20768_CMF_Property_Inspection_Reference_Guide(0)(1).pdf

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ONE VOICE. ONE VISION. ONE RESOURCE.

BY PROPERTY INSPECTION REVIEW AND REVISION WORKING GROUP

COMMERCIAL REAL ESTATE/MULTIFAMILY FINANCE

BOARD OF GOVERNORS SERVICER COUNCIL

20768

REFERENCE GUIDE

Commercial and Multifamily Property Inspection Reports

© Copyright 2019 Mortgage Bankers Association, Washington, DC. All rights reserved.

No right of reproduction without the prior written consent of Mortgage Bankers Association. The Reference

Guide is provided for educational purposes only with the understanding that the publisher is not engaged in rendering legal, medical, insurance or other professional services through its distribution. This Guide is not intended to substitute for professional advice. If legal advice or other expert assistance is required, the services of a competent professional should be sought.

Reference Guide for Commercial and Multifamily Property Inspection Reports

By Property Inspection Review and Revision Working Group Commercial Real Estate/Multifamily Finance Board of Governors Servicer Council

Preface

Property inspections are a critical component of the proactive asset management of the Subject Property. The inspection is an opportunity to gain firsthand information regarding the current physical condition and operations of the collateral property; identify future improvements; and identify trends and potential risks that may negatively impact the ongoing income potential of the asset. Information contained in the property inspection can drive action with respect to the property or loan, including in certain cases, the decision of a loan servicer to add the loan to a watch list. The property inspector strives to provide information, photos and comments to inform the servicer’s decision making.

This Reference Guide augments the 2013 revision to the MBA Property Inspection Form. The Guide is intended to provide information regarding due diligence for property inspections, completion of the inspection form report, as well as some helpful tips regarding the inspection process and review of the final report. The Guide is not intended to be used for instructional purposes, casualty losses (manmade or natural), condemnations, origination, due diligence, or special servicing/workout situations. However, much of the information contained herein may also apply to those circumstances.

The Reference Guide is addressed to the commercial and multifamily post-closing servicing industry; however, contractual agreements and/or corporate policies and procedures may override any information provided within this document.

Mortgage Bankers Association Commercial Real Estate/Multifamily Finance Board of Governors Servicer Council Property Inspection Review and Revision Working Group August 2019

THE NEED TO ADDRESS DAVIS-BACON IMPEDIMENTS TO THE DEVELOPMENT OF FHA INSURED MULTIFAMILY HOUSING

© Mortgage Bankers Association. September 2019. All rights reserved.

Table of Contents

Inspection Overview And Definitions

What is a Property Inspection?

Who are the Parties Involved in a Property Inspection?

What Governs the Requirements of an Inspection?

Why is the Inspection and Inspection Report Important in CRE Finance?

Overview Of The Inspection Process

Servicer Pre-Inspection Process and Review

Inspector Pre-Inspection Process and Review

Inspector On-site Inspection Process, Review and Reporting

Tips for the Day of the Inspection

Inspector Report and Follow Up

Servicer Post-Inspection Process and Review

Tools

Add/Replace Logo

Check Spelling

Print / Save as PDF

Extract Photos

Inspection Report Tabs and Scope presets

MBA Standard Ratings Definitions

Fannie Mae Ratings Definitions

General Info

Subject Property

Servicer and Loan Information

Inspection Scheduling Contact Information / Inspector Information

Inspector Information

Management Company Information / On-Site Contact

Servicer and Inspector Comments

Property Profile and Occupancy

Operations and Maintenance plans (O&M)

Capital Expenditures

Neighborhood and Site Comparison Data

Physical Condition and Deferred Maintenance

Rating

Trend

Inspector Comments

Physical Condition

Comments

Deferred Maintenance vs. Routine Maintenance

Deferred Maintenance Items

Photos

Photo Page Usage Instructions

Tips

Recommended Photos for Inspection Reports

Rent Roll

Management Information & Interview

Tips for In-Person Management Interview

Completing the Mgmt Interview Report Tab

Neighborhood and Rental Market

Property Events

Multifamily, Mobile Homes, Cooperative Housing, Student Housing

Multifamily Unit Breakdown and Status by unit type

Detailed Report of Units Inspected

Subsidized Units

Fannie Mae Assessment Addendum

Fannie Mae Tips to Prepare for an Inspection

Limitations of Field Assessment

Comprehensive Property Assessment Ratings

FRE Assessment Addendum

Repairs Verification

Senior Supplement

Part I: Physical Inspection

Part II: Resident Rooms/Occupancy

Part III : Resident Services

Part IV: Management

Part V: Marketing

Part VI: Regulatory Compliance

Miscellaneous

Hospitals, Dedicated Healthcare, & Dedicated Nursing Homes

Tips for Hospitals and Dedicated Healthcare Inspection and Reporting

General Information

Level of Care Breakdown

Regulatory/Licensing Agency Information

Detailed Report of Units Inspected

Conclusion

Acknowledgments

REFERENCE GUIDE: COMMERCIAL AND MULTIFAMILY PROPERTY INSPECTION REPORTS 1

Inspection Overview And Definitions

The MBA released the first commercial and multifamily real estate (CRE) industry accepted property inspection form in June 2000. This form provided the industry with a tool to complete on-site property inspections for the property types most often financed by MBA members, including office, retail, multifamily, healthcare, lodging, and industrial.

