Spreadsheet: c46b8612-c891-4aae-92d9-7630cbb90abd
Sheet: Appraisal & Mkt. Study-CH.7

[NAME] | ANSWER | Last Updated
We are appraising a property that is operating at a level below what we consider to be its achievable long term occupancy level due to previous damage that has been repaired.   1. Do we use what we consider to be its achievable long term occupancy level in establishing the income approach?   2. Do we need to also report a "stabilized" value?     3. If an as is value is required, would we use the old HUD operating deficit model to determine an adjustment to the as is value, or use a method that is market based? | We want the appraiser to look at the project as a typical buyer would. We intentionally don’t spell out a step by step method. If the property is substantially underperforming, the market would still recognize the latent potential to some extent. We do not want a “Value as if Stabilized” however a stabilized value may be used in the analysis. For example, one way an investor/appraiser might approach the problem is to estimate what the property will be worth at stabilized occupancy, then deduct the combined revenue loss (month by month) through the transition period. Using a discounted cash flow is allowed. An entrepreneurial profit would also need to be deducted to compensate the buyer for the risk of achieving the new performance levels. In essence we are asking for what might be called an “as is” value except for the assumption that the repairs are complete.   Please do not use the Initial Operating Deficit method outlined in the MAP Guide. [NAME] has published its own template and guidance for developing an IOD. | 2012-02-01 00:00:00
Is there any type of certification process to go through to be certified as an acceptable market analyst for this program? | The lender is responsible for ensuring that the market study preparer is qualified – there is no certification process.   The market analyst who signs the market study report must acknowledge in the certification of the report the extent of the professional assistance provided by others. The market analyst must:   1. Have the knowledge and experience to complete the assignment competently.  2. Be currently active in the market analyses of healthcare properties.  3. Be experienced in the market area in which the subject property is located or establish expertise by a thorough investigation of the market.  The appraiser or the market analyst must be independent of and may not be affiliated with the loan originator, broker, developer, Mortgagor, Lender, or any individual or institution involved in any other financial role in the application. | 2012-02-01 00:00:00
With regard to 232 new construction, do we establish market rent based on today's market without any trending to construction completion? | You are correct.  Market rents are as of  the date of the appraisal and not trended to any future date | 2012-02-01 00:00:00
What are the OHP guidelines for tax abatements? | For purposes of Section 232 underwriting abatements will be classified as one of the following three types:  Type A Abatements: Properties that have real estate tax abatements that would not be passed onto a typical buyer or where there are less than 5 years of abatement remaining are to be appraised and underwritten assuming full market-level tax as an expense.  It will not be necessary for the appraiser to invoke a hypothetical condition for this assumption, as they will already be assuming a sale.  Deciding whether or not abatements can be inherited will require an analysis of the rules that govern the abatement.  These rules could show that some buyers, such as non-profit organizations, could inherit the abatement, whereas for-profit organizations could not.   When determining who a typical buyer of the property would be, it is inappropriate to assume a non-profit organization would be the next buyer simply because the current owner is a non-profit. This is not to say that there are not cases where another non-profit would be the most likely buyer.   The expense of full market-level taxes will be determine by the appraiser using tax comparables and local tax levy data, as is done for properties without abatements. The full tax expense will be used by the appraiser in the determination of value (used in the Value criterion on HUD Form 92264-A) and by the Lender in sizing the mortgage by debt coverage (Used in the Debt Service criterion on HUD Form 92264-A).  Type B Abatements: For properties that have tax abatements that would be passed onto a typical buyer, AND where the abatement amount is consistent or there is forgiveness of the complete amount, AND lasts the term of the mortgage, the appraiser and Lender may recognize the savings in their expense conclusions and in both Criterion 3 and 5.  Type C Abatements:  For properties with tax abatements that are variable in amount, and/or shorter than the term of the mortgage (but longer than 5 years), the value of the abatement may be considered as follows:  The appraiser will first determine the values produced by all applicable approaches, assuming full market taxes in their expense calculations. Next, the appraiser will estimate the Net Present Value (NPV) of the tax savings.  The discount rate used in this calculation is to be determined by the appraiser.  Because they are temporary in nature, Type C tax abatements cannot be recognized in Debt Service criterion on HUD form 92264-A (maximum mortgage amount based on debt service ratio). Market level tax amounts are to be used to derive the incomes included there. | 2012-02-01 00:00:00
