Chapter 5

Seniors Housing Properties

Section 501

Generally
501.01

Description

Requirements

A Seniors Housing PropertySeniors Housing PropertyMultifamily residential rental property with any combination of Independent Living, Assisted Living, Alzheimer’s/Dementia Care, or Skilled Nursing units. is a multifamily residential rental property with Independent LivingIndependent LivingSeniors Housing providing limited programs of assistance for domestic activities (e.g. meals, housekeeping, activities, transportation, etc.), and typically resembles market rate units. , Assisted LivingAssisted LivingSeniors Housing Property offering services limited to non-medical personal care, including ADL assistance, which are typically licensed and regulated by a state or local governmental authority.  , Alzheimer’s/Dementia CareAlzheimer’s/Dementia CareSeniors Housing Property with units and beds for residents with significant cognitive impairment resulting from Alzheimer’s disease or other dementia, which are typically licensed and regulated by a state or local government authority.  , or Skilled NursingSkilled NursingSeniors Housing Property with units that are highly regulated and provide 24-hour resident supervision and registered nursing care services. units.

501.02

Eligible Lenders

Requirements

You must be approved in writing to DeliverDeliverSubmission of all correct, accurate, and certifiable documents, data, and information with all applicable documents properly completed, executed, and recorded as needed, and any deficiencies resolved to Fannie Mae’s satisfaction. Seniors HousingSeniors HousingMultifamily residential rental property with any combination of Independent Living, Assisted Living, Alzheimer’s/Dementia Care, or Skilled Nursing units. Mortgage LoansMortgage LoansMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents or a mortgage debt obligation with a Fannie Mae credit enhancement. .

501.03

Key Principal/Sponsor Experience

Requirements

You must ensure that the Key PrincipalKey PrincipalAny Person 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 who may be required to provide a Guaranty. or SponsorSponsorPrincipal equity owner and/or primary decision maker of the Borrower (often the Key Principal or the Person Controlling the Key Principal). has owned or operated Seniors HousingSeniors HousingMultifamily residential rental property with any combination of Independent Living, Assisted Living, Alzheimer’s/Dementia Care, or Skilled Nursing units. PropertiesPropertiesMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). of commensurate type, size, and service level as the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). .

Section 502

Eligible Properties
502.01

Eligible Properties

Requirements

You must ensure that a Seniors Housing PropertySeniors Housing PropertyMultifamily residential rental property with any combination of Independent Living, Assisted Living, Alzheimer’s/Dementia Care, or Skilled Nursing units. has the following design features:

  • convenience features for the elderly in all units, such as grab bars in the bathrooms and emergency pull-cords or equivalent safety items;
  • a fully operational sprinkler system throughout each level of each building (including all units and common areas), regardless of local building code or other governmental requirements;
  • a commercial kitchen for preparing meals for residents;
  • kitchens or kitchenettes containing a refrigerator, microwave or comparable cooking element, and sink in each Independent LivingIndependent LivingSeniors Housing providing limited programs of assistance for domestic activities (e.g. meals, housekeeping, activities, transportation, etc.), and typically resembles market rate units. unit, and also in, each Assisted LivingAssisted LivingSeniors Housing Property offering services limited to non-medical personal care, including ADL assistance, which are typically licensed and regulated by a state or local governmental authority.  unit if consistent with the market; and
  • bathrooms in each Independent LivingIndependent LivingSeniors Housing providing limited programs of assistance for domestic activities (e.g. meals, housekeeping, activities, transportation, etc.), and typically resembles market rate units. and Assisted LivingAssisted LivingSeniors Housing Property offering services limited to non-medical personal care, including ADL assistance, which are typically licensed and regulated by a state or local governmental authority.  unit.
502.02

Ineligible Properties

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 Seniors Housing PropertySeniors Housing PropertyMultifamily residential rental property with any combination of Independent Living, Assisted Living, Alzheimer’s/Dementia Care, or Skilled Nursing units. :

