RD’s CNA Process - taah.org · • A snapshot in time useful for estimating reserves and a tool...

RD’s CNA Process

Brian Sutherland Tennessee RD State Engineer \

State Architect\State Environmental Coordinator

CNA Process 2

PLEASE NOTE:

• Outlines current policies and procedures for CNAs in RD’s MFH programs.

• Does not address policies and procedures for the

future HUD/RD CNA e-Tool. We’ll come back to this.

CNA =Capital Needs Assessment

CNA Process 3

WHAT ARE THEY ?

• A snapshot in time useful for estimating reserves and a tool for financial planning.

• A written report that identifies the major repair, replacement, and improvement needs of a

MFH property over a 20-year period.

Capital Needs Assessment

CNA Process 4

WHAT ARE THEY NOT : 1. An assessment of ALL costs of ownership over the economic life of the material or system. Doesn’t consider operating costs(Life Cycle Cost Analysis).

2. A comprehensive report on work items and their related costs for a proposed / potential rehabilitation project. (Unit by Unit Inspection)

3. A repair/rehab list


CNA Process 5

WHEN ARE THEY REQUIRED ?

1. New Construction Loan. 2. Rehabilitation (loan or tax credit funds) 3. Requested Changes to Reserve Requirements 3. Transfer of project ownership. 4. Loan Servicing: a. Loan Re-amortization. b. Loan Write-down. 5. Preservation and Revitalization Program.


CNA Process 6

WHAT DO THEY INCLUDE ? 1. Description of the property, materials, and

systems. 2. Condition of materials and systems. 3. Accessibility Compliance/Issues. 4. Environmental Compliance/Issues. 5. Repair / Replacement / Improvement Costs. 6. Repair / Replacement / Improvement

Schedule. (IMMEDIATE & LONG TERM)


CNA Process 7

WHAT IS THEIR PRIMARY PURPOSE ?

• Provide important data for the Underwriting Process

• Useful tool for determining financial needs (reserve analysis)


CNA Process 8

• CNA Providers (Contractors) • Agency

WHO PROVIDES THEM ?


CNA Process 9

Step 1: The CNA Contract

(and Addendum) Step 2: The Draft Report Step 3: The Final ( Revised ) Report

The CNA Process – 3 Steps

CNA Process 10

Step 1: The CNA Contract (and RD Contract Addendum)

The CNA Process – Step 1

CNA Process 11

1. Owner selects qualified CNA Provider

• Owner may consult with RD

• RD does not maintain a directory of CNA Providers. RD can provide a short list of CNA Providers that have worked in Tennessee.

• RD can provide a copy of the current Unnumbered Letter and Exhibits


CNA Process 12

Owner selects a Qualified CNA Provider

• No Identity of Interest w/Owner, Management, Architect, or Contractor. • Trained in Evaluating MFH Properties and Estimating Costs. • Experience w/ RD MFH CNAs. • Knowledgeable of building and codes and accessibility standards and guidelines. • Not debarred or suspended. • Self Certification (part of contract)

The CNA Process – Step 1 Issues

CNA Process 13

2. Owner and CNA Provider write agreement. (Usually CNA Provider’s standard contract form.)

3. Contract should include RD CNA

Contract Addendum and RD CNA Statement of Work.

4. Owner sends agreement to

RD . . .


CNA Process 14

Contracts w/o the RD Contract Addendum and RD SOW:

• Won’t be accepted because…

• Time always an issue – if Contract Addendum and SOW not provided, then will slow application processing, underwriting, future rehab, etc .


CNA Process 15

RD DESIGNATED REVIEWER ?

5. Contract documents reviewed by designated RD CNA Reviewer . . .

• RD engineer, architect or other employee

with similar training & qualifications

• RD’s Review checklist is in current UL, Attachment H


CNA Process 16

CNA Provider Services?

Statement of Work (SOW):

•Must be attached •SOW - Latest Edition


CNA Process 17

COST ?