As a result of the increased level of CRE monitoring, as well as specific data and information required for various property types, the MBA established committees in January 2006, 2011 and 2017 to enhance the inspection form and improve its utility. This committee consisted of MBA members, Servicers, Lenders, Correspondents, and Mortgage Bankers who reviewed proposed changes. MBA also published the form for public comment prior to release.

WHAT IS A PROPERTY INSPECTION?

Inspection — a checking or testing of an individual property against established standards. A property inspection is a monitoring tool completed to ensure the collateral for the CRE mortgage loan is being properly maintained, as well as to assess the status of the collateral property following damage due to catastrophic events or casualties. Inspec-tions are generally completed by Lender / Servicer staff, or by a third-party property inspection company and are performed on an observational basis by someone with rea-sonable powers of observation. No testing or engineering studies are involved.

WHO ARE THE PARTIES INVOLVED

IN A PROPERTY INSPECTION?

• Borrower / Property Owner — The person / entity that received mortgage loan funds who has promised to repay those funds under terms defined within the loan documents and whose property serves as collateral for the applicable loan, also commonly referred to as debtor, maker, or mortgagor in the loan documents.

• Inspector — A member of the Servicer’s staff or an Inspection Company representative who performs the on-site examination and review of the Subject Property.

• Inspection Company — A third-party company engaged by the Servicer to inspect and report on Properties.

• Investor — Any person or entity investing in mortgage loans or mortgage backed securities. There may be more than one Investor in a transaction.

• Lender — The Company providing the mortgage loan funds and as referenced herein, has and retains the financial risk on its corporate balance sheet. Also, commonly referred to as Mortgagee or Payee in the loan documents.

• Subject Property — The real estate and / or other collateral involved in the operations of the real estate which serves as collateral for the applicable loan.

REFERENCE GUIDE: COMMERCIAL AND MULTIFAMILY PROPERTY INSPECTION REPORTS 2

• Property Manager — The person or entity charged with daily operating and maintenance of the Subject Property, whose duties may include tenanting (leasing), evicting, collection of rents, repairing / contracting repairs, general upkeep including cleaning, landscaping, maintenance, snow removal, etc. of the Subject Property, on behalf of the Borrower. The Property Manager may or may not be affiliated with the Borrower.

• Servicer — The liaison between the Borrower and the Lender or Investor with an explicit or implicit contractual responsibility to the Lender and Investor.

• Correspondent — A Servicer typically working on behalf of a life insurance company Lender.

• Stakeholder — Any party that has either a direct (e.g.

Lender, a trust or Investor) or indirect (e.g. another Servicer, Rating Agency, Trustee) interest in the loan.

• Requestor — Any other party not previously listed who may order an inspection report.

WHAT GOVERNS THE REQUIREMENTS

OF AN INSPECTION?

The Lender establishes the Borrower’s obligations regard-ing property inspections in the original loan documents.

The Servicer’s obligations are contained in the applicable servicing agreement. Those documents, coupled with the Servicer’s internal policies and procedures, provide the road map for Servicers to fulfill the inspection obligations while servicing the loan.

WHY IS THE INSPECTION AND INSPECTION

REPORT IMPORTANT IN CRE FINANCE?

• CRE Lenders and Investors rely primarily on the income producing ability of the Subject Property to pay the debt service, fund ongoing operations and provide for needed repairs / renovations.

1 The loan may incorporate language for “bad boy” carve outs and / or personal guarantee(s) that can lead to borrower being held personally liable.

In addition, many of the CRE loans made and serviced by MBA members are non-recourse to the Borrower1, so that in the event of default, the Subject Property is the only source for repayment.

• The property inspection can be considered an early warning indicator for the Investor / Lender / Other Requestor as the Inspector may observe indications of Deferred Maintenance, changes in vacancy, rent increases or concessions, neglect of the property or changes in neighborhood trends. It also allows the Lender / Investor to monitor the physical condition of the Subject Property and the surrounding neighborhood throughout the life of the loan. Maintenance of the Subject Property is critical in retaining value.

• While many Servicing Agreements allow Servicers to engage qualified third parties to perform physical inspections, the Servicer will be responsible for reviewing the inspection report and forwarding the completed document to the various Stakeholders.

The inspection report becomes a key information tool for assessment of the potential for the continuing performance of the Subject Property.

• The use of a standard industry inspection report will result in more effective inspections by facilitating:

1. Clear comparisons across inspections and properties in portfolios, which leads to greater accuracy in analysis and record keeping.

2. Proactive asset management.

3. Standardization of both the procedures for conducting inspections and the criteria for completing reports.

4. The creation of efficiencies as data automation, transmission and exception reporting.

REFERENCE GUIDE: COMMERCIAL AND MULTIFAMILY PROPERTY INSPECTION REPORTS 3

Overview Of The Inspection Process

SERVICER PRE-INSPECTION

PROCESS AND REVIEW

In order to provide clear instruction and facilitation of the inspection process, the Servicer may:

• Review any prior inspection reports, if available, to retrieve information such as existing Deferred Maintenance or other property maintenance requirements.

• Review system records such as contact notes and correspondence to identify any issues of note (e.g., natural / manmade significant events; construction / rehabilitation / conversion;

condemnation or other taking; zoning, licensing, franchise issues).

