FannieMae Inspection Guide.pdf

© 2020 Fannie Mae. Trademarks of Fannie Mae. Form 4099 – September 2020 Page i

1. Introduction

1.1. Property Condition Assessment

1.2. Instructions for Performing a Multifamily Property Condition Assessment

1.3. Requirements and Qualifications of PCA Consultant

A. PCA Consultant Selection by Lender; Reliance by Users

B. PCA Consultant Independent Third-Party Status

C. PCA Consultant Qualifications

D. Field Observer Qualifications

E. PCA Consultant Insurance Requirements

2. Overview of the Multifamily Property Condition Assessment

2.1. Base PCA

2.2. Streamlined Property Condition Assessment

2.3. PCA Modules

3. PCA Scope of Work

3.1. Phase 1: PCA Preliminary Due Diligence

A. Data Collection and Document Review

B. Special Hazards, Zoning, Building and Fire Code Violations and Regulatory Compliance

C. Pre-Site Visit Questionnaire

3.2. Phase 2: Site Visit

A. Site Visit Approach

B. Interviews

C. Observation of Dwelling Units

D. Photographic Documentation

3.3. Phase 3: PCA Report

4. Property Condition Assessment Report

4.1. PCA Report Section 1: Executive Summary

A. Summation of PCA Findings

B. Summary of Recommended Repairs and Replacement Cost Estimates

C. Known Problematic Building Materials Identified Table

D. MBA Standard Inspection Form

E. Members of PCA Consultant Team

4.2. PCA Report Section 2: Opinion of Probable Costs - Cost Estimate Schedules for Immediate Repairs and Replacements of Capital Items

A. Determination of Probable Costs

B. Cost Estimates for Immediate Repair

C. Cost Estimates for Replacement of Capital Items

FANNIE MAE MULTIFAMILY

INSTRUCTIONS FOR PERFORMING A MULTIFAMILY PROPERTY CONDITION ASSESSMENT

September 2020

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4.3. PCA Report Section 3: Property Characteristics

A. Site Components

B. Structural Frame and Building Envelope (Architectural Components)

C. Mechanical/Electrical/Plumbing Components

D. Interiors; Dwelling Unit Components

4.4. PCA Report Section 4: Moisture and Microbial Growth and Pest Management

A. Moisture and Microbial Growth

B. Pest Management

4.5. PCA Report Section 5: Special Hazards, Zoning, Building and Fire Code Violations and Regulatory Compliance

A. Specials Hazards

B. Zoning

C. Code Violations

D. Regulatory Compliance

4.6. PCA Report Section 6: Areas of Additional Assessment

A. Known Problematic Building Materials and Property Design Issues

B. Summary and Evaluation of Historical Repairs and Replacements, Work in Progress, and Planned Capital Improvements

4.7. PCA Report Section 7: Report References, Procedures and Limitations

A. References used by the PCA Consultant for Preparation of PCA Report

B. Assessment Methodology

C. Limitations

5. PCA Modules

5.1. General

A. Additional Scope of Work

B. Additional Required Qualifications

5.2. MODULE: Student Housing Property

5.3. MODULE: Seniors Housing Property

5.4. MODULE: Manufactured Housing Community

5.5. MODULE: Cooperative Property

5.6. MODULE: Modular Housing/Modular Construction

5.7. MODULE: Commercial/Retail Use

5.8. MODULE: Solar PV System

A. Purpose and Module Scope

B. Technical Solar Consultant Qualifications; Standard of Conduct

C. Solar PV System Module Integration with the PCA Report

5.9. MODULE: Integrated Pest Management Plan

A. Pest Management Contractor Qualifications

B. Statement of Work

C. Subcontractor Requirements

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5.10. MODULE: High Performance Building Assessment

A. Purpose and Module Scope

B. HPB Consultant Qualifications; Standard of Conduct

C. HPB Report and 4099.H Deliverables

D. Methodology

5.11. MODULE: Technical Solar Assessment

A. Purpose and Module Scope

B. Technical Solar Consultant Qualifications; Standard of Conduct

C. Technical Solar Report and 4099.I Deliverables

D. Methodology

6. Appendices to the Instructions for Performing a Multifamily Property Condition Assessment

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1.1. Property Condition Assessment

The Property Condition Assessment (“PCA”) is a comprehensive evaluation of the:

overall physical condition of a multifamily residential property (the “Property”) at a specific point in time; and anticipated capital expenditures required at the Property over a specified evaluation period.

The PCA is a capital planning and risk assessment tool that may be used by a multifamily property owner (the “Property Owner”), property manager (the “Property Manager”), mortgage lender (the “Lender”), mortgage loan servicer (the “Servicer”), or Fannie Mae (“Fannie Mae”; the Property Owner, Property Manager, Lender, Servicer, and Fannie Mae are each referred to in these Instructions as a “User”). The PCA provides:

an assessment of the Property’s current physical condition;

for each of the Property’s systems and components, an estimate of (i) the effective age, and (ii) the remaining useful life;

an evaluation of past and current operating and maintenance practices at the Property, and suggestions for future operating and maintenance practices; and an identification of current and future physical needs, including all significant (i) capital replacement costs, and

(ii) maintenance costs, that are anticipated at the Property during the term of the proposed mortgage loan (the “Mortgage Loan”), plus two years beyond the maturity date of the Mortgage Loan (the “Evaluation Period”).

