scenarios B, C impact to Section 515 portfolio

 27 Per RHS, property counts for Section 515 and Section 514 exclude properties that overlap currently with the MPR 

and Section 538 programs.

$964 

$402 

Scenario C, 

$120 surplus

Scenario A Scenario B

PUPA reserves deficit (in dollars)

Section 515 — Comparison of baseline (Scenario A) 

v. Scenarios B, C 
Possible use of existing RHS tools to reduce capital reserves deficits

60

It is important to reiterate the assumptions made by RHS when considering Scenarios B and C. 

RHS is assuming that it can use existing mortgage tools to:

• Extend mortgage repayment terms of existing loans.

• Defer old mortgage debt over the remainder of the repayment period.

• Provide interest rate reductions.

• Amortize unpaid loans over longer horizons.

• Provide a MPR loan on properties with large, immediate capital needs.

• Or a combination of the above.

As previously discussed, there are costs associated with the use of these tools. Any additional 

MPR mortgages will require additional Congressional appropriations. Where a mortgage is 

deferred almost entirely, there is a cost to the deferral in the form of a subsidy incurred by a 

property. The subsidy requires allocation of budgeted funds that would offset against the savings 

from the deferral of the mortgage, although RHS is assuming that the adjusted amortization of the 

mortgage would be less than the cost of the deferral.

The impact of Scenarios B and C on the Section 514 Off-farm portfolio PUPA 

reserves deficit

Both scenarios could divert cash flows from mortgage payments to apply toward the 

reserves for replacement deficits. Scenarios B could reduce the Section 514 Off-farm

portfolio’s average reserves deficit by 58% over the 20-year analysis period. Scenario C 

could erase the average reserves deficit and create a surplus over the analysis period. 

The Section 514 Off-farm portfolio that has not currently been recapitalized through other RHS 

programs such as MPR and Section 538 has 292 properties and 15,839 units, with an average 

PUPA reserves deficit of $924.28 Scenario B—reducing existing mortgage payments by 50%—

could reduce the PUPA reserves deficit from $924 to $378. Scenario C—reducing existing 

mortgage payments to a total of $100 per month—could erase the PUPA reserves deficit and create 

a PUPA reserves surplus of $146. Figure 29 is a chart of the outcomes of Scenarios B and C on 

the Section 514 Off-farm portfolio. 

 28 Per RHS, property counts for Section 515 and Section 514 exclude properties that overlap currently with the MPR 

and Section 538 programs.
Possible use of existing RHS tools to reduce capital reserves deficits

61

Figure 29 — Scenarios B, C impact to Section 514 portfolio

The impact of Scenarios B and C on Section 538 and MPR portfolios’ PUPA 

reserves deficit

Scenarios B and C have little effect on Sections 538 and MPR portfolios’ PUPA reserves deficits. 

Scenarios B and C can be effective by adjusting the mortgages on RHS mortgages to make cash 

flow available to reduce or eliminate the projected reserves for replacement deficit over the 20-year 

analysis period. However, because the RHS debt is a small percentage of the total property debt 

on Section 538 properties, Scenarios B and C are unlikely to be effective in reducing the reserves 

deficits.

For properties in the MPR portfolio, the application of Scenario B may be possible if RHS is able to 

re-amortize or defer newer loans including any recent MPR loans. However, the application of 

Scenario C is unlikely because RHS has already deferred the existing pre-1992 debt on those 

projects. The only additional savings could be realized by deferring post-1992 debt and MPR 

existing loans. It is currently unlikely that such deferrals would be to such a degree as to allow a 

$100 per month mortgage payment. 

$924 

$378 

Scenario C, 

$146 surplus

Scenario A Scenario B

PUPA reserves deficit (in dollars)

Section 514 — Comparison of baseline (Scenario A) 

v. Scenarios B, C 
Possible use of existing RHS tools to reduce capital reserves deficits

62

Conclusion

Sections 515, 514 Off-farm, 538, and MPR have a combined 14,650 properties and 454,048 units 

with variations in factors such as age, unit size, building materials, and outstanding mortgages. 