• Review Borrower financial and rent roll information to provide commentary (e.g., dark spaces, tenant rollover concerns, build outs, declining / increasing occupancy, repairs and maintenance expenditures, capital improvement expenditures) that can be reviewed or and / or inspected during the on-site property inspection.

• Review the Servicer’s or other Requestor’s loan file to identify any special restrictions (e.g., governmental, research & development), limitations or hazards at the Subject Property (e.g., restricted access), clothing restrictions or recommendations (e.g., boots, coats, etc.), health issues (e.g., no elevator access, microwave use, chemicals), and / or safety issues (e.g., structure is damaged or compromised, etc.).

• Operation and Maintenance plan requirements, if applicable, for communication to the Inspector.

INSPECTOR PRE-INSPECTION

PROCESS AND REVIEW

In order to provide clear instruction and facilitate the inspection, the Inspector may:

• Obtain applicable inspection information from the Servicer or other Requestor.

• Review contractual requirements (e.g., experience / qualifications / timing requirements, special instructions), including any O&M Plan.

• Schedule the inspection and request any necessary pre-inspection or on-site information. A minimum of two weeks’ notice is strongly recommended. Be realistic about the number of inspections scheduled in a day. It is helpful when scheduling the property inspection, to request that the on-site contact have a minimum of 6 months’ tenure with the Subject Property and request that all tenants be put on notice for the inspection date. Please note that some of the requirements noted reflect agency directives which may be more stringent than for other inspections. The Inspector should carefully review all instructions provided to ensure that the inspection is conducted following the guidelines provided by the Servicer or other Requestor.

NOTE: The inspector should request well more than the minimum number of units to be noticed if the entire property is not put on notice. This will help ensure that additional units may be inspected if issues are identified. It is strongly recommended that the Inspector always be accompanied by a member of property management when entering any units.

• Forward the inspection form / questionnaire to the on-site contact prior to the visit, as applicable (e.g., MF questionnaire – number of units / buildings, rent roll request, prior / in-process / planned improvements; prior, current and budgeted capital improvements, year of construction). This may also include the

REFERENCE GUIDE: COMMERCIAL AND MULTIFAMILY PROPERTY INSPECTION REPORTS 4

Management Interview form and other information as directed. Send communication confirming date / time and all other inspection details.

• Send a reminder to the site contact 48 hours prior to the inspection to confirm that management is prepared for the inspection, and all the appropriate units have been noticed.

Request that keys be pulled prior, if possible.

• Pack an extra camera and memory card, clipboard, and paper for taking notes.

INSPECTOR ON-SITE INSPECTION

PROCESS, REVIEW AND REPORTING

The inspection process actually begins as soon as the Inspector lands or drives into the city, town or neighborhood where the Subject Property is located. The Inspector may note issues related to the state of the market, commer-cial / retail / recreational facilities, and properties considered comparable to the Subject Property.

TIPS FOR THE DAY OF THE INSPECTION

Arrive with sufficient time to:

1. Drive the neighborhood and the Subject Property, noting:

a. Traffic patterns

b. Accessibility

c. Condition, accessibility, traffic flow, etc.

of other comparable properties

d. Condition and effectiveness of the signage at the Subject Property

e. Any new construction

f. Condition of surrounding properties

g. How well the Subject Property fits into the neighborhood

h. Walk / drive perimeter of Subject Property exterior to obtain a first-impression. In certain circumstances, such as ‘high security’ properties, it may be advisable to check in with the property manager first.

2. Conduct and / or complete follow-up on the Management Interview questions or other information as requested by the Servicer or other Requestor.

3. Review the inspection process with the on-site Borrower contact

4. Discuss units to be inspected, (the final decision regarding the units to be inspected should be made by the Inspector unless otherwise directed by the Servicer or other Requestor).

5. Gather information regarding any special conditions identified by the Servicer or other Requestor noticed during the inspection process (e.g., comparable development, Deferred Maintenance / construction issues).

6. Inspect the property with contact (or individually, if applicable). Unescorted inspections should be undertaken with care as access to tenant space may be limited. Generally, multifamily tenant space should not be inspected unescorted.

7. Build a rapport with the contact but keep control of the inspection. Ask questions in a friendly manner — it’s not an interrogation.

a. Inquire about the timing and cost of issues discovered during walk through (if accompanied).

b. Gain an understanding of the Borrower’s commitment to Subject Property (e.g., on-site contact, maintenance staff or tenants concerns regarding needed improvements).

c. Obtain an understanding of on-site contact’s and, if possible, property management’s knowledge and management of the Subject Property. Take an adequate number of photos to adequately represent the property, meet Servicer’s requirements, and document any issues noted.

REFERENCE GUIDE: COMMERCIAL AND MULTIFAMILY PROPERTY INSPECTION REPORTS 5

8. Complete tour with on-site contact (if applicable)

a. Address any issues and ask any follow up questions not previously discussed.

b. Give the on-site contact a verbal summary of the inspection, if appropriate and within the scope of the agreement with the Servicer or Requestor. (The on-site contact should not be surprised by the report.)

c. Exchange business cards.

d. Understand and confirm any follow up procedure for questions or gaps the Inspector may have in information for the final report.

INSPECTOR REPORT AND FOLLOW UP

• Address any Servicer questions by adding comments and photos to the report where appropriate.