1.2. Instructions for Performing a Multifamily Property Condition Assessment

These Instructions for Performing a Multifamily Property Condition Assessment (the “Instructions”) provide the scope of work for the firm, project team, or individual conducting the PCA (the “PCA Consultant”) and preparing the report documenting the findings of the PCA (the “PCA Report”). The Instructions are not intended to take away from the professional judgment of the PCA Consultant. Rather, these Instructions will provide the PCA Consultant with:

the minimum scope of assessment for all asset classes of multifamily properties that may secure a Mortgage Loan to be purchased by Fannie Mae; and a standardized format for the PCA Report detailing the findings and opinions of the PCA Consultant.

The Users may have additional requirements for the PCA and PCA Report that the PCA Consultant must meet in addition to these Instructions. Any additional User requirements must be detailed in the contract between the Lender and the PCA Consultant. The PCA Consultant is responsible for using its best professional judgment in determining whether additional property components beyond those specified in these Instructions should be assessed and included in the PCA Report.

1.3. Requirements and Qualifications of PCA Consultant

A. PCA Consultant Selection by Lender; Reliance by Users

By entering into the agreement with the Lender to conduct the PCA in accordance with these Instructions, the PCA Consultant agrees and acknowledges that Fannie Mae is an intended third-party beneficiary of the PCA and the PCA Report and will act in reliance on the PCA and the PCA Report.

1. Introduction

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B. PCA Consultant Independent Third-Party Status

The PCA Consultant, its personnel and any subcontractors hired by the PCA Consultant must be independent third-parties, unrelated to, and not have any financial or economic interest in, the Property, the Property Owner, or any affiliated entity of the Property Owner. The PCA Consultant must disclose in the PCA Report if the PCA Consultant is an employee or affiliate of the Lender.

C. PCA Consultant Qualifications

The PCA Consultant must not be under suspension or debarment by HUD or Fannie Mae, involved as a defendant in criminal or civil action with HUD or Fannie Mae, and not be on the FHFA’s Suspended Counterparty Program list. The PCA Consultant, individually or collectively, must meet the minimum qualifications, professional education, training and experience set forth below to perform site visits, evaluate multifamily property components and building systems, and prepare the PCA Report to the specifications set forth in these Instructions. The PCA Consultant must be in compliance with these qualifications from the time of engagement by the Lender through the delivery of the final PCA Report. The PCA Consultant shall include its statement of qualifications in Exhibit F to the PCA Report. The minimum qualifications of the PCA Consultant are set forth below. The Lender may require additional qualifications or impose alternate qualifications and, in each case, such additional or alternate qualifications must be described in the final version of the PCA Report. The PCA Consultant must maintain copies of all required certifications and documented experience for each individual responsible for working on the PCA and the final PCA Report.

1. Education. A qualified PCA Consultant must have a Bachelor of Science degree in engineering, architecture, construction management, historic preservation, construction/building science, or building facilities management.

2. Professional Experience. A qualified PCA Consultant must have the following minimum professional experience:

(a) 5 years of professional experience in one or more of the following disciplines:

architecture;

engineering (structural, mechanical or civil); or construction management and cost estimating (which may include cost estimating experience associated with the preparation of a PCA Report).

(b) within the last 3 years, have experience performing multifamily property condition physical needs assessments, completed a minimum of 5 property inspections, and reporting of property condition assessment findings in a manner consistent with these Instructions or ASTM E2018-08, as amended or restated from time to time;

(c) prior experience evaluating multifamily properties with comparable building systems and components;

(d) knowledge and experience with ASTM E2018-08 “Standard Guide for Property Condition Assessments:

Baseline Property Condition Assessment Process”, as amended or restated from time to time; and

(e) knowledge of applicable federal, state and local building codes and regulations of the Property jurisdiction.

D. Field Observer Qualifications

The representative of the PCA Consultant performing the on-site walk-through survey or site inspection is the “Field Observer”. The Field Observer must meet the following qualifications:

1. Professional Experience. A qualified Field Observer must have the following minimum professional experience:

(a) 3 years experience performing property condition assessments and have completed a minimum of 5 property inspections at multifamily properties;

(b) prior experience evaluating multifamily properties with comparable building systems and components;

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(c) knowledge and experience with ASTM E2018-08 “Standard Guide for Property Condition Assessments:

Baseline Property Condition Assessment Process” or most current version; and

(d) knowledge of applicable federal, state and local building codes and regulations of the Property jurisdiction.

