2022-08515. Notice of Solicitation of Applications for Section 514 Off-Farm Labor Housing Loans and Section 516 Off-Farm Labor Housing Grants for New Construction for Fiscal Year 2022

AGENCY:

Rural Housing Service, United States Department of Agriculture.

ACTION:

Notice and updates to a previous notice.

SUMMARY:

The Rural Housing Service (RHS) (Agency), a Rural Development (RD) agency of the United States Department of Agriculture (USDA), published a notice of solicitation of applications (NOSA) in the Federal Register on February 2, 2021, entitled “Notice of Solicitation of Applications for Section 514 Off-Farm Labor Housing Loans and Section 516 Off-Farm Labor Housing Grants for New Construction for Fiscal Year 2021.” The Notice described the methods used to distribute funds, the pre-application and final application processes, and submission requirements. On August 3, 2021, the Agency published a subsequent notice to announce the second round of solicitation of competitive pre-applications and corrected inadvertent errors in the NOSA published on February 2, 2021, in the Federal Register . The purpose of this Notice is to announce the third round of solicitation of applications and to make updates to the initial notice.

DATES:

Eligible pre-applications submitted to the Production and Preservation Division, Processing and Report Review Branch in response to this Notice, will be accepted until July 15, 2022, 12:00 p.m., Eastern Standard Time. See the SUPPLEMENTARY INFORMATION section of the NOSA published in the Federal Register on February 2, 2021, at 86 FR 7840, entitled “Notice of Solicitation of Applications for Section 514 Off-Farm Labor Housing Loans and Section 516 Off-Farm Labor Housing Grants for New Construction for Fiscal Year 2021” for additional information.

ADDRESSES:

This funding announcement will be available on Grants.gov . Applications submitted in response to this Notice must be submitted electronically to the Production and Preservation Division, Processing and Report Review Branch. Specific instructions on how to submit applications electronically are provided under the SUPPLEMENTARY INFORMATION section of the NOSA published in the Federal Register on February 2, 2021, FR citation 86 FR 7840, entitled “Notice of Solicitation of Applications for Section 514 Off-Farm Labor Housing Loans and Section 516 Off-Farm Labor Housing Grants for New Construction for Fiscal Year 2021” for additional information.

FOR FURTHER INFORMATION CONTACT:

Abby Boggs, Branch Chief, Program Support Branch, Production and Preservation Division, Multifamily Housing Programs, Rural Development, United States Department of Agriculture, via email: [e-mail] or phone at: [phone].

SUPPLEMENTARY INFORMATION:

The amount of program dollars available will be determined by yearly appropriations. Available loan and grant funding amounts can be found at the following link: https://www.rd.usda.gov/​programs-services/​multifamily-housing-programs/​farm-labor-housing-direct-loans-grants. Expenses incurred in developing preapplications and final applications will be at the applicant's sole risk.

Rural Development: Key Priorities

The Agency encourages applicants to consider projects that will advance the following key priorities:

• Assisting Rural communities recover economically from the impacts of the COVID-19 pandemic, particularly disadvantaged communities;
• Ensuring all rural residents have equitable access to RD programs and benefits from RD funded projects; and
• Reducing climate pollution and increasing resilience to the impacts of climate change through economic support to rural communities.

For further information, visit https://www.rd.usda.gov/​priority-points.

Authority

This solicitation of applications is authorized under 7 CFR 3560 and Section 516 of the Housing Act of 1949, 42 U.S.C. 14867.

Background

As required by 7 CFR 3560.556, RHS is required to publish in the Federal Register , an annual NOSA for each round of the Section 514 Off-Farm Labor Housing Loans and Section 516 Off-Farm Labor Housing Grants for New Construction program. The first notice was published on February 2, 2021 in the Federal Register , at 86 FR 7840. The Notice announced the initial opening round and described the method used to distribute funds, the pre-application and final application process, and submission requirements.

A second notice published on August 3, 2021 in the Federal Register , at 86 FR 41811. That notice announced the second round of solicitation for competitive pre-applications and corrected inadvertent errors published in the initial notice.

