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EXHIBIT 99
APPRAISAL REPORT
MONTEGO HEIGHTS LODGE
1400 MONTEGO DRIVE
WALNUT CREEK, CALIFORNIA
AS IS ON JULY 14, 1995
SLVS FILE NO. 95-04-20
PREPARED FOR
AMERICAN RETIREMENT VILLAS PROPERTIES II, L.P.
PREPARED BY
MICHAEL G. BOEHM, MAI
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July 24, 1995
American Retirement Villas Properties II, L.P.
c/o ARV Housing Group
245 Fischer Avenue, Suite D-1
Costa Mesa, California 92626
Attention: Mr. Graham Espley-Jones
Re: Montego Heights Lodge
1400 Montego Drive
Walnut Creek, California
SLVS File No. 95-04-20
Gentlemen:
In accordance with your request, we have conducted the required investigation,
gathered the necessary data, and made certain analyses that have enabled us to
form an opinion of the market value of the above captioned property. This report
has been prepared to be in compliance with the requirements of the Uniform
Standards of Professional Appraisal Practice.
The value stated herein is based on our understanding of the site and
improvement descriptions as represented to us by the client and/or the client's
representatives and professional consultants as well as other available sources.
We direct your attention to the "Introduction," "Site Description," and
"Description of Improvements" sections of this appraisal report. It is your
responsibility to read the report and inform the appraiser of any errors or
omissions you are aware of prior to utilizing the report or making it available
to any third party.
Based on an inspection of the property and the investigation and analysis
undertaken, we have formed the opinion, subject to the assumptions and limiting
conditions set forth in this report, that as of July 14, 1995, the fee simple
total going concern interest of the subject, as is, including the value of
favorable financing, has a market value of:
EIGHT MILLION EIGHT HUNDRED TWENTY FIVE THOUSAND ($8,825,000) DOLLARS
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Mr. Graham Espley-Jones
July 24, 1995
Page 2
This total going concern value estimate can be allocated to the following
components:
Market Value
As Is -
7/14/95
------------
Real Estate Value $6,775,000
Furniture, Fixtures & Equipment 200,000
Business Value 1,225,000
----------
Total Going Concern Valuation $8,200,000
==========
Plus: Favorable Financing $ 625,000
----------
Total Reported Valuation $8,825,000
==========
The narrative appraisal report that follows sets forth the identification of the
property and limiting conditions, pertinent facts about the area and the subject
property, comparable data, results of our investigation and analyses and the
reasoning leading to the conclusions set forth. Should you desire a quick
reference to the most important information, I direct your attention to the
"Introduction", "Executive Summary" and the "Reconciliation and Conclusion"
sections of this report.
Respectfully submitted,
SENIOR LIVING VALUATION SERVICES, INC.
Michael G. Boehm, MAI
President
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SUBJECT PHOTOGRAPHS
Subject from Montego Heights Drive,
View West
Main Entrance of Subject
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TABLE OF CONTENTS
Title Page 1
Letter of Transmittal 2
Subject Photographs 4
Table of Contents 5
Introduction 7
Property Identification 7
Property Ownership and History 7
Scope of the Assignment 7
Purpose of the Appraisal 8
Function of the Appraisal 8
Property Inspection 8
Date of Appraisal 8
Date of Value 8
Property Rights Appraised 8
Definition of Market Value 8
Assumptions and Standard Limiting Conditions 9
Special Conditions 11
Experience/Competency of Appraisal Firm 11
Representative Assisted Living Appraisal Experience 12
Executive Summary 13
Regional and City Analysis 15
Regional Location Map 16
City Location Map 17
Comparative Zip Code Demographic Data 19
Anecdotal Description of Walnut Creek 21
Neighborhood Description 25
Neighborhood Map 26
Neighborhood Zoning Map 28
Neighborhood Photographs 29
Site Description 32
Assessor's Parcel Map 33
Flood Map 35
Taxes and Assessments 37
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Description of Improvements 38
Site Plan 39
Floor Plans 41
Unit Plans 42
Subject Photographs 43
Market Analysis 48
Subject Amenities 50
Comparable Facilities Map 51
Census of Competitive ACLF/AL Facilities 53
Market Area Saturation Analysis 58
Highest and Best Use 60
Site Valuation 62
Vacant Land Sales Map 64
Cost Approach Analysis 66
Cost Approach Summary 70
Income Approach Analysis 71
Pro Forma Cash Flow Analysis & Capitalization 83
Sales Comparison Approach 84
Improved Sales Map 87
Valuation of Favorable Financing 91
Reconciliation and Conclusion 95
Allocation of Going Concern Value Determination To Components 97
Total Estimated Marketing Time 99
Certification 100
Addenda 102
Comparable ACLF/AL Facility Photographs 103
11/30/89 Title Report 109
Vacant Land Sale Data 115
6/19/95 Rent Roll 119
(1993, 1994, 4 Mos. Ending 4/95) Historical/(1995) Budgeted Operating Statements 126
Senior Housing Investment Survey 138
Improved Sale Data/Photographs 140
Favorable Financing Detail 149
Qualifications of Michael G. Boehm, MAI 150
MGB State of California Appraisal License 151
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INTRODUCTION
PROPERTY IDENTIFICATION
The subject site consists of a 213,180 square foot (4.89 gross acres) site
located at 1400 Montego Drive in the City of Walnut Creek, Contra Costa County,
California. The site is currently improved with a 169 unit/192 bed congregate
retirement apartment project known as Montego Heights Lodge. The subject is
licensed to accept up to 200 assisted living residents.