2. Professional Certifications, Registrations and Training. A qualified Field Observer must possess or have successfully completed one of the following current professional certifications, registrations or training programs:

(a) Bachelor of Science degree or 2-year Associate Degree program in engineering, architecture, construction management, historic preservation, construction/building science, or building facilities management;

(b) Commonground University’s Property Condition Assessment online course offered by EDR;

(c) Property Inspection Risk Management course offered by the MBA;

(d) Real Estate Assessment Center (“REAC”) for the Department of Housing and Urban Development (“HUD”) as a Certified Home Inspector;

(e) Building Performance Institute (BPI);

(f) American Society of Home Inspectors (“ASHI”);

(g) International Association of Certified Home Inspectors (“InterNACHI”);

(h) At least 12 years assessing multifamily properties and preparation of ASTM E2018 compliant reports; or

(i) other Fannie Mae approved professional certifications, registrations or training.

The PCA Report delivered to the Users be reviewed and certified by a professional engineer or by a licensed or registered architect, in good standing, or by an individual with appropriate experience and certifications in the construction field. The PCA Report must be signed by an employee of the PCA Consultant (i) with experience commensurate with the subject property type and scope (i.e., size, complexity, etc.), (ii) who has reviewed and certified the findings and conclusions of the collective PCA project team set forth in the PCA Report, and (iii) who is not a subcontractor of the PCA Consultant.

E. PCA Consultant Insurance Requirements

The PCA Consultant must have the following insurance coverage in place, in amounts consistent with the market for the scope of its responsibilities:

Commercial General Liability Insurance;

Professional Liability Insurance;

Worker’s Compensation insurance; and

Automobile Liability Insurance for all owned (if any), non-owned and hired vehicles.

The above policies should be issued by an insurance carrier rated by AM Best A-VI or higher. The PCA Consultant should also have appropriate insurance coverage in place for traveling to and from the Property and conducting work at the Property.

The Lender and its successors and/or assigns must be listed as an additional insured on the PCA Consultant’s Commercial General Liability Insurance. The PCA Consultant must deliver proof of the required insurance coverage to the Lender, unless previously delivered to the Lender within the past 12 months in connection with another PCA.

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2.1. Base PCA

The Base PCA sets forth the minimum due diligence, observation, evaluation and reporting that must be performed by the PCA Consultant for a multifamily property without regard to property type, tenant-mix, or any specific program financing requirements. The Base PCA must include an expanded evaluation of the ASTM Standard Guide for Property Condition Assessments: Baseline Property Condition Assessment Baseline Property Condition Assessment Process (ASTM 2018-15), as updated or restated from time to time, and other property condition considerations as identified in these Instructions.

2.2. Streamlined Property Condition Assessment

In certain circumstances, the Lender may instruct the PCA Consultant to use an abbreviated or streamlined PCA Report in place of the standard PCA Report (a “Streamlined PCA”). The Streamlined PCA requires the PCA Consultant to:

observe all of the same components and characteristics at the Property outlined in Section 4.3 of these Instructions; and report on all Opinions of Probable Costs (as set forth in Section 4.2 of these Instructions).

The PCA Consultant is not generally required to include the same level of detail within the Streamlined PCA Report as in the Base PCA Report, primarily focusing on immediate capital needs, deferred maintenance and capital expenditures anticipated over the Evaluation Period. Guidance for performing a Streamlined PCA is included in Appendix A to these Instructions, “Streamlined PCA Report”. The PCA Consultant should note that a User may require additional scope of work beyond that required by the Streamlined PCA in Appendix A to these Instructions.

2.3. PCA Modules

In addition to the Base PCA required for all Properties, specific Modules may be required by the Lender. The Modules address unique Property types and uses, as well as specific program financing or other Fannie Mae requirements.

If PCA Consultant determines that a Module is appropriate but not included in the scope of work provided by the User at project engagement, the PCA Consultant should consult with the User to determine whether additional Modules are to be completed. If the PCA Consultant determines that specific Modules are appropriate, but were not included in the scope of work provided by the Lender at the time of engagement, the PCA Consultant must contact the Lender immediately to determine whether additional Modules are to be completed.

Module findings are integrated into the PCA Report and are required for the following Property types, Fannie Mae financing product, or as otherwise required by the Lender or requested by a User:

Student Housing Properties;

Seniors Housing Properties;

Manufactured Housing Communities

Cooperative Properties;

Modular Housing/Modular Construction;

Properties with multifamily residential mixed with commercial or retail use; and/or

Properties with an existing solar photovoltaic system (“Solar PV System”).

2. Overview of the Multifamily Property Condition Assessment

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Three additional Modules should only be completed by the PCA Consultant if specifically included in the PCA scope of work:

Properties requiring an Integrated Pest Management Plan (IPMP);

Properties requiring a High Performance Building (HPB) Evaluation; and/or

Properties requiring a Technical Solar Assessment.

The PCA consists of three phases with the minimum requirements for each phase described in this Section.

PHASE 1: Preliminary Due Diligence

PHASE 2: Site Visit

PHASE 3: PCA Report

3.1. Phase 1: PCA Preliminary Due Diligence

Preliminary due diligence will provide the PCA Consultant with an overall understanding of the Property and its past and current operations and performance. The preliminary due diligence will also allow the PCA Consultant to better define the on-site visit scope of work and provide a more efficient and effective site visit.