These factors, as well as others, influence the variation in the amount of the reserves for 

replacement for each project. Two properties with similar characteristics can have different 

maintenance/replacement needs and experience a reserves deficit or surplus. There is no onesize-fits-all option to funding the reserves for replacement deficit. However, the different scenarios 

discussed can provide a general concept of how adjustments could be made to the reserves by 

using tools available to RHS. The use of these tools are not without costs—RHS would need to ask 

for Congressional appropriations to fund the cost of deferred payments on existing mortgages and 

to fund additional MPR loans. 

Scenarios B and C could have a positive impact on the PUPA reserves deficit for properties in 

Sections 515 and 514 Off-farm. A reasonable conclusion is for RHS to use its existing mortgage 

tools to reduce mortgage payments for qualifying properties, and direct the difference from the 

existing and reduced mortgage payment to the reserves for replacement fund. Calculating concrete 

projections was beyond the scope of this report, but we recommend RHS consider the following 

next steps to further its research on viable options for adjusting the mortgages using the existing 

tools available to RHS: 

A. Determine how much RHS debt contributes to overall property debt, on average, for each 

program. 

B. Consider adjusting the method-of-testing to determine if a property should be kept in the 

RHS portfolio. A property should meet the determination of inclusion before being 

considered for Scenarios B or C.

C. Determine the internal requirements and processes for RHS to implement Scenario B and 

C. This would include the requirement that property owners participating in either Scenario 

direct all excess funds from the reduction in the mortgage payment to the fund for reserve 

for replacements. 

D. Outreach to existing property owners to determine who is eligible and interested in 

participating in either Scenario.
Appendices

63

Appendices

Appendix A: Assumptions and limiting conditions 

Sample. RHS selected the sample of 394 properties. We have undertaken no independent review of the 

sampling methodology. RHS selected the sample so that it would produce results that would be statistically 

significant at the level of each portfolio, and by number of units per property. Results will not be statistically 

significant for subsets other than those for which RHS designed the sample. In particular, results are not 

reliable at the level of individual properties. Conversely, we understand that expanded results are not 

statistically reliable for other levels (for example, statistically reliable conclusions cannot be drawn for the 

combination of state, property age, property size, etc.).

Expansion factors. For each property in the sample, RHS economists calculated and approved requisite 

expansion factors. The expansion factors expand the sample cost per unit per annum to maintain 

operational functionality to the number of units in the various MFH portfolios.

Unit costs for capital needs assessments. In accordance with our Statement of Work, our capital needs 

assessments utilized standard costs from the Marshall & Swift national database. Based on feedback from 

owners and managers, and from the capital needs assessment team, we believe that owners’ actual unit 

costs will vary, sometimes materially, from the Marshall & Swift unit costs

Data quality. The U.S. Department of Agriculture (USDA) Rural Development (RD) and its designated 

representatives have warranted to us that the information supplied by them was complete and correct in all 

material respects to the best of their knowledge. It has been assumed that all facts and circumstances that 

would materially affect the calculation results have been disclosed to us. Any significant errors in, or 

omissions from, the information supplied to us could have a corresponding effect on our analyses and 

results. We performed a number of data validation checks on data elements received from RHS. RHS has 

been responsive to our requests for clarification and data correction. However, it is possible that some data 

entry errors were made by RHS that we did not discover. Information furnished by others, upon which all 

or portions of this report are based, is believed to be reliable; however, no warranty is given as to the 

accuracy of such information.

In addition, when data elements were missing, our calculations make simplifying assumptions. We believe 

that our substitutions and assumptions are reasonable and appropriate, but it is possible that the correct 

data could produce results that differ from the results discussed in this report. We were able to obtain the 

vast majority of data that we requested. However, there were some requests that were not met in their 

entirety: 

• Several detailed budgets for income and expense for each properties;

• Several detailed mortgage data for various properties; and

• Several audited financial statements for all properties.