A detailed legal description of the subject site is provided in the Title Report
located in the Addenda of this report.
PROPERTY OWNERSHIP AND HISTORY
The fee simple title to the subject property is currently vested in the name of
American Retirement Villas Properties II (ARVP II), a California Limited
Partnership. The current owners purchased the subject in November, 1989 for
approximately $9,000,000. The subject has not been sold/purchased in the past
three years.
The subject was built as a senior congregate facility which opened in 1978.
Montego Heights reportedly took five years to achieve a full occupancy. The
subject, as part of the original conditions of approval and a condition
necessary to obtain the favorable HUD financing, was required to allocate 20% of
the subject units to "very and low" income residents. This restriction was
reportedly waived when the subject was purchased by the current owners allowing
a market rate to be charged for all units. The subject underwent a $500,000
renovation in the Spring of 1990. The subject is currently approximately 86.5%
occupied (166 beds/192 beds) reflecting the large number of subject units, the
subject unit mix and a crowded competitive market environment.
SCOPE OF THE ASSIGNMENT
The scope of this assignment is to inspect the subject property, conduct an
investigation of market data, and prepare a full narrative appraisal report in
accordance with the requirements of the Office of the Comptroller of the
Currency and the Uniform Standards of Professional Appraisal Practice. All
information deemed pertinent to the completion of the appraisal was made
available.
The appraisal was performed so that the analysis, opinions and conclusions are
that of a disinterested third party, employing due diligence in the
investigation, analyses and conclusions. This appraisal report was developed and
prepared to comply with the reporting requirements noted in the "Certification"
section of this report.
The investigation associated with this report includes the general economy of
the industry, the market area, and the local neighborhood. Research and studies
include supply and demand factors, comparable land and property sales,
competitive property rents/rates and occupancy. Buyers, sellers, developers,
public officials, management at competitive facilities, real estate
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brokers, and the current management of the property were interviewed concerning
these and other associated matters. Specific references are made throughout this
report.
PURPOSE OF THE APPRAISAL
The purpose of the appraisal is to estimate the subject's market value as is.
FUNCTION OF THE APPRAISAL
It is understood the appraisal shall be used by American Retirement Villas
Properties II, L.P., in evaluating the subject partnership for possible transfer
to an ownership real estate investment trust.
PROPERTY INSPECTION
The subject property was inspected on May 9, 1995 by Michael G. Boehm, MAI who
was accompanied by Ms. Laura Regnier, administrator. The subject was reinspected
on July 14, 1995 by Mary Wiederhold, Appraisal Associate.
DATE OF APPRAISAL
July 24, 1995
DATE OF VALUE
July 14, 1995
PROPERTY RIGHTS APPRAISED
This appraisal estimates the fee simple total going concern market value of the
subject operating as a congregate senior housing business. Going concern value
is defined by the Appraisal Institute as the value created by a proven property
operation; considered a separate entity to be valued with an established
business. This total going concern value can be allocated to its real estate,
furniture, fixtures and equipment and business value components. An estimated
allocation of our total going concern valuation is set forth in a separate
section of this report.
Fee Simple is defined by the Appraisal Institute as absolute ownership
unencumbered by any other interest or estate subject only to the limitations of
eminent domain, escheat, police power, and taxation.
DEFINITION OF MARKET VALUE
As defined by the Office of the Comptroller of the Currency under 12 CFR, Part
34, Sub-part C-Appraisals, 34.42 Definitions (f), market value is defined as:
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"The most probable price which a property should bring in a competitive and open
market under all conditions requisite to a fair sale, the buyer and seller each
acting prudently, and knowledgeably and assuming the price is not affected by
undue stimulus. Implicit in this definition is the consummation of a sale as of
a specified date and the passing of title from seller to buyer under conditions
whereby:
(i) buyer and seller are typically motivated;
(ii) both parties are well informed or well advised, and acting in what they
consider their best interests;
(iii) a reasonable time is allowed for exposure in the open market;
(iv) payment is made in terms of cash in U.S. dollars or in terms of
financial arrangements comparable thereto; and
(v) the price represents the normal consideration for the property sold
unaffected by special or creative financing or sales concessions
granted by anyone associated with the sale."
ASSUMPTIONS AND STANDARD LIMITING CONDITIONS
1. The legal description furnished to the appraiser is assumed to be
correct, and the title is assumed to be marketable.
2. The appraiser assumes no responsibility for legal matters.
3. Report exhibits are only visual aids. All sizes indicated for land and
improvements are from indicated sources and assumed to be correct.
4. Unless otherwise noted herein, it is assumed there are no detrimental
easements, encumbrances, encroachments, liens, zoning violations,
building code violations, or environmental violations, etc. affecting
the subject property.
5. Information, estimates, and opinions furnished to the appraiser are
obtained from sources considered reliable; however, no liability for
their accuracy can be assumed by the appraiser.
6. It is assumed that there are no hidden or unapparent conditions in the
land or improvements that render the property more or less valuable or
that would reduce its utility, development potential, marketability.
All improvements are assumed to be structurally sound unless otherwise
noted. No responsibility is assumed for hidden or undisclosed
conditions or for arranging for engineering studies that may be
required to discover any defects or uniquely favorable conditions.
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7. The appraiser has inspected the subject property with the due diligence
expected of a professional real estate appraiser. The appraiser is not
qualified to detect hazardous waste and/or toxic materials. Any comment
by the appraiser that might suggest the possibility of the presence of
such substances should not be taken as confirmation of the presence of
hazardous waste and/or toxic materials. Such determination would
require investigation by a qualified expert in the field of
environmental assessment.