  • comprised of only Skilled NursingSkilled NursingSeniors Housing Property with units that are highly regulated and provide 24-hour resident supervision and registered nursing care services. units;
  • that does not meet the Skilled Nursing NCF Test per Part III, Chapter 5: Seniors Housing Properties, Section 504.02: Skilled Nursing NCF Test; or
  • if the original Seniors HousingSeniors HousingMultifamily residential rental property with any combination of Independent Living, Assisted Living, Alzheimer’s/Dementia Care, or Skilled Nursing units. 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. UPBUPBUnpaid Principal Balance exceeds 100% of the portion of the Appraised ValueAppraised ValueAppraiser’s opinion of the market value of the Property documented in the Appraisal, on an “as is” basis, unless use of an “as completed” basis is specifically permitted by the Guide.
    • attributed to land and all ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now constructed or hereafter constructed or placed on the land upon which the Property is located, together with all fixtures (as defined in the Uniform Commercial Code). , but
    • excluding any portion attributed to goodwill, business value, intangibles, and/or furniture, fixtures, and equipment.
Section 503

Continuing Care Retirement Communities (CCRCs)

Requirements

You must ensure that a CCRCCCRCSeniors Housing Property that provides a continuum of care on a single campus, including any combination of Independent Living, Assisted Living, Alzheimer’s/Dementia Care, or Skilled Nursing units. has:

  • had at least 90% physical occupancy for each of the past 5 fiscal years;
  • debt service reserves equal to at least 1 year of P&IP&IPrincipal and interest ; and
  • a DSCRDSCROn an annual basis or any specified period, the ratio of Net Cash Flow to the total of:  principal, interest, and required Mezzanine Financing or Hard Preferred Equity payments. of at least 1.00 based on annualized rent collections and operating expenses, excluding net entrance fees.

For any CCRCCCRCSeniors Housing Property that provides a continuum of care on a single campus, including any combination of Independent Living, Assisted Living, Alzheimer’s/Dementia Care, or Skilled Nursing units. with an entrance fee, your underwriting must include a summary and analysis of the following:

  • actuarial report (including a copy of the report);
  • range and weighted average of entrance fees offered at the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). , which must be within the range of median home values in the local market;
  • entrance fee refund plans (for example, full, partial, declining, non-refundable);
  • required entrance fee reserve;
  • whether the entrance fee reserve can be assigned as collateral for 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. ;
  • net entrance fee income (collections minus refunds) for the past 5 years;
  • sufficiency of the entrance fee reserve;
  • market analysis of entrance fees;
  • underwritten net entrance fee income;
  • historical annual resident turnover;
  • required operating reserves;
  • whether the operating reserves can be assigned as collateral for 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. ;
  • identity of all governmental authorities that license the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). and Seniors Housing Operator; and 
  • status of each required license.
Section 504

Seniors Housing Property Income
504.01

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 Seniors HousingSeniors HousingMultifamily residential rental property with any combination of Independent Living, Assisted Living, Alzheimer’s/Dementia Care, or Skilled Nursing units. PropertiesPropertiesMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). .

REQUIRED UNDERWRITTEN NCF
(SENIORS HOUSING PROPERTY)

Item

Function

Description
CALCULATION OF NET RENTAL INCOME

1

 

GROSS RENTAL INCOME – actual rents in place for occupied units, plus market rents for vacant units based on a current rent roll (multiplied by 12).

2

PLUS

Medicaid income (does not include Medicare, which is included in Skilled NursingSkilled NursingSeniors Housing Property with units that are highly regulated and provide 24-hour resident supervision and registered nursing care services. income).

3

PLUS

Skilled NursingSkilled NursingSeniors Housing Property with units that are highly regulated and provide 24-hour resident supervision and registered nursing care services. income – actual trailing 12-month collections for Skilled NursingSkilled NursingSeniors Housing Property with units that are highly regulated and provide 24-hour resident supervision and registered nursing care services. units (if 12-month collections are not available, then actual trailing 6-month collections (annualized)).1

4

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)

5

MINUS

Physical vacancy – market rents for vacant units based on a current rent roll (multiplied by 12).2

6

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.2

7

MINUS

Bad debt – the aggregate amount of unpaid rental income determined to be uncollectable:  include any adjustments to other income for bad debt.2

 

EQUALS

NET RENTAL INCOME (NRI)1

1 Skilled Nursing income must not be grossed up to 100% before the 20% deduction is applied.  An additional 20% is taken off the Skilled Nursing income.

