c5 l2 cost review

FHA Affordable/221(d)(4) Training Program

Architectural, Engineering, and Cost (AEC) ReviewLesson 2 Cost Review

Copyright © 2021 Mortgage Bankers Association All rights reserved.

Mortgage Bankers Association 9/25/2021

Mortgage Bankers Association 1

Lesson Objectives

Upon completion of Lessons 2, you will be able to:

• Identify the components to the cost review process

• Identify the elements to HUD 2328

• Identify the component to other HUD forms required for development

• Recall the purpose of streamline processing

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Cost Review

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Cost Review

Delivery of 2328

Issuance of Cost Completeness Review

Delivery of Corrected 2328

2328 Review / Project Cost Estimating

Issuance of Cost Related Questions

Resolution of Cost Related Questions/ Completion of Review 4

Cost Review Process



Chat Question

What documents are required for the cost review?

Type your response in the chat box.

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Instructor Notes

Construction Drawings, HUD Form 2328 (including supplemental 2328s where applicable)



Cost Review

Required Documents for Cost Review

From Contractor:

• Contractor qualifications – AIA A305 or resume, certificate of insurance, license if

applicable

• Contractor’s Consolidated Certification, including IOI and 50/75% Rule disclosure

• Master 2328

• Supplemental 2328s (if warranted, discussed later)

• 2328‐LI (if warranted, discussed later)

• 5372 Project Construction Schedule/Gantt Chart

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Chat Question

For what important purpose does the underwriter need the Project Construction Schedule?


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Instructor Notes



Cost Review

For what important purpose does the underwriter need the Project Construction Schedule?

• To measure construction progress, ensure completion, and disbursement of requested contractor funds during construction.

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Chat Question

What is the purpose of the Contractor’s Consolidated Certification?


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Instructor Notes



Cost Review

What is the purpose of the Contractor’s Consolidated Certification?

• To ensure project complies with HUD program obligations.

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Cost Review

Required Documents for Cost Review

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From Contractor

• Master 2328

• Supplemental 2328s (if warranted)

• 2328‐LI (if warranted)

• 5372 Project Construction Schedule/Gantt Chart

From Architect

• 80% or better plans and specifications

• Project data (HUD GSF and NLSF values, parking counts)

From Owner

• Owner Other Fees Listing

• Furniture, Fixture, and Equipment

(FF&E)



Cost Review

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Elements of the HUD 2328 submission

• 2328 Master (two pages)• Supplemental 2328 (one page) • Each residential building type

• Each qualifying accessory structure

• 2328‐LI (three pages) When Land Improvements exceed $1M



Cost Review

Title Block

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• Update the ‘Date’ cell with each submission of a revised or updated 2328.

• ‘Sponsor’ cell should bear the name of the mortgagor.



Cost Review

Structure CostsWhen completing the 2328:

• Don’t remove or overwrite Trade Items.

• Report whole dollar amounts only.

• Check the math! Transferring values from Excel spreadsheets often results in rounding errors on the Master form.

• Segregate site elements for those trades that often include site‐related work (e.g., concrete, masonry, metals).

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Cost Review

Trade Descriptions

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• Include as much information as possible, especially for trades involving varied scopes of work (i.e., finish carpentry, specialties, special equipment, etc.).

• Avoid generalized terms such as “as needed,” or “by allowance.”



Cost Review

Accessory Structures

Enclosed Amenity Buildings:

• Clubhouses

• Maintenance Buildings

• Garages

Open Structures in excess of $20K:

• Mail Kiosks

• Pavilions

• Carports

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Cost Review

Supplemental 2328• Used only for costs of structures

• Identical to page one of the Master 2328

• Required when project involves more than one type of residential building

• Supplemental 2328 needed for each building type

• Required for all enclosed accessory structures (garages, laundry buildings, leasing office/clubhouse)

• Required for all open accessory structures over $20K in value (mail kiosks, picnic pavilions)

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Cost Review

Land Improvements

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• On‐site land improvements only.

