Income Capitalization for an ALF?

[masmia]

I have recently completed an appraisal of an Assisted Living Facility (ALF) which did not include the Income Capitalization Approach. Client calls and says that they need the Income Approach in order to fund the loan. I explain that in the subject's market this building is purchased by an owner/operator to run an ALF business and not for rental income and in addition there was no available rental information for this type of building.
The client and they say they understand but need it in order to fund the loan. Any opinions or advice would be appreciated.

 

[Michigan CG]

I have recently completed an appraisal of an Assisted Living Facility (ALF) which did not include the Income Capitalization Approach. Client calls and says that they need the Income Approach in order to fund the loan. I explain that in the subject's market this building is purchased by an owner/operator to run an ALF business and not for rental income and in addition there was no available rental information for this type of building.
The client and they say they understand but need it in order to fund the loan. Any opinions or advice would be appreciated.

OK, let's sort this out:

Assisted Living Center, how many units?
Old folks live there?
They pay rent?
Why would the income approach not be applicable?
It is a commercial property?
The owner bought it to make money, ie. it is a business?

 

[masmia]

Old folks live there?
They pay rent?
Why would the income approach not be applicable?

I'm appraising the real estate not including the business.

IMO the current tenants are paying for a service provided by the ALF business including meals, lodging, care, entertainment, etc. This does not reflect income to the real estate but income to the business.

 

[Lawrence R.]

Timothy, I would give you a point if it would let me.

 

[Michigan CG]

I'm appraising the real estate not including the business.

IMO the current tenants are paying for a service provided by the ALF business including meals, lodging, care, entertainment, etc. This does not reflect income to the real estate but income to the business.

Sir you are in way over your head here. The rental income is what the real estate is producing.

In your theory ABC Apartment Complex is a business and the apartments do not count as income to the real estate.

This is a commercial assignment, generally these properties are worth millions. Your peers would do a narrative appraisal and the first approach performed where most of the value would be given to would be the income approach.

 

[JT1974]

I have recently completed an appraisal of an Assisted Living Facility (ALF) which did not include the Income Capitalization Approach. Client calls and says that they need the Income Approach in order to fund the loan. I explain that in the subject's market this building is purchased by an owner/operator to run an ALF business and not for rental income and in addition there was no available rental information for this type of building.
The client and they say they understand but need it in order to fund the loan. Any opinions or advice would be appreciated.

The answer to your question can be found here:

http://appraisalinstitute.org/store/p-31-analysis-and-valuation-of-health-care-enterprises.aspx

Buy this book and study it thoroughly. Then, find a competent General with experience appraising these types of properties to assist you before you try it again.

 

[Kali the Boston Terrier]

Whoah, your mentor let you get away with this assignment. How on earth would anyone value a hotel if it were not for its income from renting rooms. The business is the real estate, without the real estate they could not function.

I've done several ALF recently, that its primary value indicator is from the income approach. Heck most states regulate the most they can charge...you do not even need a rent survey at that point.

 

[masmia]

What is it with you guys and instantly questioning a persons ability to complete an appraisal? For all you know I am a Cert Res with more commercial experience than you have or maybe, just maybe, I am a Cert Gen and the forum hasn't updated my licensing info. I think that from now on so that you guys can maybe stick to helping a fellow appraiser out with your opinion instead of questioning his/her capacity or ability to appraise I will start each post by stating that I am indeed a Cert Gen and the forum hasn't updated this info yet. That way you can go straight to the topic at hand and not get sidetracked by this issue. FYI in FL a Cert Res can complete commercial assignemnts as long as they are not for federally related transactions.

Timothy,
I disagree, the income produced by the property reflects a service provided that includes among other things lodging for the elderly. Because of the service provided by the business the rental income is much greater than what it would be if you used the property as say a small apartment building. I am not appraising the business but the real estate.

 

[EDWARD BERRY]

Irv

Income/rate=value

There Most Likely Is Some Cost Involved In Providing The Services-deduct Them.

Lender Would Like To See If There Is Enough Left To Service Debt-

Hopefully It Is 1 To 1 And Greater.

Put Some More Data In And Call It An Income Approach.

13th Grade Stuff.

Piece Of Kake-

Arkie Ed

 

[larryhaskell]

Masmia:

I just looked at Loopnet and found 59 sales of ALFs in Florida within the past year. Not all of the sales sheets provided the cap rate (not unusual on Loopnet) but when it was listed the cap rate was around 10%. The per unit sale price that was most frequent was price per bed. You might try and find someone with a Loopnet membership if you don't have one yourself. Hope this helps.