 

2 The total of Items 5, 6, and 7 must equal the greater of:

 

  • the difference between the trailing 3-month net rental collections (annualized) and the GPR; or
  • the following percentages:
    • Independent Living:  if the percentage of Independent Living units is greater than 50%, then use 5% of GPR.
    • Assisted Living (60 total units or more):  if the percentage of Assisted Living units or the combined percentage of Assisted Living and Alzheimer’s/Dementia Care units is 50% or greater, then use 5% of GPR.
    • Assisted Living (less than 60 total units):  if the percentage of Assisted Living units or the combined percentage of Assisted Living and Alzheimer’s/Dementia Care units is 50% or greater, then use 10% of GPR.
    • Alzheimer’s/Dementia Care:  if the percentage of Alzheimer’s/Dementia Care units is 100%, then use 10% of GPR.
    • Skilled Nursing units:  use 20% of collections based on the trailing period used in determining Skilled Nursing income in Item 3.

You must determine if NRI declined per Part II, Chapter 2: Valuation and Income, Section 202: Income Analysis and adjust Underwritten NRI as required.

CALCULATION OF ASSISTED LIVING SERVICE INCOME AND OTHER INCOME

8

PLUS

Trailing 12-month nursing/medical income (includes Assisted LivingAssisted LivingSeniors Housing Property offering services limited to non-medical personal care, including ADL assistance, which are typically licensed and regulated by a state or local governmental authority.  service income).

9

PLUS

Trailing 12-month ancillary income attributable to Skilled NursingSkilled NursingSeniors Housing Property with units that are highly regulated and provide 24-hour resident supervision and registered nursing care services. units, if applicable.

10

PLUS

Trailing 12-month other income for second resident fees, meals, tray service, laundry, special transportation, community fees, parking revenue, and any other income.

CALCULATION OF NET ENTRANCE FEE INCOME

11

PLUS

Net entrance fee income associated with CCRCsCCRCsSeniors Housing Property that provides a continuum of care on a single campus, including any combination of Independent Living, Assisted Living, Alzheimer’s/Dementia Care, or Skilled Nursing units. – resident entrance fee collections minus entrance fee refunds, but not more than the annualized average of the trailing 60-months of net entrance fee income.

CALCULATION OF COMMERCIAL INCOME

12

PLUS

Actual income from occupied commercial space (and parking revenue for commercial spaces, if applicable).

13

MINUS

10% of the actual commercial income.3

 

EQUALS

EFFECTIVE GROSS INCOME (EGI)

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

CALCULATION OF OPERATING EXPENSES

14

MINUS

Line-by-line stabilized operating expenses.

 

Stabilized operating expenses are the expenses during normal ongoing PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in 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 property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in 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 property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). and apply an appropriate increase over the prior year’s operations in determining an estimate.

15

MINUS

PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). management fee equal to the greatest of:

 

  • 5% of EGIEGIOn an annual basis or any specified period, the total of Net Rental Income plus other income per Part II: Property, Section 202 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 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 the 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.

 

If the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). has real estate tax abatements, exemptions, or deferrals, they must:

 

  • be in effect at closing, per written documentation from the state or local tax assessor; and
  • survive a foreclosure on 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. such that Fannie Mae or a subsequent owner will retain the abatement, exemption, or deferral benefit (i.e., it is tied to the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). and not the owner).

