Chapter 1

Student Housing Properties

Section 101

Description
101.01

Student Housing Property

Requirements

  • A Student Housing PropertyStudent Housing PropertyA multifamily residential rental property in which 40% or more, but less than 80%, of the units are leased to either undergraduate or graduate students. is a multifamily rental property in which 40% or more, but less than 80%, of the units are leased to undergraduate or graduate students.
  • A student with sufficient income to pay rent does not count toward the student unit concentration required for a Student Housing PropertyStudent Housing PropertyA multifamily residential rental property in which 40% or more, but less than 80%, of the units are leased to either undergraduate or graduate students. .
101.02

Dedicated Student Housing Property

Requirements

A Dedicated Student Housing PropertyDedicated Student Housing PropertyMultifamily rental Property in which 80% or more of the units are leased to undergraduate or graduate students. is a multifamily rental property in which 80% or more of the units are leased to undergraduate or graduate students.

Guidance

A Dedicated Student Housing PropertyDedicated Student Housing PropertyMultifamily rental Property in which 80% or more of the units are leased to undergraduate or graduate students. typically:

  • caters to a student population due to its location;
  • was specifically constructed as a student property or, although built as conventional multifamily housing, is now leased primarily to students; or
  • is not readily rentable as conventional multifamily housing.
Section 102

Generally

Guidance

When underwriting a Student Housing PropertyStudent Housing PropertyA multifamily residential rental property in which 40% or more, but less than 80%, of the units are leased to either undergraduate or graduate students. or Dedicated Student Housing PropertyDedicated Student Housing PropertyMultifamily rental Property in which 80% or more of the units are leased to undergraduate or graduate students. , you should consider the following questions:

  • What percentage of units are leased to graduate students versus undergraduate students?
  • Has the ratio of student to non-student tenants changed over the past several years?
  • Is the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). marketable to non-student tenants, given the size, mix, and quality of the units?
  • What is the rent structure?  For example, are rents charged on a by unit basis or by bed basis?
  • Who are the parties to the lease agreements?  For example, are they typically signed by 1 tenant or all tenants, and/or co-signed by parents?
  • What is the typical lease term?
  • What is the enrollment outlook at the college/university?
  • What is the student composition (i.e., full-time versus part-time) at the college/university?
  • What are the current and forecasted supply and demand for student housing at the college/university?  Will there be any college/university-sponsored construction?
  • What is the Key Principal’sKey Principal’sPerson who controls and/or manages the Borrower or the Property, is critical to the successful operation and management of the Borrower and the Property, and/or may be required to provide a Guaranty. experience with operating Student HousingStudent HousingA multifamily residential rental property in which 40% or more, but less than 80%, of the units are leased to either undergraduate or graduate students. PropertiesPropertiesMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). and Dedicated Student HousingDedicated Student HousingMultifamily rental Property in which 80% or more of the units are leased to undergraduate or graduate students. PropertiesPropertiesMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). ?
  • What is the Property’sProperty’sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). proximity to campus?  Can students walk to class and other campus locations?
  • Is the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). conveniently located to a college/university-sponsored transportation line?
  • Is the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). subject to a Ground LeaseGround LeaseContract for the rental of land, usually on a long term basis. ?  If so, what are the structure and terms of the Ground LeaseGround LeaseContract for the rental of land, usually on a long term basis. ?

Requirements

If a Student Housing PropertyStudent Housing PropertyA multifamily residential rental property in which 40% or more, but less than 80%, of the units are leased to either undergraduate or graduate students. or Dedicated Student Housing PropertyDedicated Student Housing PropertyMultifamily rental Property in which 80% or more of the units are leased to undergraduate or graduate students. is subject to a master lease, you must complete the Master Lease Review Checklist (Form 6480).

Section 103

Dedicated Student Housing Property
103.01

Eligible Property Characteristics

Requirements

You must ensure that a Dedicated Student Housing PropertyDedicated Student Housing PropertyMultifamily rental Property in which 80% or more of the units are leased to undergraduate or graduate students. :

  • caters to a campus with at least 10,000 students, the majority of whom are full-time students;
  • is
    • located within 2 miles of a campus boundary line, as determined by the local municipality, or
    • near a college/university-sponsored transportation line; and
  • has operated for at least 1 full school year (i.e., August/September through April/May).

Guidance

The Dedicated Student Housing PropertyDedicated Student Housing PropertyMultifamily rental Property in which 80% or more of the units are leased to undergraduate or graduate students. should have stabilized occupancy no later than the month preceding the start of the first semester/quarter of the second full school year.

103.02

Ineligible Property Characteristics

Requirements

Fannie Mae will not purchase any Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or  a mortgage debt obligation with a Fannie Mae credit enhancement. secured by a Dedicated Student Housing PropertyDedicated Student Housing PropertyMultifamily rental Property in which 80% or more of the units are leased to undergraduate or graduate students. that offers food service.

103.03

Residential Leases

Requirements

You must ensure that at least 80% of the units in a Dedicated Student Housing PropertyDedicated Student Housing PropertyMultifamily rental Property in which 80% or more of the units are leased to undergraduate or graduate students. are leased for a minimum term of 12 months.