• Document issues in writing and with corresponding photos, as appropriate.

• Complete the property inspection report, including any follow up with the Borrower or Borrower on-site contact.

• Send the Inspection to the Servicer in the required format (e.g., electronic Excel, hard copy, MISMO XML).

• Forward any additional documents as required.

SERVICER POST-INSPECTION

PROCESS AND REVIEW

REVIEW COMPLETED INSPECTION REPORT:

• Compliance with vendor contract (if applicable), Stakeholder contract and internal requirements.

• Compliance with loan documents (including any O&M Plan) and any servicing agreement(s).

• Thoroughness to ensure the Inspector has addressed information and / or issues provided by the Servicer prior to the inspection.

• Identification of Deferred Maintenance and other issues, including proper documentation of issues with photos where appropriate.

• Contact the Inspector for any unaddressed issues / clarification.

CONTACT BORROWER:

• Discuss issues detailed in the inspection, as applicable, to address issues of concern not addressed from prior inspection / loan document timetables (e.g., immediate repair agreements, new dark tenant space).

• Forward appropriate correspondence and, if applicable, agreements, to document required / negotiated issues to be addressed, with applicable timelines for completion.

• Follow-up and / or schedule periodic inspections to ensure completion of required repairs based on mortgage loan documents and servicing agreements.

UPDATE SERVICER SYSTEM:

• Make necessary comments regarding issues and document discussions with the Borrower.

• Update applicable files to ensure accurate reporting (e.g., update of monthly files, internal / external watch list).

• Create appropriate ticklers for monitoring progress of required.

• Repairs / remediation / follow-up inspections, as required.

• Forward a copy of the inspection report to other parties, as required.

• Save and file inspection information in appropriate locations (e.g., electronically, Servicing File).

• If there are defaults or contract violations, refer to the loan documents, applicable servicing agreement(s), and internal process for next steps.

REFERENCE GUIDE: COMMERCIAL AND MULTIFAMILY PROPERTY INSPECTION REPORTS 6

Tools

ADD / REPLACE LOGO

The Tools tab has an Add / Replace logo feature designed to allow the Lender to add a company logo to the MBA Property Inspection Form or to change the inserted logo.

The following procedures should be followed to properly add / replace a company logo.

1. Select a logo that will reasonably fit in the logo space on the General Information Tab.

2. Click on the “Add / Replace Logo” button.

3. The logo will now appear on the Tools and General Info tabs. If the logo does not exactly fit into the space on the provided, check the “Size to fit” box after the logo has been inserted and the logo will be resized to fit within the allowable logo area.

CHECK SPELLING

The Tools tab has a spell check feature which checks spelling across the entire MBA Inspection Form. Once initiated by the button named “Check Spelling”, it will utilize the native spell-checking functionality of Excel and iterate through each comment box throughout the entire form, alerting the user of each potentially misspelled word, and giving suggestions for corrections. Because of limitations in Excel, it highlights the whole comment box being checked on any given tab instead of highlighting only the specific word in context of the comment box.

PRINT / SAVE AS PDF

The Tools tab has a print feature which gives the user the ability to select which report tabs to print, or save as a single PDF file, initiated by the button named “Print / PDF”.

Print areas for each report tab will be set automatically, with the exception of the Rent Roll tab which may need its print area to be adjusted manually if there are rent roll images which you wish to be included.

EXTRACT PHOTOS

The Extract Photos button is available on the Tools tab and the Photos tab. Clicking it will extract photos from the Photos report tab and save of copy of them to the user’s computer in the folder specified. Once clicked, the prompt allows the user to choose to extract all photos, or only those categorized as Deferred Maintenance.

INSPECTION REPORT TABS

AND SCOPE PRESETS

The Scope Preset option is a feature designed to allow the servicer to easily show, or hide specific report tabs based on the scope of the inspection being performed by clicking the respective checkboxes for each report tab.

For convenience, the most common inspection scopes are represented:

• Basic Inspection — This option will show the following report tabs: General Info, Physical Condition & DM, Photos, and Rent Roll

• Repairs Verification — This option will show the following report tabs: Repairs Verification, Photos

• Fannie Mae — This option will show all the Basic Inspection tabs, plus the Mgmt Interview, Multifamily, Fannie Mae Assmt Addendum, Repairs Verification, and the Fannie Mae Ratings tab. Choosing this option will also set the Rating Scale on the General Info tab to Fannie Mae.

• Freddie Mac — This option will show all the Basic Inspection tabs, plus the Mgmt Interview, Multifamily, FRE Assmt Addendum, Repairs Verification, and the MBA Ratings tab. Choosing this option will also set the Rating Scale on the General Info tab to MBA.

REFERENCE GUIDE: COMMERCIAL AND MULTIFAMILY PROPERTY INSPECTION REPORTS 7

MBA Standard Ratings Definitions

The descriptors are to be used throughout the inspection report unless the loan secured by the Subject Property is a Fannie Mae loan (see the Fannie Mae Ratings tab for the rating scale to be used in connection with Fannie Mae loans).

The definitions are provided separately on their own tab in the inspection report for easy use and reference while conducting the inspection and later completing the report. The ratings are broken out into a scoring system based on 1-5, reflecting best to worst condition, Not Applicable and Not Accessible. It should be noted that the comments under each Rating are intended to provide perspective, with the top line most accurately reflecting the interpretation for the Rating and the lower lines representing examples of typical conditions that may exist. It will be important for the Inspector to draw on his / her own experience and understanding of the property, as well as Servicer or other Requestor directives.