8. The presence of substances such as asbestos, urea-formaldehyde foam
insulation or other potentially hazardous materials may affect the
value of the property. The appraiser's value estimate is predicated on
the assumption that there is no such material on or in the property
that would cause a loss in value.
9. No responsibility is assumed for any environmental conditions, or for
any expertise or engineering knowledge required to discover them. The
appraiser's description and resulting comments are the result of the
routine observations made during the appraisal process.
10. Responsible ownership and competent management are assumed.
11. Where the discounted cash flow analysis is utilized, it has been
prepared on the basis of the information and assumptions stipulated in
this appraisal report. The achievement of any financial projections
will be affected by fluctuating economic conditions and is dependent
upon the occurrence of other future events that cannot be assured.
Therefore, the actual results achieved may well vary from the
projections and such variation may be material.
12. The appraiser is not required to give testimony or appear in court, or
at public hearings, or at any special meeting or hearing with reference
to the property appraised herein by reason of preparation of this
report, unless arrangements have been made prior to preparation of this
report.
13. Possession of this report does not carry with it the right of
publication. It shall be used for its intended purpose only and by the
parties to whom it is addressed. Neither all nor any part of the
contents of this report shall be conveyed to the public through
advertising, public relations, news, sales, or other media without the
written consent or approval of the author. This applies particularly to
value conclusions, the identity of the appraiser or firm with which it
is connected, and any reference to the Appraisal Institute, or MAI
designation.
14. Property values are influenced by a large number of external factors.
The information contained in the report comprises the pertinent data
considered necessary to support the value estimate. We have not
knowingly withheld any pertinent facts, but we do not guarantee that we
have knowledge of all factors which might influence the value of the
subject property. Due to rapid changes in external factors, the value
estimate is considered reliable only as of the effective date of the
appraisal.
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SPECIAL CONDITIONS
The subject is currently encumbered by an approximately $3,450,000 HUD loan
which extends to the year 2018 at a fixed interest rate of 7.5%. Because this
interest rate is below the estimated interest rate of current conventional
financing (estimated at 9.5%), the subject has a theoretical value over and
above the capitalized value of operational cash flows. Caution should be used in
interpreting this added value as actual market transactions involving the
assumption of below market rate financing are rare. The value of this favorable
financing has been added to the going concern value set forth in this report.
These issues are discussed and the value of the favorable financing is
calculated in a separate section of this report.
The subject is licensed as a residential care facility for the elderly (assisted
living) for 200 beds with the California Department of Social Services. This
appraisal assumes that the subject meets all physical plant and operating
requirements as an assisted living facility. The subject is currently configured
for 192 beds. The inconsistency is explained by the fact that not all of the
subject beds provide assisted living services.
The appraisers were not provided with a current title report (a 1989 title
report is included in the Addenda of this report) to specifically describe all
current easements or encumbrances that might affect the subject operation as a
congregate senior housing business. This appraisal assumes that there are no
adverse easements or encumbrances affecting the subject. We recommend review of
a current title report.
The estimates of value set forth in this report are partially relying on the
current rent roll, historical operating statements and limited building drawings
and building statistical data provided to the appraiser by ARV Housing Group.
EXPERIENCE/COMPETENCY OF APPRAISAL FIRM
Senior Living Valuation Services, Inc. is a San Francisco based appraisal firm
that exclusively specializes in the appraisal and analysis of all forms of
senior housing properties. On the following page is a listing of recent assisted
living facility assignments that have been completed by the firm. Qualifications
of Michael G. Boehm, MAI are included in the Addenda of this report.
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EXECUTIVE SUMMARY
Property Name: Montego Heights Lodge
Location: 1400 Montego Drive
Walnut Creek, California
Assessor's Parcel No.: 140-250-024 (Contra Costa County)
Property Rights Appraised: Fee Simple (Total Going Concern)
Date of Value: As Is on July 14, 1995
Land Area: 4.89 acres (213,180 square feet) gross;
4.2 acres (182,952 square feet) net developable (estimated)
Excess Land: None
Zoning: C-O, Limited Commercial District
Improvements: Type: One, average quality, 2 and 4 story, Class D
congregate retirement apartment building and
common areas.
Age: Year Built - 1978; Improvement Age - 17 Years;
Effective Age - 17 years;
Remaining Economic Life - 28 years.
Size: 169 congregate retirement units currently configured
for 192 beds in 99,897 square feet of gross building
area.
Condition: Average
H & B Use (if vacant): Senior Housing
H & B Use (as improved): See Highest and Best Use Discussion
Capitalization Rate: 12.0%
Projected Stabilized Net Income: $985,892 (7/95-6/96)
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Total Going Concern Market
Value, as is, as of
July 14, 1995: Cost Approach: $ 8,700,000*
Income Approach: $ 8,200,000*
Sales Comparison Approach: $ 7,950,000-
$10,050,000*
Value Conclusion: $ 8,200,000*
($48,521/Unit)
Allocation of Final
Value Determination
to Components:
Market Value
As Is -
7/14/95
------------
Real Estate $ 6,775,000
FF&E 200,000
Business Value 1,225,000
-----------
Total Going Concern Valuation $ 8,200,000*
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*before addition of value of
favorable financing
Value of Favorable Financing: $625,000
Total Estimated Marketing Time: 6 Months
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REGIONAL AND CITY ANALYSIS
The subject site is located north of Montego Heights Drive, just northwest of La
Casa Via and John Muir Hospital in the eastern incorporated portion of the City
of Walnut Creek, Contra Costa County, California. The subject is located about
one-half mile northeast of downtown Walnut Creek. Walnut Creek is located
approximately 20 miles east of San Francisco.
