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Lean Appraisal Training
January 26, 1010Sheraton Chicago Hotel and Towers
Room: Chicago VISponsored by
Eastern Lender’s Association In Coordination with
HUD’s Office of Insured Health Care Facilities
Challenges of the Current Market
SOW 2010
Appraisal Statement of Work
SOW ChangesSignaturesEngagement & Intended UsersExhibitsHypothetical Conditions & Extraordinary Assumptions
4
SOW Changes, ContinuedMarket Analysis
TraditionalTruncated
Regional DescriptionSite DescriptionImprovement Description
5
SOW Changes, ContinuedRemaining Economic LifeLand ValuationCost ApproachSales Comparison ApproachIncome ApproachSpecial Appraisal Requirements
6
Appraisal Issues by Section
Sales Comparison Approach
7
Appraisal Issues by SectionSales Comparison Approach
Comp adjustments unsupported by market or narrative explanation
Per unit prices unrealistic and unsupported by comps
NOI adjustments not discounted for higher risk of projected NOI
8
Appraisal Issues by Section
Sales Comparison Approach
NOI adjustment will reflect all differences between comps and subject
OIHCF will require two analyses – a single NOI adjustment
9
Appraisal Issues by Section
Sales Comparison Approach
And an adjustment analysis for all factors EXCEPT NOI
Reconcile into a single conclusion
10
Appraisal Issues by Section
Income Capitalization Approach
11
Hypothetical versus current operations
Assumptions of repairsMarket Norms?Trigger for Full Market StudiesTrigger for Initial Operating Deficits
12
Income ProjectionsMedicareMedicaid
Where are rates going?Historical average? Current rate? Published
rate?Private Pay
Advertised rate versus achievedOther incomePricing strategies
13
ExpensesCommon Questions
Categories Chart of Accounts?
Taxes & Non-ProfitsReserve for Replacements & the PCNAAccounts Receivable FinancingExpense Comparables
14
CapitalizationCap Rate Selection
Sales ComparablesMarket SurveysBand of Investment
Discounted Cash Flow
15
Appraisal Issues by Section
Cost Approach
16
Cost Approach a.k.a. Summation Approach
Based on the reasoning that a buyer will not pay more than the cost to reproduce or replace the subject.
Reproduction refers to an exact replica.
Replacement refers to improvements with similar or equivalent utility.
(Eliminates super-adequate features of the subject)
17
Replacement Cost New Less Depreciation (RCNLD)
The Current Cost to Construct the Improvements(Hard Costs, including Labor and Materials)
Plus Soft Costs, Entrepreneurial Incentive
Minus Depreciation
Plus the Market Value of the Land
18
Sample Cost Approach SummaryDirect Cost – Buildings $6,209,552
Direct Cost - Site Improvements 150,000Total Direct Costs $6,359,552Indirect Costs 859,570Entrepreneurial Incentive 720,000RCN of the Improvements: $7,939,122Depreciation ($1,077,907)Subtotal $6,861,215Land Value 400,000Furniture, Fixtures & Equipment (FF&E) 290,000Indicated Value – Cost Approach $7,551,215Rounded $7,550,000
19
Market Value of the LandWhether or not a Cost Approach is
developed, the appraiser is required to estimate the value of the land as if vacant.
A minimum of three comparables sales will be used.
If there is a recent or pending sale of the subject land, the sales price must be analyzed.
20
Market Value of the LandWhen Environmental Remediation is RequiredThe estimate of the value
“should be made as if the project is unaffected by contamination and conditioned on successful removal.
The self-contained appraisal report must address any effect on marketability that may be present due to the prior environmental history.”