There are three rounds of pre-application submissions and selections for this program until July 15, 2022. For details, applicants should refer to the full funding announcement notice published on February 2, 2021, in the Federal Register at 86 FR 7840. This notice announces the third round that opens May 16, 2022. The available loan and grant funding will be posted to the RHS website by April 21, 2022. Pre-applications must be submitted by July 15, 2022, 12:00 p.m., Eastern Standard Time. RHS will notify applicants by September 1, 2022. Final applications must be submitted by November 1, 2022, 12:00 p.m., Eastern Standard Time.

Updates

The following information are updates to the Notice published on February 2, 2021 in the Federal Register .

( 1 ). In the Federal Register of February 2, 2021, in FR Doc. 2021-02193, on page 7840, in the third column, update the “Third Round” list to read:

Third Round

1. Available loan and grant funding posted to the RHS website by April 21, 2022.

2. Pre-applications will be accepted on May 16, 2022.

3. Pre-applications must be submitted by July 15, 2022, 12:00 p.m., Eastern Standard Time.

4. RHS notification to applicants by September 1, 2022.

5. Final applications must be submitted by November 1, 2022, 12:00 p.m., local time.

( 2 ). On page 7841, in the second column in the second paragraph, revise paragraph to read:

All award commitments will be valid for a period of twelve months. Applicants dependent upon third-party funding, including but not limited to local-, state-, and federal resources through competitive and non-competitive application rounds, must obtain a satisfactory commitment of those funds, as determined by the Agency, within the twelve-month time frame. An extension of the award commitment of up to three months may be given, at the sole discretion of the Agency, and will be based on project viability, current program demand, and availability of program funds. Applicants unable to satisfy this condition of the award commitment will be subject to having the award rescinded and will be required to reapply in future rounds.

( 3 ). On page 7841, in the third column in the second paragraph, revise paragraph to read:

In order to enhance customer service and the transparency of this program, RHS will publish a list of awardees, the loan and/or grant amounts of their respective awards and the final score as computed by RHS in accordance with the dates listed in this Notice. This will be done for each funding round. This information can be found at: https://www.rd.usda.gov/​programs-services/​multifamily-housing-programs/​farm-labor-housing-direct-loans-grants. RHS reserves the right to post all information submitted as part of the pre-application and final application package, which is not protected under the Privacy Act, on a public website with free and open access to any member of the public.

Requests for Additional Funds To Address Funding Gaps/Cost Overruns in Previously-Awarded FLH Transactions

There are three categories of previously-awarded FLH transactions that may need additional FLH funds to complete a project awarded under a previous FLH New Construction NOSA. The following provides eligibility criteria under this NOSA and other guidance for properties in each of the three categories:

Category 1: Properties that have (a) received a FLH award under a previous NOSA and (b) have not yet closed on their initial award, are eligible to apply under this NOSA if the funds requested, when combined with the initial award under the original NOSA for which the project was initially funded, exceeds the per-project award cap under that NOSA. Owners applying under this category will need to successfully demonstrate financial viability of the transaction and only need to apply for the additional FLH funds needed to complete the transaction.

Category 2: Properties that have (a) received a FLH award under a previous NOSA and (b) have not yet closed on their initial award may request an amendment to their initial funding award outside of this NOSA, if the funds needed, when combined with the initial award under the original NOSA for which the project was initially funded, does not exceed the per-project award cap under that NOSA. Owners seeking amendments to initial awards will need to successfully demonstrate financial viability of the transaction and are eligible to apply for this amendment outside of this NOSA, as it is considered an amendment to the current award. Amendments to awards are subject to available funding. Owners with transactions in this category may contact Rural Development's Office of Multifamily Housing's Production & Preservation Division for additional guidance.

Category 3: Properties that have (a) received a FLH award under a previous NOSA and (b) have closed on their financing are considered eligible for subsequent loans under § 3560.73, which may be applied for outside of this NOSA, on a rolling basis, subject to available funding. Owners with transactions in this category may contact Rural Development's Office of Multifamily Housing's Production & Preservation Division for additional guidance.