• Offsite improvements are typically considered “on‐site” where they are: (a) immediately adjacent to the project

property(b) connect the project to existing public

improvements. Unusual Conditions:‘Items not typical to most construction in the locality [of the project].’ This includes such conditions as special foundations, problems soils, etc. Importantly, it is determined by comparison to neighboring properties.

Instructor NotesOffsite improvements are those required to service the project but outside of the property boundary lines.

a. Include utilities, walks, curbs, gutters, streets, drainage structures, landscaping, and similar improvements beyond the property lines. b. Do not include short extensions of utilities, walks, drives, drainage structures and similar improvements beyond the property lines which connect with those next to the property.

Many unique examples will require discussion with Cost Analyst.



Cost Review

2328‐LI

• Requested when total of land improvements exceeds $1M

• Detail provided on the 2328‐LI assists in determining which Davis‐Bacon wage rates may apply in cases of potential split decisions.

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Instructor Notes

There is some new guidance on this – All Agency Memorandum 236 (dated December 14, 2020) has revised this $1M number up to $2.5M.



Cost Review

Non‐Mortgageable Items Offsite Costs

• Improvements beyond the boundaries of the mortgaged property

• Reported on 2328 whether or not work is being performed by GC

• Reviewed for sufficiency

Demolition

• Structural demolition of existing buildings or portions of buildings

• Site demolition beyond de minimusremoval of existing site improvements (e.g., curb cut, sidewalk cut, etc.)

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Cost Review

Contractor Soft Costs General Requirements: Acceptable range is 5% to 7%. HUD will require detailed breakdown for values above 7% and will likely question values less than 5%.

Builder Overhead: Capped at 2.00%. Here too, HUD may question values well below 2%.

Contractor Profit: Capped at 6.00%.

Other Fees: Third‐party expenses that can be collected at closing (e.g., building permits, builder’s risk insurance, subguard insurances).

Bond Premium: Security for GC performance of the contract. Shows cost for payment bond and performance bond, collectively “P&P bonds.”.

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Subguard insurance cannot replace P&P bonds.

Be sure not to have overlapping or duplicative Owner Other Fees and Contractor Other in your sources and uses.



Cost Review

Contractor Soft Costs (Cont.) General Requirements typically includes project‐specific expenses, such as:

• Supervision and job‐site engineering

• On‐site job office expenses

• Temporary buildings, tool sheds, shops, and toilets

• Temporary utilities for construction;

• Temporary walkways, fences, sidewalk, street rental, etc.

• Construction equipment rental not included in trade item costs

• Cleanup/disposal of construction debris not in trade or sub‐contract costs

• Medical and first aid supplies and temporary facilities

• Security guard wages

• Theft and vandalism insurance

• Builders Risk Insurance ‐ included in General Requirements or GC Other Fees if paid by GC

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Instructor Notes

HUDs terminology is confusing in 5.12.13 with the different types of “overhead”.

If other soft cost info is needed – see 5.12.3 – can take definitions straight from MAP Guide with allowable %s.

Builder’s Profit or Fee

Architect’s Fees

Bond Premium

General Requirements (Job Overhead) – project specific and construction staging expenses. Examples above apply.

General Overhead (also Builder’s Overhead on 2328) – cost of continuing operations of a construction company outside of job overhead – office and general business expenses



Other HUD Forms in Cost Review

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Other Hud Forms in Cost Review

2326 – Project Cost Estimate

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A detailed construction cost estimate is prepared in accordance with MAP Guide requirements: • Utilizes cost information from completed

comparative projects and published cost data (RS Means)

• Utilizes applicable Davis Bacon Wage Rates (DBWR)

• Adjusted for location




2331‐B Form

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• Individual trade values for the 2328 and 2326 must be within +/‐ 10%.

• Overall project cost must be within +/‐ 5%.• In rare cases where costs for a particular trade

item can’t be brought within acceptable range through additional information from the contractor, an exception is taken.




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5372 – Construction Schedule

• Allows HUD to confirm that anticipated monthly project costs reasonably track the course of project completion.