See MAP Guide, Chapter 9, Rev. 9/18/2009, p. 20
21
Direct CostsThe cost to construct equivalent
improvements including structures,site improvements,materials & labor
DATA SOURCES
National Cost Publications (Marshall & Swift, Means,
etc. )
Actual Construction CostsComparable Costs (may include soft costs) 22
Indirect Costs Soft Costs, Entrepreneur’s Incentive
Soft Costs = Expenditures Other Than Labor & Materialse.g. Financing Costs, Insurance and Taxes
during Construction, Permits, Administrative Costs, Professional Fees, Lease-up/Marketing Costs
Entrepreneurial Incentive = "the amount an entrepreneur expects to receive for his or her contribution to a project and risk." The Dictionary of Real Estate Appraisal, 4th ed., p. 96
23
Indirect CostsSoft Costs, Entrepreneurial IncentiveFrom the LEAN Appraisal Guidelines:“….absorption, staffing costs, other intangible start-up
operating costs, occupancy costs, and entrepreneurial incentive must be considered and identified.”
“The entrepreneurial incentive should be an amount sufficient to attract a typical owner/investor to develop a project...”; i.e, compensation for the developer’s risk and expertise associated with development.
24
DepreciationAccrued Depreciation is a loss in value due to all causes including:
Physical DeteriorationFunctional ObsolescenceExternal or Economic Obsolescence
25
DepreciationPhysical Deterioration:
A loss in value due to age, deferred maintenance and/or wear and tear on an improvement.
Functional Obsolescence:A loss of building utility. May be curable or incurable.
External or Economic Obsolescence:A loss in value due to factors outside the subject
property. Often incurable because it is beyond the control of the property owner.
26
Remaining Economic LifeThe appraisal will include an estimate
of the Remaining Economic Life and the Effective Age of the improvements.
At a minimum, the economic life estimate from the Marshall & Swift Cost Estimating Manual will be quoted.
Other published life estimates may also be quoted when available.
27
Remaining Economic Life (REL)Remaining Economic Life is defined as:
The period over which improvements will continue to contribute to property value;
an estimate of the number of years remaining in the economic life of the structure or structural components as of the date of the appraisal;
used in the age life method of estimating depreciation1 .
1The Dictionary of Real Estate Appraisal, 4th Edition
28
Use of the Cost ApproachHUD requires the Cost Approach when
the actual or effective age of the facility is five years or less or
the appraiser believes this approach is applicable and relevant to producing a credible appraisal report.
OIHCF expects a fully developed Cost Approach whenthere is little depreciation, orthe un-depreciated replacement cost new would be
lower than the conclusions of the Sales Comparison or Income Capitalization Approaches.
29
In those cases where the Cost Approach is not developed:The appraisal must include narrative
justification for the elimination of the Cost Approach.
The Base Costs must be carefully discussed in the narrative justification for excluding the approach.
30
Appraisal Issues by Section
Highest & Best UseCertificationAddenda & ExhibitsFinal Value Reconciliation
31
CHICAGO 2010
PHOTOGRAPHSThe new SOW for appraisal requires more pictures. The appraisal should provide photographic evidence to the quality, condition and adequacy of the physical plant.
New ConstructionFloor PlansSite PlansElevations
Existing ConstructionSOW RequirementsLiving SupportCommon
The Exhibits should be clear and readable. The pictures should be focused and of adequate size.
Real estate is appraised in its highest and best use.
Current vs.Vacant Site Highest and Best Use
Often, no matter what the site’s economic circumstances are, the provided appraisal report indicate the vacant site’s highest and best to be the current use.
The appraisal’s vacant site highest and best analysis should examine the prevalent market conditions using the 4 noted tests independent of the current use.
Test Each UseParkingZoningFinancial Feasibility
The reason a vacant site’s highest and best use analysis is completed is to:
1. Estimate land value.
2. Identify comparablevacant land sales.
The reconciliation should review the characteristics of the approaches relied upon an reconcile those approaches into a final value estimate.
The reconciliation should review the
3 approachesAppropriatenessAccuracyQuantity of Evidence
APPRAISAL
Only one certification is required . The LEAN Program accepts the USPAP Certification. The independent MAP Certification is not required.
MARKET STUDYThe required market study certification is the certification found in the market study statement of work.
