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 202: 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 resulting 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: include 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 monthly 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), as long as 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 occupied commercial space (and parking revenue for commercial spaces, if applicable).

9

MINUS

10% of the actual commercial income.2

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

10

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.

11

PLUS

Corporate premiums3, provided that this income must:

 

  • not be included for more than 10% 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). ’s 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.

12

PLUS

Laundry and vending, parking, and all other income per Part II, Chapter 2: Valuation and Income, Section 202: Income Analysis.
 

EQUALS

EFFECTIVE GROSS INCOME (EGI)

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

CALCULATION OF OPERATING EXPENSES

13

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 operating expenses must not be included.

 

You must assess:

 

  • past operating history;
  • the appraiser’s 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 BorrowerBorrowerPerson who is the obligor per the Note. ’s 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.

14

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 202: 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.

15

MINUS

Real estate taxes based on the greatest of:

 

  • actual future tax bill(s) covering a full calendar year;
  • prior full year’s taxes multiplied by 103% (the 3% trending is not required for trailing 12-month or year-to-date annualized expenses); or
  • in California, the greater of 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. amount or assessed value, multiplied by the millage rate, plus any special assessments.

You must consider any automatic tax reassessment upon acquisition in the next 12-month period.

16

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.

17

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 202: Income Analysis.
 

EQUALS

UNDERWRITTEN NET OPERATING INCOME (UNDERWRITTEN NOI)

18

MINUS

Replacement ReserveReplacement ReserveCustodial Account funded during the Mortgage Loan term for major maintenance and replacing capital items per the Loan Documents. expense per Part III, Chapter 1: Student Housing Properties, Section 105: Replacement Reserve.
 

EQUALS

UNDERWRITTEN NCF