Regulatory compliance. Full material compliance with all applicable federal, state and local zoning, use, 

environmental and similar laws and regulations is assumed. It is assumed that all required licenses, 

certificates of occupancy, consents or other legislative or administrative authority from any local, state or 

national government or private entity or organization have been or can be obtained or renewed for any use 

on which the estimates contained in this report and underlying property CNA reports are based.
Appendices

64

Intended use. This engagement is limited to a sample of property assessments to support the development 

of a portfolio wide property needs assessment by determining the amount of met and unmet capital needs 

required to ensure operational functionality of the multi-family housing portfolio. We understand the 

intended use of this document is for publication in the most public forums. Neither RSM/CoreLogic, nor any 

individuals signing or associated with this report shall be required because of this report to give testimony 

or appear in court or other legal proceedings.

Projections. The forecasts, projections, or capital needs estimates are based on: current market 

conditions; anticipated short-term supply and demand factors; a continued stable economy; and that annual

budgeted payments to reserves will be made by property owners. These forecasts are, therefore, subject 

to change with future conditions. Some assumptions inevitably may not materialize, and unanticipated 

events may occur; therefore, the actual results achieved during the projection period may vary from the 

projection, and the variations may be substantial.

Financial data. We have compiled summary financial data and ratios that are contained in the report and 

various appendices. The data in these appendices represent financial data extracted from the sampled 

properties’ historical financial statements as well as other sources. The financial information does not 

constitute a complete presentation of the sampled properties’ financial statements in accordance with 

generally accepted accounting principles. We were provided with pro forma financial and operational data 

regarding the properties in the sample. Without independent verification, we have relied upon this data as 

accurately reflecting the results of the operations and financial position of the properties. 

Not an audit. As independent advisors, we have not audited this data and express no opinion or other form 

of assurance regarding their accuracy or fairness of presentation. The information is included solely to 

assist in the development of the conclusions presented in this report and should not be used for any other 

purpose.

Data timing. Our capital needs data were gathered during October, November and December 2015.

Additional financial data are as of December 31, 2014 and pro forma 2015 information. Additional data was 

provided but not relied upon. Our data on observed occupancy levels are as of the date of assessments 

specified in the individual CNA reports.

Subsequent events. This report is dated March 1, 2016. We have no responsibility to update this report 

for events and circumstances occurring subsequent to the Report Date. We are not responsible for any 

alternations, changes, additions, summaries, conclusions, recommendations or analysis made by any 

parties subsequent to the Report Date.
Appendices

65

Appendix B: Sample selection methodology detail

The following table provides the total properties within each MFH programs’ portfolios and the actual sample 

size of properties selected for analysis. 

Table 9 — MFH portfolio and sample selected for analysis

In summary, the precision of point estimates generated by program and property size for this study is 

approximately +/- 8.33% at a 95% level of confidence for a 4.25% CV.29 The most precise estimates are 

for Off-farm Farm Labor Housing properties with more than 100 units (CV = 0.9% for a precision of 1.76%), 

whereas the least precise estimates generated for this study are for Off-farm Farm Labor Housing 

properties with less than 12 units (CV = 8.10% for a precision of 15.88%).

 29 In general, at a 100(1 – α)% level of confidence, the precision of the estimate is Z1-α/2 * CV. So, at 95% 

confidence (Z0.95=1.96) and a 4.25% CV, the precision is 8.33%.