Is there an absolute minimum occupancy requirement for underwriting in 223(f) refinancing? | The Office of Healthcare programs does not have a minimum threshold percentage for occupancy.  However if the property in question has a lower occupancy rate than comparables, it would appear that the property is inferior in the marketplace.  The narrative would have to explain why this is occurring and what steps the owner is taking to make the project more competitive. | 2012-02-01 00:00:00
Is there a maximum occupancy rate that should be used in an appraisal? | No. Appraisals must be based on market values. If we gave you parameters that the market did not recognize then we would no longer be getting a market value. You can use whatever expense or occupancy that the typical market participant would use. Your burden of demonstrating the market’s action grows the more you depart from market norms. At the same time we expect the lender to present a loan sizing to us that is conservative. In an unusually high occupancy situation, the loan committee could require a lower occupancy assumption. The loan sizing would then be based on the lender’s lower capitalized “HUD directed value”, for lack of a better name. We would however not require the appraiser to alter their numbers and depart from what they felt was the market value. | 2012-02-01 00:00:00
My company does market and financial feasibility studies for senior housing.  Do we need to attend a training session in order to submit a feasibility study for projects under the 232 LEAN Program? | There is no requirement for HUD training and no approved list of third party providers.  The Lender is responsible for the selection and approval of appraisers and market analysts and familiarizing them with 232 guidelines.  Lenders must ensure that each appraiser and market analyst selected are qualified to complete the assignment by reviewing their experience, education, work quality, relevant assignment frequency, and state licenses or certifications. | 2012-02-01 00:00:00
If a facility used by the appraiser as a comp either has no Medicare contract or accepts only minimal Medicare residents, can the facility be excluded from the average census of competitors? | No. If the lender wishes to highlight the average of the comparables which most closely match the facility they can do that in the text of the narrative, but the charts are meant to give a picture of all the PMA competitors that were identified by the appraiser. | 2012-02-01 00:00:00
The SNF in a proposed 232/223(f) transaction does not participate in the Medicaid program.  Have any such deals been approved via LEAN, or alternatively, has HUD imposed a Medicaid component to the underwriting? | Not having a Medicaid contract won’t preclude an existing SNF from proceeding with a 223f.    We advise that income be underwritten at or below the new construction maximum Medicare/private pay mixes – to more conservatively size the mortgage. | 2012-02-01 00:00:00
Is there a size limit on new construction of an assisted living facility? | OHP does not have a restriction on the number of beds in a new construction facility, it is based on market demand. | 2012-02-01 00:00:00
Does HUD consider Medicaid and Medicare "federal financial assistance" much like Section 504 and Section 8 rents? | No | 2012-02-01 00:00:00
Will HUD require a separate Market Study and Appraisal for New Construction or Sub Rehabs?  We are wondering how to assign the contract request  with an Appraiser/Market Analyst for 3rd party reports. | OHP allows Lenders to use different vendors to supply the market study and the appraisal.  However, the appraisal must always include a market analysis.  The market study and appraisal may be contained under one cover or appear in separate volumes and attached by citation.  The market analysis should be focused on factors relevant to the subject property, supply and demand, and avoid reproduction of lengthy local publications.  Both parts must conform to the statements of work. The reports may come from the same or different firms. | 2012-02-01 00:00:00