• 5372 is an informational document and does not govern or regulate the contractor’s requisition process during project construction.

• Per Chapter 5.3.1.D, Detailed Construction Schedule HUD (Gantt Chart or Critical Path Schedule)




Project Architect Provided Plan Review Items

• Complete plans and specifications (minimum of 80% progress set)

• Project data – HUD building and unit GSF/ NLSF values, and parking counts

• Deferred submittals allowed, provided with some graphic or narrative scope can be developed to establish a basis of costs (e.g., pool design, landscaping plan, fire suppression system)

• Project documents must provide sufficient description and quantification of the proposed work to allow confirmation by third‐party inspection during construction.

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Lender & Borrower Provided Cost Review Items

• Owner Other Fees Listing

• Detailed FF&E – itemized list with costs required

• Current ALTA Survey

• Evidence of Bonding Capacity/Surety letter

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Instructor Notes

Furniture,Fixtures,andEquipment(FF&E). This category includes substantial indoor and outdoor furniture and equipment (e.g., trash dumpsters, pool or recreational equipment, permanent lobby or reception area furnishings, golf carts). It may not include titled vehicles, minor items of relatively insignificant cost such as furniture accessories, rental unit furnishings, hand tools and hand power tools, or expendable items. An itemized schedule of FF&E with cost for each item will be submitted with the cost documents and reviewed by the Lender’s Construction Analyst for acceptability. Costs may include only delivery and placement of the item. The dollar amount of FF&E will be reported in line G.60 of form HUD-92264; “AMPO percent (nonprofit only)” will be lined out and substituted with “FF&E”.




Owner Other Fees

• Third party fees related to project construction

• Limited to those costs and fees directly related to “getting shovels in the ground.”

• No architect/engineering fees covered by a professional services contract (B108)

• No FF&E

• No organizational fees (separate category for these)

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Costs Not Attributable (CNA)• Calculated for both residential and

commercial components of the project.

• Maximum of 15% allowed by HUD (for residential and commercial, individually; combined CNA is 30%).

• Includes those improvements not necessary to tenant occupation of the property – e.g., commercial space, garage(s), accessory buildings such as leasing office/clubhouse.

• CNA used for Criterion 4/Statutory Limitation only.

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Streamlined AEC Processing



Chat Question

What is streamlined processing?


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Instructor Notes




What is streamlined processing?

• “Streamlined” processing means that less than 100% complete plans and specifications (architectural design, specification, construction, and cost estimation exhibits) may be submitted with the application for Firm Commitment.

• See MAP Guide Chapter 5.6.

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Chat Question

What purpose does streamlined processing serve?


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Instructor Notes




What purpose does streamline processing serve?

Serves two purposes.

1) Expand the use of HUD mortgage insurance programs for projects with Low Income Housing Tax Credits (LIHTC).

2) Expedite applications for Borrower development teams with clearly demonstrated capacity and experience with HUD‐insured construction projects.

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• Proposed final project drawings and specifications must be submitted for HUD’s review and comment/approval at least thirty calendar days prior to initial endorsement.

• Any HUD comments on the proposed final drawings and specifications must be resolved

• Permit‐ready drawings and specifications must be delivered not less than ten calendar days prior to initial endorsement.

• All LIHTC project applications are eligible for streamlined processing of design and construction documents

Note: “Permit‐ready” means approved by the building code official with jurisdiction, subject only to the payment of required permit fees and charges.

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Non‐LIHTC Projects & Streamlined AEC Processing

Non‐LIHTC projects can qualify for Streamlined AEC Processing under a certain set of circumstance. (MAP Guide Chapter 5.6.1.C & D)

1) Discussion at Concept Meeting. HUD will discuss and determine eligibility for streamline processing at the concept meeting or preapplication stage.

2) HUD & Like‐kind Experience. To be considered qualified, the Borrower/Sponsor, the Project Architect, the General Contractor and due diligence providers must each have successful prior HUD project experience comparable in scope and scale to the scope of work proposed in the application.