16

continued

 MINUS

If the timeframe for the real estate tax abatement, exemption, or deferral is shorter than 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. term, you must consider

 

  • a Bifurcated Mortgage LoanBifurcated Mortgage LoanSingle Senior Mortgage Loan that is evidenced by 2 Notes with the same payment and collateral priority. structure (i.e., 2 notes secured by a single first LienLienLien, mortgage, bond interest, pledge, security interest, charge, or encumbrance of any kind. Security InstrumentSecurity InstrumentInstrument creating a lien or encumbrance on 1 or more Properties and securing the obligations under the Loan Documents. ),
  • an amortization schedule that accommodates the elimination of the abatement, or
  • providing clear justification and support in the refinance analysis.

If the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). is located in New York City and subject to the J-51 Tax Incentive Program where the BorrowerBorrowerPerson who is the obligor per the Note. has decontrolled rent-stabilized units (a Decontrol EventDecontrol EventFor Properties located in New York City, an event that causes a property or unit to be removed from rent control but subject to rent-stabilization pursuant to New York City rent stabilization laws. ), you must adjust the current rents to reflect no rent decontrol benefits:

 

  • Calculate the base rent as the rent amount per unit before the Decontrol EventDecontrol EventFor Properties located in New York City, an event that causes a property or unit to be removed from rent control but subject to rent-stabilization pursuant to New York City rent stabilization laws. date.
  • Use the base rent for each applicable unit to determine the Gross Rental Income.
  • Increase the base rent by the appropriate percentage allowed under New York City Rent Stabilization laws per annum through the present rent roll date.

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

Room expense – housekeeping, if applicable.

19

MINUS

Meals expense, if applicable.

20

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)

21

MINUS

Replacement ReserveReplacement ReserveCustodial Account established by the Lender and funded by deposits from the Borrower over the term of the Mortgage Loan to fund the replacement of capital items at the Property. expense per Part III, Chapter 5: Seniors Housing Properties, Section 505: Replacement Reserve.

 

EQUALS

UNDERWRITTEN NCF

 

504.02

Skilled Nursing NCF Test

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. if the Skilled NursingSkilled NursingSeniors Housing Property with units that are highly regulated and provide 24-hour resident supervision and registered nursing care services. NCFNCFOn an annual basis or any specified period, the total Net Operating Income, minus the full amount underwritten for Replacement Reserve expense, regardless of whether deposits will be made (per Part II: Property, Section 202 and the applicable products and features in Part III). is more than 20% of the Property'sProperty'sMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code).  NCFNCFOn an annual basis or any specified period, the total Net Operating Income, minus the full amount underwritten for Replacement Reserve expense, regardless of whether deposits will be made (per Part II: Property, Section 202 and the applicable products and features in Part III). .

You must:

  • Calculate the Skilled NursingSkilled NursingSeniors Housing Property with units that are highly regulated and provide 24-hour resident supervision and registered nursing care services. NCFNCFOn an annual basis or any specified period, the total Net Operating Income, minus the full amount underwritten for Replacement Reserve expense, regardless of whether deposits will be made (per Part II: Property, Section 202 and the applicable products and features in Part III). at underwriting to determine if the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). will meet this Skilled NursingSkilled NursingSeniors Housing Property with units that are highly regulated and provide 24-hour resident supervision and registered nursing care services. NCFNCFOn an annual basis or any specified period, the total Net Operating Income, minus the full amount underwritten for Replacement Reserve expense, regardless of whether deposits will be made (per Part II: Property, Section 202 and the applicable products and features in Part III). test.
  • Retest all PropertiesPropertiesMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). with Skilled NursingSkilled NursingSeniors Housing Property with units that are highly regulated and provide 24-hour resident supervision and registered nursing care services. units annually after closing to ensure compliance.
  • Contact the Fannie Mae Deal TeamFannie Mae Deal TeamTeam responsible for reviewing Pre-Review Mortgage Loans, waivers, etc. to ensure the Loan DocumentsLoan DocumentsAll documents evidencing, securing, or guaranteeing the debt obligation executed for a Mortgage Loan and approved by Fannie Mae. for any transaction with Skilled NursingSkilled NursingSeniors Housing Property with units that are highly regulated and provide 24-hour resident supervision and registered nursing care services. units include appropriate modifications.