A. Data Collection and Document Review

Review of the following recommended documentation will provide the PCA Consultant with the knowledge necessary to plan the on-site visit and prepare the PCA Report:

previously completed reports on the Property’s condition, including any prior PCA report, seismic report, or environmental assessment;

Certificates of Occupancy;

the following items typically found in the Comprehensive Facilities Operation and Maintenance Manual (CFOMM), but which may be requested independently if the Property does not have a CFOMM:

• Property specifics:

ο Site Survey;

ο As-built Drawings;

ο Finishes and Materials List; and ο Vendor Data, etc.;

• Operating Procedures:

ο Systems Overview; and ο Operating Procedures, etc.;

• Maintenance Program:

ο Preventative Maintenance Requirements; and ο Corrective Maintenance Requirements;

3. PCA Scope of Work

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• Deliverables:

ο Operations and Maintenance Plans (e.g., Asbestos, Lead, Mold, other Known Problematic Buildings Materials and Property Design Issues);

ο Maintenance reports, contracts and receipts;

ο Maintenance and repair contracts in place for planned or future capital items ο Inspection Records and Certificates (i.e., elevator, boiler and safety inspection records); and ο Warranties; and

• Training Manuals, etc.;

any additional information related to maintenance and replacement of the Property’s capital items;

any pending proposals for work to be completed or outstanding repair tickets;

a listing of any planned capital improvements, the scope of work, and project timeline for such improvements.

B. Special Hazards, Zoning, Building and Fire Code Violations and Regulatory Compliance

Upon engagement, the PCA Consultant should make all appropriate inquiries to obtain and review any relevant information relating to the Property from the local governmental agencies and departments having jurisdiction over the Property (which is typically reproduced and provided upon request to the municipality under the Freedom of Information Act). The review of governmental records and additional inquiries by the PCA Consultant will allow the PCA Consultant to reasonably determine whether the Property has any existing code violations, including building, health, fire, regulatory, and zoning compliance violations.

The PCA Consultant will include copies of any such documentation in Exhibit E to the PCA Report. Any information requested but not received should also be documented in Exhibit E to the PCA Report, including any requests made under the Freedom of Information Act.

C. Pre-Site Visit Questionnaire

Prior to the PCA Consultant’s site visit, the Lender or the PCA Consultant should deliver a pre-site visit questionnaire to the Property Owner or the Property Owner’s representative (the “Property Point of Contact” or “POC”) for completion and the PCA Consultant shall make reasonable efforts to review the pre-site visit questionnaire prior to the site visit. The pre-site visit questionnaire will provide the PCA Consultant with an understanding of the components and systems at the Property and facilitate an effective and efficient site inspection. (See Appendix B to these Instructions, “Pre-Site Visit Questionnaire”, for a sample pre-site visit questionnaire.). If the pre-site visit questionnaire is received prior to the Field Observer’s site visit, the PCA Consultant should interview the Property Point of Contact to address any needed clarifications and coordinate the on-site scope of work.

3.2. Phase 2: Site Visit

The site visit will provide the PCA Consultant with the information and visual observations necessary to provide a comprehensive evaluation of the overall condition of the Property, its systems and components in order to make a reasonable determination of the Property’s functionality and sustainability. The site visit is to be a visual and non-invasive inspection of observable and accessible areas of the Property by the Field Observer. The Field Observer shall use its professional experience, combined with recognized industry standards, to assess the condition, capacity, and appropriateness of maintenance practices of existing Property systems and components, taking into account the local climate and the use of the Property. The Field Observer will determine and compare the effective age of the Property’s systems and components to the year the Property was constructed (including identification of the phases of construction with consideration for significant renovations) as a tool to assess past and current maintenance practices. If the PCA Consultant does not deem current repair and maintenance practices or procedures sufficient to maintain the Property, then the PCA Report should note any deficiency and provide appropriate recommendations.

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A. Site Visit Approach

The Field Observer will conduct a walkthrough of the Property observing the Property’s systems and components to identify deferred maintenance items, physical needs and unusual or unique features. The Field Observer is not required to perform diagnostic testing as part of the PCA unless otherwise specifically stated in these Instructions or as required by the Lender or another User. All building exterior surfaces must be observed unless inaccessible. If portions of building exteriors are not accessible, the Field Observer will describe the limitations or obstacles to access. The Field Observer should use its professional judgment if additional systems and components (not included in these Instructions) are present that should be observed and included in the PCA Report.

B. Interviews

The Field Observer shall conduct on-site interviews with persons determined to be knowledgeable of the Property’s history, documenting the years of relevant multifamily experience and employment at the Property of such individuals. If not already received, the Field Observer should collect and review the pre-site visit questionnaire, and address any missing information where appropriate. The Field Observer must make reasonable efforts to interview the maintenance supervisor and the Property’s on-site manager. If these individuals are not available or accessible, the PCA Consultant is to document this as a limitation in the PCA Report. If the PCA Consultant receives the POC’s consent in advance, residents may be interviewed to determine if conditions of their individual units are acceptable and meet their expectations for physical conditions, heating, cooling, utility expenses, noise control and scent or odor penetration. The PCA Report should summarize any relevant tenant interviews or conversations but is not required to identify residents.