Guidance

Each student lease agreement should have

  • a parental guarantee of the rent, or
  • student tenants with sufficient income or other documented financial means to pay the rent.
103.04

Properties on College/University Land

Requirements

You must ensure that a Dedicated Student Housing PropertyDedicated Student Housing PropertyMultifamily rental Property in which 80% or more of the units are leased to undergraduate or graduate students. located on college/university land meets the following:

  • the BorrowerBorrowerPerson who is the obligor per the Note. has control over all economic decisions affecting the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). (such as financing, leasing, and management);
  • the Key PrincipalKey PrincipalPerson who controls and/or manages the Borrower or the Property, is critical to the successful operation and management of the Borrower and the Property, and/or may be required to provide a Guaranty.
    • has at least 5 years of operating experience with Dedicated Student HousingDedicated Student HousingMultifamily rental Property in which 80% or more of the units are leased to undergraduate or graduate students. , and
    • operates at least 1 other Dedicated Student Housing PropertyDedicated Student Housing PropertyMultifamily rental Property in which 80% or more of the units are leased to undergraduate or graduate students. located on college/university land; and
  • any Ground LeaseGround LeaseContract for the rental of land, usually on a long term basis. complies with Part II, Chapter 1: Attributes and Characteristics, Section 104: Ground Leased Properties.
103.05

Additional Underwriting Documentation

Requirements

Your underwriting must include the following:

  • name of the college/university and its current total enrollment;
  • current enrollment percentages of full-time graduate and undergraduate students;
  • location of the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). relative to the campus;
  • whether the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). is part of the college/university’s housing referral program;
  • details of the Property’sProperty’sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). amenity package;
  • whether the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). is convenient to a college/university-sponsored transportation line;
  • detailed description of the related rental housing market, including
    • the amount of on-campus rental housing space occupied or available, and
    • any future on- or off-campus rental housing planned or under construction;
  • percentage of the Property’sProperty’sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). units pre-leased for the semester/quarter;
  • percentage of the Property’sProperty’sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). tenants who are students;
  • percentage of the Property’sProperty’sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). leases that have a term of less than 12-months;
  • whether the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). is subject to a Ground LeaseGround LeaseContract for the rental of land, usually on a long term basis. or master lease and, if so, the structure and terms of the lease; and
  • whether parental guaranties are required for leases at the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). .
Section 104

Underwritten NCF

Requirements

You must use the following table to calculate Underwritten NCFUnderwritten NCFNet Cash Flow as adjusted by the Lender per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis and the applicable products and features in Part III. for Student HousingStudent HousingA multifamily residential rental property in which 40% or more, but less than 80%, of the units are leased to either undergraduate or graduate students. PropertiesPropertiesMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). and Dedicated Student HousingDedicated Student HousingMultifamily rental Property in which 80% or more of the units are leased to undergraduate or graduate students. PropertiesPropertiesMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). .

For Dedicated Student HousingDedicated Student HousingMultifamily rental Property in which 80% or more of the units are leased to undergraduate or graduate students. PropertiesPropertiesMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). , Fannie Mae will permit “by-the-bed” income and valuation for units occupied by students if the

  • PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). has at least 2 years of operating statements using that method, and
  • rental rates are comparable to similar Student HousingStudent HousingA multifamily residential rental property in which 40% or more, but less than 80%, of the units are leased to either undergraduate or graduate students. PropertiesPropertiesMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). .

REQUIRED UNDERWRITTEN NCF
(STUDENT OR DEDICATED STUDENT HOUSING PROPERTY)

Item

Function

Description
CALCULATION OF NET RENTAL INCOME

1

  

GROSS RENTAL INCOME (GRI) – market rents for vacant units based on a current rent roll (multiplied by 12), plus:

 

  • for a Student Housing PropertyStudent Housing PropertyA multifamily residential rental property in which 40% or more, but less than 80%, of the units are leased to either undergraduate or graduate students. – the lower of
    • actual rents in place for occupied units on a per unit basis, or
    • market rents that would be available if the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). was not leased to students; and
  • for a Dedicated Student Housing PropertyDedicated Student Housing PropertyMultifamily rental Property in which 80% or more of the units are leased to undergraduate or graduate students. – the lower of
    • actual rents in place for occupied units on a per unit or “by the bed” basis, or
    • market rents for comparable Dedicated Student HousingDedicated Student HousingMultifamily rental Property in which 80% or more of the units are leased to undergraduate or graduate students. PropertiesPropertiesMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). .

2

PLUS

To the extent deducted as an operating expense, rents for other non-revenue units (e.g., model units deducted in the “model apartment” operating expense in the “general and administrative” category, or actual rent from employee units deducted in the “employee” operating expense in the “payroll and benefits” category).
 

EQUALS

GROSS POTENTIAL RENT (GPR)

3

MINUS

Premiums (e.g., identifiable additional income from furnished units or short term leases) and/or corporate premiums (e.g., identifiable additional income from corporate units, housekeeping services, etc.).