Appraisal Issues by Section
Initial Operating DeficitsSinking Funds“As-is” Valuation Techniques
48
49
Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7ALF move-ins 15 4 4 4 3 4 4ALF Move-outs 0 0 0 0 0 0 0ALF beds filled 15 19 23 27 30 34 38Potential Gross Income $61,845 $78,338 $94,830 $111,322 $123,691 $140,183 $156,675Real Estate Taxes ($14,833) ($14,833) ($14,833) ($14,833) ($14,833) ($14,833) ($14,833)Insurance ($9,642) ($9,642) ($9,642) ($9,642) ($9,642) ($9,642) ($9,642)Utilities and Garbage Removal ($10,435) ($10,435) ($10,435) ($10,435) ($10,435) ($10,435) ($15,652)Management Fees ($5,000) ($5,000) ($5,000) ($5,566) ($6,185) ($7,009) ($7,834)Salaries & Benefits ($54,929) ($54,929) ($54,929) ($54,929) ($54,929) ($54,929) ($76,900)Administrative ($19,159) ($19,159) ($19,159) ($19,159) ($19,159) ($19,159) ($19,159)Food Cost and Dietary ($12,460) ($4,100) ($4,920) ($6,560) ($7,380) ($8,200) ($9,020)Oper./Repairs & Maintenance ($4,641) ($4,641) ($4,641) ($4,641) ($4,641) ($4,641) ($4,641)Housekeeping ($1,167) ($1,167) ($1,167) ($1,167) ($1,167) ($1,167) ($1,167)Programs and Activities ($962) ($962) ($962) ($962) ($962) ($1,924) ($1,924)Other ($8,336) ($8,336) ($8,336) ($8,336) ($8,336) ($8,336) ($11,795)TOTAL ($141,564) ($133,204) ($134,024) ($136,230) ($137,669) ($140,275) ($172,567)R4R ($5,478) ($5,478) ($5,478) ($5,478) ($5,478) ($5,478) ($5,478)Adjusted Net Operating Income ($85,197) ($60,344) ($44,672) ($30,386) ($19,456) ($5,570) ($21,370)Debt Service ($69,151) ($69,151) ($69,151) ($69,151) ($69,151) ($69,151) ($69,151)MIP ($5,444) ($5,444) ($5,444) ($5,444) ($5,444) ($5,444) ($5,444)Debt Service
Profit (Loss) ($159,792) ($134,939) ($119,267) ($104,981) ($94,051) ($80,165) ($95,965)
Miscellaneous
50
15-Minute Break
51
Appraisal
Case Studies
52
Anatomy of a Skilled Nursing Facility Sale
HUD Lean Appraisal TrainingChicago, Illinois
Salient Facts of the Sale’s Market Area
Rural Southwest Iowa market Town straddles two counties Two SNFs in subject town and two more in each
of the two counties – six total SNFs in market area
Total population in combined counties has been and is projected to continue gradually declining
75-plus population is projected to be stable Private-pay assisted living market saturation is
achieved (no further private-pay SNF demand shift expected to assisted living).
Salient Facts of the Sale Property 3.17-acre site is stable, desirable area Building erected in 1971 and 1975, with
last renovations in 1995 Wood-frame construction, brick exterior,
gabled roof, base-board heat and window A/C units
Average condition 1971 section is not sprinklered
Salient Facts of the Sale Property 90 total SNF beds 26 private patient rooms 32 semi-private patient rooms 10 private toilets, balance of patient rooms
share adjoining toilets 30,668 square feet Therapy areas converted from other
function space, not purpose built Buyer plans to spend $300,000 to install
sprinklers in the un-protected areas, upgrade some mechanical systems and freshen up the appearance
Profile of the Competitive Market
Market Totals or Averages
Sale Current
Sale 3-Year Average
Sale Forecast
SNF Beds 369 90 90 90
Occupancy 81% 79% 79% 81%
Private-pay Mix
36% 32% 26% 27%
Medicare Mix
7% 7% 9% 9%
Sale’s Utilization Forecast Comments Occupancy is expected to increase slightly
because new ownership will reduce survey deficiencies and improve reputation – seller was absent in past few years
Renovations should improve total census Mix should remain the same Forecast applies current private-pay rates –
they are at market Forecast applies current Medicare rates, with
last 12 months RUGs mix Renovations will allow the private-pay rates
to increase to market levels. Seller’s rates were below market.