THE RATINGS DEFINITIONS

ARE AS FOLLOWS:

RATING 1

• New or like new condition.

• All major building components are new or like new.

• All vacant units / space are rent ready and reflect the highest current market standards.

• No Deferred Maintenance items (only Routine Maintenance).

• No Life Safety or code violations exist.

• Positive impact to marketability.

• Deferred Maintenance and Life Safety — no actions are required.

RATING 2

• Above average condition for the property’s age and market, minimal wear and tear.

• All major building components in functional condition.

• All vacant units / space are rent ready or in the process of being made rent ready.

• No Deferred Maintenance items (only Routine Maintenance).

• No Life Safety or code violations exist.

• No impact to marketability.

• Deferred Maintenance and Life Safety — no actions are required.

REFERENCE GUIDE: COMMERCIAL AND MULTIFAMILY PROPERTY INSPECTION REPORTS 8

RATING 3

• Normal condition for the property’s age and market, general wear and tear.

• All major building components in functional condition.

• Most vacant units or space are rent ready or in the process of being made rent ready.

• Minimal Deferred Maintenance and Routine Maintenance items with costs that can be funded by normal operations.

• No / minor Life Safety or code violations exist.

• No impact to marketability.

• Deferred Maintenance and Life Safety — appropriate actions are planned or in progress.

RATING 4

• Deteriorating condition for the property’s age and market.

• A building component is not in fully functional condition.

• Few rent-ready units or space. Limited major Deferred Maintenance and / or numerous minor Deferred Maintenance items.

• Some Life Safety or code violations exist.

Negative impact to marketability.

• Deferred Maintenance and Life Safety — actions are not addressed as quickly as required and / or further action is necessary, additional monitoring may be appropriate.

RATING 5

• Inferior conditions.

• Multiple building components non-functional.

• Vacant units or space are in poor to down condition.

• Severe Deferred Maintenance items.

• Multiple Life Safety or code violations exist.

• Negative impact to marketability.

• Deferred Maintenance and Life Safety — no action taken and / or further action is necessary and additional monitoring is appropriate.

Not Applicable — No components exist (therefore, no rating is possible).

Not Accessible — No component was visible due to inability to view the condition based on access, Life Safety, weather conditions or other blockages, or Deferred Maintenance items cannot be determined based on lack of access.

Further action or review may be required.

REFERENCE GUIDE: COMMERCIAL AND MULTIFAMILY PROPERTY INSPECTION REPORTS 9

Fannie Mae Ratings Definitions

The descriptors are to be used throughout the inspection report for Fannie Mae Loans only (see the MBA Ratings tab for the rating scale to be used in connection with all other loans).

The Fannie Mae Ratings definitions are provided separately on their own tab for easy use and reference while conducting the inspection and later completing the report. The ratings are broken out into a 1–5 scoring system reflecting best to worst condition, Not Applicable and Not Accessible.

THE RATINGS DEFINITIONS ARE AS FOLLOWS:

Rating 1 — No concerns observed. No further action required.

Rating 2 — Some minor issues noted. Limited follow-up required.

Rating 3 — Overall declining condition or isolated deterioration. Documented follow-up required.

Rating 4 — Substantial issues noted. Documented follow-up with possible action plan required.

Rating 5 — Severe Deferred Maintenance observed. Follow-up and substantial action plan required.

RATING 1

No concerns observed. No further action required.

• Excellent condition; typically newer property or property with recent major rehab / significant investment

• No observed or reported Deferred Maintenance issues

• No Life Safety issues observed

• Superior RM practices that are extending the RUL of systems and components

• Capital needs are addressed; major components and systems are like new, in excellent condition and high probability they will significantly exceed the loan term

RATING 2

Some minor issues noted.

Limited follow-up required.

• Very Good / Good condition with isolated and relatively minor issues that are unlikely to negatively impact operations and can be addressed in-house

• No / minor Life Safety issues observed

• Isolated or minor Deferred Maintenance can be addressed in-house and / or at limited expense

• Proactive RM practices ensuring good overall system performance and functionality

• Majority of capital needs are being addressed, property performance does not appear to be impacted; components and systems in good condition and very likely will exceed the loan term

REFERENCE GUIDE: COMMERCIAL AND MULTIFAMILY PROPERTY INSPECTION REPORTS 10

RATING 3

Overall declining condition or isolated deterioration. Documented follow-up required.

• Average to Fair condition; requiring investment

• Some Life Safety issues observed requiring immediate attention; but no capital expenditure

• Deferred Maintenance of heightened concern; likely not addressed in house

• Some reactive RM practices impacting a limited number of components requiring attention

• Critical capital needs are being addressed as needed, but additional capital required to maintain asset quality and system functionality;

RUL of major systems / components may not meet or exceed the loan term

RATING 4

Substantial issues noted. Documented follow-up with possible action plan required.