C. Observation of Dwelling Units

The PCA Consultant should inspect a sufficient number of each dwelling unit type and system in each dwelling unit to opine on the present and probable future condition of the dwelling units and their systems. Based on the PCA Consultant’s due diligence, site observations, current property operations and maintenance procedures, any planned capital improvements and other available information, the PCA Consultant should use its professional judgment to opine on whether the property and dwelling units will continue to operate in a manner consistent with its current or anticipated (if immediate repairs or renovations are planned) physical condition.

The PCA Consultant must make reasonable effort to select units for inspection based on a random distribution of unit type, buildings, and floors. To facilitate a random sampling of dwelling units, the PCA Consultant, in a timely manner (typically 24 to 36 hours prior to scheduled on-site visit), will provide the POC with a list of dwelling units to be inspected to allow the Property Manager to provide advance notice to those tenants. The POC may identify or recommend additional or replacement dwelling units as deemed appropriate. The PCA Report will identify the dwelling units inspected, including building and unit number, unit type, occupancy status and floor. The PCA Report must identify whether dwelling units were randomly selected by the PCA Consultant or, if not randomly selected, (i) how the dwelling units were selected for inspection, and (ii) the limitation preventing a random selection. The following schedule provides the minimum number of dwelling units required to be accessed and inspected:

(i) Properties with 5 to 50 units:

A minimum of 5 occupied units will be surveyed.

Survey all vacant units, up to a maximum of 15, including all units that have been vacant longer than 90 days. If all inspected units do not exhibit a clear and consistent pattern of maintenance and age of components, additional vacant units should be inspected.

Survey all “down” units (i.e., units not currently in rentable condition).

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(ii) Properties with 51 to 300 units:

Survey a minimum of 10% of all units (occupied or vacant).

Survey all units that have been vacant longer than 90 days. If all inspected units do not exhibit a clear and consistent pattern of maintenance and age of components, additional vacant units should be inspected.

Survey all “down” units.

(iii) Properties with more than 300 units:

Survey a minimum of 5% (but not less than 30) of all units (occupied or vacant).

Survey all units that have been vacant longer than 90 days. If all inspected units do not exhibit a clear and consistent pattern of maintenance and age of components, additional vacant units should be inspected.

Survey all “down” units.

If the PCA Consultant is unable to meet the minimum unit inspection requirements set forth above, the PCA Consultant must still be able to make a reasonable determination of the overall condition of the dwelling units at the Property. If the minimum unit inspection requirements were not satisfied, the PCA Consultant must (i) notify the Lender, and (ii) document in the PCA Report the deviations from the minimum unit inspection requirements and any limitations preventing compliance.

D. Photographic Documentation

The PCA Consultant shall provide photographic documentation representative of the Property, sufficient in quantity and quality to appropriately document the Property’s current physical condition. The photographs should be representative of typical site improvements, amenities, and interior dwelling units. The PCA Report must include photographic documentation of all identified Immediate Repair Items and Replacement of Capital Items (representative photographs may be used as appropriate), clearly illustrating the nature and scope of the required repairs with appropriate description and location identified. All major building systems, equipment, and nameplates should be photographed and included in the PCA Report. If not removed from the appliances, the PCA Report should also include a representative sample of dwelling unit appliance Energy Guide labels according to the Federal Trade Commission’s Appliance Labeling rules.

3.3. Phase 3: PCA Report

The PCA Report must provide definitive guidance for each deficiency identified by the PCA Consultant and recommend a course of action for the Property Owner.

The PCA Report must conform to the following format, incorporating the findings of the applicable Module within the appropriate section of the PCA Report. Further instructions for observing and reporting of Property characteristics and components are discussed in greater detail in Section 4 of these Instructions.

Section 1: Executive Summary

1.1 Summation of PCA Findings

1.2 Summary of Recommended Repairs and Replacement Cost Estimates

1.3 Identified Known Problematic Building Materials Table

1.4 MBA Standard Inspection Form (if completed by the PCA Consultant)

1.5 Members of PCA Consultant Team

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Section 2: Cost Estimate Schedules: Immediate Repair and Replacement of Capital Items

2.1 Immediate Repair Items: Life Safety, Critical Repair, Deferred Maintenance Items

2.2 Replacement of Capital Items (physical needs over the Evaluation Period), including Property Remaining Useful Life

Section 3: Property Characteristics

3.1 Site Components

3.2 Structural Frame and Building Envelope (Architectural Components)

3.3 Mechanical/Electrical/Plumbing Components

3.4 Interiors/Dwelling Unit Components

Section 4: Moisture and Microbial Growth and Pest Management

4.1 Moisture and Microbial Growth

4.2 Pest Management

Section 5: Special Hazards, Zoning, Building and Fire Code Violations and Regulatory Compliance

