Executive Summary - Web viewIf the lender’s underwriter disagrees and modifies any third-party report ... The Lender Loan Committee consisted of ... the project must have attained

Lender NarrativeSection 232/223(f) Refinance

U.S. Department of Housing and Urban Development

Office of Residential Care Facilities

OMB Approval No. 2502-0605(exp. 06/30/2017)

Public reporting burden for this collection of information is estimated to average 70 hours. This includes the time for collecting, reviewing, and reporting the data. The information is being collected to obtain the supportive documentation that must be submitted to HUD for approval, and is necessary to ensure that viable projects are developed and maintained. The Department will use this information to determine if properties meet HUD requirements with respect to development, operation and/or asset management, as well as ensuring the continued marketability of the properties. This agency may not collect this information, and you are not required to complete this form unless it displays a currently valid OMB control number.

Warning: Any person who knowingly presents a false, fictitious, or fraudulent statement or claim in a matter within the jurisdiction of the U.S. Department of Housing and Urban Development is subject to criminal penalties, civil liability, and administrative sanctions.

Privacy Act Notice: The Department of Housing and Urban Development, Federal Housing Administration, is authorized to collect the information requested in this form by virtue of: The National Housing Act, 12 USC 1701 et seq. and the regulations at 24 CFR 5.212 and 24 CFR 200.6; and the Housing and Community Development Act of 1987, 42 USC 3543(a). The information requested is mandatory to receive the mortgage insurance benefits to be derived from the National Housing Act Section 232 Healthcare Facility Insurance Program. No confidentiality is assured.

INSTRUCTIONS: The narrative is a document critical to the Lean Underwriting process. Each section of the narrative and all questions need to be completed and answered. If the lender’s underwriter disagrees and modifies any third-party report conclusions, provide sufficient detail to justify. The narrative should identify the strengths and weaknesses of the transactions and demonstrate how the weaknesses are mitigated by the underwriting.

Charts : The charts contained in this document have been created with versatility in mind; however they will not be able to accommodate all situations. For this reason, you are allowed to alter the charts as the situation demands. Be sure to state how you have altered the charts along with your justification. Include all the information the form calls for. Charts that include blue text indicate names that should be modified by the lender as the situation dictates.

Applicability : If a section is not applicable, state so in that section and provide a reason. Do not delete a section heading that is not applicable. The narrative will be checked to make certain all sections are provided. If a major section is not applicable, add “ – Not Applicable” to the heading and provide the reason. For instance:

Parent of the Operator – Not ApplicableThis section is not applicable because there is no operator.

The rest of the subsections under the inapplicable section can then be deleted. This instruction page may also be deleted.

Format : In addition to submitting the PDF version of the Lender Narrative to HUD, please also submit an electronic Word version.

Previous versions obsolete Page 1 of 80 Form HUD-9002-ORCF (06/2014)

Instead of pasting large portions of text from third-party reports into the narrative, it is preferred that the lender simply reference the page number and the report. The focus of this document is for lender conclusions, analyses, and summaries.

Italicized text found between these characters <<EXAMPLE>> is instructional in nature, and may be deleted from the lender’s final version. Please use the gray shaded areas (e.g., ) for your response. Double click on a check box and then change the default value to mark selection (e.g., ).


Table of ContentsExecutive Summary........................................................................................................................................................7

Transaction Overview................................................................................................................................................9Purpose of the Transaction.......................................................................................................................................10Sensitivity Analysis..................................................................................................................................................11

Program Eligibility........................................................................................................................................................12Lender Loan Committee..........................................................................................................................................123-Year Rule..............................................................................................................................................................13Substantial Rehabilitation........................................................................................................................................13Commercial Space/Income......................................................................................................................................14Independent Units....................................................................................................................................................15Licensing/Certificate of Need/Keys Amendment....................................................................................................15

Identities-of-Interest......................................................................................................................................................16Risk Factors..................................................................................................................................................................16Strengths.......................................................................................................................................................................17Underwriting Team.......................................................................................................................................................18

Lender......................................................................................................................................................................18Needs Assessor........................................................................................................................................................18Environmental Consultant........................................................................................................................................18Appraiser..................................................................................................................................................................19

Property Description.....................................................................................................................................................20Site...........................................................................................................................................................................20


Neighborhood...........................................................................................................................................................20Zoning......................................................................................................................................................................20Utilities.....................................................................................................................................................................20Improvement Description........................................................................................................................................20

Buildings.............................................................................................................................................................20Parking................................................................................................................................................................20Unit Mix & Features...........................................................................................................................................21Services...............................................................................................................................................................21

Appraisal.......................................................................................................................................................................21Hypothetical Conditions and Extraordinary Assumptions.......................................................................................21Obsolescence/Depreciation and Remaining Economic Life....................................................................................21Market Analysis.......................................................................................................................................................22

Market Analysis Overview..................................................................................................................................22Primary Market Area (PMA)..............................................................................................................................22Target Population................................................................................................................................................23Demand...............................................................................................................................................................23Competitive Environment (Supply)....................................................................................................................23Conclusion...........................................................................................................................................................23

Income Capitalization Approach..............................................................................................................................23Financial Statements...........................................................................................................................................23Occupancy...........................................................................................................................................................24Rent Schedule - As Is..........................................................................................................................................25Historical Revenue Summary..............................................................................................................................26Expenses..............................................................................................................................................................29Net Operating Income (NOI)..............................................................................................................................32Underwritten Reserve for Replacement..............................................................................................................33Capitalization Rate..............................................................................................................................................34

Sales Comparison Approach....................................................................................................................................35Price per Unit/Bed...............................................................................................................................................35Effective Gross Income Multiplier (EGIM)........................................................................................................35Subject Purchases................................................................................................................................................36Development Costs.............................................................................................................................................36Depreciation........................................................................................................................................................37Major Movable Equipment.................................................................................................................................38Land Value..........................................................................................................................................................38

Overall Value Reconciliation...................................................................................................................................38Lender Modifications...............................................................................................................................................39

ALTA/ACSM Land Survey..........................................................................................................................................39Title...............................................................................................................................................................................40

Title Search..............................................................................................................................................................40Pro Forma Policy.....................................................................................................................................................41

Environmental...............................................................................................................................................................42Phase I Site Assessment...........................................................................................................................................42Lender Comments....................................................................................................................................................43Other Environmental Concerns................................................................................................................................43

State Historic Preservation Office (SHPO) Clearance........................................................................................44Flood Plain..........................................................................................................................................................45

Project Capital Needs Assessment (PCNA).................................................................................................................45Lender Modifications...............................................................................................................................................46Fire/Building Codes and HUD Standards................................................................................................................47Handicapped Accessibility.......................................................................................................................................47Seismic Evaluation...................................................................................................................................................48Repairs.....................................................................................................................................................................48

Critical Repairs....................................................................................................................................................48Non-Critical Repairs...........................................................................................................................................48Borrower Proposed Repairs................................................................................................................................49


Completion and Inspection..................................................................................................................................50Replacement Reserves.............................................................................................................................................50

Borrower.......................................................................................................................................................................52Organization.............................................................................................................................................................52Experience/Qualifications........................................................................................................................................53Credit History...........................................................................................................................................................53Financial Statements................................................................................................................................................53Conclusion...............................................................................................................................................................54

Principal of the Borrower – Richard Platschek.............................................................................................................54Experience/Qualifications........................................................................................................................................55Credit History...........................................................................................................................................................55Other Business Concerns/232 Applications.............................................................................................................56Financial Statements................................................................................................................................................57Conclusion...............................................................................................................................................................57

Principal of the Borrower – Solomon Abramczyk.......................................................................................................57Experience/Qualifications........................................................................................................................................57Credit History...........................................................................................................................................................58Other Business Concerns/232 Applications.............................................................................................................58Financial Statements................................................................................................................................................59Conclusion...............................................................................................................................................................59

Operator........................................................................................................................................................................60Organization.............................................................................................................................................................61Experience/Qualifications........................................................................................................................................61Credit History...........................................................................................................................................................61Financial Statements................................................................................................................................................62Net Income Analysis................................................................................................................................................63Conclusion...............................................................................................................................................................63

Parent of the Operator (if applicable)- Not applicable..................................................................................................63Management Agent (if applicable)- Not applicable......................................................................................................63Operation of the Facility...............................................................................................................................................63

Administrator...........................................................................................................................................................63Subject’s State Surveys............................................................................................................................................64Staffing.....................................................................................................................................................................64Operating Lease.......................................................................................................................................................64Lease Payment Analysis..........................................................................................................................................65Responsibilities........................................................................................................................................................66HUD Lease Provisions.............................................................................................................................................66Master Lease- Not applicable as the facilities are in New York..............................................................................66

Accounts Receivable (A/R) Financing- Not Applicable..............................................................................................66Insurance.......................................................................................................................................................................67

Professional Liability Coverage (PLI).....................................................................................................................67Lawsuits..............................................................................................................................................................69Recommendation.................................................................................................................................................69

Property Insurance...................................................................................................................................................69Fidelity Bond/Employee Dishonesty Coverage.......................................................................................................69

Mortgage Determinants................................................................................................................................................69Overview..................................................................................................................................................................69Mortgage Term........................................................................................................................................................70Type of Financing....................................................................................................................................................70Amount Based on Required Loan-to-Value (Criterion D of HUD-92264a-ORCF)................................................70Amount Based on Required Debt Service Coverage (Criterion E of HUD-92264a-ORCF)...................................70Amount Based on the Cost to Refinance (Criterion H of HUD-92264a-ORCF)....................................................70Amount Based on Deduction of Grants, Loans, Gifts (Criterion L OF HUD-92264a-ORCF)...............................71

Existing Indebtedness..........................................................................................................................................71Legal and Organizational Costs..........................................................................................................................74Title and Recording Fees.....................................................................................................................................74


Other Fees...........................................................................................................................................................74HUD Fees............................................................................................................................................................74Financing Fees.....................................................................................................................................................75

Sources & Uses – Copied from HUD-92264a-ORCF..................................................................................................76Secondary Sources...................................................................................................................................................77Surviving Debt.........................................................................................................................................................78Other Uses................................................................................................................................................................78

Circumstances that May Require Additional Information............................................................................................78Special Commitment Conditions..................................................................................................................................78Conclusion....................................................................................................................................................................78


Executive Summary

FHA Number: 014-22138Project Name: Safire Rehabilitation of Southtowns Project Address: 298-300 Dorrance Avenue City / State / Zip: Buffalo, New York 14220

Lender Name: Capital Funding, LLC

Section of the Act: 232/223(f) Refinance Purchase

Part of a small, medium, or large portfolio:

Yes No If yes, describe:

Unit Breakdown:Room Type Care Type Beds Units

Private Skilled Nursing: 36 36Semi Private Skilled Nursing: 84 42

Totals: 120 78

Mortgage Amount: $10,515,000 LTV: 75.27%

Loan to Transaction

Cost: 100%

Term: 360 months Interest rate: 6%Medicare.Gov

Star Rating 1 # starsDSCR

with MIP): 2.24%Principal &

Interest$63,042.74per month

Underwritten Value: $13,970,000 Cap rate: 13.25%

Value per bed/unit*: $116,417

Effective gross income: $9,771,437 Underwritten occupancy rate: 92%Expenses & repl. res.: $7,919,752 Expense ratio: 81.1%Net operating income: $1,851,684 Expense per bed/unit*: $196.54

Repair amount:* $2,095,500 Critical Non-critical Borrower Proposed

Replacement reserves: $ Initial

deposit: $304, 800

Annual deposit(s)for 15 yrs.: $41,400

*This amount includes $588,954 in borrower proposed repairs which have been advanced by the Lender and are included in the mortgage as existing debt. These repairs are included in the PCNA section of the Lender Narrative and total repairs do not exceed 15%


of the appraised value.Other escrows/reserves: $297,780.20 Repair Escrow

Borrower: Dorrance Ave HC, LLC

Operator: Safire Rehabilitation of Southtowns, LLC

Parent of Operator: N/A

Does the operating lease cover multiple properties or tenants (is it a master lease)? Yes No

Management Agent: N/A

License held by: Safire Rehabilitation of Southtowns, LLC

Resident contracts with: Operator

Third Party Reports provided:Appraisal Conclusion is: Accepted as is. Modified by lender.PCNA Conclusion is: Accepted as is. Modified by lender.Phase I Environmental Conclusion is: Accepted as is. Modified by lender.Other <<identify>> Conclusion is: Accepted as is. Modified by lender.

Portfolios

Key QuestionsYes No

1. Do any of the principals of the borrower own any other projects insured or held by HUD? .................................................................................................

2. Do any of the principals of the borrower plan to submit an application for mortgage insurance to HUD in the next 18 months? ......................................

3. Have any of the principals of the borrower submitted an application for mortgage insurance to HUD in the past 18 months? ......................................

2. Next 18 month applications: The Principals will be submitting the following two deals within the next 18 months.

1. Safire Rehabilitation of Northtowns2. Safire Rehabilitation of Southtowns

3. Past 18 month applications : Richard Platschek is involved in the following deals that are in HUD processing but not yet closed.

1. Safire Center for Rehabilitation & Nursing of Central Queens2. Elant @ Goshan


3. Elant @ Meadownhill

Transaction Overview

Key QuestionsYes No

1. Is any of the current project debt HUD-insured or HUD-held? ......................2. Is the borrower a non-profit or public entity and are the non-profit mortgage

criteria utilized in the underwriting? (If yes, operator must also be a non-profit entity.) ...................................................................................................

3. Does the underwriting include income from adult day care? (Note: Non-resident adult day care space may not be located on a separate site. The adult day care space will not be considered commercial space; however, the space may not exceed 20% of the gross floor area of the facility and the income may not exceed 20% of gross income. Provide a Certificate of Need or operating license, if applicable.) .................................