( 4 ). On page 7843, at the bottom of the second column, correct section (b) to read:

(b) RHS will host a workshop on May 11, 2022 to discuss the application process, the borrower's responsibilities under the Off-FLH program, among other topics. Participants should pre-register for the session using the following link: https://attendee.gotowebinar.com/​register/​2244949179096454669.

( 5 ). On page 7851, in the first column, revise paragraph (19) to read as follows:

(19) An acceptable Post Construction Capital Needs Assessment (CNA) in accordance with 7 CFR 3560.103(c) and the addendum at the end of this NOSA. The CNA will be used to underwrite the proposal to determine financial feasibility. The CNA must be approved by the Agency prior to the Agency underwriting the transaction. A CNA is comprised of nine main sections:

• Definitions;
• Contract Addendum;
• Requirements and Statement of Work (SOW) for a CNA;
• The CNA Review Process;
• Guidance for the Multi-Family Housing (MFH) CNA Recipient Regarding Contracting for a CNA;
• Revising an Accepted CNA During Underwriting;
• Updating a CNA;
• Incorporating a Property's Rehabilitation into a CNA; and
• Repair and Replacement Schedule.

Additionally, there are seven attachments which accompany the CNA addendum identified as follows:

• Attachment A, ADDENDUM TO THE CAPITAL NEEDS ASSESSMENT CONTRACT
• Attachment B, CAPITAL NEEDS ASSESSMENT STATEMENT OF WORK
• Attachment C, FANNIE MAE PHYSICAL NEEDS ASSESSMENT GUIDANCE TO THE PROPERTY EVALUATOR
• Attachment D, CNA e-Tool Estimated Useful Life Table
• Attachment E, CAPITAL NEEDS ASSESSMENT REPORT
• Attachment F, SAMPLE CAPITAL NEEDS ASSESSMENT REVIEW REPORT
• Attachment G, CAPITAL NEEDS ASSESSEMENT GUIDANCE TO THE REVIEWER

The CNA Addendum can be found at www.rd.usda.gov/​programs-services/​multi-family-housing-direct-loans.

( 6 ). On page 7852, in the first column, add paragraph (31) to read as follows:

(31) Current (not older than six months from the date of issuance) combination comprehensive credit reports for the applicant, entity and principals must be submitted and considered during the Agency's review for eligibility determination. In the past, the Agency has required the applicant to submit the credit report fee . In lieu of the applicant submitting the fee, the Agency will require the applicant to provide the credit report. It is the Agency's expectation that this change will create an efficiency in the application process that did not exist, which should assist with streamlining the application process for the applicant. Only Credit reports provided by accredited major credit bureaus will be accepted.

Addendum: Capital Needs Assessment Process

A Capital Needs Assessment (CNA) provides a repair schedule for the property in its present condition, indicating repairs and replacements necessary for a property to function properly and efficiently over a span of 20 years.

The purpose of this Addendum is to provide clarification and guidance on the Rural Development CNA process. The document includes general instructions used in completing CNA reports, specific instructions on how to use the expected useful life tables, and a set of applicable forms including the Terms of Reference form; Systems and Conditions forms; and Evaluator's Summary forms.

1. Definitions

The following definitions are provided to clarify terms used in conjunction with the CNA process:

CNA Recipient: This will be who enters into the contract with the CNA Provider. The Recipient can be either the property owner or applicant/transferee.

“As-Is” CNA: This type of CNA is prepared for an existing MFH property and reports the physical condition including all Section 504 Accessibility and Health and Safety items of the property based on that moment in time. This CNA can be useful for many program purposes other than the MPR Demonstration program such as: An ownership transfer, determining whether to offer pre-payment aversion incentive and evaluating or resizing the reserve account. The “as-is” report will include all major repairs and likely some minor repairs that are typically associated with the major work: Each major component, system, equipment item, etc. inside and outside; building(s); property; access and amenities in their present condition. A schedule of those items showing the anticipated repair or replacement timeframe and the associated hard costs for the ensuing 20-year term of the CNA serves as the basis or starting point in evaluating the underwriting that will be necessary to determine the feasibility and future viability of the property to continue serving the needs of eligible tenants.