Medicaid Reimbursement Issues New ownership will receive reimbursements based on their
allowable expenses – facility-specific, cost-based reimbursement.
Future reimbursements are limited to the lower of the owner’s actual allowable cost or statewide ceilings.
Ownership is expected to continue to operate at expense levels below statewide ceilings. Pro forma assumes the per-diem nursing expense will increase, but remain below reimbursement ceilings, resulting in higher cost and reimbursements.
Direct and Indirect current and forecasted amounts (expenses) are:
Medicaid Rates Current Forecast
Direct $57.41 $65.51
Indirect $61.61 $63.33
Medicaid Capital Reimbursement Issues Current ownership reports total mortgage debt of
$57,000 and receives only $.44 per patient day in interest.
Allowable capital basis is $326,566. An additional $300,000 in capital basis will be
allowed once the buyer spends this amount on renovations.
Total potential allowable basis will be $626,566 ($326,566 + $300,000).
The new ownership’s interest and depreciation will be paid off a basis of $626,566.
Iowa reimburses actual interest on the allowable debt up to the allowable capital basis.
No reimbursement for equity allowed.
New Owner’s Capital Reimbursement (Interest) Step-up(Prior ownership was receiving $.44/PD for interest)
Interest Cost Forecasts
Loan Amount $626,566Interest Rate 6.35%Amortization Period 20 Mortgage Constant 8.84%
Beginning MortgageYear Balance Payment Interest Principal
1 $626,566 $55,396 $39,325 $16,072 27,923 $1.412 610,494 55,396 38,274 17,122 27,923 1.373 593,372 55,396 37,154 18,242 27,923 1.334 575,130 55,396 35,962 19,434 27,923 1.295 555,696 55,396 34,691 20,705 27,923 1.246 534,991 55,396 33,337 22,059 27,923 1.19
Paitent Days Interest / PD
Other Operating Differences Buyer Vs. Seller
Buyer will reduce therapy and pharmacy expenses. Seller, being a mom-and-pop operator, wasn’t able to achieve economies in these areas. Ancillary expenses are forecast to approximate typical charges from third-party companies.
The seller’s Part B revenue was minimal in 2009, but consistent with the buyer’s pro forma levels in 2007 and 2008.
Seller’s Actual Versus Buyer’s Pro Forma Revenues, Expenses and EBITDAR
Revenue Source Seller's 2009 Buyer's Pro Forma Private, VA & Other $932,239 $1,045,679 Medicare 957,145 914,606 Medicaid 2,020,191 2,225,572 Other Revenues (Net) Part B, Miscellaneous 5,324 48,123
Total Effective Gross Revenue $3,914,900 $4,233,980
Departmental Expenses Expenses General & Administrative $217,881 $244,624 Central Office / Management 156,596 171,371 Nursing, Social Services & Activities 1,852,194 2,045,221 Ancillary 502,112 320,173 Dietary 393,749 437,116 Laundry & Housekeeping 218,974 248,635 Maintenance 223,419 249,971 Property & Liability Insurance 113,166 66,837 Property Taxes 60,640 61,424 Reserves for Replacements 27,000 45,000 Total Expenses $3,765,732 $3,890,373
Net Operating Income $143,844 $343,607
Sale Price Indicators
Gross Sale Price $1,650,000Operating Stabilization Expenses (transition to higher rates) 150,000Buyer Expenditures Made After Sale 300,000Total Net Price $2,100,000