4. Is there a ground lease? ...................................................................................5. Is any real estate tax abatement or exemption included in the underwriting

assumptions? ...................................................................................................6. Is the property subject to any special assessments? ........................................7. Is an operating deficit escrow required for this transaction? ..........................8. Are there any special escrows or reserves proposed for this transaction? ......9. Is the transaction being processed as a purchase? (If yes, answer questions

“a” through “f” below.) ...................................................................................a. Will the purchased facility have negative working capital (current assets

minus current liabilities) at the date of purchase? ....................................b. Are any of the work write-up repairs or replacement reserves included in

the purchase agreement? (If yes, these are not allowable and should be deducted from the price.) ..........................................................................

c. Is a non-identity of interest operator purchasing the facility and including the costs of debt-financed improvements in the purchase price? (If yes, these are not allowable and should be deducted from the price.) .

d. Does the value exceed the purchase price (less seller financing)? ...........e. Is state regulatory approval needed for license transfer? ..........................f. If there are critical repairs, is there a plan for the buyer to gain access to

the property to complete critical repairs prior to closing? ........................10. Is a REIT involved? ........................................................................................11. Are there any waivers proposed for this transaction? .....................................12. If the MEDICARE.GOV Star Rating applies to this project, is the project’s

overall rating less than a three? .......................................................... N/A13. Does the facility require more than four residents share a full bathroom (see

24 CFR 232.3)? ...............................................................................................14. Are any residents required to access a qualifying bathroom by moving


Yes Nothrough a public corridor or area (see 24 CFR 232.3)? ..................................

15. Has the property changed ownership within the last 2 years? ........................16. Does the underwriting reflect a change in operations that departs from the

historical number of potential resident days? .................................................

12. Star Ratings of Less than Three: The overall 1 CMS Star rating is attributable to incidents that occurred during the most recent inspections. To improve the quality of care at the facility, the operator has recently changed key management positions, including replacement of the administrator. A new Administrator with 32 years of experience in elderly healthcare facility management was hired in October 2016. The operator has significant procedures in place to ensure that all regulations are strictly followed. Please refer to Exhibit 9.14 for the client’s risk management plan.

15. Changed Ownership within the Last Two Years: The property was acquired by Dorrance Ave HC, LLC on November 9, 2015.

Purpose of the TransactionThe purpose of this transaction is to refinance the existing debt with permanent financing.


Sensitivity Analysis

a) Payor Type UW Rate RateDebt Service

CoveragePrivate 315.00$ -$ 1.48Medicaid 211.28$ 178.48$ 1.00Medicare 526.89$ 63.58$ 1.00Insurance 275.00$ 59.05$ 1.00Hospice -$ -$ 2.24HMO -$ -$ 2.24Other -$ -$ 2.24

Therapy Income 1.00$ -$ 2.20Other Income 0.15$ -$ 2.24Ancillary Income -$ -$ 2.24

Payor Type Beds DSCPrivate 6.00 - 1.48Medicaid 93.24 78.8 1.00Medicare 6.60 0.8 1.00Insurance 14.16 3.0 1.00Hospice 0.00 - 2.24HMO 0.00 - 2.24Other 0.00 - 2.24

b) Occupancy keeping total expenses the sameOccupancy DSC

92.0% 82.3% 1.00

Occupancy keeping expenses per patient day the sameOccupancy DSC

92.0% 41.0% 1.00c) Expenses PPD DSC

196.54$ 222.02$ 1.00

This Sensitivity Analysis is based on the financial forecast of the underwriter. The analysis uses the payor types, forecasted payor rates, number of beds per payor, plus income from sources other than payors. We then calculate total revenues before the vacancy allowance. The underwriter’s occupancy and expense estimates are then used to calculate the NOI, which is $1,851,684. The debt service coverage ratio is 2.24x.

Section a) demonstrates how low each individual rate and mix could drop before the debt service coverage hits 1.00. This assumes that all other factors remain unchanged.

Section b) demonstrates the effect occupancy has on NOI. In the first case, with expenses unchanged, occupancy could drop to 82.3%, however, if we leave per-patient-day expenses as


forecast, the occupancy rate could drop as low as 41.0% before the debt service coverage reached 1.00.Section c) shows the tolerance for expenses per patient day. Expenses could reach $220.02 per patient day before the debt service coverage reached 1.00.

If everything else under consideration remains the same (ceteris paribus), then:

(a) The average rental rate can drop by $25.48 per month and still provide 1.0 debt cover.(b) Occupancy rate could decrease by 9.67% and still provide a 1.0 debt cover.(c) Operating expenses could increase 13.0% per year and still provide a 1.0 debt cover.(d) The NOI could drop by $1,026,824 (55.45%) and still provide a 1.0 debt cover.

Program Eligibility

Key QuestionsYes No

1. Does the facility charge “founder’s fees,” “life care fees,” or other similar charges associated with “buy-in” facilities? ...................................................

2. Has the facility, borrower, operator, or any of their affiliates’ renamed or reformulated companies, or filed for or emerged from bankruptcy within the last 5 years? .....................................................................................................

3. Is the facility, borrower, operator, or any of their affiliates’ renamed or reformulated companies, currently in bankruptcy? ........................................

4. Is less than continuous protective oversight provided at the facility? ............5. Are there any “minimum assistance” requirements necessary to qualify

under the Section 232 mortgage insurance program that the facility does not plan to offer? ...................................................................................................

6. Are there floodways or coastal high hazard areas located onsite*? ................

*Exception: The floodway and coastal high hazard area prohibitions do not apply if only an incidental portion of the project is in the 100-year floodplain, or for critical actions, the 500-year floodplain, and certain conditions are met in accordance with 24 CFR 55.12(c)(7).

Lender Loan Committee

Date held: November 11, 2016

The Lender Loan Committee consisted of the following individuals: Deborah Spangenberg, Karen Becker, Lee Boatwright, Pushpa Subedi, and Brian Stromberg. The Committee was provided with all relevant information pertaining to the proposed loan including a list of principals and a review of historic financial information, census mix, and occupancies. Outstanding debt, loan to value and debt service coverage information was also provided. The


committee also discussed the liability insurance. The Committee approved the proposed loan with no requirements/conditions.

3-Year RuleYear(s) project was constructed: 1983

Program Guidance – CFR 232.902

Existing projects (with such repairs and improvements as are determined by the Commissioner to be necessary) are eligible for insurance under this subpart. The project must not require substantial rehabilitation and three years must have elapsed from the date of completion of construction or substantial rehabilitation of the project, or from the beginning of occupancy, whichever is later, to the date of application for insurance. In addition, the project must have attained sustaining occupancy (occupancy that produces income sufficient to pay operating expenses, annual debt service, and reserve fund for replacement requirements) as determined by the Commissioner, before endorsement of the project for insurance; alternatively, the mortgagor must provide an operating deficit fund at the time of endorsement for insurance, in an amount, and under an agreement, approved by the Commissioner.

Select one of the following:

The entire facility was constructed more than 3 years ago and has not undergone any substantial rehabilitation in the last three years.

An addition to the facility was constructed less than 3 years ago. However, the addition was not larger than the project in size (gross floor area) and number of beds.

a. Gross Floor Area (GFA): d. Total beds: b. Sq. ft. added in last 3 yrs.: e. Beds added in last 3 yrs.: c. % of GFA added: <<b / a>> f. % of beds added:

Substantial Rehabilitation

Select all applicable statements:

The estimated cost of the repairs represents less than 15% of the project’s value after completion.

a. Underwritten value: $13,970,000b. Total estimated cost of repairs: $2,095,500c. Repairs as % of value: 15%


The repairs do not include the substantial replacement of two or more major building components.

Commercial Space/Income

Select one of the following:

There is no commercial space at the subject.

There is commercial space at the subject, however, it does not exceed the program limitations of 20% of the total net rentable area of the project and 20% of the effective gross income.

a. Total net rentable area : d. EGI: b. Net rentable commercial area: e. Eff. commercial income: c. % of commercial area: <<b / a>> f. % of commercial income: <<e / d>>

Program Guidance:

The commercial limits are a maximum of 20% of the gross floor area of the project and 20% of the gross project income. Commercial space that is intended to exclusively serve the residents of the facility is not counted toward the 20% space and income limitations. Non-resident adult day care space will not be considered commercial space. However, the adult day care space may not be located on a separate site, the space may not exceed 20% of the gross floor area of the facility, and the income may not exceed 20% of gross income. (Provide a Certificate of Need or operating license, if applicable.)

All non-residential leases, including renewals or extensions of existing leases must comply with the following language:

1. Such leases are subordinate to the lien of this Security Instrument and; the tenant shall, upon receipt after the occurrence of an Event of Default of a written request from Lender, pay all Rents payable under the Lease to Lender; and the tenant shall attorn to Lender and any purchaser at a foreclosure sale, such attornment to be self-executing and effective upon acquisition of title to the Mortgaged Property by any purchaser at a foreclosure sale or by Lender in any manner;

2. The tenant agrees to execute such further evidences of attornment as Lender or any purchaser at a foreclosure sale may from time to time request;

3. The Lease shall not be terminated by foreclosure or any other transfer of the Mortgaged Property; and after a foreclosure sale of the Mortgaged Property or after transfer of the Mortgaged Property to Lender by a deed-in-lieu of foreclosure, Lender or any purchaser at


such foreclosure sale may, at Lender's or such purchaser's option, accept or terminate such Lease;

4. Borrower shall not receive or accept rent under any lease (whether residential or non-residential) for more than two months in advance.

Independent Units

Select all applicable statements:

There are NO unlicensed/independent units at the subject.

There are unlicensed/independent units at the subject, however, the total does not exceed 25% of the total beds at the facility.

a. Total beds: b. Unlicensed independent beds: c. Independent beds as % of total: <<b / a>>

A waiver is requested to exceed 25% of the total beds at the facility.

Program Guidance:

It has been longstanding policy that HUD will allow up to 25% of the units in a Section 232 facility to be Independent Living (IL) units. This policy remains unchanged under Lean. However, please note the following:

The facility must offer services to all residents in the project comparable to those found in a skilled nursing facility, assisted living facility, board and care, or intermediate care facility.

A license is not required for the IL units; however, all of the other units in the facility must be licensed.

Waivers to exceed the 25% limit will be considered on a case-by-case basis for good cause. Please note that waivers have not been provided when the number of IL units exceeds 30% of the total project units.

Licensing/Certificate of Need/Keys Amendment

The facility is licensed for and operates 120 beds. The license was issued by the State of New


York Department of Health. The license is issued to Safire Rehabilitation of Southtowns, LLC. It is effective November 9, 2015 and doesn’t expire.

There is a Certificate of Need (CON) requirement in New York for Skilled Nursing Facilities, however, it does not apply to this existing facility.

Section 1616(e) of the Social Security Act (Keys Amendment) does not affect this facility. This Act is for Board and Care only.

Identities -of-Interest

Key QuestionsYes No

1. Have you, as the lender, identified any identities of interest on your certification? ...................................................................................................

2. Does the borrower’s certification indicate any identities of interest? .............3. Do any of the certifications provided by principals of the borrower identify

any identities of interest? ................................................................................4. Does the operator’s certification (if applicable) indicate any identities of

interest? .............................................................................................. N/A5. Does the management agent’s certification (if applicable) indicate any

identities of interest? .......................................................................... N/A6. Are there any identity of interest issues involving the underwriting lender,

mortgage broker, or seller? .............................................................................7. Does the lender know, or have any reason to believe, that any of the

assertions in the other Consolidated Certifications submitted herewith, are inaccurate or incomplete? ...............................................................................

2., 3. & 4. Identities of Interest: The Borrower, Principal and Operator are related parties.

Risk Factors

Key QuestionsYes No

1. Is the proposed mortgage higher than 80% (85% for non-profit facilities) of the lender’s concluded value? .........................................................................

2. Is the debt service coverage of the loan less than 1.45? .................................3. Is the project being underwritten at an NOI that is significantly above

historical NOI? ................................................................................................4. Is this a “special use facility” that serves a “niche” type of market (i.e.,


Yes Nopsychiatric facilities; drug, alcohol, or eating disorder recovery facilities; hospice facilities; or short-term rehabilitation facilities)? ..............................

<<Below is a summary of the Lean underwriting benchmarks for loan-to-value (LTV) and debt service coverage ratio (DSCR).

Type of Unit New/Existing Units Borrower Type Max. LTV*Min.

DSCR*SNF/ILU Both For Profit 80% 1.45SNF/ILU Both Non-Profit ** 85% 1.45

ALF New For Profit 75% 1.45ALF New Non-Profit ** 80% 1.45ALF Existing For Profit 80% 1.45ALF Existing Non-Profit ** 85% 1.45

_________*Maximum loan-to-values and minimum debt service coverage ratios are set by the Section 232 Statute and Regulations. Any submittal above the LTV’s listed or below the DSCR’s listed will require justification/mitigation.

**To qualify for the higher non-profit benchmarks, the owner/operator must demonstrate a successful operating track record, significant project operating and management experience, an a solid financial track record.>>

Other Risk Factors Identified by LenderAdditionally, the lender has identified the following risk factors:

The uncertainty of future Medicaid and Medicare rates could adversely affect the financial viability of the subject facility. As underwriter, we are comfortable that if a cut does occur, there will be more than adequate cash flow to service the mortgage. The operator is experienced and if revenues were to be cut, it is expected that expenses would be cut likewise.

Strengths The principals of the mortgagor have many years of experience in the healthcare industry.

The principals of the operator have many years of experience in the healthcare industry.

The principals of the mortgagor and operator own and operate other HUD insured facilities.

Strong Market occupancy of 92%.

Subject’s consistent historical occupancy over 92% for the last three periods.

Market analysis suggests undersupply of nursing beds in the PMA. Strong debt service coverage of 2.24x.