“Post Rehabilitation” CNA: This type of CNA builds on the findings of the accepted “as-is” CNA and is typically prepared for a project that will be funded for major rehabilitation. The Post Rehabilitation CNA is adjusted to reflect the work intended to be performed during the rehabilitation. The assessment must be developed from the rehabilitation project plans and any construction contract documents to reflect the full extent of the planned rehabilitation.

Life Cycle Cost Analysis (LCCA): A LCCA is an expanded version of a CNA and is defined at 7 CFR Section 3560.11. The LCCA will determine the initial purchase cost, the operation and maintenance cost, the “estimated useful life,” and the replacement cost of an item selected for the project. The LCCA provides the borrower with the information on repair or replacement costs and timeframes over a 20-year period. It also provides information that will assist with a more informed component selection and can provide the borrower with a more complete financial plan based on the predictive maintenance needs associated with those components. If the newly constructed project has already been completed without any previous LCCA requirements, either an “as-is” CNA or LCCA can be provided to establish program mandated reserve deposits. An Architect or Engineer is the best qualified person(s) to prepare this report.

Consolidation: In some circumstances, RD may permit two or more properties to be consolidated as defined in 7 CFR 3560, § 3560.410 when it is in the best interests of the Government. The CNA Recipient must consult with the RD loan official before engaging the CNA Provider in any case where the CNA intends to encompass more than a single (one) existing RD property to determine if a consolidated CNA may be acceptable for RD underwriting.

2. Contract Addendum

RD uses a Contract Addendum to supplement the basic CNA Agreement or “Contract”, between the CNA Recipient and CNA Provider, with additional details and conditions. It can be found in Attachment A, Addendum to Capital Needs Assessment Contract and must accompany all contracts executed between the CNA Recipient and CNA Provider for CNAs used in RD transactions. If any conflicts arise between the “Contract” and “Contract Addendum”, the “Contract Addendum” will supersede.

The Contract Addendum identifies the responsibilities and requirements for both the CNA Recipient and the CNA Provider. To assure proper completion of the contract documents the following key provisions must be completed:

a. The Contract Addendum will include the contract base amount for the CNA Provider's cost for services on page A-2, and provisions for additional services to establish the total price for the CNA.

b. Item I e, will require an itemized listing for any additional anticipated services and their unit costs including future updates and revisions that may be required before the CNA is accepted by RD. Note: Any cost for updating a CNA must be included, in the “additional services” subpart, of the original CNA Contract.

c. The selection criteria boxes in II a, will identify the type of CNA being provided.

d. In III a, the required language for the blank on “report format” is: “ USDA RD CNA Template, current RD version, in Microsoft Excel format”. This format will import directly into the RD underwriting template for loan underwriting purposes.

3. Requirements and Statement of Work (SOW) for a CNA

Minimum requirements for a CNA acceptable to RD can be found in Attachment B, Capital Needs Assessment Statement of Work. This is supplemented by Attachment C, Fannie Mae Physical Needs Assessment Guidance to the Property Evaluator. To resolve any inconsistency in the two documents, Attachment B, the CNA SOW, will in all cases prevail over Attachment C, Fannie Mae Physical Needs Assessment Guidance to the Property Evaluator. (For example, on page C-2 of Attachment C, Fannie Mae defines the “term” as “term of the mortgage and two years beyond”. For USDA, the “term” will be 20 years, as defined in the CNA SOW.)

Attachment B includes the required qualifications for the CNA Provider, the required SOW for a CNA assignment, and general distribution and review instructions to the CNA Provider. The CNA Providers must be able to report the current physical condition of the property and not base their findings on the financial condition of either the property or the CNA Recipient.

Attachment C is a three-part document RD has permission to use as reference to the CNA process throughout the RD MFH program efforts. The three key components of this Attachment are: (1) Guidance to the property evaluator; (2) expected useful life tables; and (3) a set of forms.

