Income Capitalization for an ALF?

[Michigan CG]

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.

The real estate produces the income through rent. The amount of rent is what you are disputing, you are saying the extra services should not count. I disagree. Do you include laundry income in an apartment complex? How about vending? You include that in a Hotel Valuation.

If an apartment complex charged $1,000/month rent for an apartment but for $1,200/month which included weekly cleaning services would you count that extra $200/month minus the cost of the service?

Your subject property simply has more services and the real estate is producing it.

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Send Head Surfer a PM and tell him to update you to a CG. Tell him I looked it up.

 

[Ken B]

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.

As a new CG to another...you are wrong. Listen to what people are telling you. And get the book or its related book on appraising Senior Housing. The Senior Housing book has an ALF case study appraisal. I don't know about the other book.

 

[A New I T]

Masmia,

I do not want to question your ability; however, you have made very concerning statements. I really recommend that you seek assistance in this assigmnent. Good Luck .

Kevin

 

[Michigan CG]

Welcome to the forum New IT, looks like you just found us. Would love to know the meaning behind your screen name sometime.

 

[masmia]

I am always open to changing my mind but so far I am not convinced that the ALF income can be capitalized to come up with the value of the real estate. Take the case of a gas station. Would you use the income generated by fuel and convenience store sales to estimate the value of the real estate? How does this differ from an ALF? If I ran a really poor ALF facility with high vacancy or charged low rents because I was charitable should that affect the value of the underlying real estate?

 

[Mr Rex]

Why do we question you? You indicate you are not considering the income approach on an income producing property. Have you taken any income classes at all? Sorry for the bluntness, but what can I say?

 

[Michigan CG]

I am always open to changing my mind but so far I am not convinced that the ALF income can be capitalized to come up with the value of the real estate.

Tell me what is the difference between your subject facility and a senior housing apartment with no services. Then tell me what does your subject property provide that a senior housing apartment center does not. Then state which ones should not be attributed to the real estate.

Take the case of a gas station. Would you use the income generated by fuel and convenience store sales to estimate the value of the real estate? How does this differ from an ALF?

I see your theory, but it is not common appraisal practice.

If I ran a really poor ALF facility with high vacancy or charged low rents because I was charitable should that affect the value of the underlying real estate?

What if you ran a really poor senior apartment complex with high vacancy or charged low rents......? Same thing.

 

[Ken B]

Do service stations or convenience stores rent rooms?

Could a purchaser turn around poor management skills?

Are you appraising leased fee or fee simple?

Are you appraising market value or going-concern value?

An ALF is essentially a hotel that offers special services to seniors. Appraise it like you would a hotel. Deduct FF&E and goodwill if you feel that contributes to overall value in the event you are not appraising going-concern value.

And get the book.

 

[Howard Klahr]

Take the case of a gas station. Would you use the income generated by fuel and convenience store sales to estimate the value of the real estate?

In fact yes, these are factors which directly influence value. How do you think adjustments are determined for the sales comparison approach?

Before you continue making statements to demonstrate your lack of knowledge, go read the book. You are correct your license status is not entirely relevant, but your level of competency is. By the way, residential appraisers in licensed by the state of Florida may not appraise just any commercial property. It is limited by the federal regulations up to only $250,000 and you must meet the competence requirements.

You apparently relied on the sales comparison approach in your initial release of your report. How did you provide support for adjustments if you don't believe the fees paid by "residents" was significant to the process? Did you identify and adjust for the differences in services provided by the facilities? Average occupancy levels?

Full service hotels charge for rooms, they also collect revenue from operating restaurants, meeting facilities and other ancillary services. When performing a hotel appraisal all of these income items are recognized and the associated expenses are deducted. As was noted by another poster, this is why you are estimating the value of the going concern. A vacant building sitting on the lot is not your assignment. You were requested to value an operating facility.

I am not convinced that the ALF income can be capitalized to come up with the value of the real estate

The issue is not about what you can be convinced about. There are accepted valuation methodolgies for various types of property. The industry does have and utilizes a standard. I recommend you become familiar with it.

 

[A New I T]

Unfortunately we do have to consider the income generated for a convenience store (gasoline, diesel, in-store sales, food service, etc.) as they add value to the property. Not only is the income relevant the income approach it is considered in the comparable sales we use. I would assume that this was considered in your ALF comparables.

Think about it a second. Who would buy an ALF if income was not relevant to the improvements? If it was not relevant it’s an H&BU question. I do not appraise ALF; However, one of my prior instructors, Kerry Jorgenson, MAI specialized in these properties you might give him a call. He’s in Salt Lake, Utah and is very knowledgeable- Google search his name.

“A New I T” is a clever spelling of annuity.