COUNTY OVERVIEW
Contra Costa County is one of the nine San Francisco Bay Area counties. It is
situated northeast of San Francisco, and bordered by the counties of Solano and
Sacramento on the north, San Joaquin on the east, Alameda on the south and the
San Francisco Bay to the west.
The County consists of three distinct regions. Divided by significant
topographical obstacles (primarily ranges of hills) and the interstate and state
highway system, the western, central, and eastern portions of the County have
tended to develop separately. The western portion, with its access to San
Francisco Bay, is largely urban and industrialized. This area is dominated by
the city of Richmond, with its active, deep water port. The eastern part of the
County is undergoing substantial changes, evolving from a wild, agricultural
area, to an affordable suburban residential region (Antioch, Pittsburg).
The subject is located in the central portion of the County (known as the Diablo
Valley at the foot of Mt. Diablo) which follows the path of Interstate 680 and
extends from Martinez on the shore of the Carquinez strait of the Sacramento
river to the north, south through the cities of Concord, Pleasant Hill, Walnut
Creek, Lafayette, Alamo, Orinda, Danville and San Ramon. This central County
area evolved as a bedroom community by the 1960's as residents commuted to jobs
in San Francisco, Oakland, and other cities. Motivated by an increasingly
congested commute and higher rental rates in San Francisco, corporations began
locating in central Contra Costa in the late 1970's. Today, the central County
has developed into a major suburban commercial and financial headquarters
submarket of the larger Bay Area.
The climate of Contra Costa County is somewhat similar to other parts of the
inland Bay Area, with a year-round mean temperature of 60.4 degrees, and an
annual average rainfall of 19 inches. As in the other parts of the region, most
rain occurs during the winter months and is rare from May through November. The
location of Walnut Creek, southeast of the Berkeley Hills and at a distance from
the moderating influence of the San Francisco Bay, allows some light frosts in
the winter months and warm to hot summer days.
CITY POPULATION AND DEMOGRAPHICS
Walnut Creek (population 63,400 in 1995), incorporated in 1914, evolved from a
small agricultural town of several hundred residents. In the 1950's and 1960's
with the completion of Highway 24 and Interstate 680, Walnut Creek, and many
communities in the central County, became "bedroom" suburbs for the core cities
of San Francisco and Oakland. It was during this period that Walnut Creek
experienced its most rapid population growth. Population growth has
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slowed as the region has become predominantly built out. Increased resistance to
additional growth has (and will continue to) muted recent population expansion.
During the past decade, Walnut Creek, along with the adjacent cities of Concord
and Pleasant Hill, have become an important suburban employment center in the
East Bay. The economy is largely influenced by significant office employment
including Federal and County governments. Nevertheless, a large portion of the
population continues to commute to Oakland and San Francisco.
Today, Walnut Creek is one of the largest cities in the County and the focal
point of the central County region. Population trends and forecasts for Walnut
Creek are as follows:
Population Data
Walnut Creek Contra Costa County
---------------------------- ----------------------------
Year Population % Change Population % Change
---- ---------- -------- ---------- --------
1960 9,900 - 406,030 -
1970 39,844 302% 558,389 37.5%
1980 53,600 34.5% 650,748 16.5%
1990 60,400 12.7% 797,600 22.6%
1995 63,400 5.0% 883,400 10.8%
2000* 66,634 5.1% 971,300 9.9%
* Estimate
- --------------------------------------------------------
Sources: ABAG (Association of Bay Area Governments)
Demographically as illustrated in comparative zip code data presented on the
following page, the subject zip code has the following characteristics relative
to the surrounding region:
1) An older median age (40.2) compared to the surrounding region
(except for the zip code which includes Rossmoor) and City as
a whole (which is older than regional averages), reflecting a
population with 12% of the total population over the age of
65;
2) A higher than average median household income ($71,112). The
subject zip code ranks in the 97th percentile in California in
per capita income (99th percentile nationally), which is
higher than any other Walnut Creek zip code;
3) A slightly more diverse ethnicity with about 89% of its
resident consisting of non-minority whites (about 8% Asian).
An anecdotal description of Walnut Creek is provided on the following page.
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HOUSING
The Walnut Creek housing stock is concentrated in low-density residential uses,
chiefly single-family dwellings, with higher densities allowed in designated
areas generally around the downtown core. According to ABAG projections, the
City is projected to be built out in about 10 years. Currently, the housing
stock consists of approximately 37,000 dwelling units. The City has
approximately 350 acres of vacant land designated for residential development
which could include about 6,000 additional units (located on the fringes of town
to the east and south).
An important influence on the City housing stock (20% of total) and the subject
is the 2,000 acre Rossmoor Retirement Community located in southwestern Walnut
Creek. Rossmoor, begun in 1964, is one of California's largest retirement
communities with a current population of about 8,200 residents in 5,900 mostly
lower density units (capacity for about an additional 1,500 units). Prices range
from $55,000 to $400,000. Rossmoor is restricted to persons 55 and older and has
an average resident age population of about 75. The presence of Rossmoor has
been a major factor in the recent construction of several new higher density
senior housing projects built close to Rossmoor but "outside the gates."
The average home price in Walnut Creek for a single family dwelling in 1995 is
about $300,000. This is below more exclusive suburban areas such as Blackhawk
and Lafayette but above nearby Pleasant Hill and Concord. These statistics
reflect a 15% decline in average home price since 1989 peaks which is consistent
with regional trends (down about 0% to 5% in the last 12 months). Rental rates
of apartments in Walnut Creek are slightly above County averages with a broad
range of $500 to $1,000 and up per month.