An acceptable CNA must appropriately address within the report and narrative all Accessibility Laws and Requirements that apply to Section 515 and Sections 514/516 MFH properties. The CNA Provider must assess how the property meets the requirements of accessibility to persons with disabilities in accordance the Uniform Federal Accessibility Standards (UFAS) and Section 504 Accessibility Requirements. It is the responsibility of the Provider to inspect and verify whether all accessibility features are compliant.

4. The CNA Review Process

A CNA used by RD will be reviewed by the designated RD CNA Reviewer with experience in construction, rehabilitation, and repair of MFH properties, especially as it relates to repair and replacement.

A CNA report must be obtained by the CNA Recipient from an independent third-party CNA Provider that has no identity of interest with the property owner, management agent, applicant/transferee or any other principle or affiliate defined in 7 CFR part 3560, § 3560.11. The CNA Recipient will contract with the CNA Provider and is therefore the client of the provider. However, the CNA Recipient must consult with RD, before contracting with a CNA Provider to review Guidance Regarding Contracting for a CNA. The RD CNA Reviewer will evaluate a proposed agreement or engagement letter between the CNA Recipient and the CNA Provider using Attachment G, Capital Needs Assessment Guidance to the Reviewer, prior to reviewing any CNA report. Unacceptable CNA proposals, contracts or reports will be returned to the CNA Recipient for appropriate corrections before they will be used for any underwriting determinations.

The CNA Reviewer will also review the cost of the CNA contract. The proposed fee for the CNA must be approved as an eligible housing project expense under 7 CFR 3560.103(c) for the agreement to be acceptable and paid using project funds. In most cases, the CNA service contract amount has not exceeded $3,500 based on the Agency's most recent cost analysis.

Borrowers and applicants are encouraged to obtain multiple bids in all cases. However, there is no Agency requirement to select the “low bidder” under this UL and the CNA Recipient may select a CNA Provider that will provide the best value, based on qualifications, as well as price after reviewing references and past work.

If the CNA is funded by the property's reserve account, a minimum of two bids is required if the CNA service contract amount is estimated to exceed $5,000 as specified in HB-2-3560, Chapter 4, Paragraph 4.17 B. If the CNA contract under this UL is funded by another source, or will be under $5,000, a single bid is acceptable.

If the proposed agreement is acceptable, the reviewer will advise the appropriate RD servicing official, who will in turn inform the CNA Recipient. If the proposed agreement is unacceptable, the reviewer will notify the servicing official, who will notify the CNA Recipient and the CNA Provider in writing and identify actions necessary to make the proposed CNA agreement acceptable to RD. Upon receipt of a satisfactory agreement, the RD CNA Reviewer should advise the appropriate RD servicing official or underwriting official to accept the proposal.

The CNA Reviewer will review the preliminary CNA report submitted to RD by the CNA Provider using Attachment D and write the preliminary CNA review report. During the CNA review process, the CNA Reviewer and underwriter will consult with the servicing field office most familiar with the property for their input and knowledge of the property. Any differences of opinion that exist regarding the findings must be mutually addressed by RD staff. If corrections are needed, the loan official will notify the CNA Recipient, in writing, of any revisions necessary to make the CNA report acceptable to RD. The CNA Reviewer will review the final CNA report and deliver it to the loan official. The final report must be signed by both the CNA Reviewer and the loan official (underwriter). Upon signature by both, this report becomes the “accepted” CNA indicating the actual condition of the property at the time of the CNA inspection—a “snapshot” in time—and will be marked “Current Property Condition” for indefinite retention in the borrower case file.

A CNA Provider should be fully aware of the intended use for the CNA because it can impact the calculations necessary to perform adequate accessibility assessments and can impact the acceptability of the report by RD. Unacceptable reports will not be used for any RD underwriting purposes even though they may otherwise be acceptable to the CNA Recipient or another third-party lender or participant in the transaction being proposed.

5. Guidance Regarding Contracting for a CNA

CNA Recipients are responsible for choosing the CNA Provider they wish to contract with, and for delivering an acceptable CNA to Rural Development. RD in no way guarantees the performance any Provider nor the acceptability of the Provider's work.