• Deteriorated overall conditions, substandard materials and practices, or major issues have not been addressed since prior inspection;

requiring significant investment

• Life Safety issues observed that require immediate attention and possible capital expenditure

• Substantial Deferred Maintenance affecting major / several property areas / systems, requiring significant investment

• Reactive RM practices that do not address concerns in a timely manner

• Some critical capital needs are not being addressed, and property performance may be negatively impacted; very likely that the RUL of major systems / components will not meet or exceed the loan term

RATING 5

Severe Deferred Maintenance observed Follow-up and substantial action plan required.

• Unacceptable overall conditions. Widespread neglect or casualty event; condition materially impacts marketability. Functionality of systems and components is compromised.

• Significant Life Safety issues requiring capital expenditure

• Excessive Deferred Maintenance affecting multiple areas / property systems, requiring significant investment; impacting collateral value

• Inadequate RM practices that do not ensure reasonable functionality of the property systems and components and may impact collateral value

• Major and pervasive issues with major components and systems; critical capital needs are not being addressed, property performance is being impacted and RUL of major systems / components has been exceeded

Not Applicable — No components exist (therefore, no rating is possible).

Not Accessible — No component was visible due to inability to view the condition based on access, Life Safety, weather conditions or other blockages, or Deferred Maintenance items cannot be determined based on lack of access.

Further action or review may be required.

REFERENCE GUIDE: COMMERCIAL AND MULTIFAMILY PROPERTY INSPECTION REPORTS 11

General Info

The header section of each report tab will auto-populate based on the inputs in the form and include the Property Name, City, State, Overall Property Rating, and occupancy percentage.

SUBJECT PROPERTY

• Property Name — The name of the Subject

Property. If it has not been named then the street address may be used.

• Property Address — The street address of the Subject Property.

• Street Address 2 — Additional street addresses and / or buildings of the Subject Property.

• Property City — The city in which the Subject Property is located.

• Property Zip — The Postal Code Designated by the US Postal Office for the physical address for the Subject Property.

• Property State / Country — The State in which the Subject Property is located. The MBA form will automatically populate the Country code for the selected state. Selections have been provided for the USA, Canada, Mexico, Caribbean Islands, and other various regions.

• Overall Property Rating — Overall rating of the Subject Property’s physical condition expressed as a rating of 1–5, with each rating carrying a specific definition per the Fannie Mae Ratings Scale or MBA Standard Ratings Definitions, as applicable. The Overall Property Rating identifier reflects the general condition of the Subject Property, with a score of 1–5 reflecting best to worst condition. The value of this field is that it provides a snap shot of the Subject Property’s condition, taking into account each individual component of the Subject Property. This rating is not a formula, or an average of the component ratings, rather it is a guide for the Inspector to provide his judgment of the Subject Property.

• Inspection Date / Time — The date and time on which the physical property inspection was performed.

• Primary Property Type — Select from dropdown choices:

+ Healthcare + Industrial + Lodging + Multifamily + Mobile Home Park + Mixed Use + Office + Other + Retail + Self-Storage

• Secondary Property — A Secondary Property Type list will be presented based on the Primary Type chosen. The Primary Property Type must be selected in order for the dropdown selections for the Secondary Property Type to populate.

SERVICER AND LOAN INFORMATION

This section is an overview of information necessary to identify the Subject Property being inspected. The infor-mation in this section should be provided by the Servicer or other Requestor. Please do not ask the property contact for any of the information contained in this section.

• Servicer Name — Name of company servicing the loan.

• Loan Number — The reference number assigned to the Subject Property by the Servicer or other Requestor completing or ordering the property inspection for the Subject Property.

REFERENCE GUIDE: COMMERCIAL AND MULTIFAMILY PROPERTY INSPECTION REPORTS 12

• Property ID — Reference ID — Especially to denote multiple properties at the same address or multiple buildings at the same address. Definition may also include Negotiated Transaction reference number.

• Servicer Inspection ID — Servicer-generated unique inspection Identification number

• Original Loan Amount — The amount of the subject loan at the time of loan funding.

• Loan Balance (UPB) — Current unpaid principal balance (UPB) — the actual balance (not the scheduled balance).

• Loan Balance Date — The “as of” date the UPB represents.

• Report Reviewed By — Name of the individual who reviews the final report (typically someone from the Servicer’s or other Requestor’s company). The name should be input as a separate First Name and Last Name in the fields provided (i.e. First Name / Last Name)

• Owner of Loan — The Lender or Investor

• Investor Number — Investor or lender reference number from their system of record or loan documents.

• Investor Loan Number — The reference number assigned to the Subject Property by the investor or owner of the loan.

• Edit Label — Addt’l ID #1 — A second Servicer, Lender or other Requestor loan number reference, or this field can be used for additional property sequencing information. Additional ID’s are provided by Servicer, Lender, or other Requestor for further identification such as an inspector ID, Fannie Mae inspection ID, Freddie Mac property ID’s, etc.

Inspectors, please note that data will vary Servicer to Servicer or Requestor to Requestor. It is intended that the label “Edit Label — Addt’l ID #1” will be typed over with a label that clearly defines the value represented (i.e. Inspection Company ID).

• Edit Label — Addt’l ID #2 — A second Servicer, Lender or other Requestor loan number reference, OR this field can be used for additional property sequencing information. Additional ID’s are provided by Servicer, Lender, or other Requestor for further identification such as an inspector ID, Fannie Mae inspection ID, Freddie Mac property ID’s, etc.