EMPLOYMENT & ECONOMIC DEVELOPMENT
Walnut Creek enjoys a diversified economic base. A number of residents commute
to other locations in the Bay Area for work, but the City is seen as a major
suburban office center. The largest firms in the community are as follows:
Major Employers
Name Type of Business Employees
- ---- ---------------- ---------
Lesher Communications, Inc. Newspaper 1,800
John Muir Hospital Health Care 1,750
Kaiser Permanente Center Health Care 1,250
Safeway Grocer 1,100
Western Temporary Services Temporary Employment 600
Nordstrom Retail 600
- --------------------
Source: Walnut Creek Chamber of Commerce
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Explosive downtown core (known as the Golden Triangle) commercial growth in the
early 1980's made growth control the major issue in Walnut Creek in the late
1980's. In 1985, Walnut Creek voters passed Measure H which approved a citywide
moratorium on construction of most buildings greater than 10,000 square feet
until certain traffic volume to capacity ratios are met. The measure designed to
limit further traffic congestion, has been the subject of court battles but has
been incorporated into the City's zoning ordinance. The result of this
antigrowth sentiment has been the virtual extinction of new commercial
proposals. Current development trends to be enforced by the City include
limiting increased traffic whenever possible, concentrating high density
development in the downtown core, emphasized retail commercial development and
creating open space. The City has been transformed from a progrowth community to
one that has become built out and congested and now seeks to maintain its
current high quality of life without additional deterioration. Recent
development activity has been very modest (some smaller infill projects).
TRANSPORTATION
Walnut Creek is served by three major highways: Interstate 680, providing north
to south access throughout central Contra Costa County; Highway 24, providing
highway access east to San Francisco and Oakland via the Caldecott Tunnel; and
Highway 4, providing east to west access through northern Contra Costa County. A
major redesign and expansion of the 680/24 intersection is underway (a 5 year
project) to alleviate severe traffic congestion in the area. The new design will
facilitate access to Rossmoor from Walnut Creek. Major north to south
thoroughfares in Walnut Creek include Buena Vista, California, Main and
Oak/Civic. Major east to west thoroughfares include Olympic, Tice Valley, Treat,
Ygnacio Valley and Walnut.
A high-speed commuter train service, the Bay Area Rapid Transit (BART), provides
public transportation throughout the Bay Area. Walnut Creek is one of 34 BART
stops along a network that extends to San Francisco, Oakland, Fremont, Richmond
and other cities. Rail service is (Amtrak) available in Martinez or Oakland.
Air service is available at Buchanan Field in Concord (regional air service), or
at the Oakland International Airport (18 miles to the southwest) and San
Francisco International Airport ( 36 miles to the southwest). Local residents
can also take advantage of the County Connection, a local bus service.
COMMUNITY DATA
Walnut Creek's location as a part of the greater nine county San Francisco Bay
Area allows its residents to take advantage of all of the cultural and
recreational opportunities of the larger Bay Area. Other major local features
include a regional center for the arts (with theater) and Mt. Diablo State Park,
located southeast of Walnut Creek, offers outdoor activities from trails to
camping and picnic sites. Mt. Diablo, with an elevation of 3,849 feet, is the
highest peak in the Bay Area and provides a panoramic view from the Pacific
Ocean to the Sierras. Located in the foothills of Mt. Diablo is the Concord
Pavilion, a popular 8,500 seat open theater for concerts and festivals.
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Walnut Creek has one general acute hospital, the John Muir Medical Center , with
280 beds and 677 physicians. This hospital is located approximately one block
east of the subject property along Ygnacio Valley Boulevard. Additional medical
facilities in the area include Rossmoor Medical Clinic (just outside the
Rossmoor entrance), Mt. Diablo Medical Center, Kaiser Medical Center (201 beds),
and CPC Walnut Creek, the largest psychiatric hospital in the Bay Area. Walnut
Creek is located in HSA 5, HFPA 411 with a total of 25 skilled nursing
facilities comprising a total approximately 2,328 licensed beds (including
several newer facilities). Walnut Creek is also home to a large number of high
density congregate senior housing projects (rentals) including the subject and
as discussed in detail in the Market Analysis section of this report.
CONCLUSION
Walnut Creek is primarily built out with an established land use pattern of
residential developments surrounding a densely developed downtown core. Future
development and population expansion will be slow, focused in infilling vacant
or underdeveloped land parcels. Local antigrowth sentiment is still strong and
the City has experienced extreme traffic congestion which threatens the City's
traditional suburban/bucolic residential character. Nevertheless, the City still
has a high quality of life. The City's central location, affluence and extremely
large elderly population focused at Rossmoor, make Walnut Creek attractive for
elderly housing.
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NEIGHBORHOOD DESCRIPTION
The subject neighborhood is located in the eastern portion of the City of Walnut
Creek in the neighborhood or subarea known as Ygnacio Valley. Ygnacio Valley is
the largest subarea in Walnut Creek encompassing the northeastern portion of the
town and extending to the Mt. Diablo foothills. The subarea is predominately
built out with lower density residential development and wide tree lined sloping
boulevards although the western portion of the subarea contains higher density
housing (including the subject), retail and institutional development. Major
subarea development includes three local shopping centers, the Shadelands
Business Park, the Heather Farms Park, Diablo Hills Golf Course and John Muir
Hospital (with surrounding medical office buildings and related buildings) which
dominates the subject's immediate neighborhood.