Price per Bed 90 $23,333Price per Square Foot 30,668 $68.48Net Revenue Multiplier (Pro Forma Revenue) $4,233,980 0.496Capitalization Rate, Buyer's Rate $343,607 16.4%Capitalization Rate - Trailing Seller's Actual $143,844 6.8%
Calculation of Equity Capitalization Rate
Equity Capitalization RateTotal Net Sale Price $2,100,000Total Debt $1,680,000Total Equity $420,000
Net Operating Income or EBITDAR $343,607Annual Debt Service (20-year Amortization & 6.0% Interest) -$144,433EBTD (Earnings Before Taxes and Depreciation (Equity NOI) $199,175Equity Capitalization Rate 47.4%
Deriving Equity Capitalization Rates from Sale and/or Surveyed Data
Overall Capitalization Rate 13.5%Less Debt Service Component (75% LTV, 8.0% Loan Constant) -8.0%Remainder -- Attributable to Equity 5.5%25% Equity Position InvestmentEquity Capitalization Rate (5.5% / 25.0%) 22.0%
{.135 - (.10 75)} / 0.25 = 0.22
Cost and Depreciation Analysis
Cost Approach AnalysisEstimated Replacement Cost of All Improvements $5,366,900Estimated Replacement Cost of the MME 585,000Total Replacement Cost 5,951,900Land Value 100,000Total Cost New Before Operating Deficits $6,051,900
Depreciation AnalysisSale Price $2,100,000Less Land Value -100,000Less Stabilization Costs -150,000Net Value Attributable To Improvements & MME $1,850,000Less MME Value -180,000Indicated Value of the Improvements $1,670,000Estimated Replacement Cost of All Improvements 5,366,900Improvement Price Divided By Cost New 31.1%Implied Total Depreciation 68.9%Building Effective Age 37Implied Annual Rate of Depreciation 1.9%Implied Total Economic Life - Years (1.0 / Annual Depreciation Rate) 53.7
Single-Year Cash Flow Valuation Trap — Medicaid Rate-Setting Example
Patient Days $s/PPD Total Patient Days $s/PPD Total Patient Days $s/PPD Total
Private pay 10,000 134.62$ 1,346,154$ 10,000 140.00$ 1,400,000$ 10,000 145.60$ 1,456,000$
Medicaid 30,000 117.49 3,524,571 30,000 123.36 3,700,800 30,000 114.00 3,420,000
Total revenue 40,000 121.77$ 4,870,725$ 40,000 127.52$ 5,100,800$ 40,000 102.40$ 4,876,000$
Operating expenses
Nursing 58.00$ 2,320,000$ 53.00$ 2,120,000$ 55.12$ 2,204,800$
Indirect expenses 51.00 2,040,000 47.00 1,880,000 48.88 1,955,200
Reserves 0.48 19,200 0.50 20,000 0.52 20,800
Total operating expense 109.48$ 4,379,200$ 100.50$ 4,020,000$ 104.52$ 4,180,800$
Net operating income 491,525 1,080,800 695,200
1.45
Medicaid rate calculations
Nursing 58.00$ 53.00$
Indirect care 51.00 47.00
Total operating expenses 109.00$ 100.00$
Plus inflation @ 4% 4.36 4.00
Plus capital payment capital 10.00$ 10.00$
Total Medicaid Rate 123.36$ 114.00$
Previous Year P&Ls Current Year P&Ls Following Year P&Ls
Following-Year Rate
Current-Year Rate
Appraisal
Q & A
70
Market StudiesGeographical Highlights
71
Geographical Highlights
72
Five hardest hit states – CA, NV, AZ, FL, and MI; Midwest was also particularly hard hit due to manufacturing base
While overall some states haven’t suffered as much but some of their MSA’s have been hit much harder due to unemployment, housing busts, etc.