The Skilled NursingSkilled NursingSeniors Housing Property with units that are highly regulated and provide 24-hour resident supervision and registered nursing care services. NCFNCFOn an annual basis or any specified period, the total Net Operating Income, minus the full amount underwritten for Replacement Reserve expense, regardless of whether deposits will be made (per Part II: Property, Section 202 and the applicable products and features in Part III). test is a PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). -specific test.  You must separately test a PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). with Skilled NursingSkilled NursingSeniors Housing Property with units that are highly regulated and provide 24-hour resident supervision and registered nursing care services. units, if 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. is

  • secured by multiple PropertiesPropertiesMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). , or
  • cross-defaulted or cross-collateralized with another 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. .

You must use the following table to calculate the Skilled NursingSkilled NursingSeniors Housing Property with units that are highly regulated and provide 24-hour resident supervision and registered nursing care services. NCFNCFOn an annual basis or any specified period, the total Net Operating Income, minus the full amount underwritten for Replacement Reserve expense, regardless of whether deposits will be made (per Part II: Property, Section 202 and the applicable products and features in Part III). .

REQUIRED SKILLED NURSING NCF AND PERCENTAGE
(SENIORS HOUSING PROPERTY)

Item

Function

Description

SKILLED NURSING EFFECTIVE GROSS INCOME

1

 

SKILLED NURSING INCOME – actual trailing 12-month collections for Skilled NursingSkilled NursingSeniors Housing Property with units that are highly regulated and provide 24-hour resident supervision and registered nursing care services. units (if 12-month collections are not available, then actual trailing 6-month collections (annualized)).

2

MINUS

20% of collections based on the trailing period used in determining the Skilled NursingSkilled NursingSeniors Housing Property with units that are highly regulated and provide 24-hour resident supervision and registered nursing care services. income.

3

PLUS

Ancillary income attributable to Skilled NursingSkilled NursingSeniors Housing Property with units that are highly regulated and provide 24-hour resident supervision and registered nursing care services. units.

 

EQUALS

SKILLED NURSING EFFECTIVE GROSS INCOME (EGI)

SKILLED NURSING EXPENSES

4

MINUS

Fixed expenses – greater of actual or allocated fixed expenses (e.g., real estate taxes, liability insurance, etc.) for Skilled NursingSkilled NursingSeniors Housing Property with units that are highly regulated and provide 24-hour resident supervision and registered nursing care services. units.

5

MINUS

Variable operating expenses for Skilled NursingSkilled NursingSeniors Housing Property with units that are highly regulated and provide 24-hour resident supervision and registered nursing care services. units.

 

EQUALS

SKILLED NURSING NCF

6

DIVIDED BY

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. per Part III, Chapter 5: Seniors Housing Properties, Section 504.01: Underwritten NCF.

 

EQUALS

SKILLED NURSING NCF PERCENTAGE
504.03

Operating Lease Ratios

Requirements

If the Seniors Housing Operator

  • does not have any direct or indirect ownership interest in the BorrowerBorrowerPerson who is the obligor per the Note. or the Key PrincipalKey PrincipalAny Person 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 who may be required to provide a Guaranty. , or
  • is not a PersonPersonLegal person, including an individual, estate, trust, corporation, partnership, limited liability company, financial institution, joint venture, association, or other organization or entity (whether governmental or private). ControlledControlledPossessing, directly or indirectly, the power to direct or cause the management and operations of an entity (e.g., through the ownership of voting securities or other ownership interests, or by contract). by, under common ControlControlPossessing, directly or indirectly, the power to direct or cause the management and operations of an entity (e.g., through the ownership of voting securities or other ownership interests, or by contract). with, or which ControlsControlsPossessing, directly or indirectly, the power to direct or cause the management and operations of an entity (e.g., through the ownership of voting securities or other ownership interests, or by contract). , the  BorrowerBorrowerPerson who is the obligor per the Note. or Key PrincipalKey PrincipalAny Person 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 who may be required to provide a Guaranty. , then you must ensure that the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). meets the following ratios:

Ratios

Requirements

Operating Lease Coverage Ratio

The minimum underwriting ratios for 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. to current year operating lease payments are:

 

  • 1.10 for Seniors HousingSeniors HousingMultifamily residential rental property with any combination of Independent Living, Assisted Living, Alzheimer’s/Dementia Care, or Skilled Nursing units. PropertiesPropertiesMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). where more than 50% of the units are Independent LivingIndependent LivingSeniors Housing providing limited programs of assistance for domestic activities (e.g. meals, housekeeping, activities, transportation, etc.), and typically resembles market rate units. units; and
  • 1.15 for Seniors HousingSeniors HousingMultifamily residential rental property with any combination of Independent Living, Assisted Living, Alzheimer’s/Dementia Care, or Skilled Nursing units. PropertiesPropertiesMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). where 50% or more of the units are Assisted LivingAssisted LivingSeniors Housing Property offering services limited to non-medical personal care, including ADL assistance, which are typically licensed and regulated by a state or local governmental authority.  , Alzheimer’s/Dementia CareAlzheimer’s/Dementia CareSeniors Housing Property with units and beds for residents with significant cognitive impairment resulting from Alzheimer’s disease or other dementia, which are typically licensed and regulated by a state or local government authority.  , or Skilled NursingSkilled NursingSeniors Housing Property with units that are highly regulated and provide 24-hour resident supervision and registered nursing care services. units.

Operating Lease Payment to Debt Service Payment Ratio

The minimum underwriting ratios of the current year operating lease payments to the underwritten fixed rate debt service payments are:

 

  • 1.15 for Seniors HousingSeniors HousingMultifamily residential rental property with any combination of Independent Living, Assisted Living, Alzheimer’s/Dementia Care, or Skilled Nursing units. PropertiesPropertiesMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). where more than 50% of the units are Independent LivingIndependent LivingSeniors Housing providing limited programs of assistance for domestic activities (e.g. meals, housekeeping, activities, transportation, etc.), and typically resembles market rate units. units; and
  • 1.20 for Seniors HousingSeniors HousingMultifamily residential rental property with any combination of Independent Living, Assisted Living, Alzheimer’s/Dementia Care, or Skilled Nursing units. PropertiesPropertiesMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). where 50% or more of the units are Assisted LivingAssisted LivingSeniors Housing Property offering services limited to non-medical personal care, including ADL assistance, which are typically licensed and regulated by a state or local governmental authority.  , Alzheimer’s/Dementia CareAlzheimer’s/Dementia CareSeniors Housing Property with units and beds for residents with significant cognitive impairment resulting from Alzheimer’s disease or other dementia, which are typically licensed and regulated by a state or local government authority.  , or Skilled NursingSkilled NursingSeniors Housing Property with units that are highly regulated and provide 24-hour resident supervision and registered nursing care services. units. 
504.04

Operating Lease Analysis

Requirements

Before finalizing the Loan DocumentsLoan DocumentsAll documents evidencing, securing, or guaranteeing the debt obligation executed for a Mortgage Loan and approved by Fannie Mae. , you must:

  • Obtain a copy of each management agreement, operating lease, master lease, and sublease including all exhibits and amendments.
  • Upload into DUS GatewayDUS GatewayMultifamily pre-acquisition system including deal registration, Pre-Review and/or waiver tracking, decision records, or any successor systems. a completed Seniors Housing Operating Lease Review Checklist (Form 6487.SRS) that analyzes the
    • underwriting and legal aspects of each lease and its impact on the operations of the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). , and
    • obligations of the BorrowerBorrowerPerson who is the obligor per the Note. , each GuarantorGuarantorKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other guaranty related to the Mortgage Loan. , and the Seniors Housing Operator under the Loan DocumentsLoan DocumentsAll documents evidencing, securing, or guaranteeing the debt obligation executed for a Mortgage Loan and approved by Fannie Mae. .
Section 505

Replacement Reserve

Requirements

The minimum Replacement ReserveReplacement ReserveCustodial Account established by the Lender and funded by deposits from the Borrower over the term of the Mortgage Loan to fund the replacement of capital items at the Property. amount must equal the greatest of:

  • the amount calculated per Part II, Chapter 4: Inspections and Reserves, Section 404: Replacement Reserve;
  • $300 per unit per year for a PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). with no Skilled NursingSkilled NursingSeniors Housing Property with units that are highly regulated and provide 24-hour resident supervision and registered nursing care services. units; or
  • $450 per unit per year for a PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). with any Skilled NursingSkilled NursingSeniors Housing Property with units that are highly regulated and provide 24-hour resident supervision and registered nursing care services. units.
Section 506

Medicaid Funds
506.01

Dependency and Medicaid Transition Reserve

Requirements

You must analyze the EGIEGIOn an annual basis or any specified period, the total of Net Rental Income plus other income per Part II: Property, Section 202 and the applicable products and features in Part III. to determine the percentage derived from payments under a Medicaid provider agreement with a government authority or managed care organization (Medicaid FundsMedicaid FundsFunds paid to a provider by governmental authorities or managed care organizations, under Medicaid provider agreements. ).

Operating Procedures

If more than 20% of the EGIEGIOn an annual basis or any specified period, the total of Net Rental Income plus other income per Part II: Property, Section 202 and the applicable products and features in Part III. is derived from Medicaid FundsMedicaid FundsFunds paid to a provider by governmental authorities or managed care organizations, under Medicaid provider agreements. , Fannie Mae may require that you

  • establish a Medicaid transition reserve account, and/or
  • enter into an account control agreement with the BorrowerBorrowerPerson who is the obligor per the Note. .

If Fannie Mae requires a Medicaid transition reserve, you must:

  • determine the appropriate amount of the reserve by considering the
    • reimbursement rates of the government authority or managed care organization, and
    • percentage of Medicaid-supported residents at the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). ;
  • ensure that the BorrowerBorrowerPerson who is the obligor per the Note. sufficiently funds the reserve; and
  • use the Modifications to Multifamily Loan and Security Agreement (Medicaid Transition Reserve) (Form 6237.SRS) and Modifications to Multifamily Loan and Security Agreement – Addenda to Schedule 2 – Summary of Loan Terms (Medicaid Transition Reserve) (Form 6102.21.SRS).

If Fannie Mae requires an account control agreement, you must

  • require the BorrowerBorrowerPerson who is the obligor per the Note. to deposit the Medicaid FundsMedicaid FundsFunds paid to a provider by governmental authorities or managed care organizations, under Medicaid provider agreements. into a controlled account,
  • include in the agreement an acknowledgement of Fannie Mae’s first LienLienLien, mortgage, bond interest, pledge, security interest, charge, or encumbrance of any kind. on, and control over, the Medicaid FundsMedicaid FundsFunds paid to a provider by governmental authorities or managed care organizations, under Medicaid provider agreements. , and
  • obtain Fannie Mae's approval if you elect not to use Fannie Mae's form.
506.02

State Medicaid

Requirements

The PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). must be located in a state that has a

  • Medicaid waiver in place, or
  • Medicaid plan that allows for the payment of services and housing costs from Medicaid FundsMedicaid FundsFunds paid to a provider by governmental authorities or managed care organizations, under Medicaid provider agreements. .

You must document the Medicaid waiver or plan and demonstrate that it allows for the payment of services performed, and housing costs incurred, at the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). .

Section 507

Consultant Reports
507.01

Management, Operations, and Regulatory Compliance

Requirements

You must engage a third-party professional to analyze the Property'sProperty'sMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). management, operations, and regulatory compliance.

The third-party professional you select must have:

  • been in good standing for the past 5 years as a licensed administrator, licensed practical nurse, or registered nurse; and
  • at least 5 years of experience with
    • the operation of Seniors HousingSeniors HousingMultifamily residential rental property with any combination of Independent Living, Assisted Living, Alzheimer’s/Dementia Care, or Skilled Nursing units. PropertiesPropertiesMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). , and
    • regulatory matters affecting Seniors HousingSeniors HousingMultifamily residential rental property with any combination of Independent Living, Assisted Living, Alzheimer’s/Dementia Care, or Skilled Nursing units. PropertiesPropertiesMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). .