The subject's immediate neighborhood boundaries can be considered as La Casa Via
to the northeast, Montego Drive to the south, Tampico to the west and Ygnacio
Valley Road to the northwest. This area is characterized by medium to higher
density apartment and condominium developments and by medical offices serving
John Muir Hospital.
The neighborhood appears to be generally built out with a few vacant land
parcels including one at the corner of Tampico and Ygnacio Valley Road (just
northwest of the subject). The area surrounding the subject is zoned C-O
(Limited Commercial District). Medical office buildings and Ygnacio Valley
Convalescent Hospital are located to the north of the subject and the San Marcos
Convalescent Hospital is located to the southwest. To the south across Montego
Drive lie apartments and some single family residential homes in good condition.
The subject's good quality two and four story construction is not inconsistent
with the overall medium density residential character of the immediate
neighborhood.
The subject is located approximately 1.5 miles east of Interstate 680 and the
Walnut Creek Bart Station, one block southwest of the John Muir Memorial
Hospital and four blocks south of the Heather Farms Park. The Diablo Hills Golf
Course is located two blocks northwest of the subject. The Shell Ridge Open
Space, located one-half mile southeast of the subject, forms the southeasterly
boundary of the neighborhood. The Kaiser Permanente Medical Center and the
Broadway Shopping Center with various restaurants, department stores and banks,
are located approximately one mile southwest of the subject.
The site is located about two miles northeast of Rossmoor, meaning that it is
not within Rossmoor's sphere of influence and can (and has) relied less upon
Rossmoor residents for its resident source than other comparable projects
located nearer to Rossmoor. Overall, the subject neighborhood has an attractive,
well maintained medium density residential character, excellent access to major
medical amenities and fair highway and retail access. The subject neighborhood
is adequately suited for the subject development.
20
NEIGHBORHOOD PHOTOGRAPHS
View East along Montego Heights Drive,
Subject to Left
View West along Montego Heights Drive,
Subject to Right
21
NEIGHBORHOOD PHOTOGRAPHS
View South toward Tampico from Montego Drive,
Subject Behind
22
NEIGHBORHOOD PHOTOGRAPHS
Western Boundary of Site from Adjacent Parking Lot,
Subject to Right
Undeveloped Knoll North of Subject
23
SITE DESCRIPTION
LOCATION: The subject site is located at 1400 Montego Drive in Walnut Creek,
California which is about one block south of the intersection of Ygnacio Valley
Road and La Casa Via. The subject site consists of one irregular shaped parcel
identified as Contra Costa County Assessor's Parcel Number 140-250-024. An
Assessor's Parcel Map and Survey Map are shown on the following pages. A
detailed legal description of the site is provided in the Addenda of this
report.
PHYSICAL CHARACTERISTICS: The subject property consists of an irregularly shaped
parcel containing 4.89 acres or 213,180 square feet gross and approximately 4.20
acres or 182,952 square feet net developable. The site is bounded by Montego
Drive along its southeasterly boundary (about 550 feet of frontage), medical
office/convalescent hospital properties to the north and open space/convalescent
hospital to the west/southwest.
The topography of the site is highly irregular with elevations ranging from 216
feet to 270 feet above sea level (50 foot variation). The site contains several
knolls including one large knoll which dominates the northern portion of the
site and reduces the developable area of the total site by about 30,000 square
feet. The knoll is visible throughout the immediate neighborhood.
The site appears to have adequate drainage and is not located within a flood
plain area. The subject is located in Flood Zone C, an area of minimal flooding
per Map No. 065070 0001B, dated 5/1/85. No report of soil conditions was
provided to the appraisers and it is assumed that there are no adverse soil or
subsoil conditions affecting existing developments. No obvious toxic or
hazardous conditions were noted during our site inspection. The site can be
considered as having the same overall risk of earthquakes as the San Francisco
Bay Area although it is not located in an Alquist-Priolo special earthquake
zone.
EXISTING IMPROVEMENTS: The subject site is developed with a 169 unit, 2 and 4
story U-shaped and multi-tiered, 99,897 square foot residential congregate
senior apartment building. The subject site is bordered by asphalt surface
residential streets, curbs, gutters and sidewalks along its Montego frontage.
The development's main entry is oriented towards Montego Drive (southeast).
Additional improvement detail is discussed in the Description of Improvements
section of this appraisal.
Montego Drive is a wide, two-lane northeast to northwest residential street.
Street improvements include asphalt paving, concrete curbs, gutters and
sidewalks. The subject site is served by all utilities including water (City of
Walnut Creek), natural gas and electrical power (Pacific Gas & Electric) and
telephone (Pacific Bell).
ACCESS AND EXPOSURE: The subject site can be accessed from Montego Drive, a
secondary northeast to northwest residential arterial through eastern Walnut
Creek. The subject is located approximately two blocks southeast of Ygnacio
Valley Boulevard, just west of La Casa Via and 1.5 miles east of Highway 680.
Partial visibility of the subject is possible from Ygnacio Valley Boulevard but
visibility from Montego Drive is limited because of surrounding development and
the varying topography of the immediate neighborhood.
24
EASEMENTS AND ENCUMBRANCES: According to the older 11/30/89 title report
illustrated in the Addenda of this report, the subject is not affected by any
significant easements or encumbrances. The site is affected by a City access
easement along its southwesterly boundary and circulation road and normal
utility easements which do not affect the improvements as existing. The subject
is also impacted by an access easement along its western driveway. The access
easement was granted to the former owner of the subject site and was designed to
allow this owner access to land to the north of the subject (or parcel A per the
survey map). As noted in the special conditions section of this report, the site
was formerly required to accept 20% "very low and low" income residents as a
condition for the $3,696,000 favorable HUD financing obtained in 1978. This
restriction was reportedly lifted when the subject's current owner purchased
Montego Heights Lodge in 1989. However, the benefit from the remaining term of
the favorable financing was assumed by the current owners.