Program Unit range Total 

properties

Total units Average 

units per 

property

Standard 

deviation

Target CV Calculated 

sample size

Actual CV Actual 

sample size

515 ONLY <12 1,209 9,246 8 1.9 4.25% 33 4.20% 34

24-Dec 5,771 114,349 20 4.45 4.25% 28 4.25% 28

25-50 5,128 191,320 38 7.25 4.25% 21 4.14% 22

51-100 880 57,198 65 12.59 4.25% 22 3.82% 25

>100 89 12,103 136 42.38 4.25% 56 2.80% 52

ALL 13,077 384,216 30 160 161

514 Off-farm <12 18 136 8 3.28 4.25% 16 8.10% 11

24-Dec 77 1,556 21 3.96 4.25% 17 4.25% 17

25-50 108 4,120 39 7.46 4.25% 18 4.10% 19

51-100 68 4,638 69 15.32 4.25% 20 4.10% 21

>100 21 5,389 257 140.1 4.25% 19 0.90% 21

ALL 292 15,839 55 89 88

538 ALL <12 0 - - - 4.25% - - -

24-Dec 75 1,633 22 3 4.25% 9 4.25% 9

25-50 331 13,380 40 6.86 4.25% 15 4.25% 15

51-100 220 14,798 67 12.24 4.25% 17 4.25% 17

>100 18 2,373 132 35 4.25% 16 4.55% 15

ALL 644 32,184 50 57 56

MPR ONLY <12 32 251 8 1.78 4.25% 15 4.25% 15

24-Dec 249 4,958 20 4.34 4.25% 24 4.25% 24

25-50 280 10,519 38 7.2 4.25% 19 4.20% 20

51-100 65 4,394 68 15.62 4.25% 20 4.45% 19

>100 11 1,687 154 64.2 4.25% 10 4.25% 10

ALL 637 21,809 35 88 88

Total Sample Size 397 394
Appendices

66

The following tables provide a comparison between the proportion of units in the samples and the proportion 

of units in the portfolio.

Table 10 — Sample selected for Section 515

Section 515 (MPR and 538 removed)

Unit range Total 

properties

in sample

Proportion 

of 

properties 

in sample

Proportion 

of 

properties 

in portfolio

Total units

in sample

Proportion 

of units in 

the sample

Proportion 

of units in 

portfolio

<12 34 21% 9% 269 3% 2%

12-24 33 20% 44% 627 7% 30%

25-50 24 15% 39% 961 10% 50%

51-100 24 15% 7% 1,653 18% 15%

>100 46 29% 1% 5,803 62% 3%

ALL 161 100% 100% 9,313 100% 100%

Table 11 — Sample selected for Section 514 Off-farm

Section 514 Off-farm

Unit range Total 

properties

in sample

Proportion 

of 

properties 

in sample

Proportion 

of 

properties 

in portfolio

Total units

in sample

Proportion 

of units in 

the sample

Proportion 

of units in 

portfolio

<12 10 11% 6% 80 1% 1%

12-24 17 19% 25% 349 5% 10%

25-50 20 22% 36% 795 11% 26%

51-100 24 27% 25% 1,760 24% 29%

>100 18 20% 8% 4,454 60% 34%

ALL 89 100% 100% 7,438 100% 100%

Table 12 — Sample selected for Section 538

Section 538 (Contains all Section 538 properties, including those overlapping with 515 only, and those 

overlapping with MPR/515)

Unit range Total 

properties

in sample

Proportion 

of 

properties 

in sample

Proportion 

of 

properties 

in portfolio

Total units

in sample

Proportion 

of units in 

the sample

Proportion 

of units in 

portfolio

<12 - - - - - -

12-24 11 20% 11% 243 6% 5%

25-50 15 27% 51% 609 16% 42%

51-100 17 30% 34% 1,188 31% 46%

>100 13 23% 4% 1,772 46% 7%

ALL 56 100% 100% 3,812 100% 100%

Table 13 — Sample selected for MPR

MPR (Contains all MPR projects NOT also funded by 538—all MPR overlap with Section 515)

Unit range Total 

properties

in sample

Proportion 

of 

properties 

in sample

Proportion 

of 

properties 

in portfolio

Total units

in sample

Proportion 

of units in 

the sample

Proportion 

of units in 

portfolio

<12 14 16% 5% 102 3% 1%

12-24 30 34% 39% 592 17% 23%

25-50 20 23% 44% 789 23% 48%

51-100 18 20% 10% 1,222 35% 20%

>100 6 7% 2% 743 22% 8%

ALL 88 100% 100% 3,448 100% 100%
Appendices

67

Appendix C: Capital Needs Assessment template

The development of the property CNA report followed the workflow summarized as follows:

Cost estimates in the 20-year Capital Needs table were sourced from Marshall Valuation Services (MVS) 

Cost Guide. As noted in MVS in Section 1, Page 7:

“Marshall Valuation Services is a complete, authoritative appraisal guide for developing 

replacement costs, depreciated values, and insurable values of buildings and other improvements. 