5.1 Special Hazards

5.1.1 Peak Ground Acceleration (PGA)

5.1.2. Hazards/Geographic Conditions/Catastrophic Event Potential

5.1.3. Flood Zone

5.2 Zoning

5.3 Building and Fire Code Violations

5.4 Regulatory Compliance

Section 6: Areas of Additional Assessment

6.1 Known Problematic Building Materials

6.2 Summary and Evaluation of Historical Capital Repairs and Replacements, Work in Progress, and Planned Capital Improvements

Section 7: Report References, Procedures, and Limitations

7.1 References used by the PCA Consultant for Preparation of PCA Report

7.2 Assessment Methodology

7.3 Limitations

PCA Report Exhibits

Exhibit A: Photo Documentation

Exhibit B: Location Map, Aerial Photo and Site Plan (if available)

Exhibit C: Structural Risk Evaluation Questionnaire (if applicable)

Exhibit D Pre-Site Visit Questionnaire

Exhibit E: Record of all Documents Reviewed, Interviews, and Supporting Information

Exhibit F: Statement of Qualifications (individual qualifications of the PCA Consultant’s project team contributing to PCA Report)

Exhibit G: Statement of Energy Performance (if required)

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The specific instructions for observing and reporting the base PCA are detailed in this section.

4.1. PCA Report Section 1: Executive Summary

A. Summation of PCA Findings

The PCA Executive Summary will:

indicate that the report is a Property Condition Assessment, at whose request the PCA was ordered, and certifying that the PCA Report was prepared in accordance with, and meets the minimum scope of work and other requirements of, these Instructions (including the date of the Instructions and version number);

state the purpose of the Property Condition Assessment, if known;

state which Modules are incorporated;

provide a summary description of the Property, including, but not limited to:

• name of the Property;

• location;

• use;

• size (including number of buildings, square footage and number of dwelling units);

• age;

• construction type, including whether modular construction (NOTE: If not identified prior to the site visit that the Property includes any prefabricated construction, the PCA Consultant must notify the Lender immediately. See Modular Housing/Modular Construction Module for additional requirements when completing a Fannie Mae Property Condition Assessment);

• visibility and accessibility from major or public roadways; and

• occupancy type;

describe which standards and protocols were used for preparation of the PCA Report and a certification by the PCA Consultant that required minimum protocols and standards were met, including reliance language;

state the site visit date;

state the names of the individuals from the PCA Consultant, the Property Point of Contact, and all Property Owner representatives providing information or attending the Property site visit;

describe the weather and conditions at the time of the site visit;

identify whether any limitations or constraints prevented the PCA Consultant from performing the entire required scope of the PCA as set forth in these Instructions; and provide a concise summary of the conclusions reached by the PCA Consultant concerning the overall condition of the Property, including the PCA Consultant’s professional opinion of the Property’s prospects, and the quality of the current maintenance programs based on the collective due diligence, site observations, current Property operations and maintenance procedures, any planned capital improvements and other available information.

The PCA Consultant should use its professional judgment to opine whether the property will continue to operate in a manner consistent with its current or anticipated (if immediate repairs or renovations are planned) physical condition. If the PCA Consultant does not deem that planned improvements or current repair and maintenance practices are sufficient to maintain the Property in its current condition or improve the condition of the Property, then the PCA Report should note any deficiencies and provide appropriate recommendations.

4. Property Condition Assessment Report

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B. Summary of Recommended Repairs and Replacement Cost Estimates

The Executive Summary will include the Summary of Recommended Repairs and Replacement Cost Estimates table summarizing the PCA Consultant’s professional opinion of probable costs (as set forth in Section 4.2).

C. Known Problematic Building Materials Identified Table

The Executive Summary will include a summary table that includes a summary of identified Known Problematic Building Materials and Property Design Issues as set forth in Section 4.6 of these Instructions. Additional information on Known Problematic Building Materials and Property Design Issues is included in Appendix G - “Known Problematic Building Materials”, to these Instructions. Appendix G is not meant to be an all-inclusive list of all known building material and design issues, and the PCA Consultant should use its professional judgment to determine the presence of any additional problematic building material or design issues at the Property.

D. MBA Standard Inspection Form

If the PCA Consultant is requested by the Lender to complete the MBA Standard Inspection Form simultaneously with the PCA Report, the Executive Summary must include a copy of the MBA Standard Inspection Form in Excel format.

E. Members of PCA Consultant Team

The Executive Summary will also list the names, titles and certifications of the individuals who actively participated in the PCA and the preparation of the PCA Report, followed by the signatures of each qualified participants and his or her qualifications as required by these Instructions.

4.2. PCA Report Section 2: Opinion of Probable Costs - Cost Estimate Schedules for Immediate Repairs and Replacements of Capital Items

The PCA Report will present the PCA Consultant’s professional opinion of the probable cost, including installation, for each

(i) item needing immediate repair (an “Immediate Repair”), and (ii) capital item reasonably expected to need replacing (a “Replacement of Capital Item”) during the Evaluation Period. All cost estimates provided as part of the PCA must reference the source.