ZONING: The subject is classified as a limited care complex for ambulatory
senior citizens and is allowed in a C-O (Limited Commercial District) zone. The
subject development was built in 1978 and has been operating on the subject site
as a legal conforming use since that time.
The subject is currently licensed for 200 assisted living beds with the
California Department of Health Services as a residential facility for the
elderly, also known as residential care or assisted living. This licensing
allows the subject to offer nonmedical daily living assistance to these
residents.
EXCESS LAND: None. The subject is fully built out to the developable portions of
its property limits. In June, 1995, the subject was approached by the owner of
the site adjacent to the subject (Parcel A), who offered to purchase
approximately 9,122 square feet of the northerly portions of the subject site
for $38,000. This offer was rejected by the subject owners who indicated a
willingness to discuss only 5,822 square feet of the site subject to HUD and
City of Walnut Creek approval. This approval is needed as the 5,822 square feet
requested currently contain parking spaces for the subject. The potential buyer
has some negotiating leverage over the subject, in that they have an existing
access easement across the subject site as noted above.
Given the tight parking situation on the subject site, City approval is
problematic. The subject owners, though not making a counter offer, are thinking
of a $10 to $12 per square foot purchase price, suggesting a maximum of $69,864
($12/SF x 5,822 SF) in extra land value. Despite the above discussion, this
report does not add the value of any excess or extra land due to the early
stages of this negotiation, the great uncertainty over sale price, the
resolution of the parking issue and other conditions. In our opinion, a buyer of
the subject in July, 1995 would not pay a material amount for this potential
exchange.
25
TAXES AND ASSESSMENTS
Since passage of Proposition 13, or the Jarvis-Gann Initiative, in 1978, real
property has been assessed at its 1976 value, trended upward at a maximum rate
of 2% annually, unless there is a transfer of ownership or new construction.
When either of these occur, the property is reassessed at full market value.
Furthermore, Proposition 13 limits annual taxes to 1%, plus a small amount for
bonded indebtedness of the assessed value.
Assessor's Parcel No.: 140-250-024 (Contra Costa County)
Assessed Value 1994-95:
Land $2,381,350
Improvements $6,714,326
Personal Property Equipment $ 549,791
----------
Total $9,645,467
==========
1994-95 Tax Rate: 1.0371%
1994-95 Taxes: $101,205.94 (includes $1,172.82 in direct
assessments)
Status: Current and paid as due. Our cash flow
projections of stabilized real estate taxes
assumes a sale and reassessment of the
subject to market value ($8,200,000) at
July, 1995 (does not include value created
by favorable financing).
26
DESCRIPTION OF IMPROVEMENTS
The discussion of the improvements addressed below was accumulated through our
site inspection, a review of limited site plans and through discussions with the
subject's administrator. Detailed architectural drawings were not available.
GENERAL TYPE: The existing main improvement known as Montego Heights Lodge
consists of one 2 to 4 story, multi-tiered 169-unit, good quality, Class D
retirement apartment building containing 99,897 square feet of gross building
area. The facility contains 169 units currently configured for a maximum of 192
beds. The U-shaped main building improvement surrounds an open courtyard located
at the base of the large knoll. Located to the northwest and northeast are two
open paved parking areas.
AGE: The subject improvements were constructed and completed in 1978. Since
1978, the subject has been operating as an independent living senior facility.
In the Spring of 1990, the subject underwent an approximate $500,000
renovation/upgrading that included new furniture and equipment, new
wallpapering/painting, reconfiguration/upgrading of office space and some common
areas. Beginning in November 1990, the subject became licensed by the Department
of Social Services to provide assisted living to residents in 200 beds.
Our site inspection noted a normal amount of wear and tear for a 17 year old
building and no material deferred maintenance. The subject improvements have an
estimated total economic life of about 45 years. A chronological and effective
age of about 17 years suggests a remaining economic life of about 28 years.
SIZES: The subject has the following component sizes and unit mix:
Unit
No. of Size
Unit Type Units S.F. (est.) Total S.F.
--------- ------ ---- ----------
A Studios 63 296 18,648
B Studios 75 391 29,325
One Bedroom 31* 687 (avg.) 21,297
---- ------
Total 169 69,270 (69.3%)
Common Areas/Circulation 30,627 (30.7%)
------
Gross Building Area 99,897
======
*the subject was originally built with 200 studio units in total, however, 62 of
these units were converted into 31 "one bedroom" (combined studio units) units
for the current mix.
27
STRUCTURAL AND EXTERIOR: The subject improvements are constructed on a
multi-tiered concrete slab foundation with a 1-story (central entry wing),
2-story (east wing), and 4-story (west wing) wood frame construction under a
sloping clay tile roof. Building exterior consists of stucco, protruding wood
balcony decks and wood trim. The building includes a small concrete block
basement/storage area.
Interior walls are wood frame and painted or wallpapered gypsum board. The main
common areas, hallways and room exteriors are carpeted. Unit baths have vinyl
tile. Ceilings in units are painted gypsum board with common area ceilings and
hallways consisting of dropped acoustical tile with hanging incandescent and
fluorescent light fixtures. The entire development is fully sprinklered with
smoke and heat alarms. Units include French doors leading to the balconies and
patios and sliding windows in aluminum frames.