This service is an aid in determining values of nearly every kind of improved property where 

replacement or reproduction cost is desired. Marshall Valuation Services has the single most 

comprehensive database in the marketplace.”

“The integrated database combines three distinct approaches to information gathering: 

1. Building by Component – reflects data identified by hundreds of locations throughout the United 

States. MVS monitors the factors that drive the cost of construction and tracks actual building 

component costs. MVS gathers wage rates from all major labor trades and studies crew sizes 

and productivity rates for the personnel necessary for the installation of components. 

2. Building by Example – allocates assembly costs according to various building categories 

(building structure, building system or building component). This systematized cost analysis 

approach always accounts for the total cost figure.

3. Building by Sampling – a unique approach to cost development. MVS gears its research 

toward the use of actual complete building costs. In grouping those costs by building type or 

occupancy, method or class, and cost range or quality of construction, they develop what the 

appraisal market perceives as the most accurate building cost information available.”

“MVS data has become the industry benchmark for preliminary budget feasibility and design 

alternative/life-cycle costing; energy audits; estimating and bidding for new construction or partial 

loss and damage repair.”

In addition to utilizing costs via MVS, we utilized costs from industry standards through previous work on 

multi-family residences and senior housing. Based on our experience and knowledge, we were able to 

provide a benchmark for individual costs for each component. We did not capture every individual material 

type for every component. However, we estimated an average cost for a component that is representative 

of the overall portfolio.

The estimated total replacement costs were adjusted based on a local cost multiplier supplied by MVS. 

This local cost multiplier is based on weighted labor and material costs, including local sales taxes; but 

does not include any new-construction rebates where applicable. The local multipliers, when applied to the 

total replacement cost, will adjust for variations in component costs as a whole for a particular region.

Executive 

Summary

Property 

Summary

Site 

Improvements

Building 

Architectural

Mechanical 

and Electric

Dwelling 

Units Other

Overall 

Property 

Condition

20-Year Capital 

Needs Table Pictures
Appendices

68

Section 1: Executive Summary

An overview of the overall objective of the property assessment and the summary of the 20-year Capital 

Needs Table outlining specific objectives throughout the report. These objectives are as follows:

• Identify and locate significate defects, deficiencies, and items of deferred maintenance.

• Estimate the cost of significant capital items required to maintain the operating function utility of the 

property over the 20-year analysis period.

• Establish a cost estimate to correct such defects, deficiencies and deferred maintenance.

• Delineate the cost estimate by Years 1- 5, 6-10, and 11-20.

• Summarize the physical attributes of the property.

• Inspect a reasonable number of units, including one unit of each type (1 br, 2 br, 3 br, etc.) that are 

occupied or vacant (if applicable).

Section 2: Property Summary

The property summary includes a list of key building and site descriptions deemed to be material to the 

overall analyses. These descriptions include the following:

Building square feet Number of total units Number of stories Number of apartment 

buildings

Vacancy level at time of 

inspection (%)

Year built/Year 

renovated

Site description Surrounding land uses

Number of standard 

parking spots

Number of 

handicapped parking 

spots

Land size (acres) Units delineated by 

number of bedrooms/

number of bathrooms

Style of apartment 

building (garden, midrise, et cetera)

Number of occupied 

and vacant units

Number of down units Number of units 

inspected by 

delineation

Components considered critical to functionality of a property were assessed. Any major deficiencies were 

classified as critical, priority, or operational and summarized in with comments from the assessor. These 

components were divided among four categories:

1. Site Improvements;

2. Building Architectural;

3. Mechanical and Electric; and

4. Dwelling Units.

Executive 

Summary

Property 

Summary

Site 

Improvements

Building 

Architectural

Mechanical 

and Electric

Dwelling 

Units Other

Overall 

Property 

Condition

20-Year Capital 

Needs Table Pictures

Executive 

Summary

Property 

Summary

Site 

Improvements

Building 

Architectural

Mechanical 

and Electric

Dwelling 

Units Other

Overall 

Property 

Condition

20-Year Capital 

Needs Table Pictures
Appendices

69

Section 3. Site Improvements

This section of the CNA report identified key components related to the site improvements and adjacent 

land areas. Eight key components that drive capital needs related to site improvements were assessed. 

Components under the Site Improvements include:

Utilities available Site fencing (type and 

linear feet)

Sidewalks (construction 

type and square feet)

Mail facilities

Landscaping Site lighting Parking/paved areas Playground equipment

Section 4: Building Architectural

This section of the CNA report identified key exterior components of the apartment buildings, and key 

components of the common area buildings. These components are typically long-lived and are expensive 

to replace. The eight components included in this portion of the assessment were:

Structure and 

foundation

Roof covering Soffit/Fascia/Gutters Windows

Exterior doors Exterior walls Building mounted lights Carpet in common area 

buildings

Section 5: Mechanical and Electric

This section of the CNA report identified key mechanical and electrical components of a property. Inferior 

or outdate components were identified and commented on by the assessor. Components considered to be 

inferior include R-22 refrigerant, electrical service less than 60 amps, and non-GFCI outlets near wet areas. 

We assessed the following components:

HVAC systems Plumbing systems Electrical systems

Executive 

Summary

Property 

Summary

Site 

Improvements

Building 

Architectural

Mechanical 

and Electric

Dwelling 

Units Other

Overall 

Property 

Condition

20-Year Capital 

Needs Table Pictures

Executive 

Summary

Property 

Summary

Site 

Improvements

Building 

Architectural

Mechanical 

and Electric

Dwelling 

Units Other

Overall 

Property 

Condition

20-Year Capital 

Needs Table Pictures

Executive 

Summary

Property 

Summary

Site 

Improvements

Building 

Architectural

Mechanical 

and Electric

Dwelling 

Units Other

Overall 

Property 

Condition

20-Year Capital 

Needs Table Pictures
Appendices

70

Section 6: Dwelling Units

This section of the CNA report identified common appliances, types of finishes for floors, walls, and ceilings, 

and common kitchen and bathroom fixtures. These components are typically replaced on an as needed 

basis, or on tenant turnover. Inferior or outdate components were identified and commented on by the 

assessor. We assessed the following components:

Flooring Interior walls Ceilings Interior doors

Bathroom and 

plumbing fixtures

Refrigerators Range and range 

hoods

Dishwashers

Water heaters Cabinets and 

countertops

Balconies

Section 7: Other

This section of the CNA report identified safety and security items not included elsewhere in the CNA 

analysis. We identified a number of components that are important to the safety and security of the property 

and the units. We assessed the following components:

Smoke detectors Sprinkler systems Carbon monoxide 

detectors

Emergency lighting and 

exit signs

Fire extinguishers Fire alarms Intercoms Security cameras

Secured entrance 

doors

Additional questions were asked to determine if there could be other safety and security issues with the 

property. These questions focused on physical conditions and issues including lead-based paint, mold, 

wood-damaging insects, problematic building materials, earthquake zones, and the use of fireplaces and 

washer & dryer hookups in the units. The answers to these questions influenced the overall property 

condition final assessment. 

Executive 

Summary

Property 

Summary

Site 

Improvements

Building 

Architectural

Mechanical 

and Electric

Dwelling 

Units Other

Overall 

Property 

Condition

20-Year Capital 

Needs Table Pictures

Executive 

Summary

Property 

Summary

Site 

Improvements

Building 

Architectural

Mechanical 

and Electric

Dwelling 

Units Other

Overall 

Property 

Condition

20-Year Capital 

Needs Table Pictures
Appendices

71

Section 8: Overall Property Condition

The assessment of the components were taken into account when assigning a property a qualitative 

condition rating. These ratings were: Excellent, Above Average, Average, Below Average, and Poor.