Can a project on a leasehold be submitted under LEAN? | Yes, with some limitations. • The lease term may be at any stage of a 99-year lease, so long as the lease is renewable, or have at least 10 years remaining after the maturity date of the insured mortgage. • HUD regulations state “In the event the mortgage is secured by a leasehold interest rather than a fee simple estate, the value or replacement cost of the property described in the mortgage shall be the value or replacement cost of the leasehold interest (as determined by HUD) which shall in all cases be less than the value or replacement cost of the property in fee simple.” • The lease payments may not exceed market levels. • The provisions of Form HUD-92070-M, must be included in, or legally appended to, the lease. The lease must not contain any provisions in conflict with the lease addendum. | 2012-02-01 00:00:00
There is a certification for the PCNA report and the market study required by the vendor, but I did not see one outlined in the appraisal scope of work.  Does the appraisal require a certification? | We do require a certification in the appraisal, we just don’t include a template within the Statement of Work. Appraiser’s are required by USPAP to provide a certification, and you will find one in all USPAP compliant appraisals. Instead of using a HUD specific format, we want the appraiser to use the template outlined in USPAP. It reads much the same as the templates we used in the Market Study & PCNA Statements of Work. Under MAP we often got two certifications, one for MAP and one for USPAP, that basically said the same things. We wanted to avoid that duplication going forward so we omitted the HUD specific template from the SOW. | 2012-02-01 00:00:00
If a market analysis determines that there is not sufficient unmet demand and  that the only way for a proposed senior care facility to succeed would be to negatively impact the operations of existing facilities within the area, would HUD consider the application for approval? | Not having sufficient unmet demand would have an adverse effect on the HUD-Insured properties and other properties in the area.  We would not issue a Firm Commitment in this circumstance. | 2012-02-01 00:00:00
Can the acquisition cost of existing bed authority be included in the HUD Replacement Cost? | No, it may not.  The issue here is that in CON states with no new beds permitted there is a “free market” where the rights to have these scarce beds were sold from one operator to another.  Normally it is the operator who participates in this market, not the owner. Bottom line is that HUD will not allow the cost of purchasing existing CON beds in the HUD replacement cost. | 2012-02-01 00:00:00
Does ownership of the site or the length of a ground lease have influence on the Sect. 232 financing terms available to a nonprofit? | HUD has minimum requirements related to ground leases, which do not affect the terms of the loan:  Real Estate must be held:  1.  In fee simple, or  2.  Under a lease for not less than 99 years which is renewable or having a period of at least 10 years beyond the maturity date of the mortgage. | 2012-02-01 00:00:00
Will OHP consider a waiver of a ground lease for private projects? | Yes, so long as the fee simple land owner will agree to the terms of form HUD-92070M, which includes an option for HUD to purchase the land. | 2012-02-01 00:00:00
Should our appraiser use the HUD formula to calculate the reserve per unit per year? | Not necessarily.  The appraisers are asked to use a reserved amount that corresponds to market norms. With both new construction and 223fs the HUD required reserve amounts are often different than those used by the appraiser. Our rational is that we wanted a strictly “market value” from the appraisers, not a value specific to HUD requirements. | 2012-02-01 00:00:00
Is it acceptable to underwrite with a Medicare census of more than 10% of residents? | Underwriting with a Medicare census of more than 10% does require a waiver.   However, if there is market support we have approved these waivers.   Please see the details in the email blast on waiver requests. When you apply for these waivers keep in mind: • The age of the competitors- Usually new facilities can attract more Medicare, • The depth of the market – in a small market a 13.6% average may actually decline if you have to spread the pool of Medicare patients across more (added) units, • The relative stability of government payment sources in the property’s jurisdictions, • The experience of the developer, mortgagor, operator, etc. with facilities of similar size, type and with similar [NAME], etc.), • The number of hospital discharges in the market area, as well as an analysis of lengths of stay and the facility’s anticipated relationships with “feeder” facilities, and • How the new measures and penalties pertaining to hospital readmissions will be addressed and mitigated. | 2013-03-01 00:00:00