Underwriting Team

LenderName: Capital Funding, LLC Underwriter: Pushpa SubediUnderwriter trainee: N/ALender #: 2998600008

Site inspection date: 3/21/2017Inspecting underwriter: Pushpa Subedi

Lender’s UnderwriterPushpa Subedi has been working at Capital Funding, LLC for more than twelve years. During this period, she has held the position of Senior Credit Analyst, Underwriter Trainee and now Underwriter. Ms. Subedi has been involved with all aspects of underwriting functions of the HUD application submission including review of the third party reports, completion of underwriting summary, review of application exhibits and answering deficiency letters. Prior to working at Capital Funding, LLC, Ms. Subedi was employed by Chesapeake Bank of Maryland as a Senior Credit Analyst. Her responsibilities included evaluating and underwriting commercial mortgages and business loans, performing quarterly reviews of the existing commercials loans and conducting an annual internal compliance audit of the loan portfolio.

Underwriter Trainee Not applicable.

Needs AssessorMr. Samuel Handler, of Partner Engineering and Science, Inc., has approximately two years of experience completing high level Property Condition Assessments (PCA) and Project Capital Needs Assessments (PCNA). Mr. Handler has successfully completed projects including 500+ dwelling unit apartment complexes and large urban skilled nursing facilities. He has an extensive knowledge of the federal accessibility standards, including ADA, FFHA, and section 504/UFAS, required by HUD standards, and has completed numerous dedicated accessibility surveys.

Environmental ConsultantMr. Samuel Handler, of Partner Engineering and Science, Inc., has approximately two years of experience completing high level Property Condition Assessments (PCA) and Project Capital Needs Assessments (PCNA). Mr. Handler has successfully completed projects including 500+ dwelling unit apartment complexes and large urban skilled nursing facilities. He has an extensive knowledge of the federal accessibility standards, including ADA, FFHA, and section 504/UFAS, required by HUD standards, and has completed numerous dedicated accessibility surveys.


Appraiser

Todd Deitemyer serves as Senior Vice President of JLL's Valuation and Advisory Services (VAS) in the United States. In this role, he is focused on conducting appraisals, market studies, and consulting assignments for senior housing and health care properties nationwide including independent living, assisted living, memory care, skilled nursing, continuing care retirement communities (CCRCs), senior apartments, and long-term acute care hospitals (LTACHs). Additionally, Mr. Deitemyer has been involved in appraisal matters in 43 states and the District of Columbia.

Prior to joining JLL in late 2016, Mr. Deitemyer was with Integra Realty Resources, where he most recently served as Managing Director with the Dallas office and worked with the Seniors Housing & Health Care Specialty Practice from November 2010 to November 2016. Mr. Deitemyer also served as Associate Director with Integra Realty Resources-DFW on the commercial group with experience in multifamily, industrial, retail, office, subdivisions, and hotels from September 2009 to October 2010. Prior to Integra Realty Resources, Mr. Deitemyer held various positions with Crown Appraisal in various locations including Columbus, Ohio, Los Angeles, California and Dallas, Texas from June 2004 to August 2009.

Be a Certified General Appraiser under the appraiser certification requirements of the State in which the subject property is located; Todd Deitemyer – NY Temporary Permit appraiser #46000051778

Be the individual actually signing the appraisal report;Todd Deitemyer inspected the land sales, made a personal inspection of the property that is the subject of this report and assisted in the appraisal process.

Meet all requirements of the Competency Rule described in USPAP; Mr. Deitemyer is currently active, regularly engaged and specialized in the appraisal of healthcare facilities. He exceeds the minimum standard requirements of appraising five similarly licensed properties within the last three years.

Based on the Scope of the Appraisal, the appraiser is competent to perform the appraisal due to the fact that:

The appraiser has knowledge and experience in the nature of this assignment. All necessary and appropriate steps have been taken in order to complete the assignment

competently. There is no lack of knowledge or experience that would prohibit this assignment from

being completed in a professional, competent manner or where a biased or misleading opinion of value is to be rendered.


Property Description

SiteThe subject site consists of one one-story building on a 71,995 square foot (6.19 acre) parcel. The topography has a slight downward gradient to the south and the property elevation is approximately 600 to 630 feet.

NeighborhoodThe surrounding area consists primarily of residential properties. The property is bound by single-family residential properties to the north and east followed by Interstate 90, a cemetery immediately precedes the facility to the south followed by single-family residential properties and Interstate 90, single-family residential properties are located to the west of the facility followed by US 219 (Southern Expressway) and Buffalo Skyway and Lake Erie which is located 2.75 miles west of the subject property.

Zoning

Legal Conforming Legal Non-Conforming Other

The subject property is zoned “R5”, Dwelling District, by the City of Buffalo Office of Strategic Planning. According to the City of Buffalo Zoning ordinance, the subject property appears to be a legal conforming use under the designated zoning.

UtilitiesAll public utilities exist and are available to the subject site, including sewer water (City of Buffalo), gas (National Fuel Gas), and electricity (National Grid).

Improvement Description

BuildingsThe subject is a one-story nursing home with 71,995 square feet. Built in 1983, the subject has a concrete slab foundation, painted or wallpapered gypsum board walls, brick exterior, and a pitched/mansard roof covered with an asphalt shingles.

ParkingThe subject provides parking for 72 vehicles, which include 3 handicap spaces. Parking is located adjacent to or near the side, front, and rear elevations of the facility.


Unit Mix & Features

The chart above represents the breakdown of the units available for rent at the subject facility. There are 16 private rooms with a toilet and sink, 20 private rooms with a toilet, sink and shower and 42 semi-private rooms with toilet and sink.

ServicesServices provided include 24-hour skilled nursing care as well as ancillary services, including physical therapy, occupational therapy and speech therapy.

Appraisal

Date of valuation: 9/26/2016Date of report: 11/11/2016Appraisal firm: Integra Realty Resources

Appraiser: Todd Deitemyer

License no./State: Temporary Permit #46000051778 / New York

Hypothetical Conditions and Extraordinary AssumptionsHypothetical ConditionsThe appraisal is based on the hypothetical condition that the required and escrowed repairs are complete as of the effective date of the report.

Extraordinary AssumptionsNone.

Jurisdictional ExceptionsNone.

Obsolescence/Depreciation and Remaining Economic LifeFunctional ObsolescenceNone.

External ObsolescenceNone.


Physical DepreciationThe building is estimated to have an economic life of 60 years. The effective age of the building is estimated at 22 years. Therefore, remaining economic life is 40 years. Economic life is the period over which the improvements to the real estate contribute to the value of the property.

Market Analysis

Date of Analysis: 9/26/16Market Analyst: Todd DeitemyerCompany: Integra Realty Resources

Key QuestionsYes No

1. Is the subject located in a declining market in terms of population, target population, real estate values, or employment? ..............................................

2. Are there any negative market influences that require special consideration? 3. Is there a projected or current oversupply that could affect the subject? ........

1. Declining Population: The Buffalo area has been experiencing a population decline for years due to the shift from mass manufacturing to specialized manufacturing that requires fewer workers. However, the population decline is expected to stop and stabilized over the next 5 years. Also, the subject’s PMA has slightly higher percentage of senior population than the US average.

Market Analysis OverviewThe general population in the PMA is projected to increase. The total 75-plus population in the U.S. and the PMA is projected to increase at a faster rate than the total population over the next five years. Market analysis shows that the PMA has an undersupply of nursing beds in the current year of 349 and increasing to 1,020 by 2016. This is supported by the higher occupancy levels of existing facilities in the PMA with an average occupancy of 92%. No new supply is forecast to be added over the next two years, so market conditions should continually improve.

Primary Market Area (PMA)Data provided by management shows that just over 85% of the subject’s residents came from four area hospitals including Buffalo General Hospital, Erie County Medical Center, St. Joseph Hospital and Veterans Hospital. These hospitals are located within 8 mile radius. Considering the physical and psychological barriers, population density, and the concentration of competing facilities, the appraiser has concluded that an appropriate PMA for the subject is an 8 mile radius. The appraiser believes that the majority of demand will come from the PMA. No measurable draw from a secondary market area is forecast.


Target PopulationThe subject’s target market group consists of the “age qualified” population that has adequate income to live in elderly housing and “adult children” who are caregivers for an elderly relative. Therefore, the subject’s primary target market is seniors aged 65+ with household income of $35,000+, as well as adult children who might relocate to the market.

DemandBased upon the 65+ senior population of the PMA and the achievable penetration rates method used by the appraiser, the estimate of the total need is 3,615 beds in 2016 and 4,286 beds in 2026. Subtracting the existing supply of 3,266 beds from the total need results in an indication of additional demand of 349 beds in 2016 and increasing to 1,020 in 2026.

Competitive Environment (Supply)The appraiser identified 19 comparable facilities in the area. A total of 3,266 operating beds (including the subject) were surveyed, of which 3,012 were occupied, indicating an occupancy rate of 92%. There are no known additions to the competitive supply in the PMA.

ConclusionBased upon the analysis presented in the market study, there is demand within the PMA of 349 nursing beds in 2016, increasing to 1,020 nursing beds by 2026.

Income Capitalization Approach

Financial Statements

The appraiser and underwriter have analyzed the following historical financial statements pertaining to the operation of this facility:

Annualized 6 Months: Appraiser- 6/30/16, Underwriter-12/31/2016Trailing-12 Months: 6/30/16Fiscal Year Ending: 12/31/15Fiscal Year Ending: 12/31/2014

The historical data provided by Management includes income statements as well as census data for the year ending December 31, 2014, the year ending December 31, 2015, and the trailing 6-months ending June 30, 2016. The subject was acquired on November 9, 2015. The new operator took full control of the operation from this day. The appraiser considered the analysis of the trailing 12 months and the annualized six months of operation is more reflective of the performance under the full control of the new operation.


OccupancyA summary of the subject’s occupancy is provided below.

The subject property has historically maintained high occupancy ranging from 92.1% to 94.9%.The occupancy at the date of the appraiser’s site inspection was lower at 87.5%, which is the occupancy of just one day. The subject’s average occupancy has consistently been above 92%. The occupancy at the date of underwriter’s site inspection was 92.5%.

Census Mix


Census Mix – Subject History(% of beds)

(Double click inside the Excel Tables to add information)

Market Census Mix

The subject’s payor mix has substantially improved (Medicaid 72%, Insurance/Managed Care 17%) in the fiscal year 2016, attributed to the operator’s strategic plan to improve the payor mix from Medicaid to Insurance/Managed care. The subject’s occupancy mix is most similar to comp 3. The appraiser’s selected occupancy mix is similar to the trailing-12 month mix. We agree with the appraiser’s selected mix and feel it is appropriate given the historical census mix.

Rent Schedule - As IsThe rent schedule is currently as follows:


Historical Revenue Summary

History by Revenue Source(Double click inside the Excel Tables to add information)

The revenue has remained stable for the last three periods. The slight decrease in the annualized 2016 revenue is due to the decrease in insurance/managed care and the Medicaid rates. The correlated revenue is between the revenue of 2015 and the annualized six months ending June 30, 2016 periods. For fiscal year ending December 2016, the subject’s revenue is $9,944,398, an increase of $225,970 (2.3%) from six months annualized, attributed primarily to the improved census mix. We concur with the appraiser estimated revenue as this income has been historically achieved.


SKILLED NURSING

Private PayIn addition to an analysis of the subject’s rent roll, the appraiser and underwriter analyzed the private pay rates at five comparable facilities. A summary of their analysis is provided below.

Private Pay Rates Comparability Analysis(Double click inside the Excel Tables to add information)

The average collected private pay rate has been variable. The appraiser has given the primary weight to the most recent periods. It is noted that the Trailing 12 months and Year to Date 2016 are skewed lower as a result of negative revenue in some months because there was revenue that had been recognized as private in prior periods that was incorrect and was moved to their correct payor sources in those months, which drove down the total private revenue for the months recognized in. The appraiser concluded average private pay rate is $315.00 for the subject. We agree with the appraiser’s selected rate and feel it is appropriate as it is below the rate achieved in 2015.

MedicareDaily rate – Underwriting: $526.89 Appraisal: $526.89

Subject’s historical average RUG Rate: $500.57

Time period of quoted average:

12/31/2014 to 6/30/2016


The appraiser provided a detailed Resource Utilization Group (RUG) rate analysis of the facility’s operation over the 12-month operating period ending June 30, 2016. The analysis concluded to a weighted average Medicare rate of $537.64 ppd. The RUG Rates used to determine the average rate are based on the October 1, 2016 rates.

However, the estimated Medicare rate does not include the 2% sequester adjustment of the Balanced Control Act of 2011, which is in effect until 2021. Therefore, the appraiser has determined the rate by taking the calculated rate and reducing it by 2%. This results in a rate of $526.89 ppd. The underwriter concurs with the appraiser’s conclusion and feels it is an appropriate rate.

MedicaidDaily Rate – Underwriting: $211.28 Appraisal: $211.28

Published Rate: $197.84 Date of Rate 1/1/2016

Historically, the subject's Medicaid revenues were $175.53 in 2014, $205.56 in 2015, $214.40 for the trailing-12 period ending June 2016, and $211.58 for the annualized six months ending 6/30/2016. The appraiser has selected a Medicaid rate of $211.28. This rate is based on the current Medicaid rate of $197.84 plus the subject’s Medicaid Cash Assessment fee of 13.44 for a total of $211.28. We agree with the appraiser’s selected Medicaid rate as it is the rate that was given to the facility by the State of New York plus the Medicaid Cash Assessment.

HMO or Other Private InsuranceDaily Rate – Underwriting: $275.00 Appraisal: $275.00

Historically, the subject's Managed Care revenues per patient day were $269.17 in 2014, $298.37 in 2015, $281.09 for the trailing-12 period ending June 2016, and $246.27 for the annualized six months ended June 30, 2016. A Managed Care estimate of $275.00 per patient day was selected by the appraiser. We agree with the appraiser’s selected rate and feel it is appropriate.