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Non‐LIHTC projects can qualify for Streamlined AEC Processing under a certain set of circumstance. (MAP Guide Chapter 5.6.1.C & D)

3) Section 223(f). Applicants for Section 223(f) without LIHTCs and with repairs and alterations requiring a Project Architect may request a concept meeting if they consider deferred submission of final plans and specifications necessary. (To be covered separately.)

4) 4) Initial Endorsement with 60 Days. Lenders and MF Regional Center/Satellite Offices should determine that the project will achieve initial closing within sixty calendar days after issuance of a Firm Commitment conditioned upon final plan submission.

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Non‐LIHTC projects can qualify for Streamlined AEC Processing under a certain set of circumstance (MAP Guide Chapter 5.6.1.C & D) (cont.)5) Limiting Factors. Projects seeking to use Streamlined AEC Processing should not:

a. Design Exemptions. Claim any exemption from the design and construction requirements of the Fair Housing Act based on site impracticality (terrain unsuited to accessible paths and building entrances;

b. CNA Calculation Needed. Have the loan limited by Criterion 4/Stat Limit and rely on Costs Not Attributable;

c. Overly Complex. Not be overly complex mixed‐use, commercial use, or use of new, complex construction technology; and

d. Design‐related Environmental Remediation. Not have complex environmental remediation issues or issues that cannot be resolved without the final set of plans and specifications (e.g., noise, historic preservation). 39




Documentation needed for the Application for Streamlined AEC Processing

• Less is required than what is needed for standard AEC processing

• The items needed are:

1) Static footprint of the building or buildings together with proposed site improvements on the surveyed site plan as well as any proposed easements and/or off‐site improvements with survey detail

2) Gross building and net residential square footage for the project

3) Dimensioned unit layouts for each unit type and floors plans and elevations for each building type

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Streamlined AEC Processing Documentation for the Application

Documentation needed for the Application for Streamlined AEC Processing (cont.)

4) Sufficient design details to determine:

a) Davis‐Bacon wage

b) Accessibility requirements

c) Structural framing and exterior wall finishes

d) Building mechanical systems

e) Scope of site development and off‐site construction

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Documentation needed for the application using Streamlined AEC Processing (cont.)

5) Summary of interior finishes, commons spaces, and accessory structures

6) Written costs estimate (form HUD‐2328) and AEC Reviewer’s form HUD‐92326

7) AEC Reviewer’s construction estimate using HUD‐92331

8) Proposed (unsigned) HUD‐92442M) with selected options identified (e.g., incentive payments) or special conditions and the Supplemental Conditions (form HUD‐92554M).

9 CNA and e‐Tool

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Pros

Lender/Borrower

• Quicker time to get Firm Commitment

• Helps to meet closing deadlines associated with LIHTC or tax exempt bonds

AEC Reviewer

• Can generate “preliminary” AEC Report for submission

Cons

Lender/Borrower

• Two sets or deliverables

• Additional cost

AEC Reviewer

• Two sets or deliverables

• Additional cost



Disclaimer

This course is provided for educational purposes only. This course is not intended to provide, and should not be relied on for the provision of, legal advice. Please consult your own attorney or financial advisor for information appropriate to your jurisdiction or the specific facts and circumstances that may arise.

WHILE MBA TAKES COMMERCIALLY REASONABLE EFFORTS TO ASSURE THE ACCURACY OF COURSE CONTENT, MBA DOES NOT MAKE AND SPECIFICALLY DISCLAIMS ANY REPRESENTATIONS OR WARRANTIES, EXPRESS, IMPLIED, OR STATUTORY, INCLUDING (WITHOUT LIMITATION) ANY IMPLIED WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NONINFRINGEMENTMENT OF THIRD PARTY RIGHTS, AND IMPLIED WARRANTIES ARISING FROM COURSE OF DEALING OR A COURSE OF PERFORMANCE. THIS COURSE IS PROVIDED ON AN "AS IS" BASIS AND MBA MAKES NO WARRANTY THAT ITS COURSE CONTENT OR MATERIALS WILL BE ERROR‐FREE.

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