OIHCF did extensive economic analysis of several of the hardest hit areas of the country – FL and AZ
Geographical Highlights
73
FL area physically examined was Tampa MSA and portions to the south and east
AZ area physically examined was Phoenix MSA and areas surrounding Phoenix to the NW and SE and south toward Tucson
Economic deterioration for some parts of the country isn’t over yet and may linger for portions of the country
Geographical Highlights
74
OIHCF is NOT excluding any parts of the country
Applications in areas that are known to have extensive economic hardships will be given extraordinary attention and analysis by OIHCF appraisers
There does appear to be pockets that have not been effected as dramatically as one would expect
Geographical Highlights
75
Additional areas may be physically examined as the situation dictates; as the course of the economy evolves; and as OIHCF upper management reassesses risk factors and claims to the fund
Market StudyStatement of Work
SOW 2010
Healthcare Market Study Guidelines for HUD/FHA
Section 232
January 22, 2010 (supersedes previous versions)
78
This presentation will highlight the substantive changes to the Statement of Work.
Reason for the changes.New document can be found on the FHA portal:
http://portal.hud.gov/portal/page/portal/HUD/federal_housing_administration/healthcare_facilities/section_232/lean_processingpage
Combined the ALF and SNF Statement of Works.Preface has gone.
II. General Guidelines for the Market Study Report.
A. Deliverables:
photographs of the subject site; data sheets with photographs of the
“comparables” (defined as those properties used to determine payor rates);
datasheets of the “competitors” (defined as those properties used to determine competitive supply with the PMA), photographs are encouraged;
exhibits such as floor plans, site plans, and elevations sufficient to give the reader a clear idea of what is proposed;
II. General Guidelines for the Market Study Report.
A. Deliverables (continued):
definition of terms e.g. capture rate, penetration rate, utilization rate, saturation rate;
identification of who the client and intended users are;
identification of the intended use of the report; anddisclosure of prior assignments completed on the
subject property.
III. Specific Reporting Requirements
C. Definition of the primary market area.
“The area that the majority of the project’s demand will be drawn from considering physical barriers, psychological barriers, density of population, linkages, and the location of competing facilities. Market area analysis for long term care and seniors housing should focus not only upon seniors but also upon adult children who may be caregivers for an elderly person residing outside the market area.”
81
III. Specific Reporting Requirements
E. Description of the Current Inventory and Supply count: Distinctions between ‘competitors’ and ‘comparables.’
The level of competitiveness of each of the “competitors”.
A current occupancy survey of “competitors” in the primary market area for the type(s) of product, including an explanation of any vacancy or absorption problems in the market. The survey should include information on the existence of and sizes of any waiting lists in existing facilities.
Extent of concessions or similar incentives of those in initial rent-up among the “competitors” in the PMA. 82
III. Specific Reporting Requirements
F. Rate Determination:
The market study will determine the appropriate rates for the subject. Differences in pricing strategies should be accounted for. For example, some facilities may charge lower base shelter fees with higher care fees, while others will quote higher shelter fees with lower care fees. The rate conclusions for the subject must show a consistent pricing strategy between shelter and care charges.
83
III. Specific Reporting Requirements
84
III. Specific Reporting Requirements
85
J. Demand Estimate and Analysis.
Quantify the estimate of unmet demand of the subject’s unit types. Rather than only comparing the subject’s saturation rate to the rates of other markets, the market study must quantify the unmet demand in numbers. The unmet demand must be determined for the current market and include a forecasted demand for five years in the future. The demand estimate should show the number of beds by payor source (private pay, Medicare, Medicaid, etc.).
III. Specific Reporting Requirements
86
When the supply is compared to demand it is acceptable to account for enough vacancy for the market to operate fluidly. Since the point of a supply analysis is to quantify the capacity of the existing supply; it is not appropriate to discount the supply count for vacancies beyond 5%.
Because the focus of the supply count should be on capacity, the market study will discuss the existence and impact of any off-line product in the PMA. An off-line unit is one that is not being operated because of the lack of market demand for the unit. Facilities that are licensed for more beds than they operate may or may not count as off-line units.