Other Income Breakdown


Ancillary Income/Other IncomeAncillary revenue is generated by various routine and non-routine services such as physical therapies and related supplies and pharmacy revenues. Historically, the subject's Ancillary revenues on a ppd basis were $12.96 in 2014, $3.20 for 2015, $2.01 for the trailing-12 period ending June 2016, and $1.12 for the annualized six months ended June 30, 2016. An Ancillary estimate of $1.15 per patient day is utilized in this analysis. We agree with the appraiser’s selected rate as it is in-line with the historical rates.

ExpensesThe appraiser concludes to total expenses of $7,919,752 including reserve for replacement of $36,000. The underwriter concludes to total expenses of $7,925,152, including reserve for replacement of $41,400. The additional $5,400 is used to calculate mortgage based on Debt Service Criterion. An analysis of subject’s history is provided below. The appraiser also compared the subject’s expense conclusions to three comparable projects located around Buffalo area in New York.


Historic ComparisonExpense Analysis –Subject

(Use totals not per patient day/occupied bed)(Double click inside the Excel Table to add information)

The appraiser’s selected expenses are $7,919,752, which are above the historical expense amounts. The forecast expenses are reasonable in comparison to the historical and comparables.


It is noted that the forecast is higher than recent historical given the Cash Assessment Expense, which was historically significantly lower and negative in two periods.

The appraiser’s correlated estimates are based primarily upon the historical levels and are further supported by the comparable ppd range. We agree with the appraiser’s selected expenses.

Comparable Expense Data

Expense Analysis –Comparables(Double click inside the Excel Tables to add information)

The appraiser’s selected expenses are within the range of the comparables on a percentage of revenue basis. The comparables expense ratios range from 78.2% to 86.1%. The appraiser selected expense ratio of 81.00% is within the range of the comps. The appraiser estimated ppd expenses of $196.53 is similar to the ppd expenses of comparable 2. This is appropriate as the census mix of the subject is similar to comparable 2. We agree with the appraiser’s selected expenses and feel they are appropriate based on the historical expenses.


Net Operating Income (NOI)

The correlated NOI is below the 2015 and 2016 periods due to a lower correlated Medicaid rate and the inclusion of Provider Bed Tax in the expenses. We agree with the appraiser’s selected NOI and feel it is appropriate as both the NOI per patient day and the percentage of EGI is below what has been achieved since 2015.


Underwritten Reserve for Replacement

Reserve for Replacement Annually Per Unit

Realty $18,000 $150Major Movable Equipment $18,000 $150

Total $36,000 $300


Capitalization Rate

(Double click inside the Excel Tables to add information)

The comparable data indicates a capitalization rate range between 11.12% and 13.3%, with an average of 12.43%.

Published surveys of investors in long-term care facilities were also considered. The Senior Care Acquisition Report, 2016, produced by Irving Levin and Associates, Inc., indicates that the average capitalization rate in 2015 was 12.20%.

Based upon knowledge of the financial history of the subject and the demand for skilled nursing in the subject market area, the appraiser determined that a capitalization rate of 13.25% appropriate for the subject property. We agree with the appraiser’s selected rate and feel it is appropriate.

Applying the capitalization rate to the net operating income results in the following computation of value:


Sales Comparison ApproachSummary of Comparable Sales Data

Price per Unit/BedThe appraiser selected five comparable sales in New York, Massachusetts and Pennsylvania. The unadjusted price per bed ranged from $73,394 to $189,167. The appraiser made adjustments to the comparables based upon the location, age/condition, occupancies, operation, and square foot per bed. After the appraiser’s adjustments, per bed prices ranged from $78,287 to $168,367. The appraiser concluded a per bed price between the range of $105,000 to $115,000, which is in the range of the comps. The concluded value is within the range of $12,600,000 to $13,800,000. We agree with the appraiser’s conclusion.

Effective Gross Income Multiplier (EGIM)The subject’s expense ratio of 81.1% is between expense ratios of the two comps 4 and 5, which indicates an EGIM range between 1.30 and 1.81. Given the subject’s projected expense ratio, age and location, the appraiser has selected an EGIM range between 1.30 to 1.55 for the subject. We agree with the appraiser’s selected EGIM range, which equates to the range of value between $12,700,000 and $15,150,000.

Both units of comparison are well supported and appropriate. The appraiser places roughly equal weight in both analyses and concluded an indicated value via sales comparison approach of $13,850,000 for the subject. The underwriter concurs with this valuation.


Subject PurchasesThe current owner purchased the defaulted mortgage of the subject property and the sister facility in November 15, 2015. The purchase agreement was dated July 6, 2012 with a contract price of $9,311,666 for the two facilities. However, the buyer also agreed to pay some of the liabilities and additional costs, which resulted in a total purchase price of $11,309,798. This is well below the as-is value of the two properties developed in the appraisal. However, the buyer had partial control over the management and operations during the contract period as part of the purchase agreement. The buyer/current operator implemented significant improvements at the subject since it took full control in November 2015. The operator implemented new systems to properly record/assess the resident base, which increased the subject’s CMI significantly, and thus increased the Medicaid Rate. The previous operator was a local “mom and pop” operator.As a result of the management change and significant operating improvements at the subject, the value developed in the appraisal report is well above the purchase price.

Development CostsDirect Costs include only the hard costs associated with the construction of the building. The Calculator Cost Method from Marshall Valuation Service has been utilized to calculate the base cost of the subject property. This method provides the average base cost for typical buildings classified by construction class and quality of construction. The improvements consist of a two-story skilled nursing facility with 47,250-square-feet, concrete block foundation, brick exterior, wood frame facility built in 1983. The quality of construction is good and the condition of the improvements are good and average, respectively. As such, the base cost per square foot of gross building area is $133.50. Adjustments to the base cost include fire sprinklers, elevators, height, perimeter, time and location. After adjustments, the base cost per square foot of gross building area is $165.55.

Site improvements include all improvements excluding the building. These typically include parking lots, signage, fencing, lighting, landscaping and walkways. In calculating these costs, the Cost-Per-Square-Foot Method from Marshall Valuation Service was used and any extra improvement costs not covered by this method were added. Site improvements are estimated on a price per square foot of the site area less the building footprint. Based on the methodology described above, site improvements are estimated at $260,000. The indicated per square foot replacement cost of the building and the improvements is $188.39. The total direct costs via the Marshall Valuation Service total $8,901,536.

The comparable cost method estimates direct costs by considering construction costs for new skilled nursing projects. The costs include direct costs and site improvements. The appraiser’s cost comparables indicate a range of $139.44 to $203.81 per square foot with an average of $174.98 per square foot. It is evident that the $188.39 cost estimate provided by the Marshall Valuation Service is reasonable. The appraiser has relied equally upon Marshall Valuation Service and Cost Comparables and forecast total costs inclusive of direct construction costs, architect and engineering fees, permits and building fees, construction interest, contractor’s overhead and profit and insurance and estimated the cost of $175.00 per square foot.


There are other costs not included in this figure. The appraiser has estimated the costs for financing, preopening marketing, lost income during lease-up, and CON or license at the average for the cost comparables. In addition, developers of seniors housing properties anticipate receiving an entrepreneurial incentive for the efforts in developing seniors housing properties. IRR continues to actively conduct surveys of seniors housing developers to ascertain typical entrepreneurial incentive expectations. Responses ranged from 5% to more than 20%. The most common response was 15%. Therefore, the appraiser is forecasting a 15% entrepreneurial incentive.

In addition to the entrepreneurial incentive, successful seniors housing facilities generally have intangible business enterprise value. The appraiser has added an allocation for this to their cost approach so that the cost approach is inclusive of intangibles and, the value is developed on the same basis as the income capitalization and sales comparison approaches. Based on the developer’s survey, the appraiser allocated 25% to intangible enterprise value. Including the direct and indirect cost, the concluded replacement cost is $11,897,524.

DepreciationThe amount of depreciation and obsolescence in the subject building is judged to be typical for a facility of its age. Inspection of the property indicated that the structure and related component parts have been adequately maintained through a continuous maintenance service program.

The actual age of the building is 33 years and the effective age of the building is estimated at 25 years, while the total economic life is 60 years.

The amount of depreciation attributable to the property has been estimated on a straight-line age/life basis. Straight-line depreciation is founded on the assumption that depreciation of a property occurs at the same rate throughout its economic life. The straight-line depreciation percentage is estimated at 41.7% (26 years/60 years).


Major Movable EquipmentThe average cost per unit of FF&E for the Cost Comparables presented in the appraisal $11,792 per unit. This is used to estimate the subject’s FF&E cost. The estimated equipment value per unit is calculated as follows:

Land ValueAfter adjustments, the comparable sales indicate a range in value of $1.02 to $2.84 per square foot, with a mean of $1.71 per square foot. The appraiser concluded price per square foot is $1.50. The land value is, therefore, estimated by the appraiser to be $400,000 (269,636 x $1.50).

Considering all components of the cost, the appraiser indicated value via the cost approach is $8,790,000.

Overall Value ReconciliationThe direct capitalization method was developed in the appraisal report. The income capitalization process is well supported and highly pertinent to the appraisal of income property such as the subject. Market rent was estimated after a review of competing local properties. Total income and expenses were estimated based upon analysis of similar income and expense comparables with consideration to the subject’s historical expenses. This is the approach most utilized in the market and is considered the most relevant approach to valuing the subject.

The sales comparison approach was also developed and is relatively well supported. MarketParticipants rely upon sales to provide general ranges for valuation purposes, but generally placemuch more weight on the income approach.

The cost approach was also developed in the appraisal report. Buyers of senior housing properties place little credence in the cost approach. The estimation of depreciation is difficult to do with any precision, especially for older buildings. Thus, the cost approach is given little consideration.

After consideration of the reliability and relevance of each approach, the income approach – direct capitalization method is given primary weight, with the sales comparison approach providing added support. The indicated value is $13,970,000.


The estimated net operating income for the subject is based on actual subject operating history, as well as comparable data. The estimate of income and expenses is considered reliable and is a reasonable measure of market levels. The capitalization rate was derived from the marketplace based on sales of similar facilities and a review of other current market data. Overall, the Income Capitalization Approach, utilizing the direct capitalization method, is the best indicator of value for the fee simple interest in the subject property. The concluded value is $13,970,000..

Lender ModificationsNone.

ALTA/ACSM Land Survey

Date: November 30, 2016Firm: Paul G. Pagano, PLS

Key QuestionsYes No

1. Are there any differences between the legal description on the survey and legal description included in pro forma title policy? ......................................

2. Are there any revisions or modifications required to the survey prior to closing? ...........................................................................................................

3. Does the survey indicate any boundary encroachments? ...............................4. Does the survey evidence any buildings encroaching on utility or other

easements or rights-of-way? ...........................................................................5. Are there any unusual circumstances or items that require special attention

or conditions? ..................................................................................................

3. Boundary Encroachments: Below are a list of boundary encroachments:

Adjoiner’s concrete drive encroaches up to 0.55 feet onto subject property Subject property’s concrete strip encroaches up to 0.6 feet onto adjoiner’s property Subject property’s concrete strip encroaches up to 10.8 feet onto adjoiner’s property Subject property’s fence encroaches up to 3.0 feet onto adjoiner’s property


Adjoiner’s split rail fence encroaches up to 7.8 feet onto subject property Adjoiner’s split rail fence encroaches up to 5.8 feet onto subject property Guy anchor encroaches up to 6.0 feet onto subject property Subject property’s fence encroaches up to 0.6 feet onto adjoiner’s property Utility pole encroaches up to 0.5 feet onto subject property Adjoiner’s fence encroaches up to 0.8 feet onto subject property Adjoiner’s fence encroaches up to 0.7 feet onto subject property Utility pole encroaches up to 0.5 feet onto subject property. Adjoiner’s fence encroaches up to 0.2 feet onto subject property

A TIRSA Restrictions, Encroachments & Minerals Endorsement is designated in the ProForma.

Title

Title SearchDate of Search: November 17, 2016Firm: Riverside Abstract, LLC

File Number: RANY-25318A

Key QuestionsYes No

1. Is the title currently vested in an entity or individual other than the proposed borrower? ........................................................................................................

2. Does report indicate that delinquent real estate taxes are owed? ....................3. Does the report indicate any outstanding special assessments? ......................4. Does the report identify any outstanding debt that is not disclosed on the

borrower’s listing of outstanding obligations? ...............................................5. Are there or will there be any Use and Maintenance Agreements associated

with this facility? .............................................................................................


Pro Forma PolicyDate/Time: To be dated at time of closing

Firm: Riverside Abstract, LLC

Policy Number: PRO FORMA

Key QuestionsYes No

1. Is the title vested in an entity or individual other than the proposed borrower?..........................................................................................................

2. Are there any covenants, encumbrances, liens, restrictions, or other exceptions indicated on Schedule B-1? ..........................................................

3. Are there any use or affordability restrictions remaining in effect on the property? .........................................................................................................

4. Are there any easements or rights-of-way listed that are not indicated on the survey? ............................................................................................................

5. Are there any endorsements included aside from the standard HUD requirement? ...................................................................................................

6. Are there any subordination agreements, encroachments or similar issues that require HUD’s approval? .........................................................................

7. Are there any other matters requiring special consideration, agreements, or conditions that require HUD’s attention? .......................................................

8. Are there any easements, rights-of-way, encroachments, etc., identified on Schedules B-1 and B-2 that, in the lenders opinion, affect value or the marketability of the project? ...........................................................................


Environmental **Radon Report will be forwarded upon receipt.

Phase I Site AssessmentDate of Inspection: 9/26/2016Firm: Partner Assessment CorporationConsultant: Samuel Handler

Key QuestionsYes No

1. Does the report recommend a Phase II assessment, other reports, or additional testing? ...........................................................................................

2. Does the report indicate the presence or suspected presence of any asbestos containing materials (ACMs)? ........................................................................

3. Does the report indicate evidence of any soil staining or distressed vegetation, unusual odors, pools of liquid, leaking containers or equipment, hazardous materials, or other unidentified substances? ..................................

4. Does the report indicate evidence of any chemical misuse or unlawful dumping at the site? ........................................................................................