A. Fee - average in TN:

• $3000-$3500 • Can sole source if cost doesn’t exceed $3,500 •Must obtain multiple quotes if >$3,500

B. Maximum Initial Payment=50% of total fee


CNA Process 18

RD Contract Review and Concurrence:

– Owner and Provider may sign the agreement and Owner forwards by E-Mail to RD Reviewer for Concurrence

– RD concurs or requests changes by E-MAIL NOTIFICATION

– Changes made and returned by E-MAIL for RD Concurrence

– RD concurs and returns signed Agreement to Owner and RD MFH staff by E-MAIL


CNA Process 19

Step 2: Preparing The Draft CNA Report


CNA Process 20

A.

1. Owner should give CNA Provider:

A. Access to property and identify contact(s) B. Property information C. Existing reports and plans D. Capital expenditures over last 3-5 years E. Maintenance logs previous 12 months F. Invoices for recently completed capital

improvements G. Current Self Evaluation/Transition Plan H. USDA RD’s latest compliance review I. Scope of work and detailed cost estimate if

a rehab is planned


CNA Process 21

2. CNA Provider inspects the property. . .

•Site and all amenities. •Building exteriors. •Interior common areas. •Dwelling units – minimum % per RD’s current UL •Existing reports and plans •Interviews •Environmental: Radon, LBP, ACM, Mold

Inspections: (NOT BY RD)


CNA Process 22

•Directly observed or potential hazards? • Non-intrusive “observations”. •Address any EXISTING test results:

-Radon - Lead (LBP Risk Assessment)

- Mold • Make recommendations for further study, if necessary.

Environmental:


CNA Process 23

3. CNA Provider writes the report. . .

Immediate Capital Needs:

-Critical Health & Safety items (“year 0”) -Accessibility included in Year 1 (for As-Is

CNAs)


CNA Process 24

Immediate Capital Needs:

Critical Health & Safety items (“year 0”) Accessibility: Include in Year 1 if not rehabbing (for

As-Is CNAs)


CNA Process 25

• Address ALL applicable codes, standards, and guidelines.

- UFAS/ADAAG/Fair Housing) • Use CURRENT Self Evaluation /

Transition Plan. -If none, use UL Exhibit F Accessibility Checklist • UL Attachment E (applicable

accessibility laws/standards) and Attachment G (accessibility FAQs) provide good information for CNA Providers.

Accessibility:


CNA Process 26

• Major System Groups: - Site - Architectural - Mechanical and Electrical - Dwelling Units

Materials and Conditions:


CNA Process 27

• ALL Materials:

- Expected Useful Life ( EUL ) - Age - Remaining Useful Life (RUL)

- Condition (EXC, GOOD, FAIR, POOR)

- Action (MAINT, RPR, REPL, CONST, NONE)



CNA Process 28

• IF actions are needed:

- Quantities - Year (s) of Action - Action Duration (minimum 1 year duration required) (spread replacement over time) - NO EXCESSIVE DURATIONS -> 5 years -”cost leveling” - Schedule - Costs



CNA Process 29

WHAT ARE CURRENT DOLLARS ?

• Dollars of purchasing power in which prices TODAY are stated. (UN-INFLATED)

WHAT ARE INFLATED DOLLARS ?

• Dollars of purchasing power in which prices tied to a FUTURE YEAR are calculated.

•Inflation rate is provided by RD – 3 % based on: CPI - Const Costs – Common Practices.


CNA Process 30

Inflated Dollars:

$$ ( CURRENT ) x (1 + i) n-1 = $$ ( INFLATED ) i = inflation rate n = reference year

EXAMPLE: What will the inflated value of $1000 be in Year 10 with a 3% inflation rate ?

$1000 x (1 + .03) 10-1 = $1305


CNA Process 31

Over The Term Capital Needs:

Non-immediate items:

• 20 year schedule (2015-2034)

• All Items (per annum) > $1,000 (> $250 if project 12 units or less)

• Current $$ Annual Costs (current + inflated $$) (inflation at 3% )


CNA Process 32

Executive Summary:

• Immediate Capital Needs, (total costs in current $$) • Capital Needs Over the Term, (total costs in current

$$, CNA template will inflate automatically) • All Capital Needs, total & per unit costs in current

and inflated $$


CNA Process 33

Cost Estimates:

• Source of cost data must be identified. (typically RS Means, could be actual costs from property data or rehab contractor)

• Include hard (materials) and soft (labor, overhead, and profit) costs.

