7.8.2 Sources of Expense Data

A. For new construction projects, operating expenses must be estimated on the basis of comparable projects.

B. For existing projects, for both valuation and debt service, operating expenses must be adjusted on the basis of comparable projects but will primarily be based on the past 3 years of operating experience for the subject project. In addition, the Lenders should provide trailing 12 months of income and expenses for the appraiser to compare to the historical statements.

1. The most current year project financial statement must have a third-party CPA or IPA review. Owner certified financial statements may be submitted for the years prior to the last full Fiscal Year. Any owner-certified financial statement or owner-certified balance sheet and operating statement must include the following acknowledgment:

“WARNING: 18 U.S.C. 1001 provides, among other things, that whoever knowingly and willingly makes or uses a document or writing containing any false, fictitious, or fraudulent statement or entry, in any matter within jurisdiction of any department or agency of the United States, shall be fined under that title or imprisoned for not more than five years, or both.”

2. For refinance transactions where the project may not have been under the current ownership for the 3-year period, financial statements for the entire 3 years may not be available. This is particularly true for bankruptcies or the acquisition of defaulted properties. Also, in purchase transactions, not all the required information may be available for reasons beyond the purchaser’s control. In these situations:

   • The Borrower must submit a statement through the Lender that explains why all the required records cannot be obtained.

   • The Lender must also certify that they have evaluated the Borrower’s statement and agree that the information is not available.

3. The Regional Center Director may waive the requirement for past 3-year period financial statements. However, the Borrower must submit the project financial statements that are available including an owner-certified year-to-date balance sheet and operating statement.

C. All projects must be analyzed as independent operations and must not reflect shared expenses from nearby projects under the same management, including shared insurance premiums. If the nearby project

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Chapter 7 Valuation & Market Analysis 7.8 Project Operating Expenses, NOI

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should be subject to foreclosure, the subject project would be adversely affected, thereby constituting an unacceptable underwriting risk. For the same reason, estimated expenses must reflect typical long-term operation and must not reflect a specific Sponsor or Management Entity whose operation would not be typical.