A. Determination of Probable Costs

When estimating the costs of repairs or the required replacement of a capital item, the PCA Consultant should consider:

reviewing data from contractors and vendors on unit pricing and labor costs (but excluding labor costs if work can be performed satisfactorily by the Property maintenance staff);

obtaining base materials and labor costs from the R.S. Means handbook or other industry standard estimating guide (the Means or other handbook used should be no more than two years in age, and the PCA Consultant should (i) inflate costs 3% per year for each year out of date, and (ii) use City Indices, as the differences between cities can be significant);

accounting for associated demolition, construction and finishing work that may be required for installations;

including “hidden costs” (i.e., asbestos or lead abatement, sidewalk bridges and scaffolding for window repair/replacement, etc.) or explicitly state otherwise and recommend if an additional assessment is necessary;

including design, analysis and construction management costs, to the extent reasonable, and overhead and profit (O&P), as appropriate, in the cost estimate (e.g., if design of a new heating system is required, the cost of this design must be included as part of the cost of the heating system, allowing for the cost effectiveness of measures to be more fairly and accurately assessed); and

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The cost estimates for the repair or replacement of all systems or components are to be based on parts and equipment that meet the most stringent of (i) minimum specifications mandated by applicable federal, state and local building codes, fire codes, and regulations for renovations, (ii) the current minimum guidelines established by the Department of Energy (DOE) energy efficiency standards for certain appliances and equipment pursuant to the Title III of the Energy Policy & Conservation Act of 1975 (42 U.S. Code, § 6291-6313, as amended), or (iii) other Fannie Mae approved sources.

B. Cost Estimates for Immediate Repair

The cost estimates for Immediate Repairs include the categories discussed below and will be detailed in an “Immediate repairs” table. Immediate Repairs include:

Immediate Repair Items are items that, in the PCA Consultant’s professional judgment, if left in the current condition, have the potential to cause injury, illness, or death to employees, residents, or guests at the Property, and include:

• Life Safety Items (these Instructions do not attempt to define Life Safety, instead relying on the professional opinion of the PCA Consultant to identify Life Safety items unless considered a Life Safety violation by federal, state, or local law, ordinance, or code);

• required remediation related to the presence of moisture, microbial growth, and pests; and/or

• repairs necessary for the Property to comply with all federal, state, or local retro-commissioning, energy audit and reporting, or other energy-related compliance requirements;

Critical Repair Items are items requiring immediate remediation to:

• prevent additional substantial deterioration to a particular system;

• address an immediate need observed by the PCA Consultant; or

• extend the life of a system critical to the operation of the Property.

Critical Repairs include equipment or property components with extreme deficiencies that will cause damage or continued deterioration of a system if left unmitigated. Critical Repairs also include corrections of conditions that adversely affect ingress or egress and sustained occupancy at the Property. Critical Repair items are those items that should typically be addressed immediately or within 6 months from the date of the PCA Report); and

Deferred Maintenance Items are non-recurring capital items, such as material systems, components, or equipment that are approaching, have reached, or have exceeded their estimated useful life, and which have the potential to affect the Property’s financial and operational performance if not remediated in a timely manner (typically within 12 months from the date of the PCA Report).

C. Cost Estimates for Replacement of Capital Items

The cost estimates for Replacement of Capital Items include the Property’s material systems, components, and equipment expected or required to be maintained or replaced at the Property over the Evaluation Period. Replacement of Capital Items are items anticipated, in the PCA Consultant’s professional judgment, to meet or exceed their Remaining Estimated Life during the Evaluation Period, and which, if not repaired or replaced, have the potential to materially affect the Property’s financial or operating performance. The PCA Consultant should evaluate the sufficiency of the Property Owner’s cost estimates and implementation schedule for capital items already scheduled by the Property Owner to be replaced at any time during the Evaluation Period, but not include such items on the Cost Estimate Schedule for Replacement of Capital Items, unless specifically requested by either the Lender or the Property Owner. The cost estimates for Replacement of Capital Items will not include the cost estimates for repairs included in the Cost Estimate Schedule for Immediate Repair Items unless additional recurring maintenance to these same items will also be required during the Evaluation Period.

The PCA Report should provide a recommendation regarding anticipated capital items replacements, with appropriate detail on the timing, location, and nature of the anticipated capital replacement needs. The PCA Report will document the

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Replacement of Capital Items with a schedule titled “Cost Estimate Schedules for Replacement of Capital Items”. The schedule of Replacement of Capital Items will include itemized current replacement cost and inflation adjusted replacement costs. A 3% annual inflation factor will be added to the cost estimates for Replacement of Capital Items from the date of the PCA Report through the scheduled replacement date.

The completed Property Useful Life Table (See Appendix D to these Instructions, “Guidance on Preparing PCA Report

Schedules and Tables”, will be included in the Executive Summary section of the PCA Report. The Property Useful Life Table will include the PCA Consultant’s professional opinion of the effective age and remaining useful life of the Property’s systems and components, incorporating environmental, geographic, maintenance, resident or other factors, beyond normal wear and tear, that may impact the Effective Age (“Eff Age”) and Remaining Useful Life (“RUL”). To complete the Property Useful Life Table, the PCA Consultant will reference the standard useful life tables for multifamily property systems and components set forth in Appendix F to these Instructions, “Estimated Useful Life Tables”. The Estimated Useful Life (EUL) Tables represent average Estimated Useful Life values and are not intended to replace the professional judgment of the PCA Consultant in determining the Effective Age and Remaining Useful Life of the Property’s systems and components.