(should include demolition, normally does not include design fees)

• Consistent with industry standards.


CNA Process 34

• In accordance with Fannie Mae Guidelines

• Electronic • Microsoft Excel Worksheets - RD CNA

Template

WHAT FORM or FORMAT?


CNA Process 35

4. CNA Provider sends copy of draft report to Owner for review.

-Excel Format (RD Template) -E-mail transmittal preferred 5. Owner reviews draft CNA and discusses with

CNA Provider to address concerns. 6. CNA Provider revises Draft CNA and

resubmits to Owner for acceptance


CNA Process 36

7. OWNER ACCEPTS DRAFT CNA -The CNA report should be accepted by

the property owner BEFORE forwarding to Rural Development.

-RD assumes scope and costs in Draft

CNA Report have been accepted by the Owner

The CNA Process – Step 3 Review

CNA Process 37

8. Report reviewed by designated RD CNA reviewer . . .

a. Review checklist is in RD UL b. Review is based on contents of the report. RD

Reviewer visit to the property is not required. Will frequently consult with local RD Area Office MFH Specialists.

c. RD SOW is the acceptance criteria. d. Focus is on significant issues / expenses >$1,000

aggregate per line item. e. Verify adequate sampling: All H/C units, site

improvements, bldg exteriors, public and common areas and facilities, representative attics and crawlspaces, and 50% of dwelling units (45% if 50-99 units, 40% over 100 units)


CNA Process 38

Replacement Schedule:

a. Check for obvious errors or omissions.

b. EULs are compared with Fannie Mae. (Justify if not covered by Fannie Mae EUL.)

c. Reasonable timing of multi-year items. No excessive durations or “leveling”

d. Logical grouping or sequence of items. (countertops replaced with / after

kitchen cabinets)


CNA Process 39

Costs:

a. Check for obvious errors or omissions.

b. Estimates are compared with R.S. Means.

c. Most calculations are checked.

d. Focus is on items with the largest quantities or costs, and anything that looks “odd”.


CNA Process 40

KNOW YOUR “COLORS” ?

-Anytime a cell in the RD CNA template is overwritten, it changes color, to highlight it. -The CNA Reviewer looks at colored cells to

determine “why”, and check for adequate explanation.

Red = math error / overwrite / “Commented”? Lt Blue = user created / overwrite / “Commented”?


CNA Process 41

9. RD CNA Reviewer notifies Owner and

CNA Provider of comments, by E-Mail. 10. CNA Provider makes appropriate

changes and sends one copy of revised draft report by E-Mail to RD for review.

11. RD reviews REVISED Draft CNA. . .


CNA Process 42

ALL COMMENTS RESOLVED ? ALL issues identified by RD’s Reviewer

must be resolved or addressed and accepted by the designated RD CNA Reviewer.

The CNA Process – Step 3 Issue

CNA Process 43

12.Reviewer sends approved As-Is CNA Report to the Owner and RD MFH staff by E-Mail

13.If 3rd-Party Funds (awarded or applied for),

then RD Requests Post-Rehab CNA to be prepared

14. CNA Provider uses approved As-Is CNA,

rehab scope of work, and rehab cost estimate to create draft Post-Rehab CNA


CNA Process 44

15.CNA Provider e-mails draft CNA, rehab scope of work, and rehab cost estimate to RD for review

16.Repeat steps 8 through 11 17. Reviewer sends approved Post-Rehab CNA Report

to the Owner and RD MFH staff by E-Mail 18. RD Underwriter transfers data to RD Underwriting

Tool Template


CNA Process 45

19. RD Underwriter completes reserve analysis and consults with the RD Reviewer to adjust the “Underwriting CNA,” if needed to cash flow over the 20-year term.

