Property Income and Underwritten NCF

1

GROSS RENTAL INCOME¹ – actual MH SiteMH SiteDeveloped lot within an MH Community on which a Manufactured Home can be located. rents in place where Manufactured HomesManufactured HomesFactory-built home complying with the Manufactured Home HUD Code. are installed under leases with residents in occupancy, plus market rents for vacant MH SitesMH SitesDeveloped lot within an MH Community on which a Manufactured Home can be located. and MH SitesMH SitesDeveloped lot within an MH Community on which a Manufactured Home can be located. with vacant Manufactured HomesManufactured HomesFactory-built home complying with the Manufactured Home HUD Code. based on a current rent roll (multiplied by 12).

2

PLUS

To the extent deducted as an operating expense, MH SiteMH SiteDeveloped lot within an MH Community on which a Manufactured Home can be located. rents for other non-revenue MH SitesMH SitesDeveloped lot within an MH Community on which a Manufactured Home can be located. , such as:

• MH SitesMH SitesDeveloped lot within an MH Community on which a Manufactured Home can be located. with model Manufactured HomesManufactured HomesFactory-built home complying with the Manufactured Home HUD Code. deducted in the “model apartment” operating expense in the “general and administrative” category; and
• actual MH SiteMH SiteDeveloped lot within an MH Community on which a Manufactured Home can be located. rent from employee Manufactured HomesManufactured HomesFactory-built home complying with the Manufactured Home HUD Code. deducted in the “employee” operating expense in the “payroll and benefits” category.

EQUALS

GROSS POTENTIAL RENT (GPR)

3

MINUS

Physical vacancy² –

• market rents for vacant MH SitesMH SitesDeveloped lot within an MH Community on which a Manufactured Home can be located. based on a current rent roll (multiplied by 12); and
• net rental collections for occupied MH SitesMH SitesDeveloped lot within an MH Community on which a Manufactured Home can be located. where the Manufactured HomeManufactured HomeFactory-built home complying with the Manufactured Home HUD Code. is vacant, and the MH SiteMH SiteDeveloped lot within an MH Community on which a Manufactured Home can be located. rent is paid by the MH CommunityMH CommunityResidential real estate development with lots on which manufactured homes are located, together with amenities, utility services, landscaping, roads, and other infrastructure. owner, prior occupants, or a third party (e.g., a retail creditor).

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.²

5

MINUS

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

EQUALS

NET RENTAL INCOME (NRI)^3,4

1 Includes the MH Site rent for any Affiliate-Owned Manufactured Home or Borrower-owned Manufactured Homes, but excludes the rent (or that portion of the rent) for the Manufactured Home.

2 The total of Items 3, 4, and 5 must equal the greater of

• the difference between the trailing 3-month net rental collections (annualized) and GPR, or
• 5% of GPR.

If a rent increase with verified actual collections was instituted within the trailing 3 months, then NRI may be calculated based on the trailing 1-month net rental collections (annualized).

3 If NRI is greater than the trailing 1-month of actual NRI (annualized), then reduce to actual NRI.

4 You must assess any decline in NRI per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis, and adjust Underwritten NRI as required.

CALCULATION OF OTHER INCOME

6

PLUS

Actual other income 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.

7

PLUS

For RV Sites with lease terms of 30 days or more, the lesser of

• actual average net collections for the past 3 years, or
• the current trailing 12-month RV Site rents, minus a 10% vacancy.⁵

CALCULATION OF COMMERCIAL INCOME⁶

8

PLUS

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

9

PLUS

Actual average RV Site rental income for RV Sites with lease terms of less than 30 days.

11

MINUS

10% of the actual commercial space income (total of Items 8, 9, and 10).

12

PLUS

Commercial parking income (e.g., public parking) that does not exceed actual trailing 12-month collections.⁶

5 If the average RV Site rental income for RV Sites with lease terms of 30 days or more is greater than 20% of EGI, then reduce to 20% of EGI.

6 If net commercial income is greater than 10% of EGI, then reduce to 10% of EGI.  Additionally, total RV Site income from Items 7 and 9 (less 10% vacancy) cannot exceed 20% of EGI.

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)

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 operating 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

Property management fee equal to the greatest of:

• 3% 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 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 sum of:
  • any special assessments; plus
  • the millage rate multiplied by 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.

You must:

• consider any automatic reassessment upon acquisition in the next 12-month period;
• include ad valorum taxes for BorrowerBorrowerPerson who is the obligor per the Note. -owned Manufactured HomesManufactured HomesFactory-built home complying with the Manufactured Home HUD Code. ; and
• for any tax abatement, exemption, deferral, or PILOTPILOTPayment In Lieu Of Taxes. expiring within 36 months after the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower. , underwrite fully assessed real estate taxes.

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 real estate tax abatements, exemptions, deferrals, or PILOTsPILOTsPayment In Lieu Of Taxes. , 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, deferral, or PILOTPILOTPayment In Lieu Of Taxes. (i.e., it is tied to 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 not the owner).

If the timeframe for the real estate tax abatement, exemption, deferral, or PILOTPILOTPayment In Lieu Of Taxes. 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, or begins phasing out or expires within 5 years after the Maturity DateMaturity DateDate all Mortgage Loan amounts become fully due and payable per the Loan Documents. , 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 Loan Document obligations. );
• an amortization schedule that accommodates the elimination of the abatement; or
• providing clear justification and support in the refinance analysis.

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 II, Chapter 4: Inspections and Reserves, Section 405: Replacement Reserve, with a minimum annual amount of $25 per MH SiteMH SiteDeveloped lot within an MH Community on which a Manufactured Home can be located. .

EQUALS

UNDERWRITTEN NCF