5. Does the report indicate the presence or suspected presence of any underground storage tanks or aboveground storage tanks on the site? ...........

6. Does the report’s review of all major governmental databases for listings of potentially hazardous sites within the ASTM required search distances from the property identify any potential contamination concerns for the property?

7. Do the Phase I or II reports recommend any required repairs? ......................8. Does the vapor encroachment screen amendment to the Phase I identify a

“vapor encroachment condition” (VEC)? (The vapor encroachment screen must be performed using Tier 1 “non-invasive” screening pursuant to ASTM E 2600-10.) ..........................................................................................

9. Was the Phase I conducted more than 180 days before the firm commitment application was submitted? (This report must not be more than 180 days old at the time of submission. ORCF is not able to waive this requirement.) .....

Program Guidance – Above-ground storage tanks (ASTs):

HUD is required to qualitatively evaluate the risks associated with proximity to hazardous facilities. ORCF will consider the potential danger presented by liquid fuel and gas ASTs, even in cases of refinance where the tanks are pre-existing, and may at times require mitigation.

Existing projects with no additions and with no increase in residential density : When ASTs exist on site—containing liquid fuel (over 100 gallons in size) or containing


pressurized gas (stationary tanks of any size)—a conformance letter from the governing Fire Department/District will be required. The letter must specifically address the safety of the storage tanks. In cases where safety letters cannot be obtained for on-site ASTs and where off-site tanks are visible from the site, a calculation of the Acceptable Separation Distance (ASD) must be included in the application. A useful tool for calculating ASDs can be found at http://www.hud.gov/offices/cpd/environment/asdcalculator.cfm.

Projects where new units or beds are being added : When existing or proposed ASTs are located on-site or when offsite tanks are visible from the property, a calculation of the Acceptable Separation Distance must be included in the application.

General OverviewThe Phase I Environmental Site Assessment (ESA) was performed in conformance with the scope and limitations of ASTM Practice E 1527-13. The investigation specifically included a reconnaissance of the subject site and the immediate surrounding area, a review of regulatory agency information, a survey of local geological and topographical maps, a review of aerial photographic studies, survey of water sources, a review of historical information, and a limited visual inspection for suspect asbestos containing materials (ACMs).

Lender CommentsNone.

Other Environmental Concerns

Key QuestionsYes No

1. Is the subject located within a designated coastal barrier resource area? .......2. Are there any known historic preservation issues related to the subject? .......3. Is the subject located within 5 miles of a civil airport or within 15 miles of a

military airfield? ..............................................................................................4. Is the project located within 1,000 feet of major highways or busy roads? ....5. Is the project located within 3,000 feet of a railroad? .....................................6. Are there existing or proposed stationary tanks containing explosive or fire-

prone materials of 100 gallons or larger on the site or nearby the site that are visible from satellite images or site reconnaissance? .....................................

7. Are there any wetlands on the subject site? .................................................... If so, will the project impact or disturb wetland areas or their buffer

zones? ........................................................................................... N/A8. Are any repairs or modifications to the project likely to affect any listed or

proposed endangered or threatened species or critical habitats? ....................


http://www.hud.gov/offices/cpd/environment/asdcalculator.cfm

Yes No9. Is the subject located on a sole source aquifer? ..............................................10. Are there any known landfills within ½-mile of the site? ...............................11. Are any buildings located in the fall zone of any high voltage power

transmission or other towers? .........................................................................12. Do any of the required or proposed repairs change the footprint of the

building(s)? .....................................................................................................13. Does the project include a structure that was built before 1978? ...................

If so, was a comprehensive asbestos survey performed by a qualified asbestos inspector pursuant to the “baseline survey” requirements of ASTM E 2356-10 provided (required for all buildings constructed before 1978)? ........................................................................................... N/A

14. Other than the aforementioned, are there any other environmental issues identified by the Phase I or II reports or lender’s due diligence? ...................

4. Roadways: The Property is situated on Dorrance Avenue, which is the nearest two-lane roadway. A total day-night average sound level (DNL) of 57.4dB was calculated for the subject property. This level is considered “acceptable” according to HUD guidelines and no additional action is required at this time.

5. Railways: A railway is located approximately 2,807 feet to the southwest of the subject property. The rail line is reportedly owned and maintained by the Buffalo and Pittsburgh Railroad. Partner performed DNL calculations for this railway line assuming the following conditions over a given 24-hour period, two freight train operations per day, two diesel engines per operation, 50 railroad cars per operation, a speed limit of 30 mph along this section of track, bolted rails and train horns are required. Based on the assumptions, a total DNL for railway noise was calculated to be 42.3dB. The level is considered “acceptable” according to HUD guidelines and no additional action is required at this time.

State Historic Preservation Office (SHPO) ClearanceSince we are not making changes to the exterior of the building, there is no impact on any historical property.

Key QuestionsYes No

1. Are there any known historic preservation issues related to the subject? .......2. Does the project involve repairs in excess of routine maintenance,

construction, or ground disturbance? ..............................................................3. If the answer to questions 1 or 2 above is “yes,” has the SHPO been

contacted? ........................................................................................... N/A4. Have any other archeological or cultural resource centers been consulted? . .


Flood PlainNFIP Map Panel #: 36029C0333G Date: 9/26/2008

Flood Zone: X

Key QuestionsYes No

1. Does the community participate in the National Flood Insurance Program (NFIP)? (A project located in a FEMA-identified special flood hazard area, where the community has been suspended for or does not participate in the NFIP, is not eligible for mortgage insurance.) ............................................................................................

2. Is the subject located within the 100- or 500-year floodplain?* .....................3. Does the Standard Flood Hazard Determination Form indicate that the

subject is located within the 100- or 500-year floodplain?* ...........................4. Is flood insurance required for this property? .................................................

Project Capital Needs Assessment (PCNA)

Date of Inspection: 9/27/2016Firm: Partner Engineering and Science, Inc.Needs Assessor: Samuel HandlerUnits Inspected: 23 units (29.48% of units)

The scope of the inspection consisted of a visual evaluation of the project site, building exteriors, roof, interior common areas, all mechanical rooms, and a sampling of resident units (as indicated above). The report was prepared in accordance with the Project Capital Needs Assessment Statement of Work.

Following is a summary of the PCNA and underwriting conclusions.

PCNA Repair SummaryPCNA Lender

Critical Repairs $17,645 $17,645Non-Critical Repairs $105,800 $105,800Borrower Proposed Repairs: $1,972,055 $1,972,055

Total Repairs: $2,095,500 $2,095,500


Note: Please note that $588,954 of the borrower proposed repairs are anticipated to be complete prior to closing the HUD loan and has been included as existing debt. The total repairs do not exceed 15% of the appraised value.

Key QuestionsYes No

1. Will the non-critical and/or borrower proposed repairs be escrowed at closing? ............................................................................................... N/Aa. Will the escrowed repairs take more than 12 months to

complete? ....................................................................................... N/Ab. Is the repair escrow to be less than 120% of the repair estimate .. N/A

2. Will replacement reserve funds be used to fund any of the required or proposed repairs? ................................................................................ N/A

3. Do any of the repairs require drawings and/or specifications? .......... N/A4. Do any of the repairs require relocation of the tenants? .................... N/A5. Will any of the repairs create vacancy issues requiring an operating deficit

escrow? ............................................................................................... N/A6. Will any of the repairs require permits or locality approvals? ........... N/A7. Will any of the repairs require a review by the state licensing

authority? ............................................................................................ N/A8. Were any specialty reports (e.g., seismic, wood destroying organisms, etc.)

required? .........................................................................................................9. Has the lender suggested a lower dollar amount or fewer repairs than the

Needs Assessor’s repair conclusions and are they justified? ............. N/A10. Is further description and detail of the repairs needed in terms of

inspectability (location and what the need is)? .................................. N/A11. Are there any non-compliance issues with regard to the Fair Housing

Accessibility Guidelines (FHAG) and Part 504 of the Rehabilitation Act of 1973? ...............................................................................................................

12. Does the proposed underwriting require any increases to the annual replacement reserve deposit over the next 15 years? ......................................

13. Will the facility require repairs to be in compliance with the Department of Health & Human Services, Centers for Medicare & Medicaid Services final rule, entitled “Medicare and Medicaid Programs; Fire Safety Requirements for Long Term Care Facilities, Automatic Sprinkler Systems?” ....................

1.) Repair Escrow : The non-critical and borrower proposed repairs will be escrowed at closing, for further detail see the Repair section below.

Lender ModificationsNone.


Fire/Building Codes and HUD StandardsPartner contacted the City of Buffalo’s Fire Marshal’s Office (716-894-9700), to ascertain if any outstanding fire code violations have occurred in association with the property. The Fire Marshal’s report has been received and can be found in Exhibit #8.6.

Partner contacted the City of Buffalo’s Division of Building Inspections, to ascertain if there were outstanding building code violations associated with the property. Partner did not receive a response prior to submittal of this report.

The facility is equipped with a fully automatic wet-pipe fire sprinkler system. According to the tags on the fire riser, the system meets the requirements of the 1999 edition of the National Fire Protection Association’s (NFPA) “Standard for the Installation of Sprinkler Systems” (NFPA 13).

No deficiencies were identified on the Sprinkler System Inspection, or the Life Safety Survey.

Handicapped AccessibilityPer the needs assessor, the facility is in substantial compliance with the Fair Housing Accessibility Guidelines. The needs assessor calls for restriping three parking spaces, modifying one parking space to be “Van Accessible”, modifying eight door knob handle sets, installing p-traps in four of the resident room bathrooms, the dining room bathroom and both visitor bathrooms and installing wall-mounted grab bars in 45 of the resident room bathrooms, the dining room bathroom and both visitor bathrooms. These have been added as critical repairs.

Program Guidance:

The following is an excerpt from the Project Capital Needs Assessment (PCNA) Statement of Work Lean Section 232/223(f) and 232/223(a)(7); IV. Specific Requirements, B. Inspections, 3. Compliance with other HUD requirements.

Handicapped Accessibility Requirements: The Fair Housing Accessibility Guidelines are applicable for projects with first occupancy after March 13, 1991, and for which building permits were issued or reissued after June 15, 1990, on a building by building basis. Section 504 / Uniform Federal Accessibility Standards (UFAS) is applicable for all housing receiving Federal financial assistance (note: Medicaid and Medicare are not considered Federal financial assistance when determining accessibility compliance), plus all existing HUD Section 232 New Construction, and existing HUD Section 232 Substantial Rehabilitation (but only those elements that underwent alteration), built after 1973. Project marketability and functional obsolescence must always be a consideration, no matter if compliance with the above accessibility standards is required or not.


Seismic EvaluationBased on the review of the Seismic Zone Map of the U.S., Figure 16-2, page 2-37 of the 1994 Uniform Building Code, the subject property is in Zone 1, which is a low risk zone. As such, a Seismic Evaluation report was not requested.

Repairs

Critical RepairsThe needs assessor identified the following critical repair items totaling $17,645

Recommendation (Critical): Restripe three parking spaces, modify one space for “Van Accessibility” and provide a striped crosswalk from the access aisles of the spaces to the adjacent curb cut. Estimated cost: $1,000

Recommendation (Critical): Install appropriate door handles (1.e. lever- or push-type) at the following locations: the beauty salon, the occupational therapy room, the physical therapy room, both dining room patient restrooms, and both visitor restrooms (eight total). Estimated cost: $1,000.

Recommendation (Critical): Install p-trap insulation on the exposed piping at the following locations: resident rooms 44, 48, 49, and 52, both dining room patient restrooms, and both visitor restrooms (eight total). Estimated cost: $520.

Recommendation (Critical): Install reinforced wall-mounted grab bars or fixture mounted support bars at approximately 45 of the resident rooms, both dining room patient restrooms, and both visitor restrooms (approximately 49 total). Estimated cost: $12,250.

Recommendation (Critical): Removal of five trip hazards located in various locations of the building. Cost of grinding the hazards to a level surface and/or removal, repair and replacement of concrete is estimated to be $1,875.

Recommendation (Critical): Partner recommends property management engage a qualified firm to conduct elevator inspections and provide updated elevator inspection reports. Estimated cost: $1,000

Recommendation (Critical): Partner recommends property management provide a current inspection report or engage a qualified contractor to complete an inspection if necessary. Estimated cost: $0.

Non-Critical RepairsThe needs assessor identified the following non-critical repair items totaling $105,800

Recommendation (Non-Critical): Repair of damaged asphalt at the driving lane adjacent to the side and rear elevation of the facility. Estimated cost: $12,000.


Recommendation (Non-Critical): Installation of a concrete pad at the dumpster staging area. Estimated cost $1,800.

Recommendation (Non-Critical): Trim trees that overhang the roof-line of the building. Estimated Cost: $2,000.

Recommendation (Non-Critical): Replacement of four roof-top packaged units. Property management indicated that replacing the roof-top package units will be included in the planned renovation of the facility. Estimated cost: $0.

Recommendation (Non-Critical): Replacement/refurbishment of three split system HVAC units. Property management indicated that replacing the split system components will be included in the planned renovation of the facility. Estimated cost: $0.

Recommendation (Non-Critical): Replacement/refurbishment of the central heating boiler. Property management indicated that replacing the boiler will be included in the planned renovation of the facility. Estimated cost: $0.

Recommendation (Non-Critical): Modernization of the fire sprinkler system. Estimated cost: $40,000.

Recommendation (Non-Critical): Renovation of the elevator cab interiors, including the control panels. Estimated cost: $20,000.

Recommendation (Non-Critical): Refurbishment of the emergency generator. Estimated cost: $25,000.

Recommendation (Non-Critical): Repair of deferred maintenance items which include damaged/deteriorated wood at the landscaped islands in the parking area, damaged concrete curbing, damaged concrete ramps, damaged wood columns located at the main entrance of the facility, a cracked window pane in room 203, a broken window pane in the occupational therapy room, minor step cracking in a CMU wall in the basement level laundry room, stained ceiling tiles throughout the facility, water stained/damaged wall finishes in the “Yellow” common shower/tub room, cracked vinyl composite tile (VCT) at various locations throughout the facility, and missing ceramic tiles at the floor of the “Green” common shower/tub room. Estimated cost: $5,000.