20. The “Underwriting CNA” replaces the

“approved final CNA” as the basis for establishing 20-year reserve requirements.


CNA Process 46

MFH CNA e-Tool: The Future of CNAs for RD

CNA Process 47

MFH CNA e-Tool • 2011 Interagency Rental Policy Working

Group findings and recommendations for aligning CNAs across Federal agencies (HUD, USDA, Treasury/IRS): – Approx 3,000-4,000 CNAs per year in HUD,

USDA, and LIHTC – Agencies have different CNA requirements;

duplicative, conflicting

CNA Process 48

MFH CNA e-Tool -Most CNAs submitted as pdfs and paper reports (phone- book size for large properties) -No standard organization or format -Some programs use a spreadsheet, an electric form with limited or no system integration -CNAs are static; Updating is manual -Data storage on desktops or in file drawers -Data retrieval unreliable -No consolidated data for analysis across portfolios, agencies, programs, etc

CNA Process 49

MFH CNA e-Tool

• Recommendation to develop a “new, single CNA tool for use by Federal and State agencies that administer housing program(s)…” – CNA to include a traditional, comprehensive

property evaluation, an assessment of green building and energy efficiency needs and opportunities, and a utility benchmarking collection component

CNA Process 50

MFH CNA e-Tool

• HUD took the lead to develop the template tool, with significant participation from Rural Development -HUD and RD will adopt the CNA template as the standard required protocol for programs currently utilizing or requiring CNAs -Treasury/IRS will share the CNA protocols and tool as a ’best practice’

CNA Process 51

MFH CNA e-Tool

Expected Near-Term Benefits Faster, more accurate CNA preparation and review Underwriting consistency for HUD and RD Improved Accessibility compliance Utility conservation & cost/benefit analytics National standard promotes commercial development of

tools, mobile apps, training, and certifications

CNA Process 52

MFH CNA e-Tool

CNA Process 53

MFH CNA e-Tool

• Target Development Goals -Spreadsheet-based Assessor Tool -Spreadsheet-based Financial Analysis Tool w/ automatic calculation of Financial Schedules -Validation Engine: Automatic identification of flags (protocol violations, errors, and warnings) -Web-based agency review tool for identifying flags and approving Assessments -Standard XML output format to enable consumption by various downstream systems / resources -Interface to/from MFH AUS (CNA Submissions, Flags, Approved Financial Schedules) -Ability to import a standard format As-Is Property Assessment -Capture and retention of approved CNAs for Intelligence/Analytics and downstream systems development.

CNA Process 54

MFH CNA e-Tool

• Near-Term Priorities -Seed CNA with interface from REAC (property details and physical inspection scores) -Interface from REAC to CNA Analytics tool -Interface from CNA to REAC -Interface from HUD’s iREMS, FASS, PIC, OAHP, and RD’s MFIS to the e-Tool -Capture and Reflect Reserve Balance from Lenders (for HUD and RD Gtd portfolios) -Extend Business Intelligence/Analytics: actual reserve balance, price trends, useful life trends -Extend Validation Engine (EUL Outliers, Cost Outliers) -Capture and Reflect reimbursements from Lenders- i.e. automate the 9250

CNA Process 55

MFH CNA e-Tool

• Expected Long-Term Benefits Comparative analytics, indices to inform users in real

time, more speed, accuracy, consistency Automation of RfR escrow mgmt, funds disbursement,

updating of RfR schedules Risk Management indices for age & physical condition Detailed physical inventory of the portfolio Database analytics and research for policy formation Evaluation of Utility Conservation methods

CNA Process 56

MFH CNA e-Tool • HUD Tentative Schedule -HUD going live late November 2014 -Optional use w/ six-month phase in period, and mandatory use afterward • RD Tentative Schedule -12-month development of User Manual, Underwriting Tool, coding and testing, staff training -RD going live October 2015 - Optional use w/ ????-month phase in period, and mandatory use afterward

CNA Process 57

The CNA Process…complete!

RD’s CNA Process - taah.org · • A snapshot in time useful for estimating reserves and a tool...

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