The PCA Consultant will evaluate and rate the Property systems, components and equipment based on a 1 (best) through 5 (worst) scale and further defined in Appendix D to these Instructions - “Guidance on Preparing PCA Report Schedules and Tables”.

Any Property component with a Remaining Useful Life that does not extend beyond the Evaluation Period (or where the Property Rating indicates substandard maintenance practices) should be addressed in the PCA Report, either in the Cost Estimate Schedules or providing a justification for exclusion (e.g., the component is included in routine maintenance or covered by warranty, etc.). The PCA Consultant must state a specific conclusion on the condition of the Property systems, components, and equipment, and is not permitted to use the term “varies” as a conclusion.

4.3. PCA Report Section 3: Property Characteristics

The PCA Report will include a description of the condition of the Property systems, components, and equipment, including recommended replacement specifications, repairs, maintenance, and scope of work for any recommended repairs or replacements. The precise physical location of each recommended repair or improvement must be identified. The PCA Consultant will evaluate and rate the Property systems, components, and equipment on a 1 (best) through 5 (worst) scale. Property Condition Standards and Ratings are further defined in Appendix D to these Instructions, “Guidance on Preparing PCA Report Schedules and Tables”.

The PCA Consultant should include the following assessments and evaluations.

A. Site Components

1. Site Configuration and Size: Report on the number of separate parcels of land, shape, general topography, and acreage, and explicitly state whether all parcels are parcels are contiguous, non-contiguous, or scattered site.

A “contiguous Property” consists of either (i) a single parcel, or (ii) multiple parcels of multifamily residential properties that are either adjoining or separated by dedicated or private streets that are not major arterials, and have the following characteristics:

• all parcels of the Property have been operating as one project;

• the parcels are within a reasonable distance from each other (no more than 0.25 miles apart), and are all within the same submarket;

• any shared amenities on any parcel are available to all tenants;

• the location of amenities on one parcel does not materially adversely affect the rents at another parcel without amenities; and

• no elevated vacancy level exists at one parcel due to the Property’s configuration.

A “non-contiguous Property” consists of multiple parcels of multifamily residential properties that are

(i) either not adjacent or are separated by dedicated or private streets that are major arterials, or (ii) does not otherwise meet all of the above characteristics for a contiguous Property.

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A “scattered site Property” is comprised of several non-contiguous parcels of non-multifamily housing units (e.g., single-family townhomes) dispersed throughout an area, community, or development.

2. Utility Providers: Provide a table that lists each utility provider to the Property and the utility provided.

3. Site Landscaping, Grading and Drainage: Identify site appurtenances, including irrigation systems, water features, signage (monumental, roadway, and parking signage), and ponds, including detention and retention ponds. Observe landscaping, noting types and extent of trees, ornamental shrubberies, and landscape planting areas. Observe the site topography, unique features or conditions. Report the storm water collection and drainage system.

4. Water and Sanitary Lines: Identify and report on major utility and plumbing systems including piping (supply water, storm and sanitary lines. If available identify and report the type of utility provided plumbing materials. If applicable, identify timing of known or needed replacements including anticipated operations and maintenance, presence of unique design features, as well as the suspected or known presence at the Property of any known problematic building materials or design issues identified in Appendix G to these Instructions, “Known Problematic Building Materials and Building Design Issues”.

5. Ingress/Egress: Observe ingress and egress to the site. Identify condition of paved areas and if the Property is located in a walkable neighborhood, determine whether site sidewalks and pathways are connected to neighborhood walkways. Describe site security type or secured site ingress or egress.

6. Flatwork, Parking Areas, and Walkways: Observe drive and parking area material, paving, and curb systems.

Interview building maintenance personnel to obtain a general idea of the maintenance and performance history of the drive and parking areas, if not already provided. Visually examine sufficient portions of the pavement surface to evaluate overall conditions and to identify the type, extent, and severity of existing problems.

Determine whether there are any serious underlying deficiencies. Provide recommendations as to the types of repairs that are needed to restore or maintain a serviceable pavement. Observe sidewalks, pool decks, and patios.

7. Site Lighting: Identify and observe all site lighting systems. Identify lighting system controls such as programmable timers, occupancy sensors and photocell technology. Assess the “effectiveness” of the site lighting systems, including a determination whether:

light fixtures are operational;

lamp covers are free from excessive staining;

light fixtures are non-obstructed by landscaping or other material; and the Property appears to have sufficient lighting.

Assessment of the “effectiveness” of the site lighting is intended to be a visual inspection during the site visit, as a night site visit is outside the scope of work of these Instructions.

8. Site Fencing and Retaining Walls: Observe types, locations, and conditions of site fencing and retaining walls.

B. Structural…