Excellent: The component is new or maintained in like new condition with proactive maintenance 

practices, exhibiting no deferred maintenance or life safety/code issues.

Above Average: The component is fully functional, well maintained, exhibits minimal wear and tear and 

no deferred maintenance or life safety/code issues. Any identified repairs are due to recent events (e.g. a 

wind storm or a burst pipe) or are very limited in scope (routine maintenance). Low reserves are required.

Average: The component is fully functional and generally well maintained. It may exhibit customary wear 

and tear based on age and may have minimal deferred maintenance. Any life/safety code issues can be 

readily corrected as part of the operating budget and are isolated in nature. Moderate reserves are required.

Below Average: The component exhibits pervasive wear and tear, some limits in functionality and deferred 

maintenance issues. Life safety/code issues are significant and/or numerous and involve substantial cost. 

High reserves are required.

Poor: The component exhibits inferior/deteriorating conditions and some limits functionality. Deferred 

maintenance is pervasive and will costly to cure. Multiple life safety/code issues are identified and involve 

significant cost. Extensive repairs are required.

Section 9: 20-Year Capital Needs Table

Based on the overall condition of the property and the condition of the individual components, we’ve 

estimated the cost of significant capital items required to maintain the functionality of the property over a 

20-year holding period from the date of the assessment. This amount is gross of any reserves for 

replacement. 

Executive 

Summary

Property 

Summary

Site 

Improvements

Building 

Architectural

Mechanical 

and Electric

Dwelling 

Units Other

Overall 

Property 

Condition

20-Year Capital 

Needs Table Pictures

Executive 

Summary

Property 

Summary

Site 

Improvements

Building 

Architectural

Mechanical 

and Electric

Dwelling 

Units Other

Overall 

Property 

Condition

20-Year Capital 

Needs Table Pictures
Appendices

72

Section 10: Pictures

Photographs were taken of the property’s exterior, common areas, site improvements, and the interior of 

the units that were inspected. 

Executive 

Summary

Property 

Summary

Site 

Improvements

Building 

Architectural

Mechanical 

and Electric

Dwelling 

Units Other

Overall 

Property 

Condition

20-Year Capital 

Needs Table Pictures
Appendices

73

Appendix D: PUPA reserves deficit methodology

Figure 30 — Example pro forma to calculate reserves for replacement deficit

For each of the properties in the sample, a financial analysis was conducted using the most relevant and 

reliable information sources. For some properties audited financial statements were available while for 

others, information from the AMAS database was utilized. The key inputs and assumptions relied upon in 

the PUPA reserves deficit methodology include:

1. Beginning balance of reserves as of December 31, 2014. For each property, this data point was 

identified either from audited financial statements or the AMAS database. If this amount was not 

available, we made an estimate based on the relative size, location and program of the property and 

benchmarking to other properties with similar characteristics. 

Year Uninflated annual 

replacement 

needs for 20 

years

 Reserves for 

replacement 

beginning 

balance (as of 

Dec 31 2014) 

