Standard & Poor's Ratings Services said it raised its rating on Minneapolis' (Olson Townhouses) Section 8-assisted series 1993 multifamily housing revenue bonds by two notches to A-minus from BBB.

The outlook is stable.

The raised rating reflects Standard & Poor's view of: the continued improvement in debt service coverage, to 1.39x maximum annual debt service (MADS) in fiscal 2012 from 1.25x in 2011; the strong demand at the property, reflected by a 100% occupancy rate and a waiting list of 135 families; the 2.6% income increase and 2.3% decrease in expenses, leading to improvement in the expense ratio; and the debt service reserve fund funded at 12 months' MADS.

These strengths are partly offset, however, by the property's declining Real Estate Assessment Center (REAC) score. The property scored 74 out of a possible 100 points during its most recent Department of Housing and Urban Development inspection in December 2012.

"The stable outlook reflects the project's good operating performance and consistently full occupancy. Contracted rent is currently below fair market rent, and this increases the possibility of a rental increase, which may further strengthen credit quality," said Standard & Poor's credit analyst Renee Berson. "Conversely, expense increases without commensurate income increases may contract available net income for debt service, therein negatively impacting credit."

Olson Townhomes is a 92-unit family development in Hennepin County, Minn. The 92 units are contained in six separate structures and comprise two one-bedroom handicapped units, 77 two-bedroom units, and 13 three-bedroom units.

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