You must assess and summarize the information presented and conclusions reached by the third-party professional.

507.02

Management and Operations Reports

Requirements

You must obtain management and operations reports for the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). that assess:

  • competency, performance, and experience of management at the corporate, regional, and PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). levels;
  • qualifications of key personnel,
    • noting their experience and length of time in current positions at the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). , and
    • including copies of available resumes;
  • hiring and screening practices and personnel policies (such as employee handbooks, orientation materials, initial and in-service training materials, available resources);
  • staffing levels, composition, and qualifications;
  • risk management policies and procedures, including an analysis of the backgrounds of individuals employed to handle insurance and risk management matters;
  • policies and procedures supporting and aligning resident services;
  • availability and use of home health services, including whether
    • home health services are available,
    • home health services are provided by the BorrowerBorrowerPerson who is the obligor per the Note. , the Seniors Housing Operator, an AffiliateAffiliateWhen referring to an affiliate of a Lender, any other Person or entity that Controls, is Controlled by, or is under common Control with, the Lender. When referring to an affiliate of a Borrower or Key Principal: any Person that owns any direct ownership interest in Borrower or Key… of the BorrowerBorrowerPerson who is the obligor per the Note. or the operator, or a third party, and
    • the home services provider leases space at the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). ;
  • policies and procedures for documenting residents’ well-being (such as periodic resident assessments, tracking the general health condition of each resident, resident safety and evacuation plans);
  • content of the admission application and the residency or lease agreement;
  • resident turnover data;
  • availability of replacements for the Seniors Housing Operator; and
  • overall management and operations, including an analysis and detailed recommendations for any other matters material to the ownership, operation, or management of the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). .
507.03

Regulatory Compliance Report

Requirements

You must obtain a Regulatory Compliance Report for all licensed Seniors HousingSeniors HousingMultifamily residential rental property with any combination of Independent Living, Assisted Living, Alzheimer’s/Dementia Care, or Skilled Nursing units. PropertiesPropertiesMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). .  The report must include the following information as of the date of the report:

  • identity of all government authorities with jurisdiction over the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). and each authority’s definition of the level of care permitted at the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). ;
  • summary and copies of all government surveys conducted during the past 3 years, including
    • a summary and analysis of all deficiencies identified in the surveys,
    • the severity of these deficiencies, and
    • the correction plans for all deficiencies, whether corrected or outstanding;
  • summary and analysis of all enforcement actions during the past 3 years resulting from a state survey inspection (such as a probationary license or ban on admissions), together with a summary and analysis of any remedial plan of action;
  • photocopies of all regulatory permits, licenses, and certificates;
  • state staffing requirements;
  • summary of the status of any federal, state, or local proposed regulations (or amendments to existing regulations) that could affect the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). or any aspect of the Seniors HousingSeniors HousingMultifamily residential rental property with any combination of Independent Living, Assisted Living, Alzheimer’s/Dementia Care, or Skilled Nursing units. industry;
  • summary of the regulatory and licensing procedures required to change PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). ownership, any service provider, the authority to operate, or the management of the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). , and this summary must
    • identify the changes that require advance notice and/or prior approval from the relevant government authority, and
    • describe any advance notice requirements, such as timing, required recipients, and required notice content;
  • if the BorrowerBorrowerPerson who is the obligor per the Note. or Seniors Housing Operator participates in
    • the state’s Medicaid waiver program, or
    • another third-party subsidy program,
    • an assessment of the risk to the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). ’s operations if the program is discontinued;
  • identification and analysis of any special insurance requirements of government authorities (such as workers compensation insurance or medical director professional liability insurance);
  • copies of the sources and references used to complete this report; and
  • overall assessment of regulatory matters affecting the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). , including an analysis and detailed recommendations for any other matters material to the ownership, operation, or management of the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). .