Inspectors, please note that data will vary Servicer to Servicer or Requestor to Requestor. It is intended that the label “Edit Label — Addt’l ID #2” will be typed over with a label that clearly defines the value represented (i.e. Inspection Company ID).

• Asset Manager Name — As per the Servicer

• Asset Manager Phone — As per the Servicer

• Asset Manager Email — As per the Servicer

INSPECTION SCHEDULING CONTACT

INFORMATION / INSPECTOR INFORMATION

The scheduling contact information in this section should be provided by the Servicer or other Requestor.

• Contact Company — Mortgagor’s or Property Manager’s Name from Servicer or other Requestor’s system of record or the loan documents.

• Contact Name — A person who is the contact for the Borrower or may be someone from the management company. The name should be input as a separate First Name and Last Name in the fields provided (i.e. First Name / Last Name).

• Contact Phone — Telephone number of the Borrower contact; this may be the management company.

• Contact Email — Email of the Borrower contact;

this may be the management company.

INSPECTOR INFORMATION

• Inspection Company — Name of inspecting company.

• Inspection Co. Phone — Phone number of Inspecting company.

• Inspector’s Name — Name of individual performing the inspection. The name should be input as a separate First Name and Last Name in the fields provided (i.e. First Name / Last Name).

• Inspector’s ID — The Inspection Company’s assigned Inspector ID for the individual performing the inspection.

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MANAGEMENT COMPANY

INFORMATION / ON-SITE CONTACT

The information in this section should be provided by the Servicer or other Requestor.

• Company Name — Enter the name of the management company.

• Onsite Contact — Enter the name of the individual who was the Inspector’s onsite contact. The name should be input as a separate First Name and Last Name in the fields provided (i.e. First Name / Last Name).

• Role or Title of Contact — Enter the role or the title of the Onsite Contact.

• Management Affiliation — Select the management company’s affiliation with the Borrower.

Choose from the drop-down selections:

+ Affiliated with the Borrower + Nonaffiliated + Third-Party

• Phone Number — Enter the phone number of the management company onsite contact.

• Mgmt Interview — Select from dropdown choices:

+ Yes, Onsite + Yes, Prior to Visit + Yes, Prior to and onsite + No, Not Required

• Length of Time at Property — Select the length of the time (from the drop-down menu) that the Onsite Contact has been assigned to the Subject Property.

If the Manager has been at the Subject Property for less than 6 months, please provide an explanation for why the last manager left the Subject Property.

This comment should be included in the Additional Collateral Description Information comment box.

• Mgmt Company Change Since Last Inspection — Indicate a change in Management Company since the last inspection.

NOTE: this refers to the company and NOT the individual managing the Subject Property. Indicate yes only if the company / entity has changed.

SERVICER AND INSPECTOR COMMENTS

• Lender’s or Servicer’s General Comments or

Instructions to Inspector for Subject Property — Free text space for the Servicer to give additional information or instructions on the Subject Property or the review process to the Property Inspector.

Servicers have the ability to provide comments or instructions to the Inspector for assistance in better defining the scope of work and Subject Property. If any attachments are provided, the Servicer may include a brief description on how to utilize them along with the inspection.

Examples of attachments may be a capital repair reserve agreement, a map or rent roll.

• Property Inspector’s General Comments or Suggestions to Lender or Servicer on the Subject Property — Free text space for the Property Inspector to respond to the Servicer instructions / comments and to provide additional information, highlight items of critical importance, or to provide a brief summary of the overall performance and condition of the property. The Inspector may speak to Lender’s or Servicer’s previously-provided specific concerns after inspecting the Subject Property or provide details not covered in other sections of the form. Apparent discrepancies in information provided by the client, borrower, or on the prior year’s report may be included, as well as limitations to the assessment, and changes in property contact information or other data.

PROPERTY PROFILE AND OCCUPANCY

This section represents an overview of the Subject Prop-erty details including vacancy / occupancy on the date of inspection, franchise information and repairs or cap-ital improvements. If instructed by the Servicer or other Requestor, Inspector should edit the information if the actual information varies from that provided by the Servicer or other Requestor. The Servicer or other Requestor will use this current information for comparison with historical underwriting, documents and inspections.

• Number of Buildings — The number of buildings at the Subject Property. Note that there is sometimes confusion on the part of management staff as to which structures should be included in the number of buildings count. The inspector should attempt to reconcile differences between the current information and prior inspection data, if available.

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• Number of Floors — The number of floors in the buildings. If there is more than one building with various heights, input the building with the highest number of floors.

• Number of Elevators — The total number of elevators at the Subject Property.

• Number of Parking Spaces — The total number of parking space at the Subject Property.

• Year Built — The year in which the structure on the Subject Property was completed.

If the Subject Property was completed in phases input the year in which the last phase of the Subject Property was completed.

• Year Renovated — The year in which the structure was renovated. Where there are multiple buildings which have been renovated at varying times, judgment is needed. The most common last renovation date or the last renovation date could be used depending on the facts at the property.

Provide comments to guide the servicer.

• Annual Occupancy — The total average occupancy of the Subject Property expressed as a percentage. Annual Occupancy is most commonly used for hospitality properties.

• Annual Turn Over — The actual number of units, rooms or beds vacated at the Subject Property for the last 12 months divided by the total number of units, expressed as a percentage. For example, if there are 100 units total and 70 units were vacated or turned over during the last 12 months, there would be 70% turnover reported.

