Senior Housing

Eligible Lenders

Financial institutions as defined under the Public Authorities Law section 2426 including banks, trust companies, savings banks, savings and loan associations, credit unions, insurance companies, pension funds, certain subsidiaries of the above and certain New York State public benefit corporations such as the New York State Housing Finance Agency, the New York State Dormitory Authority, the New York City Housing Development Corporation and local industrial development authorities ("IDAs") (together the "Lender").

New Lenders must submit an "Approval of Mortgagee Application" and receive State of New York Mortgage Agency Mortgage Insurance Fund ("SONYMA MIF") approval before submitting an application for mortgage insurance.

The SONYMA MIF may require Lenders that do not have experienced loan underwriting staff to retain an independent financial consultant approved by the SONYMA MIF to prepare the application for SONYMA MIF insurance. The independent financial consultant would be retained at the Lender's expense.

The SONYMA MIF also reserves the right to approve the mortgage loan servicers for such Lenders, as well as any other third party contractors, including but not limited to appraisers, engineers, environmental or market consultants.

Eligible Properties

New construction, substantial rehabilitation, or acquisition/Moderate rehabilitation of properties to be developed into housing for seniors as listed below. Some projects may be a combination of the various types listed below. Such projects will be considered on a case by case basis.

• Independent Living - Unlicensed projects for seniors who require minimal assistance, generally providing limited communal dining.
• Assisted Living Projects, which provide three meals daily and extensive personal care services.
• Adult Homes - Projects similar to Assisted Living without individual kitchens.

Eligible Borrower

Single asset entities including general or limited partnerships, corporations, trusts, joint ventures, limited liability companies and 501 (c) (3) corporations.

The development team for the project must have a demonstrated track record in successfully developing, marketing and management of the type of eligible project proposed or must form a joint venture with an entity which has such expertise.

Key principals with an ownership interest in excess of 25% in the project must demonstrate sufficient financial stability and liquidity to construct and operate the project.

Borrowers will be required to submit certified financial statements and any other documentation, as may be required by the SONYMA MIF.

Eligible Loans

First lien mortgage loans that provide permanent financing for eligible properties. Loans in excess of $20,000,000 will be considered on a case by case basis by SONYMA MIF. The SONYMA MIF does not assume construction or lease-up risk.

Rehabilitation Requirement

Loans for the acquisition or refinancing of an existing property must also include rehabilitation in an amount equal to 20% of the loan amount as determined by the SONYMA MIF.

Affordability Requirements

The SONYMA MIF insures projects that include: i) below-market rate affordable housing units; ii) are located in geographic areas that suffer from a disinvestment of mortgage capital; or iii) are located in economic development zones. The SONYMA MIF also insures affordable market-rate projects in all areas. Affordability is based on area median income and market rents.

The SONYMA MIF provides mortgage insurance for the following percentage of a mortgage loan:

• Public Benefit Corporations - Up to 100% of the mortgage loan amount
• Public Pension Funds - Up to 100% of the mortgage loan amount
• Conventional Lenders - Up to 75% of the mortgage loan amount

Loan Amount

The lesser of 80% loan-to-value or 90% loan-to-cost of the development based on a review by the SONYMA MIF. The loan amount is also subject to compliance with the income-to-expense ratio requirement.

Income to Expense Ratio

The SONYMA MIF income-to-expense ratio is calculated by dividing effective gross income by total projected operating expenses including debt service and annual fees. The minimum income-to-expense ratio is 1.05 to 1.00.

Debt Service Ratio

The debt service ratio is calculated by dividing net operating income by debt service and annual fees including mortgage insurance premium. The minimum debt service ratio is 1.20 to 1.00.

Loan Terms

Maximum loan term of 30 years. Loans must be self-amortizing. Debt service should be accelerated to take into account the expiration of any real estate tax abatement or exemption.

Subordinate Financing

Subordinate mortgages are permitted with SONYMA MIF approval. Such loans must be fully subordinated in terms of collateral and remedies and subject to a subordination agreement approved by SONYMA MIF. Debt service on such loans will be included in the income to expense ratio.

Equity Requirements

10% cash equity from non-loan proceeds is required at closing.

Developer Fee

The maximum developer fee is 10% of the total adjusted development cost which is equal to the total development cost less the developer's fee. The developer fee will be subject to adjustment if there is an identity of interest between the developer and the general contractor. The timing of the payment of the developer fee will be subject to approval by the SONYMA MIF.

The developer fee cannot be included in the calculation of the 20% rehabilitation requirement.

Replacement Reserve

Requirement: A minimum annual deposit to a reserve for replacement of 1.5% of effective gross income is required. For rehabilitated properties, a greater amount may be required based on a physical needs assessment. An up-front deposit to the replacement reserve may also be required for rehabilitated projects.

Third Party Reports

Lenders must provide the following independent third party reports from contractors acceptable to the SONYMA MIF: 1) an appraisal, 2) a Phase One environmental study, 3) a construction engineering review of plans, specifications, and the adequacy of the construction budget for the project.

The following additional information must be included in the SONYMA MIF application package for Alternative Housing for Seniors:

• Service Plan
  A detailed service plan and description of the project providing information regarding any applicable licensing requirements, the level of services to be provided, the fee structure for such services, and the provider of such services must be submitted as a part of the SONYMA MIF mortgage insurance application.

• Market Analysis
  A market analysis report conducted by a professionally qualified practitioner, acceptable to the SONYMA MIF, specializing in market analysis and market positioning for senior housing, will be required as a part of the SONYMA MIF mortgage insurance application.

The following is a partial list of documentation in a form satisfactory to the SONYMA MIF must be received prior to mortgage insurance being declared effective:

• A Final Certificate of Occupancy, Certification of Substantial Completion, or a Temporary Certificate of occupancy combined with a pre-funded punch list of 150% of all costs required to complete the project.

• A Certification of SONYMA MIF's Rental Achievement Level, evidenced by executed rental contracts. The Rental Achievement Level means that the project has sustained a 1.05 to 1.00 income-to-expense ratio, a 1.20 to 1.00 debt service ratio and a 90% occupancy rate for a minimum of three consecutive months.

• Evidence that real estate tax abatements or exemptions, if any, are in place for the property. Development cost certification satisfactory to the SONYMA MIF.

• Satisfaction of any project-specific requirements contained in the SONYMA MIF Commitment to Insure and the Certificate of Insurance Special Conditions.

Application Fee

0.10% of the insured loan amount.

Initial Premium

0.50% payable at closing. A 1% premium payable at closing will be required for a policy that is non-cancellable for two years in the event of non-payment of the annual mortgage insurance premium.

Annual Premiums

0.50% of the outstanding principal balance payable in advance.

Processing Fees

To be determined at the point of application by the SONYMA MIF. Processing fees may include, but not be limited to, the cost of third party reports commissioned by the SONYMA MIF and special counsel.

This term sheet is a summary and does not purport to be a complete description of SONYMA MIF's criteria for mortgage insurance. The criteria described herein are subject to change without notice.

For detailed information and application packages, please contact:

Michael Friedman
Senior Vice President/Director
SONYMA/MIF
641 Lexington Avenue
New York, New York 10022