Borrower Proposed RepairsThe borrower identified the following proposed repair items totaling $1,972,055.


Capital Repair Items:- Renovate Boiler/HVAC systems $ 204,540.00- HVAC Systems $ 159,923.00- Interior Renovation (Handrails) $ 37,806.94- Demolition/Renovation of Hallways

and Patient rooms $ 676,138.00- Interior renovation of common areas $ 738,184.65- Furniture Replacement $ 117,147.60- Physical Therapy Equipment Replacement $ 38,314.81

Completion and InspectionThe repair list attached to Exhibit C of the Draft Firm Commitment clearly describes the location of the repairs and what is required. The description is sufficiently detailed so that an experienced person can perform the work and an experienced inspector can inspect with minimal additional direction or consultation.

Replacement Reserves

Replacement Reserve SummaryAmount Per Unit

Initial Deposit $304,800 $3,908Annual Deposit Years: 1-15 $41,400 $531

General OverviewThe replacement reserve analysis includes a combined analysis of both capital items and major movable equipment. The underwriter has reviewed the replacement reserve schedule and provided a summary analysis below. The full 15-year replacement reserve schedule, including the major movable analysis, is provided as Exhibit B to the Draft Firm Commitment submitted with this narrative.

In the analysis below, the underwriter spreads the anticipated replacements by year based on the needs assessor’s replacement reserve analysis and assumes an interest of 2.5% and an inflation rate of 2.5%.


Reserve for Replacement Fund Schedule

Year 0 1 2 3 4 5Interest Earned 2.5% 8,014$ 8,789$ 8,122$ 6,875$ 6,166$ Annual Deposit 41,400$ 41,400$ 41,400$ 41,400$ 41,400$ Initial Deposit 304,800$ Total Deposits 304,800$ 354,214$ 404,403$ 453,925$ 502,200$ 549,766$

Capital Items -$ -$ 73,348$ -$ 8,443$ MME 17,865$ 19,752$ 59,953$ 64,272$ 79,791$ Total Claims 17,865$ 19,752$ 133,301$ 64,272$ 88,234$ Cumulative Claims 17,865$ 37,617$ 170,918$ 235,190$ 323,424$ Balance 304,800$ 336,349$ 366,786$ 283,007$ 267,010$ 226,342$

Year 6 7 8 9 10Interest Earned 5,934$ 6,558$ 5,837$ 5,084$ 5,240$ Annual Deposit 41,400$ 41,400$ 41,400$ 41,400$ 41,400$ Initial DepositTotal Deposits 597,100$ 645,058$ 692,295$ 738,779$ 785,419$

Capital Items -$ -$ 113,146$ -$ 27,248$ MME 25,245$ 20,119$ 19,660$ 21,125$ 32,250$ Total Claims 25,245$ 20,119$ 132,806$ 21,125$ 59,498$ Cumulative Claims 348,669$ 368,788$ 501,594$ 522,719$ 582,217$ Balance 248,431$ 276,270$ 190,701$ 216,060$ 203,202$

Year 11 12 13 14 15Interest Earned 5,270$ 5,699$ 5,758$ 5,146$ 3,445$ Annual Deposit 41,400$ 41,400$ 41,400$ 41,400$ 41,400$ Initial DepositTotal Deposits 832,089$ 879,188$ 926,346$ 972,892$ 1,017,737$

Capital Items 1,828$ 2,798$ 19,024$ 38,808$ 100,841$ MME 29,628$ 25,185$ 42,499$ 42,379$ 45,403$ Total Claims 31,456$ 27,983$ 61,523$ 81,187$ 146,244$ Cumulative Claims 613,673$ 641,656$ 703,179$ 784,366$ 930,610$ Balance 218,416$ 237,532$ 223,167$ 188,526$ 87,127$

As you can see, the year-end balance for each year through year 15 is positive, indicating that the initial and annual deposit are sufficient based on these assumptions. The HUD program requires the lender to re-analyze the capital needs in year 10.


Borrower

Name: Dorrance Ave HC, LLC State of Organization: New YorkDate Formed: October 28, 2013

Termination Date:

The term of the Company commenced on the filing of the Articles of Organization and shall continue until dissolved or terminated in accordance with the terms and conditions of this Agreement. (per page three of the Operating Agreement)

FYE Date: December 31

Key QuestionsYes No

1. Does the borrower currently own any assets other than the subject property or participate in any other businesses? ............................................................

2. According to the application exhibits, is or has the borrower been delinquent on any federal debt? ........................................................................................

3. According to the application exhibits, is or has the borrower been a defendant in any suit or legal action? .............................................................

4. According to the application exhibits, has the borrower ever filed for bankruptcy or made compromised settlements with creditors? ......................

5. According to the application exhibits, are there judgments recorded against the borrower? ..................................................................................................

6. According to the application exhibits, are there any unsatisfied tax liens? ....


Organization

Experience/QualificationsThe borrower entity is a single-asset entity that was established in 2013 to develop and own the subject project.

Credit HistoryReport Date: November 14, 2016

Reporting Firm:LexisNexis Business Assurance Report – Business & Experian

Score:35- Medium Risk, one UCC designated on Business Report

Key QuestionsYes No

1. Does the credit report identify any material derogatory information not previously discussed?........................................................................................

2. Does the underwriter have any concerns related to their review of the credit report? .............................................................................................................

Financial StatementsThe application includes the following borrower financial statements:

Year-to-date: 12/31/2016Fiscal year ending: 12/31/15Fiscal year ending: N/A


Fiscal year ending: N/A

Key QuestionsYes No

1. Are less than 3-years of historical financial data available for the borrower? 2. Are the financial statements missing any required information or schedules? 3. Do the financial statements provided include financial data from assets or

liabilities not related to owning and operating this facility? ...........................4. Do any of the financial statements indicate a loss prior to depreciation and

amortization? ...................................................................................................5. Do the Aging of Accounts Payable schedules show any material accounts

payables (amounts in excess of 5% of effective gross income) over 90 days?6. Do the Aging of Accounts Receivable schedules show any material accounts

receivables (amounts in excess of 2% of gross income) over 120 days? .......7. Are there any issues or discrepancies related to tenant deposit accounts (e.g.,

not fully funded)? (Generally not applicable for SNF.) ..................... N/A8. Did your review and analysis of the financial statements indicate any other

material concerns or weaknesses that need to be addressed? .........................

1. Less than 3 years of financial information: The mortgagor entity was formed on October 23, 2013 and did not purchase the property until November, 2015. Therefore, historical financials are not available prior to this period.

General OverviewThe balance sheet, as of December 31, 2016, shows equity of $3,728,400 on assets of $15,084,295 and liabilities of $11,355,895. However, if the current valuation of $13,970,000 is used for the property, the equity will increase to $9,940,961. The Lender notes that the existing liabilities to owners of $3 million will not survive past HUD closing.

ConclusionThe Mortgagor entity is financially strong. We believe that the Mortgagor has the ability to continue to successfully own this facility based on the experience of the principals. The underwriter recommends this Mortgagor for approval as an acceptable participant in this transaction.

Principal of the Borrower – Richard Platschek


Key QuestionsYes No

1. According to the application exhibits, is or has the principal of the borrower been delinquent on any federal debt? ..............................................................

2. According to the application exhibits, is or has the principal of the borrower been a defendant in any suit or legal action? ..................................................

3. According to the application exhibits, has the principal of the borrower ever filed for bankruptcy or made compromised settlements with creditors? ........

4. According to the application exhibits, are there judgments recorded against the principal of the borrower? .........................................................................

5. According to the application exhibits, are there any unsatisfied tax liens against the principal of the borrower? ............................................................

6. Are any of the principals of the borrower, principals of any other HUD-insured projects or principals of a project(s) applying for HUD insurance within the next 18 months? .............................................................................

2. & 3. Suit or Legal Action and Compromised Settlements: Many years ago, Richard Platschek made a settlement with a credit card company. This settlement no longer shows on his credit report. See statement attached to Principal of the Borrower Certification, Exhibit #4.4.

Experience/QualificationsRichard Platschek’s experience in the health care industry began more than 35 years ago at Aishel Avrohom Nursing Home. He has since been instrumental in the operation of multiple skilled nursing facilities throughout New York State.

He is the founder of Sapphire Care Group, LLC, through which multiple facilities have been brought from states of dire financial status to full profitability, while also raising the level and style of care given to residents.

Mr. Platschek is well qualified to participate in the subject transaction.


Reporting Firm:LexisNexis Business Assurance Report – Business & Merged

Score:734 – low risk, eleven UCC’s designated on Business Report

Program Guidance:

Dunn & Bradstreet (D&B) or other acceptable commercial credit report for business entities


and RCMR “residential” for individuals are required. If not using D&B, an acceptable commercial credit report must include the following:

1. Public filings that includes suits, liens, judgments, bankruptcies, and federal debt.2. UCC filings3. Credit payment history4. Industry standards showing how the facility compares in the areas of financial stress and

payment trends5. A credit payment delinquency risk score over a 12-month period.

Credit reports can be no more than 60 days old at the time of the firm application submission.

Key QuestionsYes No

1. Does the credit report identify any material derogatory information not previously discussed? ......................................................................................


Other Business Concerns/232 Applications

Key QuestionsYes No

1. Does the Principal identify any other business concerns? ..............................a. Do any of the other business concerns have pending judgments; legal

actions or suits; or, bankruptcy claims? ....................................... N/Ab. Do the credit reports on the 10% sampling of the other business concerns

indicate any material derogatory information? ............................ N/A2. Does the Principal identify any other Section 232 or Section 232/223(f)

loans on the Consolidated Certification – Principal of Borrower (form HUD-90014-ORCF) and Attachment 2 thereof? ......................................................

1. Other Business Concerns: Richard Platschek identified 17 other business concerns, as listed on Exhibit #4.4. A credit report sampling was furnished on the one entity bolded below. No derogatory information resulted from the credit report.

1. Safire Rehabilitation of Southtowns2. Safire Rehabilitation of Northtowns 3. Williamsville Suburban, LLC4. South Shore Rehabilitation and Nursing Care 5. Kennedy Pavillion RH I, LLC 6. Sapphire Center for Rehabilitation and Nursing Central Queens7. A&P Payroll Management, LLC


8. Sapphire HC Management, LLC – 17, Medium-High Risk 9. Surface Management, LLC 10. Platshek Family LLC 11. Candor, LLC 12. South Shore Nursing Realty LLC13. 35-15 Parsons Realty, LLC 14. Dorrance Ave HC, LLC 15. Sheridan DR. HC, LLC 16. South Union RD. HC, LLC 17. 3617 BH Parsons Realty, LLC

2. Other Section 232 Loans: Richard Platschek identified five other Section 232 loan applications. They are listed below:

1. Safire Rehabilitation of Northtowns2. Safire Rehabilitation of Southtowns3. Safire Center for Rehabilitation & Nursing of Central Queens4. Elant @ Goshen5. Elant @ Meadowhill

Financial StatementsMortgagor has sufficient financial strength, therefore, review of the principal’s financials are not required.

ConclusionThe underwriter recommends this principal as an acceptable participant in this transaction.

Principal of the Borrower – Solomon Abramczyk

Key QuestionsYes No

1. According to the application exhibits, is or has the principal of the borrower been delinquent on any federal debt? ..............................................................

2. According to the application exhibits, is or has the principal of the borrower been a defendant in any suit or legal action? ..................................................

3. According to the application exhibits, has the principal of the borrower ever filed for bankruptcy or made compromised settlements with creditors? ........

4. According to the application exhibits, are there judgments recorded against the principal of the borrower? .........................................................................

5. According to the application exhibits, are there any unsatisfied tax liens against the principal of the borrower? ............................................................


Yes No6. Are any of the principals of the borrower, principals of any other HUD-

insured projects or principals of a project(s) applying for HUD insurance within the next 18 months? .............................................................................

Experience/QualificationsSolomon Abramczyk began his career in the medical field in 2001. Since then, he bought and operates seven skilled nursing facilities in the New York area. Mr. Abramczyk is a Board of Director for the Greater N.Y. Healthcare Facilities Association. He is well qualified to participate in the subject transaction.


Reporting Firm:LexisNexis Business Assurance Report – Business & Merged

Score: 777 – low risk

Program Guidance:

Dunn & Bradstreet (D&B) or other acceptable commercial credit report for business entities and RCMR “residential” for individuals are required. If not using D&B, an acceptable commercial credit report must include the following:

1. Public filings that includes suits, liens, judgments, bankruptcies, and federal debt.2. UCC filings3. Credit payment history4. Industry standards showing how the facility compares in the areas of financial stress and

payment trends5. A credit payment delinquency risk score over a 12-month period.

Credit reports can be no more than 60 days old at the time of the firm application submission.

Key QuestionsYes No




Other Business Concerns/232 Applications

Key QuestionsYes No

1. Does the Principal identify any other business concerns? ..............................a. Do any of the other business concerns have pending judgments; legal

actions or suits; or, bankruptcy claims? ....................................... N/Ab. Do the credit reports on the 10% sampling of the other business concerns

indicate any material derogatory information? ............................ N/A2. Does the Principal identify any other Section 232 or Section 232/223(f)

loans on the Consolidated Certification – Principal of Borrower (form HUD-90014-ORCF) and Attachment 2 thereof? ......................................................

1. Other Business Concerns: Soloman Abramczyk identified 16 other business concerns, as listed on Exhibit #4.4. A credit report sampling was furnished on the one entity bolded below. No derogatory information resulted from the credit report.