III. Specific Reporting Requirements
87
K. Data, Estimates and Forecasting:
The use of case studies to derive utilization rates is encouraged. If instead published rates (utilization/saturation/penetration) are used to infer demand, explain in detail how the rate was derived and follow the same methodology, when applying the factor to the subject market.
L. Basic Assumptions for SNF and Intermediate Care
4. Many elders demanding shelter and care receive financial assistance from adult children or other relatives.
88
Market Study
Case Studies
89
Extracting Saturation Rates From Comparable Markets
A Michigan Assisted Living Case Study
HUD Lean Training
January 2010
Chicago, Illinois
HUD Lean Training, January 2010, Chicago
Midland, Saginaw and Lansing (East) Market Area Map
HUD Lean Training, January 2010, Chicago
Midland
Saginaw
Lansing
N
Income Qualifying The Demand Step One – Annual Income Before Home Value Adjustment
Minimum annual income necessary for private-pay is set at 25th percentile of the smallest private-pay unit in competitive market
Adjust needed income for income taxes Assumes 100% of income will be used for assisted living Note: Other income assumptions can be made. Keep in mind that
consistency between subject and comparable markets is paramount in making assumption for comparisons
HUD Lean Training, January 2010, Chicago
Saginaw MI Midland MI Lansing MI
Annual Rent With Minimum 3.0 ADL Rent $36,348 $38,844 $41,856Percentage of Income for Rent 100.0% 100.0% 100.0%Minimum Annual Income Necessary $36,348 $38,844 $41,856Tax Rate 15.0% 15.0% 15.0%Minimum Pre-Tax Income Needed For Smallest Private-pay ALF Unit in Market $42,762 $45,699 $49,242
Step Two – Income Qualifying The Demand Annual Income Necessary Adjusting for Home Value Equity
Minimum income is reduced to reflect income achieved from equity in the sale of personal residence – median home value applied
Assume average deduction for commissions, renovations and debt equals 20% of property value
Income from home sale equals 4% investment rate on net value Income from home equity deduces minimum needed income
HUD Lean Training, January 2010, Chicago
Saginaw MI Midland MI Lansing MIMedian Home Value $87,001 $101,462 $116,036Reduction Factor for Mortgage 80.0% 80.0% 80.0%Net Home Value $69,601 $81,170 $92,829After-Tax Safe Investment Rate 4.0% 4.0% 4.0%Annuity Period 12 12 12Interest Income and Principal on Cash from Sale of Home $7,416 $8,649 $9,891Minimum Pre-Tax Income, Reduced by Interest Income & Principal from Sale of Home $35,346 $37,050 $39,351
Step Three - Qualified Population in Defined Primary Market
Based on necessary annual income to pay for the minimum-sized ALF unit, the income- and age-qualified population is determined.
This population is further sorted to reflect population living alone (no one at home to assist) and needing assistance with activities of daily living (ADL’s).
HUD Lean Training, January 2010, Chicago
Saginaw MI Midland MI Lansing MITotal Age/Income Qualified Private-pay Demand 4,642 2,115 4,083
Living Alone 48.0% 48.0% 48.0%Requiring Assistance with ADLs & Mobility 30.0% 30.0% 30.0%
Net Qualified Demand A 668 305 588
Step Four – Saturation Rate Calculation – Divided Occupied Units by Net Qualified Demand
Total and occupied supply is determined by surveying the competition
Occupied units reduced to reflect demand originated from primary market
Saturation rate equals local actual demand divided by net qualified demand from market
HUD Lean Training, January 2010, Chicago
Saginaw MI Midland MI Lansing MITotal Competitive Supply 388 205 273
Actual Current Market Private-pay
Occupancy B 310 194 261
Primary Market Demand Originating in
Primary Market (A x 80.0%) C 248 155 209
Net Qualified Demand -- Private-pay 668 305 588
Implied Private-pay Saturation Rate at Stabilized Occupancy Rate (C ÷ D) 37.1% 50.8% 35.5%
Market Study
Q & A
96
Lunch