Reserves for 

replacement 

annual deposit

Reserves for 

replacement 

balance after 

annual deposits

Withdrawals Net reserves 

(deficit) at year 

end

1 $112,026 $1,198,474 $153,000 $1,351,474 -$112,026 $1,239,448

2 $121,926 $1,239,448 $153,000 $1,392,448 -$121,926 $1,270,522

3 $112,026 $1,270,522 $153,000 $1,423,522 -$112,026 $1,311,496

4 $112,026 $1,311,496 $153,000 $1,464,496 -$112,026 $1,352,471

5 $120,118 $1,352,471 $153,000 $1,505,471 -$120,118 $1,385,353

6 $112,026 $1,385,353 $153,000 $1,538,353 -$112,026 $1,426,328

7 $263,774 $1,426,328 $153,000 $1,579,328 -$263,774 $1,315,553

8 $112,026 $1,315,553 $153,000 $1,468,553 -$112,026 $1,356,527

9 $126,656 $1,356,527 $153,000 $1,509,527 -$126,656 $1,382,872

10 $1,867,280 $1,382,872 $153,000 $1,535,872 -$1,867,280 -$331,409

11 $112,026 -$331,409 $153,000 -$178,409 -$112,026 -$290,435

12 $121,926 -$290,435 $153,000 -$137,435 -$121,926 -$259,361

13 $112,026 -$259,361 $153,000 -$106,361 -$112,026 -$218,387

14 $112,026 -$218,387 $153,000 -$65,387 -$112,026 -$177,412

15 $1,459,838 -$177,412 $153,000 -$24,412 -$1,459,838 -$1,484,250

16 $112,026 -$1,484,250 $153,000 -$1,331,250 -$112,026 -$1,443,275

17 $121,926 -$1,443,275 $153,000 -$1,290,275 -$121,926 -$1,412,202

18 $112,026 -$1,412,202 $153,000 -$1,259,202 -$112,026 -$1,371,227

19 $253,874 -$1,371,227 $153,000 -$1,218,227 -$253,874 -$1,472,101

20 $311,660 -$1,472,101 $153,000 -$1,319,101 -$311,660 -$1,630,761

$1,630,761

$81,538

160

$510

Uninflated deficit (surplus) of reserves over 20 years

Calculation = Cost to maintain operational functionality, net of reserves for replacement

Uninflated deficit (surplus) of reserves per annum

Calculation = cost to maintain operational functionality net of reserves for replacement, divided by 20 years

Uninflated deficit (surplus) of reserves per unit per annum

Calculation = Uninflated deficit (surplus) of reserves per annum, divided by total number of units

Number of units at the property
Appendices

74

2. Annual projected transfer to reserves. For each property, a 2015 projected budget was analyzed 

from information in the AMAS database. We identified the projected budgeted transfer to reserves and 

any growth in projected transfers to reserves. For most properties there was no projected growth in 

reserve transfers while others projected modest increases. For properties without multi-year projections 

of annual reserve transfers, a simplifying assumption is that each property will be able to make a 

projected transfer to reserves in each year during the 20-year observation period based on the 

projection for 2015. 

3. Capital needs withdrawals. We determined the uninflated 20-year projected gross capital needs to 

maintain the operating functionality of each property. These are developed for each of the 394 sample 

properties. As previously discussed, the capital needs were determined to be exclusive of expenses 

that would be routinely found in the projected operating statements of the properties. 

4. Net reserves. The net reserves in each year were calculated based on the beginning balance of 

reserves, plus the annual reserve transfer, less any projected capital needs withdrawals. For most 

properties this amount is negative which indicates a reserve deficit. A net reserve deficit can occur 

when a property has more capital needs than reserves available during the 20-year projected period. 

For some properties in the sample the net reserves were positive which indicated a surplus of reserves 

compared to the projected 20 year capital needs. 

5. Per unit per annum (PUPA) net reserves. Since the total net reserves is an undiscounted figure, the 

annual amount of net reserves was first calculated based on the total 20-year net reserves spread 

evenly over the 20-year period. The annual net reserves figure was then divided by the number of units 

in the property to calculate the PUPA net reserves. This figure is the basis for the expansion of projected 

costs using the aforementioned expansion factors.

6. Scenario analysis. It should be noted this methodology was replicated for Section 5, Scenario 

Analysis. For example, to determine the impact of a 50% decrease in the debt payment, since the total 

amount of RHS debt was not readily available, at the direction of RHS, a simplifying assumption was 

utilized that assumed 50% of the projected annual debt payment would be added to the annual reserve 

transfer. For Scenario C, it was assumed that the entire projected debt payment (less $100 x 12 

months) would be added to the projected reserve transfer.