1. Safire Rehabilitation of Southtowns2. Safire Rehabilitation of Northtowns 3. Williamsville Suburban, LLC4. South Shore Rehabilitation and Nursing Care 5. Park Gardens Rehabilitation and Nursing, LLC 6. Dumont Center for Rehabilitation and Nursing Care 7. A&P Payroll Management, LLC 8. Floral Agency, LLC – Unscorable business9. Floral Home Care, LLC 10. TYTY, LLC 11. Mask Management, LLC 12. South Shore Nursing Realty LLC13. Dorrance Ave HC, LLC 14. Sheridan DR. HC, LLC 15. South Union RD. HC, LLC 16. Parks Garden Realty, LLC

2. Other Section 232 Loans: Soloman Abramczyk identified two other Section 232 loan applications. They are listed below:

1. Safire Rehabilitation of Northtowns2. Safire Rehabilitation of Southtowns


Financial StatementsMortgagor has sufficient financial strength, therefore, review of the principal’s financials are not required.

ConclusionThe underwriter recommends this principal as an acceptable participant in this transaction.


Operator

Name: Safire Rehabilitation of Southtowns, LLCState of Organization: New York

Date Formed: December 31, 2014

Termination Date:

The term of the Company commenced on the filing of the Articles of Organization and shall continue until dissolved or terminated in accordance with the terms and conditions of this Agreement. (per page three of the Operating Agreement)

FYE Date: December 31

Key QuestionsYes No

1. Does the operator currently own/operate any assets other than the property or participate in any other businesses? ............................................................

2. Does the operator contract out nursing services other than temporary staffing through an agency and/or contracting for ancillary services (e.g., therapies, pharmaceuticals)? ...........................................................................................

3. According to the application exhibits, is or has the operator been delinquent on any federal debt? ........................................................................................

4. According to the application exhibits, is or has the operator been a defendant in any suit or legal action? ..............................................................................

5. According to the application exhibits, has the operator ever filed for bankruptcy or made compromised settlements with creditors? ......................

6. According to the application exhibits, are there judgments recorded against the operator? ....................................................................................................

7. According to the application exhibits, are there any unsatisfied tax liens? ....


Organization

Experience/QualificationsSafire Rehabilitations of Southtowns, LLC, a New York limited liability company, was formed on December 31, 2014, to operate Safire Rehabilitation of Southtowns, a 120-bed skilled nursing facility located in Buffalo, New York, providing a full range of skilled nursing services to meet the needs of both short-term patients recovering from surgery or acute illness, as well as the needs of long-term residents.


Reporting Firm:LexisNexis Business Assurance Report – Business & Experian

Score:35- Medium Risk, four UCC’s designated on business report


Key QuestionsYes No



Financial StatementsThe application includes the following operator financial statements:

12/31/2016 12/31/2016Fiscal year ending: 12//31/2015Fiscal year ending: N/AFiscal year ending: N/A

Key QuestionsYes No

1. Are less than 3-years of historical financial data available for the operator? .2. Are the financial statements missing any required information or schedules? 3. Do the Aging of Accounts Payable schedules show any material accounts

payables (amounts in excess of 5% of effective gross income) over 90 days?4. Do the Aging of Accounts Receivable schedules show any material accounts

receivables (amounts in excess of 2% of gross income) over 120 days? .......5. Are there any issues or discrepancies related to tenant deposit accounts (e.g.,

not fully funded)? ............................................................................................6. Did your review and analysis of the financial statements indicate any other

material concerns or weaknesses that need to be addressed? .........................7. Do the financial statements indicate a loss prior to depreciation? ..................

1. Less than 3 years of financial information: The operating entity was formed on December 31, 2014. However, the property was not purchased until November 9, 2015

3. AR Schedules over 120 days in excess of 2% of gross income: Medicaid and private AR balances over 120 days are attributed to two factors. First, the AR balance of approximately 2.8 million is outstanding from the prior operator. Second, the high AR balance under the current operator (since November 2015) are primarily in the Medicaid/Private/Nami categories. The operator is aggressively working to collect the balance and expects to collect large private receivables in the near future. In regards to Medicaid, the two main factors causing the lag is 1)


The Medicaid office takes several months to review the applications because they are short staffed 2) getting the families to cooperate in providing the documentation that is required for the Medicaid approval. Since the current operator is fully in control, they are addressing all accounts to ensure that all receivables are collected in a timely manner. The operator continues to try to collect on some old balances from the prior operator.

General OverviewAs of December 31, 2016, the operator has $4,210,947 in total assets and $2,011,370 in total liabilities, yielding total net worth of $2,199,577. The operator shows strong current ratio of 2.05.

Net Income AnalysisNet Income*

In total $20XX 2015 2016 2016

N/A 318,536 $1,212,423 N/A*before depreciation, amortization, and ,any other non-cash expense

Net income for 2015 represents two months under the current operator’s full control.

ConclusionThe performance demonstrates that the operator has the experience to successfully operate this facility. The underwriter recommends this Operator for approval as an acceptable participant in this transaction.

Parent of the Operator (if applicable) - Not applicable

Management Agent (if applicable) - Not applicable

Operation of the Facility

Administrator Name: Colin HartEmployed by: OperatorFacility Start Date: October 2016

Colin Hart has been a licensed administrator since 1987. His current Residential Care Administrator’s license No. 03791 does not expire. It was issued by the State of New York Department of Health. Mr. Hart is well qualified in the healthcare arena and has demonstrated his ability to act as the Administrator for the subject facility.


Subject’s State SurveysThe application includes the following state surveys issued on the following dates over the last three (3) years of operations: (State when the survey was conducted and when the project was found in compliance.)

3 Years of Survey Inspections

Date of survey/inspectionDate state issued letter approving POC

May 19, 2016 October 21, 2016

Key QuestionsYes No

1. Do the state surveys identify any instances of actual harm and/or immediate jeopardy (during last 3 year period)? ..............................................................

2. Are there currently any open findings? ...........................................................

The Survey dated May 19, 2016 indicated numerous deficiencies including a K tag. After two revisits, the facility is in substantial compliance as of October 5, 2016.

StaffingThe appraiser and underwriter have reviewed the current and proposed staffing to be charged to the facility and found it to be acceptable and within reason.

Operating Lease

Date of Agreement:August 22, 2014, Amendment dated November 9, 2015

Current Lease Term Expires:10 years from the date of Commencement: November 9, 2025

Description of Renewals: Not Applicable

Current Lease Payment:$2,417 per month; however, financials book $51,635 per month

Major Movable EquipmentCurrent Ownership: BorrowerPost Closing Ownership: Borrower


Key QuestionsYes No

1. Will the facility be subleased (master lease)? .................................................2. At closing, will the lease have a term that expires within 5 years with no

lease renewal options (see guidance below)? .................................................3. Does the lease contain any non-disturbance provisions? ................................4. Does the lease require the borrower to escrow any funds other than those

associated with this loan? ................................................................................5. Are there proposed changes to the current operating lease? ...........................6. Has the lender recommended any special conditions concerning the lease? ..7. Does the current lease payment need to be increased to provide sufficient

debt coverage for the mortgage payment, MIP, other insurance premiums, taxes, reserves, or impounds? .........................................................................

Program Guidance:

ORCF has recently reviewed several applications that were submitted for review with operator agreements due to expire within 5 years or less. The underwriting criteria used by both ORCF and the lender are based on the current operator. Lenders need to provide HUD with information in their application regarding any changes to the operator that will occur within the next 5 years. This plan of action is needed to ensure that the quality and experience of any potential new operator will be comparable or better than the current operator. For assisted living facilities (ALFs), it is important to re-emphasize that operators need to be experienced and have a proven track record with the operation, marketing, and lease up of ALF facilities. The 5- year lease expiration issue does not apply to lessees that have lease renewal options.

Lease Payment AnalysisThe lease payments must be sufficient to (1) enable the borrower to meet debt service and impound requirements, and (2) enable the operator to properly maintain the project and cover operating expenses. The minimum annual lease payment must be at least 1.05 times the sum of the annual principal, interest, mortgage insurance premium, reserve for replacement deposit, property insurance, and property taxes.


The underwriter has prepared an analysis demonstrating the minimum annual lease payment.

a. Annual principal and interest $756,513b. Annual mortgage insurance premium 68,347c. Annual replacement reserves 66,000d. Annual property insurance 18,000e. Annual real estate taxes 60,000

f. Total debt service and impounds $968,860

h.

Minimum annual lease payment $1,017,303

The minimum lease payment amount is $1,017,303 per year. The current lease amount is in insufficient and will be increased to a minimum of $1,017,303.

ResponsibilitiesThe tenant is responsible for paying for the electricity, steam, telephone, cable, gas, oil, water, sewer and all other services or utilities used on or related to the Leased Premises during the term of the lease. The tenant is also responsible for real estate taxes, building maintenance and repairs, the replacement of equipment and property insurance.

HUD Lease ProvisionsPrior to closing, the lease needs to be modified to include the appropriate HUD requirements as outlined in the HUD Operating Lease Addendum, including, but not limited to:

1. Contain a restriction against assignment or subletting without HUD prior approval.

2. Requires prior written approval by HUD for any modification in bed authority.

3. Requires the lessee to submit financial statements to HUD within 90 days of the close of the facility’s fiscal year.

4. Designates the lessee as having the responsibility to seek and maintain all necessary licenses and provider agreements including Medicaid and Medicare.

5. Requires the lessee to submit a copy of the licenses and provider agreement to HUD.

6. Requires the /lessee ensure that the facility meets state licensure requirements and standards.

Master Lease- Not applicable as the facilities are in New York.

Accounts Receivable (A/R) Financing - Not Applicable


Insurance

Professional Liability Coverage (PLI)

Program Guidance:

The PLI insurance policy must be in the name of the entity that is conducting the day-to-day operations of the subject facility. The PLI policy can be issued to the parent operator as long as each operating entity that is conducting the day-to-day operations of the facility is listed on the policy.

Name of insured: .................. Safire Rehabilitation of Southtowns, LLC Insurance company: .............. NYHIC, Inc.

Rating: ..................................Not rated Rater: ** Please see below

Insurance company is licensed in the United States: ............. Yes NoStatute of limitations: ........... 2.5 yearsCurrent coverage: ................. Per occurrence: $1,000,000

Aggregate: $3,000,000Deductible: $50,000

Policy Basis: ......................... Per occurrence Claims madeCurrent Expiration: ............... May 23, 2017Retroactive Date: .................. July 1, 2007

Policy Premium: ................... $120,138 plus $3,210 taxes per year

** The facility is currently on a PLI Policy that is not rated. The client will move this facility and its sister facility to a PLI Policy with the A rated insurer, Lloyds of London, prior to closing. The policy quote can be found in Section 10 of the Firm Application package.

Key QuestionsYes No

1. Does the insurance policy cover multiple properties? ....................................2. Is less than 6 years of lost history available? ..................................................3. Does the loss history indicate any patterns or significant claims? ..................4. Does the loss history or potential claims certification indicate any uncovered

claims? ............................................................................................................5. Does the loss history or potential claims certification indicate any claims

that would exceed the per occurrence or aggregate coverage limits at the facility? ...........................................................................................................


Yes No6. Has the facility been covered by a “claims made” policy at any time during

the statute of limitations for the State in which the facility is located? ..........7. Is the policy funded on a “cash front” basis? ..................................................8. Is an actuarial study applicable (more than 50 facilities)? (If yes, discuss

study results.) ..................................................................................................9. Are there any professional liability insurance issues that require special

consideration or HQ review per HUD Notice 2004-15? ................................10. For all facilities identified on the insured’s Schedule of Facilities Owned,

Operated or Managed, are there any surveys/reports that have open G-level or higher citations outstanding? (As appropriate, provide a complete analysis of the surveys.) ..................................................................................

11. Are any entities that provide resident care (as discussed in the Provider Agreements and Resident Care Agreements/Rental Agreements) not covered by the PLI policy? ...........................................................................................

Program Guidance:

State licensing surveys of all individual facilities of the operator for the last 3 years, are to be transmitted as part of the application submission. These surveys will be used to determine the quality of care provided by the operator. The operator or its parent must also submit a 6-year loss history of all professional liability claims filed against it for all facilities controlled by the operator or its parent. This loss history should be provided in annual summary form and should:

1. Provide a current inventory of all paid or settled claims.

2. Break out the expected cost of claims in a year-by-year summary. In separate line items, list the amount of the actual and/or anticipated awards, claims expenses, and any funds reserved for estimated claims.

3. List total actual or estimated claims costs for compensatory damages, medical expenses, punitive damages, and legal expenses incurred processing the claim.

4. Identify potential or expected professional liability claims in excess of $35,000 that have been or may be filed for all periods within the statute of limitations for the state where the claim occurred.

5. Include a brief discussion or chart that provides the timeframe for the statutes of limitations for filing claims of negligence, injuries, wrongful death, and/or improper care based on the law in the states where the parent operator’s facilities are located.


6. Include a certification from the parent operator (or operator, if no parent) as to the accuracy of this documentation. The certification must be signed and dated by a senior officer of the parent operator (or operator, if no parent), and include the following statement:

“HUD will prosecute false claims and statements. Convictions may result in criminal and/or civil penalties. (18 U.S.C. 1001, 1010, 1012; 31 U.S.C. 3729, 3802)”

LawsuitsPlease see Exhibit# 10.4 for a complete listing of open and closed lawsuits.

RecommendationNone.

Property InsuranceHazard and Liability insurance will be provided by Affiliated FM. The underwriter has confirmed estimates of the cost and coverage for underwriting and will re-verify this information prior to closing. The insurance coverage will comply with HUD requirements prior to closing.

Fidelity Bond/Employee Dishonesty CoverageThe current insurance policy reflects fidelity (crime) insurance with the limit of $1,606,510 and $25,000 deductible. The HUD requirement for at least two months potential gross income receipts would total $1,628,573. The current level of coverage will be increased to be HUD compliant prior to closing.

Mortgage Determinants

OverviewThe mortgage criteria shown on the form HUD-92264a-ORCF are summarized as follows:

Requested amount: $10,515,000

Amount based on loan-to-value: $11,176,000

Amount based on debt service coverage: $16,239,400

Amount based on cost to refinance: $10,515,000

Amount based on deduction of loans, grants, gifts for mortgageable items: $10,515,000

The proposed mortgage of $10,515,000 is constrained by cost to refinance.