CNA Recipients are advised to request an information package from several CNA Providers and to evaluate the information before selecting a provider. At a minimum, the information package should include a list of qualifications, a list of references, a client list, and a sample CNA report. However, the CNA Recipient may request any additional information they feel necessary to evaluate potential candidates and select a suitable provider for this service. Consideration for the type of CNA required should be part of the CNA Recipient's selection criteria and inserted into the contract language as well. The necessary skill set to perform the “as-is” versus the Post Rehabilitation CNA or a LCCA needs to be considered carefully. Knowledge of the accessibility laws and standards and the ability to read and understand plans and specifications should also be among the critical skill elements to consider.

Attachment A, Contract Addendum must be submitted to RD with the contract and signed by the CNA Recipient and CNA Provider. The proposed agreement with the CNA Recipient and CNA Provider must meet RD's qualification requirements for both the provider and the CNA SOW, as specified in Attachment B, Capital Needs Assessment Statement of Work. RD must review the proposed agreement between the CNA Recipient and the CNA Provider, and concur only if all of the RD requirements and conditions are met. (See the previous Section 3 of this UL, The CNA Review Process. )

Please note: It is in the CNA Recipient's best interest to furnish the CNA Provider with the most current and up-to-date property information for a more comprehensive and thorough CNA report. RD recommends that the CNA Recipient conduct a pre-inspection meeting with the Owner, Property Manager, maintenance persons familiar with the property, CNA Provider, and Agency Representatives at the site. This meeting will allow a forum to discuss specific details about the property that may not be readily apparent to all parties involved during the review process, as well as making some physical observations on-site. Certain issues that may not be evident to the CNA Provider due to weather conditions at the time of review should also be discussed and included in the report. Additionally, other issues that may need to be addressed include environmental hazards, structural defects, and complex accessibility issues. It is imperative that the Agency be fully aware of the current physical condition of the property at the time the CNA is prepared. An Agency representative must make every effort to attend the CNA Providers on-site inspection of the property unless the Agency has performed a physical inspection of the property within the previous 12 months.

This pre-inspection meeting also allows the CNA Provider to discuss with the CNA Recipient total number of units to be inspected, as well as identifying any specific units that will be inspected in detail. The minimum number of inspected units required by the Agency for an acceptable CNA is 50 percent. However, inspecting a larger number of units generally provides more accurate information to identify the specific line items to be addressed over the “term” being covered by the CNA report. CNA Recipients are encouraged to negotiate with the CNA Provider to achieve inspection of all units whenever possible. The ultimate goal for the CNA Recipient and CNA Provider, as well as the Agency, is to produce the most accurate “baseline or snapshot” of current physical property conditions for use as a tool in projecting future reserve account needs.

6. Revising an Accepted CNA During Underwriting (Applies to RD Actions)

During transaction underwriting and analysis, presentation of the information contained in the “accepted” CNA may need to be revised by RD to address financing and other programmatic issues. The loan underwriter and the CNA Reviewer will work together to determine if revisions are necessary to meet the financial and physical needs of the property, and established RD underwriting or servicing standards and principals. These may involve shifting individual repair line items reported in the CNA, moving work from year to year, or other adjustments that will improve cash flow. The revised underwriting CNA will be used to establish reserve funding schedules as well as operating budget preparation and analysis and will be maintained by RD as supporting documentation for the loan underwriting.

The initial CNA, prepared by the CNA Provider, will be maintained as an independent third- party record of the current condition of the property at the beginning of the 20-year cycle.

Original CNAs will be maintained in the case file, clearly marked as either “Current Property Condition” (“As-is”), “Post Rehabilitation Condition”, or “Revised Underwriting/Replacement Schedule”, as applicable. Note: The CNA Provider is not the appropriate party to “revise” a CNA which has already been approved by the CNA Recipient and concurred with by the Agency. The CNA Provider's independent opinion was the basis of the “As is” or “Post Rehabilitation” CNA. The CNA developed for underwriting may only be revised by RD staff during the underwriting process or as part of a post-closing servicing action.