Similarly, if property management reports that approximately 4 units were turned each month then the annual turnover would be 48%.

• Rent Roll Obtained? — This question addresses whether the Inspector received a copy of the rent roll during the inspection process.

Not all inspections require the collection of a rent roll. Select from dropdown choices:

+ Yes + No + Not Applicable

If the collection of a Rent Roll is a requirement in the scope of the inspection, and one was not obtained by the Inspector then “No” should be selected. In addition, the Rent Roll tab of the MBA Property Inspection Form should be filled out providing an explanation for why the Rent Roll was not obtained.

• Rent Roll Date — Enter the date of the Rent Roll.

• Is Property Affordable Housing — Select from dropdown choices:

+ Yes + No

• Unit of Measurement Used — Input the unit of measurement used for the property type of the Subject Property (i.e. Multifamily uses Units).

Select from dropdown choices:

+ Units + Rooms + Beds + Sq. Feet

• Number of Units / Rooms / Beds — The total number of units, rooms or beds at the Subject Property.

• Total Percent Occupied — A calculation of the percent of space occupied at the time of the inspection. In order for the Total Percent Occupied field to calculate, the Unit of Measurement Used field must have a selection, and all the related fields to the Unit of Measurement selected must be input. For example, if Sq. Feet is selected in the Unit of Measurement Field then Total Sq. Feet (Net / Rentable), Occupied Space, and Vacant Space must be input in order for Total Percent Occupied to calculate. In addition, the sum of Occupied Space and Vacant Space must equal Total Sq. Feet (Net / Rentable). If the appropriate numbers are not entered it will result in an error of “sum<>parts”. These same rules apply to the related Units / Rooms / Beds fields when they are selected.

• Total Inspected — This field will total the input Occupied Units Inspected and Vacant Units Inspected.

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• Occupied Space — Amount of occupied space at the Subject Property. Input as Unit, Beds, Rooms, or Square Feet.

• Occupied Units Inspected — Input the total number of occupied units or beds inspected during the site visit.

• Vacant Space — Amount of vacant space at the Subject Property. Input as Unit, Beds, Rooms, or Square Feet.

• Vacant Units Inspected — Input the total number of vacant units, rooms, or beds inspected during the site visit.

• Total Square Feet (Gross) — A number that represents the gross rentable square footage of the Subject Property.

• Total Square Feet (Net / Rentable) — A number that represents the net rentable square footage of the Subject Property.

• Is there any Dark space — A unit is considered “Dark” when the tenant has vacated the unit prior to lease expiration is and still listed on the rent roll and paying rent. Dark units are counted as vacant space in the occupancy section of the report. Dark space is only applicable for the following property types: office, retail, industrial and mixed-use (if the property includes an office or retail tenant). Select from dropdown choices:

+ Yes + No

• Is there any Down space — “Down” space is defined as any space which cannot be made rent ready with Routine Maintenance. Down space is usually caused by unplanned events such as fire or flood but may also be due to cannibalized units (when appliances, fixtures, or equipment are taken from one unit for use in repairing another). Down units typically require significant repairs. Units undergoing scheduled renovations generally would not be considered Down, nor would commercial units undergoing tenant improvements. Select from dropdown choices:

+ Yes + No

• Total Number of Down Units / Rooms / Beds — The total number of down units, rooms or beds at the Subject Property.

• If any Dark or Down space, describe —

+ For Dark space or units, the Inspector should note the details of any tenant and / or unit number that went Dark. The Inspector should state the length of time the unit has been vacant, if ascertainable.

+ For Down space, the inspector should specify which units are down, the cause, the date the space went down, management’s estimated repair completion date, and if an insurance claim has been filed, if ascertainable. If additional space is needed to the Inspector should continue the comments in the Additional Collateral Description Information field.

• Property Offers Rental Concessions — Indicate any rental concessions offered by management. Select from dropdown choices:

+ Yes + No + Not Applicable + Unknown

• If yes, please describe concessions: — The Inspector may provide information on what concessions are being offered at the Subject Property. This information provides an indication as to property management’s response to the market.

• Franchise Name — The name of the franchiser if the Subject Property is associated with a franchise.

Most commonly used for hospitality properties.

• Franchise change since last inspection — Has the franchise operated at the Subject Property changed since the date of the last inspection (or within the last year)? Select from dropdown choices:

+ Yes + No + Not Applicable + Unknown

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OPERATIONS AND MAINTENANCE

PLANS (O&M)

• List of O&M Plans Required in Loan Documents —

Lender / Servicer should indicate all O&M Plan(s) in place for the property. This section allows up to five O&M plans to be itemized, click the “Add” button to show additional rows. Select from the dropdown choices:

+ Asbestos + Lead Paint + Moisture / Mold + Radon + Storage Tanks + PCB (polychlorinated biphenyl) + Other, specified below + Unknown

• Management Aware of Plan? — For any O&M plans specified by the servicer, during the inspection, the inspector will inquire if management is aware of each required plan (as noted by the Lender / Servicer) and indicate their response. Select from drop-down choices:

+ Yes + No + Unknown

• Plan Available? — For any O&M plans that management is aware of, during the inspection, the inspector will inquire, for each required plan (as noted by the Lender / Servicer), if the plan is available or accessible to the on-site staff, its location, and indicate the response.