■Exterior—includes the exterior of the building,
parking lots, landscaping, and sidewalks;
■Interior—includes lobbies, reception areas, hall-
ways, apartments, health and recreational facilities,
laundry facilities, and on-site management office;
■Deferred maintenance—overall assessment of
exterior and interior of the project. Examples of
deferred maintenance would be potholes in pave-
ment and sidewalks, peeling paint, leaking roofs,
structural problems, and outmoded facilities;
■Location—includes an analysis of the neighbor-
hood, the project’s compatibility with the neigh-
borhood, and accessibility to essential services,
such as hospitals, schools, post office, play-
grounds, churches, public transportation, roads,
and highways;
■Economy—includes an analysis of employment
sectors, economic diversity, population changes,
income levels, and unemployment rates;
■Market and demand—includes comparability
with nearby properties, analysis of local vacancy
rates, rent trends, occupancy rates, and absorp-
tion rates;
■Tenancy—the quality and nature of the tenant
base is a critical part of analyzing real estate
quality. Income levels and elderly or family ten-
ancy are two critical aspects of assessing the ten-
ant base; and
■Environmental and hazard—includes analysis of
the impact of potential environmental and hazard
concerns, such as earthquake and flood risk,
nearby hazardous substance sites, and presence of
radon, PCBs, and asbestos.
Third party reports
Standard & Poor’s will review independent third-party
reports as part of the rating process. These reports
should be provided before the site visit, if available.
Property condition reports
Standard & Poor’s reviews property condition
reports for all transactions. These reports are neces-
sary to determine that the project has an economic
life that exceeds the term of the bonds and to deter-
mine the level of deferred maintenance that must be
funded at bond closing to correct major property
condition defects. Property condition report criteria
can be found on RatingsDirect under Criteria-
Structured Finance, and at http://www.standardand-
poors.com (look under Structured Finance Criteria,
CMBS Property Evaluation Criteria).
Environmental reports
Environmental reports help determine if there are
environmental issues relating to the subject properties.
These reports must be completed within six months of
the closing of the transaction, and comply with the
Structured Finance Environmental Report Criteria.
These criteria can be found on RatingsDirect under
Criteria-Structured Finance, and at http://www.standardand-
poors.com (look under Structured Finance Criteria,
Environmental Criteria).
Appraisals/market studies
The appraisal for an AHP transaction should be a
complete self-contained appraisal prepared by an
independent appraiser who is MAI certified and be
prepared in accordance with the Uniform Standards
of Professional Appraisal Practice (USPAP) of the
Appraisal Standards Board (ASB). The appraisal
should be commissioned by the owner of real estate
in a refinancing transaction or by the purchaser in
the event of an acquisition financing. The appraisal
should state that the purpose of the appraisal is for
the purpose of valuing the property for use in con-
junction with the proposed financing.
The market study may be prepared by a MAI
appraiser in conjunction with an appraisal of the
property. The purpose of the market study is to
provide sufficient information for Standard &
Poor’s to determine if the project will continue to
generate sufficient net cash flow to service the
bonds being rated by maintaining projected occu-
pancy and projected rents. The market study
should, specifically, seek to provide specific infor-
mation for the market for which the property is
intended to serve, such as, low or moderate income
families or elderly persons. The market study
should address this issue by examining existing and
anticipated demand for the specific housing market
and existing and potential supply of housing units
to meet this demand.
Financial feasibility
Analysis of the financial feasibility of a project
involves an examination of historical and pro forma
financial statements to determine the adequacy of rev-
enues and cash flow to cover payment of debt service,
funding of reserves, and operating and maintenance
expenses. Standard & Poor’s considers debt service
coverage (DSC) to be the most valuable financial yard-
stick in evaluating AHPs. Adequate DSC is needed to
insulate the property from such problems as rising
expenses, static rent levels, and high vacancies.
Standard & Poor’s defines DSC ratio as annual net
operating income divided by the maximum annual
principal and interest payments. In reviewing DSC,
Standard & Poor’s will look for a scenario in which
no increases in rents or expenses are assumed, as well
as other stress cases that will be determined on a case-
by-case basis. Each income and expense item is veri-
fied with three years of audited financial statements
and through the operating history of the project.Unenhanced Affordable Housing Project Debthttp://www.standardandpoors.com 263