7. Updating a CNA (Applies to “As-is” and “Post-Rehabilitation” That Have Not Been Accepted by RD)

A completed CNA more than a year old at the time of the RD CNA review and approval must be “updated' prior to RD approval. Likewise, if at the time of underwriting the CNA is more than a year old (but less than two years old), it must be updated before the transaction can be approved.

To update a CNA, the CNA Provider must review property changes (repairs, improvements, or failures) that have occurred since the date of the original CNA site visit with the CNA Recipient, review costs and quantities, and submit an updated CNA for approval. However, if the site visit for the CNA occurred more than two years prior to the loan underwriting, the CNA Provider should perform a new site visit to verify the current project condition.

Once the CNA has been updated, the CNA Provider will include a statement noting “This is an updated CNA of the earlier CNA dated ___,” at the beginning of the CNA's Narrative section. The CNA Provider should reprint the CNA with a new date for the updated CNA, and provide a new electronic copy to the CNA Recipient and RD.

If the CNA age exceeds 2 years at the time of the RD CNA review and approval, the CNA Provider will need to repeat the site visit process to re-evaluate the condition of the property. The original report can remain the basis of the findings.

8. Incorporating a Property's Rehabilitation Into a CNA

A CNA provides a repair schedule for the property in its present condition, indicating repairs and replacements necessary for a property to function properly and efficiently over a span of 20 years. It is not an estimate of existing rehabilitation needs, or an estimate of rehabilitation costs. If any rehabilitation of a MFH development is planned as part of the proposed transaction, a rehabilitation repair list (also called a “Scope of Work”) must be developed independently based on the CNA repair schedule. This rehabilitation repair list may be developed by the CNA Recipient, a project Architect, or an outside party (such as the CNA Provider, when qualified) hired by the CNA Recipient.

The CNA Recipient must not use repair line-item costs taken from the CNA to develop the rehabilitation cost estimates for the rehabilitation loan, as these costs will not be accurate. The repair costs in a CNA are based on estimated costs for the property. Typically, these costs include the labor, materials, overhead and profit, but do not include applicable “soft costs”. For example, for CNA purposes, the probable cost is to send a repairman out, remove an appliance, and put a new one in its place. For rehabilitation cost estimates, the CNA Recipient typically intends to hire a general contractor to oversee and supervise the rehabilitation work, which is then considered a “soft cost”. The cost of rehabilitation includes the costs for that general contractor, the general contractor's requirements, the cost of a project Architect (if one is used), tenant relocation (if needed), and interim financing (if used), which are considered “soft costs” attributed to the rehabilitation costs for the project.

If a “Post Rehabilitation” CNA is required and authorized by RD, a copy of the rehabilitation repair list or SOW must be provided to the CNA Provider. The CNA Provider will prepare a “Post Rehabilitation” CNA indicating what repairs are planned for the property in the coming 20 years based on conditions after the rehabilitation is completed. Items to be replaced during rehabilitation that will need to be replaced again within the 20 years, such as appliances, will be included in the “Post Rehabilitation” CNA. Items that will not need replacement during the coming 20 years, such as a new roof, will not need to be calculated in the “Post Rehabilitation” CNA. The line item should not be removed from the CNA, but the cost data should be zeroed out. Appropriate comments should be included in the CNA report to acknowledge the SOW or rehabilitation/repairs that were considered.

9. Repair and Replacement Schedule

A CNA is not a formal repair and replacement schedule and cannot be used as an exact replacement schedule. A CNA is an estimate of the anticipated replacement needs for the property over time, and the associated replacement costs. The goal of a CNA is to estimate the replacement times based on the Expected Useful Life (EUL) to assure funds are available to replace equipment as it is needed. Hopefully, materials will be well maintained and last longer than estimated in the CNA. However, the CNA cannot be used to mandate replacement times for the identified building components. The RD underwriter may find it necessary to adjust the proposed replacement schedule during the course of the underwriting to allow for an adequate Annual Deposit to Replacement Reserves (ADRR) payment that will sustain the property over a 20-year period and keep rents below the maximum rents that are allowed.

Joaquin Altoro,

Administrator, Rural Housing Service.