4

MINUS

Physical vacancy – market rents for vacant units based on a current rent roll (multiplied by 12).1

5

MINUS

Concessions - the aggregate amount of forgone residential rental income from incentives granted to tenants for signing leases, such as free rent for 1 or more months, move-in allowance, etc.1

6

MINUS

Bad debt - the aggregate amount of unpaid rental income determined to be uncollectable, including any adjustments to other income for bad debt.1
 

EQUALS

NET RENTAL INCOME (NRI)

1 The total of Items 4, 5, and 6 must equal or exceed the greater of

 

  • the difference between the trailing 12-month net rental collections (annualized) and GPR, or
  • 5% of GPR.

If trailing 12-month NRI is not available, use a minimum 10% of GPR.

CALCULATION OF OTHER INCOME

7

PLUS

Actual other income (except premiums and corporate premiums) generated through ongoing operations.  The income must:

 

  • be stable;
  • be common in the market;
  • exclude one-time extraordinary non-recurring items; and
  • be supported by prior years.

You must assess the individual month's other income within the prior full year operating statement or, at a minimum, an operating statement covering at least the trailing 6 months (annualized). 

 

If there are fluctuations, you may use other income that exceeds the trailing 3-month other income (annualized), provided it does not exceed the highest 1-month other income used in the trailing 3-month other income calculation.

CALCULATION OF COMMERCIAL INCOME

8

PLUS

Actual income from leased and occupied commercial space per Part II, Chapter 1: Attributes and Characteristics, Section 109: Commercial Leases.

9

MINUS

10% of the actual commercial space income.2

10

PLUS

Commercial parking income (e.g., public parking) that does not exceed actual trailing 12-month collections.2

2 If net commercial income is greater than 20% of EGI, then reduce to 20% of EGI.

11

PLUS

Premiums3, provided that the income must:

 

  • be stable or increasing;
  • be typical (in type and amount) in the market;
  • be supported by prior years; and
  • not exceed the income generated over the most recent year or trailing 12-month period.

12

PLUS

Corporate premiums3, provided that this income must:

 

  • not be included for more than 10% of the Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code).  units;
  • be stable or increasing;
  • be typical (in type and amount) in the market;
  • be supported by prior years; and
  • not exceed the income generated over the most recent year or trailing 12-month period.

13

PLUS

Laundry and vending, parking, and all other income per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis.
 

EQUALS

EFFECTIVE GROSS INCOME (EGI)

3 Premium or corporate premium income cannot exceed 3% of GRI.

CALCULATION OF OPERATING EXPENSES

14

MINUS

Line-by-line stabilized operating expenses. 

 

Stabilized operating expenses are the expenses during normal ongoing PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). operations, not affected by a

 

  • lease-up,
  • rehabilitation, or
  • other short-term positive or negative factors. 

 

Non-recurring, extraordinary expenses must not be included.

 

You must assess:

 

  • past operating history;
  • the Appraiser’sAppraiser’sPerson engaged to estimate a Property’s market value per USPAP. expense analysis;
  • all information available to you (including PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). contracts, utility bills, real estate tax assessments, insurance policies, and comparable assets); and
  • the Borrower'sBorrower'sPerson who is the obligor per the Note.  budget (in the case of an acquisition). 

 

You must:

 

  • analyze historical operations at the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). ; and
  • apply an appropriate increase over the prior year’s operations in determining an estimate.

15

MINUS

PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). management fee equal to the greatest of:

 

  • 4% of EGIEGIOn an annual basis or any specified period, the total of Net Rental Income plus other income per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis and the applicable products and features in Part III. ;
  • actual property management fee (exclude any portion of a non-arm’s length property management fee that is subordinated to the Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or  a mortgage debt obligation with a Fannie Mae credit enhancement. ); or
  • market property management fee.

16

MINUS

Real estate taxes per Item 17(b) in Part II, Chapter 2: Valuation and Income, Section 203.01: Underwritten Net Cash Flow (Underwritten NCF).

17

MINUS

Insurance equal to:

 

  • the quoted expense, for insurance policies with a bona fide written quote from a reputable broker for a new 12-month policy; or
  • 110% of the current expense, for insurance policies with a remaining term less than 6 months.

18

MINUS

Utilities, water and sewer, repairs and maintenance, payroll and benefits, advertising and marketing, professional fees, general and administrative, ground rent, and all other expenses per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis.
 

EQUALS

UNDERWRITTEN NET OPERATING INCOME (UNDERWRITTEN NOI)

19

MINUS

Replacement ReserveReplacement ReserveCustodial Account the Borrower funds during the Mortgage Loan term for Replacements. expense per Part III, Chapter 1: Student Housing Properties, Section 105: Replacement Reserve.
 

EQUALS

UNDERWRITTEN NCF
Section 105

Replacement Reserve
105.01

Determining Replacement Reserve

Requirements

The minimum Replacement ReserveReplacement ReserveCustodial Account the Borrower funds during the Mortgage Loan term for Replacements. amount must equal the greater of

105.02

Replacement Reserve Funding

Requirements

You must ensure full funding of the Replacement ReserveReplacement ReserveCustodial Account the Borrower funds during the Mortgage Loan term for Replacements. .