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Assisted Living Facility And H&b Use

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Thebookdoesnthaveit

Sophomore Member
Joined
Dec 16, 2011
Professional Status
Certified General Appraiser
State
Wyoming
I have asked to appraise an assisted living facility; however, after extensive reading on the subject, I am not competent to appraise such a difficult property type without professional assistance by someone with experience in this area. Anyway, after reading the financials, I noticed the property had about 60% occupancy (3 owners and this has been the standard) and operates at a loss annually. So, my question is, obviously this is not the highest and best use, but the improvements are very large (50,000+ s.f.) and demolition does not seem an option. I can think of no other alternative uses, and rezoning would be impossible. How would one treat this in the IA? I saw an appraisal of the property from 2010 and the appraiser decreased the vacancy from 40% to 25%, but something did not seem right about that.

Thanks in advance
 
Joined
Jun 2, 2007
Professional Status
Certified General Appraiser
State
Florida
I noticed the property had about 60% occupancy and operates at a loss annually. So, my question is, obviously this is not the highest and best use, but the improvements are very large (50,000+ s.f.) and demolition does not seem an option. I can think of no other alternative uses, and rezoning would be impossible. How would one treat this in the IA? I saw an appraisal of the property from 2010 and the appraiser decreased the vacancy from 40% to 25%, but something did not seem right about that.
Great question because we see these here (SE Florida) from time to time and they are never easy. Your answer may very well be land value. I've heard these described as "labors of love" and like yours many here have been operating at a loss for a long time yet there are no ideal sales comparables. In every case I can recall the owners are a charity and/or have a related business, and most owners never expected to make a profit even with subsidies. The number of these buyer-profiles are not substantial, and inconsistent with HBU.

We are assuming competent management here, of course, especially after several owners at a loss.

So, the question is WHO is the buyer of the going concern ("value in use")? If the answer in your market is truly "nobody" then the facility must be razed. If it's a philanthropic buyer - the marginal buyer - then they don't have to pay much more than land value to "win" a bid, so your value would be a slight margin over land value.

Fortunately whenever I've done one of these the facility was indeed worth land value when I looked at prices of reasonable alternative uses which probably as you note make more sense in SE Florida than Wyoming. I did not deduct demolition costs since the marginal buyer - the occupant - had a legitimate interim use. Perhaps I should have but that's my story and I'm sticking to it.
 

Terrel L. Shields

Elite Member
Gold Supporting Member
Joined
May 2, 2002
Professional Status
Certified General Appraiser
State
Arkansas
So, my question is, obviously this is not the highest and best use
Profitability of the management is not a HBU issue. If the comps make money why can't the subject? I know one that "blew up" but the one next door has operated for nearly 40 years.

You are dealing with the same issues as a hotel basically. So if you have had an intangible assets class, obtain the book on assisted living from Appraisal Institute, or check Amazon and pay for overnight shipping. You might find another helper but you can do it yourself.
 

Meandering

Elite Member
Joined
Feb 26, 2006
Professional Status
Real Estate Agent or Broker
State
Pennsylvania
We have 2, 2 blocks from each other. 1st one, couldn’t make it work, became a drug and alcohol rehab and went belly up. Been vacant near about 3 years now. Second one at capacity with a waiting list, but they also take physical therapy rehabs from the hospital. 3rd one, 2 miles from the other two, is humming along at near capacity with no short term business. Haven’t been out to the 4th one in awhile, but last I was there they were expanding and that was 5 -/+ years ago.
 

Thebookdoesnthaveit

Sophomore Member
Joined
Dec 16, 2011
Professional Status
Certified General Appraiser
State
Wyoming
Profitability of the management is not a HBU issue. If the comps make money why can't the subject? I know one that "blew up" but the one next door has operated for nearly 40 years.

You are dealing with the same issues as a hotel basically. So if you have had an intangible assets class, obtain the book on assisted living from Appraisal Institute, or check Amazon and pay for overnight shipping. You might find another helper but you can do it yourself.

One major problem with my initial analysis is my supply/demand analysis. We have two facilities in area within a 50 mile radius. This property is in a resort community with a population base of about 20,000+ and and elderly population of around 3,100 (65+ age bracket) - more like $2,800 for over 75+. The other facility is attached and run by the hospital and is a SNF (60 beds) whilst this one is an ALF (63 beds). So I have been asking myself if this just might be a case where there is just not enough demand?: Active, healthy seniors, wealthy seniors who opt for home care, etc, which affects occupancy.

If I conclude there is enough demand, and I appraise the property "as stabilized", wouldn't I have to make an adjustment at the end to reflect it's underperformance in terms of vacancy?

I read the book, which obviously is a good thing, but it also made me aware of the complexities of the assignment. The last thing I want to do is produce a report that might not be credible or is misleading. I always ask myself in these cases "What do you want to as a second career if you lose your license?"
 

Meandering

Elite Member
Joined
Feb 26, 2006
Professional Status
Real Estate Agent or Broker
State
Pennsylvania
The hospital facility may be a vertical monopoly as it can fee patients directly into it's care facility. that and, as the time draws nearer proximity to the hospital is a concern for loved ones.

However, the competing facility would need to offer somewhat different services to survive the competition from the hospital facility, and some of the same services, but closer to the homes of the relatives. Memory care, physical rehab/therapy and maybe even a side, walk-in clinic with a practicing MD might be a better use of the space of a room or two.

But if your facility is located in a resort community, what else could the facility be used for? Community gaming and bingo? Line dance hall? bar/restaurant?

.
 

BRCJR

Elite Member
Gold Supporting Member
Joined
Sep 20, 2005
Professional Status
Licensed Appraiser
State
Virginia
Do you have enough information to determine if the various rates associated with the facility are at market or how far off from market they are?
 

Terrel L. Shields

Elite Member
Gold Supporting Member
Joined
May 2, 2002
Professional Status
Certified General Appraiser
State
Arkansas
where there is just not enough demand?
I doubt it...AZ has lots of healthy seniors and more rest homes than Carter had Little Liver Pills.

The last one I did had comps from 30, 40, and 120 miles away. They are not everyday, but with the aging population, they are a growth business and will be until us boomers ranks are depleted.
 

Terrel L. Shields

Elite Member
Gold Supporting Member
Joined
May 2, 2002
Professional Status
Certified General Appraiser
State
Arkansas
facility may be a vertical monopoly
With bad doctors, that could help business, or possibly hurt it if the doctor is really bad.

It's more profitable for the medical profession to keep you alive as long as possible but make you sick as quickly as possible.
 
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