Mortgage TermThe underwriter concluded that the estimated remaining economic life of the project is 40 years based on the analysis of the appraiser. The estimate has been multiplied by 75% to arrive at the maximum mortgage term of 30 years.

Type of FinancingThe type of financing available to the mortgagor upon issuance of the commitment will likely be in the form of mortgage-backed securities.

Amount Based on Required Loan-to-Value(Criterion D of HUD-92264a-ORCF)The $11,176,000 fair market value limit was calculated in accordance with HUD guidelines. Based on 80% of the underwriter’s value of $13,970,000. No deductions for ground leases, grants or loans, excess unusual site improvements, cost containment, or special assessments are applicable to this project.

Amount Based on Required Debt Service Coverage(Criterion E of HUD-92264a-ORCF)The $16,015,200 debt service limit was calculated using HUD’s guidelines. This is based on 80% of the underwriter’s net operating income for debt service purposes of $1,847,184, interest rate of 6.00% and a 30-year term. The proposed mortgage is constrained by cost to refinance, therefore, the underwritten debt service coverage is 2.24x, which is 44.55% of the estimated net operating income for debt service and MIP payments.

Amount Based on the Cost to Refinance(Criterion H of HUD-92264a-ORCF)The costs to refinance associated with the project totals $10,515,000 on the form HUD-92264a-ORCF that is used to calculate the mortgage amount for this criterion. This total includes the following:

Existing indebtedness $8,335,726Repayment of investor debt 0

Estimate of repair cost (critical & non-critical) 1,506,546

Initial deposit to the reserve for replacement 304,800

Prepayment penalty 0

Appraisal (including update) 10,000

Phase I ESA/HUD 4128 5,000

PCNA 5,000

Financing/placement fee 157,725

Lender legal 20,000

Borrower legal 15,000


Title & recording 10,000

HUD inspection fee 3,600

First year MIP 105,150

HUD application fee 31,545

Other fees (GNMA Placement) 5,000

TOTAL HUD-ELIGIBLE COSTS $10,515,092

Amount Based on Deduction of Grants, Loans, Gifts(Criterion L OF HUD-92264a-ORCF)The Criterion 11 limit was calculated in accordance with HUD guidelines as follows:

a. Transaction Cost from Criterion 7 or 10 $10,515,000

b. (1) Grants/loans/gifts 0(2) Tax credits 0(3) Value of leased fee 0(4) Excess unusual land improvement cost 0(5) Unpaid balance of special assessment 0(6) Sum of lines (1) through (5) $0

c. Line a minus line b (6) $10,515,000

The secondary sources are discussed in detail below in the Sources & Uses section of the narrative.

Existing Indebtedness

Schedule of Debt to Refinance

Capital Funding, LLC Pay-off AmountPrincipal $8,764,297Interest $37,613Less: Prepaid Fees & Reserves ($466,184)

Total: $8,335,726


Key QuestionsYes No

1. Are there any debts on the borrower’s balance sheet or recorded against the property, other than the primary mortgage, that will survive closing? ...........

2. Are any of the debts to be paid off less than 2 years old? (Refer to Program Guidance below.) ............................................................................................

3. Does the borrower have any identities of interest with any of the existing lenders or note holders? (Refer to Program Guidance below.) .......................

4. Do any of the debts to be paid off have prepayment penalties or other significant cost associated with them? ............................................................

5. Is any of the existing debt cross-collateralized with other assets (pooled debt or master leased) or financed with a line of credit? (If yes, explain how you allocated the debt between the facilities cross-collateralized.) .......................

6. Are delinquent real estate taxes included as an eligible transaction cost? ......

2. Less Than Two Years Old: This facility and its sister facility (Safire Rehabilitation of Northtowns) were purchased on November 15, 2015, which is when the debt was put into place. The mortgage of $13,881,112 is with Capital Funding LLC, an affiliate of CFG Community Bank. In addition to providing the financing to acquire the properties, the lender has also advanced additional $1,000,000 to fund the owner elected repairs. The total amount of repair cost is below the 15% of the concluded value. Since the entire debt was put in place to acquire the property and to fund the repairs, we believe both are eligible debt.

3. Cross-collateralized Debt: The outstanding debt is cross-collateralized between the two facilities. Both facilities are being submitted to HUD for refinancing. Therefore, the entire debt amount will be paid off by refinancing the facilities being submitted. The debt has been allocated across the two facilities based on the total original debt to combined value. It should be noted that the existing debt used in the mortgage is netted out of the prepaid fees, repair reserves and debt service reserve.

As Is Value 23,720,000$ 13,970,000$ 9,750,000$ Existing Original Debt Distribution 14,881,112$ 8,764,297$ 6,116,815$ Loan To Value 62.74% 62.74% 62.74%

Swap Fees: There are no swap fees


Program Guidance – Eligible Debt on a Refinance:

A. Definition of Eligible Debt. Project debt that meets any of the below definitions may be included as a mortgageable item in calculating the Maximum Insurable Mortgage.

1. Outstanding mortgage(s) . Outstanding mortgage(s) on the property that are at least two years old at the time that HUD begins processing the loan are considered eligible debt. If the mortgage was generated less than two years before the date HUD begins processing the application, the lender must determine that there was no cash out to the mortgagor of the proposed HUD-insured loan or its principals in order for the debt to be considered eligible debt. Debt incurred as a result of an identity-of-interest purchase or as a result of buying out a partner is not considered eligible debt and must meet the two-year debt seasoning requirement. An identity-of-interest purchase is defined as one where there is an identity of interest, however slight, between the seller and purchaser that survives the sale transaction. An owner operator that continues to operate the facility after the sale constitutes an identity of interest.

2. Other recorded indebtedness . Other recorded indebtedness such as mechanic's liens and tax liens, provided they did not result from personal obligations of the mortgagor.

3. Unrecorded debt . Unrecorded debt directly connected with the project that is supported by documentation from the mortgagor. If the indebtedness is not recorded, the mortgagor must provide the lender with documentation that substantially verifies that the obligation is directly connected to the project. Examples include:

a. Indebtedness incurred in making needed improvements and betterments to the property.

b. Indebtedness incurred or advances made to cover operating deficits.

4. Other eligible costs associated with paying off the eligible debt . Examples of other eligible costs associated with paying off the eligible debt are:

a. Reasonable delinquent and accrued interest.b. Reasonable prepayment penalties on the mortgage.c. Recording, release, and re-conveyance fees.d. Documentation or processing fees.

Note: Program penalties arising from the defeasance of tax-exempt and taxable bonds cannot be recognized.

B. Swap Fees : Swap Fees may be included as an eligible mortgageable item when reviewed and approved by HUD in accordance with Mortgagee Letter 2012-08.


C. ORCF does not recognize indebtedness : 1. Recently placed against the project to increase the mortgage or circumvent

program intent.

2. On operating debts of the operating entity.

3. Created by wrap mortgages:

a. Unless the mortgagor and Lender give a detailed explanation of the purpose of the wrap and a documented accounting of disbursement of the loan proceeds.

b. Loan proceeds used for capital improvements or project operations qualify for inclusion as eligible debt.

General OverviewPer the letter from Capital Funding, LLC, dated March 20, 2017, the total outstanding balance is $14,197,057.16. The amount to pay off Southtowns is $8,335,726. The pay-off balance will be reconfirmed prior to closing and only eligible pay-off charges will be included in the cost certification.

Legal and Organizational CostsThe borrower’s legal and organization costs are estimated to total $35,000 ($15,000 for legal, $20,000 for organizational expenses). The underwriter concluded that the budgeted amounts are reasonable.

Title and Recording FeesTitle and recording fees are estimated to cost $10,000. The underwriter concluded that the budgeted amount is reasonable.

Other FeesNone.

HUD FeesThe HUD fees total $140,295 and are comprised of MIP totaling 1.00% of the mortgage amount ($105,150), the HUD application fee totaling 0.3% of the mortgage amount ($31,545), and, the HUD inspection fee ($3,600).


Financing FeesThe financing fees payable to the lender total $182,725. The total is made up of a fee of 1.50% of the mortgage amount ($157,725), plus fixed lender fees totaling $25,000. In total, the fees payable to the lender represent 1.74% of the mortgage amount.

A broker is / is not involved in this transaction.


Sources & Uses – Copied from HUD-92264a-ORCF

SOURCES HUD Insured Loan $10,515,000.00Existing Replacement Reserves to Transfer $0.00Cash/Letter of Credit $297,872.20Interest Rate Premium $0.00Other (Describe) $0.00Other (Describe) $0.00TOTAL $10,812,872.20

USESHUD ELIGIBLE COSTSExisting Indebtedness or Purchase Price $8,335,726.00Prepayment Penalty $0.00Initial Deposit to the Reserve for Replacement $304,800.00Existing Replacement Reserves to Transfer $0.00Estimate of Repair Cost (Critical & Non Critical) $1,506,546.00Appraisal (incl. update) $10,000.00Phase I ESA / HUD 4128 $5,000.00PCNA $5,000.00Financing/Placement Fee $157,725.00 1.50%Lender Legal $20,000.00Borrower Legal $15,000.00Title & Recording $10,000.00HUD Inspection Fee $3,600.00First Year MIP $105,150.00 1.00%HUD Application Fee $31,545.00 0.30%Survey $0.00GNMA Placement Fee $5,000.00Other (Describe) $0.00Other (Describe) $0.00TOTAL HUD ELIGIBLE COSTS $10,515,092.00

NON-ELIGIBLE COSTSInitial Operating Deficit Escrow $0.00Special Escrow - Debt Service Reserve $0.00Repair Completion Assurance Escrow $297,780.20Other (Describe) $0.00Other (Describe) $0.00TOTAL ADDITIONAL COSTS $297,780.20

TOTAL COSTS $10,812,872.20


Secondary SourcesNone.

Program Guidance:

Government Sources1. Secondary financing, grants and tax credits from a federal, state, or local government

agency or instrumentality, may be used to cover up to 100% of the applicable Section of the Act equity requirement.

2. Secondary financing, grants, and tax credits from a federal, state or local government agency or instrumentality, may also be used to finance non-mortgageable costs. Such funds covering non-mortgageable costs, when added to the HUD mortgage and required equity contribution, may exceed 100% of the project’s Fair Market Value (FMV) or Replacement Cost.

3. Subordinated liens against the property that result from secondary loans from a federal, state or local governmental agency or instrumentality to cover non-mortgageable costs and/or equity, in combination with HUD’s primary lien, may exceed 100% of the property’s FMV or Replacement Cost.

4. Non-mortgageable costs or non-HUD replacement cost items, covered by secondary loans, grants and tax credits, must be certified by the source provider to be required to complete the project and that the related costs are reasonable. Documentation to this effect must be included with the application submission.

Private Sources1. Secondary financing in the form of a promissory note is permitted to cover a portion of the

equity requirement under Section 223(f). The aggregate amount of the HUD-insured first loan and the private second loan cannot exceed 92.5% of FMV. Therefore, the amount of a private loan may range from 7.5% of FMV (the difference between 85% and 92.5% of FMV) to a larger percentage if a mortgage criterion is lower than 85% of FMV controls. This rule also applies to Sections of the Act that are pursuant to Section 223(f) (i.e., Section 232 pursuant to Section 223(f)). However, this allowance should not be used to circumvent our existing policies that do not permit equity take-out on Section 232 refinance transactions or on purchase transactions, a way to finance costs that otherwise would not be permitted. For example, seller takebacks on property acquisition costs that are not supportable by market data, should not be approved.

2. When private secondary financing is combined with federal, state or local government agency secondary financing, like in #1 above, the aggregate amount of the HUD-insured first loan and the private second loan cannot exceed 92.5% of FMV. However the governmental loan, in aggregate with the HUD first and private second, may exceed the property’s FMV. The addition of the governmental loan may result in total liens that


exceed the property’s FMV.

3. Private secondary financing may be used to cover non-mortgageable costs in combination with equity or solely for one purpose or the other. Whatever option is decided upon, as stated under #1 above, the aggregate of the HUD first and private second cannot exceed 92.5% of FMV.

4. Non-mortgageable costs or non-HUD replacement cost items, covered by secondary financing from private sources, must be certified to be reasonable and required to complete the project by the provider of sources in documentation included with the application submission.

Surviving DebtNone.

Other UsesNone.

Circumstances that May Require Additional Information

In addition to the information required in this narrative, depending upon the facility for which mortgage insurance is to be provided, the mortgagor, operator, management agent and such other parties involved in the operation of the facility, current economic conditions, or other factors or conditions as identified by HUD, HUD may require additional information from the lender to accurately determine the strengths and weaknesses of the transaction. If additional information is required, the questions will be included in an appendix that accompanies the narrative.

Special Commitment Conditions1. This facility will be placed on a PLI policy with the A rated insurer, Lloyds of London, prior

to closing.

2. Fidelity Bond coverage will be increased to be HUD compliant prior to closing.

Conclusion Based on the overall appeal and above data, Capital Funding, LLC, enthusiastically recommends this project for mortgage insurance.


Signatures

Lender hereby certifies that the statements and representations of fact contained in this instrument and all documents submitted and executed by lender in connection with this transaction are, to the best of lender’s knowledge, true, accurate, and complete. This instrument has been made, presented, and delivered for the purpose of influencing an official action of HUD in insuring the loan and may be relied upon by HUD as a true statement of the facts contained therein.

Lender: Capital Funding, LLCHUD Mortgagee/Lender No.: 2998600008

This report was prepared, reviewed and site inspected by:

Date This report was reviewed by: Date

Pushpa [email protected]

Deborah [email protected]


Documents

Executive Summary - Web viewIf the lender’s underwriter disagrees and modifies any third-party report ... The Lender Loan Committee consisted of ... the project must have attained