MECHANICAL: The development has average lighting and plumbing fixtures. HVAC in
the units consist of individual room heating. HVAC in common areas features hot
water boiler central forced air heating system. The subject also features an
intercom system with paging. The development includes three elevators. Four
stairwells are located throughout the improvement.
INTERIORS: Based on our site inspection, the interiors appear to be functional
for congregate senior apartment use. Unit plans are presented on a following
page. The facility includes 169 apartment units with separate baths. The unit
mix was originally a combination of small (296 SF) and large studios (391 SF).
62 of these units were combined to create 31 one bedroom/suite units with two
living rooms and two baths (two rooms joined by a door in adjoining wall).
Each living unit contains a full bath area with grab bars and a sink with a
built-in cabinet, vanity and water closet. Each unit also contains two emergency
pull cords, one each in the bath and living area. The units also contain a small
kitchenette which consists of a sink, two burners and a half-refrigerator. Each
unit has its own outdoor wood picket balcony or patio.
The focal point of the development is the facility's common areas located on the
centrally located one story ground floor. The facility's main entry area
includes the lobby, a reception desk and administrative offices. The common
areas include a card room, library, theater with stage, television room,
activity room, beauty salon and general store. The subject also has six resident
lounges. Laundry rooms with washers and dryers for the residents are located on
each floor. The subject also has an employee lounge and restroom and linen
closets. The facility's dining area has a tastefully decorated restaurant
atmosphere with a maximum seating capacity for approximately 224 individuals.
PARKING AND LANDSCAPING: With the exception of 12 spaces located underneath
carports, site parking is located in two individual open paved parking areas on
east and west of the development accessed from Montego Drive. There are
approximately 100 parking spaces (0.59/unit) located in the parking areas. There
is a carport for 12 cars located in the eastern parking area. Additionally,
there are four individual spaces located under apartment units in the front of
the improvement. The facility entry is formed by a concrete turnaround facing
Montego Drive.
28
SUBJECT PHOTOGRAPHS
Dining Room
Typical Interior Corridor
29
SUBJECT PHOTOGRAPHS
Typical Unit Interiors
30
SUBJECT PHOTOGRAPHS
Rear Courtyard/Aviary
Northern Boundary of Site, View West
31
SUBJECT PHOTOGRAPHS
Rear Parking Area
Main Entry Driveway
32
Approximately 30% of the site is landscaped with mature trees, flowering
perennials, landscaped berms along Montego Drive, bushes and grass. Facility
landscaping is centered in the open courtyard north of the U-shaped Improvement
and common area and at the base of the large knoll dominating the northern
portion of the site. The courtyard includes a fully stocked fish pond and
aviary. Concrete walkways surround the site's highly variable topography.
Overall site landscaping is above average.
CONCLUSION: In our opinion the subject property's exteriors, common area
interiors, landscaped areas and parking appear average and competitive for
residential retirement uses. The subject's relatively small units are typical of
1970's senior housing construction with a more limited unit mix and modest
common areas. The subject would fall into the middle to lower middle tier of
local senior housing projects. The subject also has a larger number of
units/beds than typical (especially for an ARV property). Our site inspection
noted no material deferred maintenance and an average to good condition
reflecting the subject's 17 year old effective age.
33
MARKET ANALYSIS
INTRODUCTION
The elderly are by far the fastest growing population segment, whether expressed
in percentage increase or actual number of persons. Although not as well
documented statistically, the elderly have more money than ever before because
of social security, pension programs, savings and the substantial increase in
the market value of their residences. Most of them are active and in reasonably
good health. This increased health and life expectancy lends them to seek life
enriching activities through an independent lifestyle that provides assistance
when needed.
INDUSTRY OVERVIEW
The housing industry for the elderly can be classified by the three major types
of buyers: the active elderly (go-gos), intermediate (slow-gos) and the person
who needs constant care (no-gos). Active retirees want recreational amenities
with the housing they buy. They want a golf course, tennis courts, swimming
pool, walking and bicycle path, saunas and spas. They want to be near good
places to eat and to be able to enjoy a wide range of cultural activities and
travel opportunities.
Intermediate retirees want a congregate-type of lifestyle that allows them
independence yet gives them the opportunity to take part in quiet activities
such as arts and crafts. Retirees in this intermediate classification also will
look for transportation to shopping, banking or medical offices, some mild form
of recreational activities, such as swimming and golf, plus the opportunity to
socialize in a common dining room or lounge area.
Retirees who need constant care are concerned with medical assistance. They will
look for facilities that offer services and conveniences such as residential
care facilities which will make their lives more comfortable. Also, they will
want a medical center where they can go when their health fails. The subject
property would be targeted at the intermediate and less active elderly.
From a real estate and financial perspective, housing for the elderly is complex
to analyze as they usually represent a combination of other businesses. The
major types of homes for the elderly include:
Adult Congregate Living Facilities (ACLF): Specially planned, designed
and managed multi-unit rental housing typically with self contained
apartments. Supportive services such as meals, housekeeping,
transportation, social and recreational activities are usually
provided. In California, these facilities are not licensed.
Assisted Living Facilities (ALF) (personal care or residential): Group
living arrangements that provide staff supervised meals, housekeeping
and personal care (assistance with bathing and medication) and private
or shared sleeping rooms. These facilities are generally licensed and
must meet designated operating standards including minimum staff
requirements. In California, these facilities must be licensed by the
California Department of Social Services, Division of Community Care.
34
Care Facilities (skilled nursing or intermediate care): Skilled nursing
and intermediate care facilities (commonly known as nursing homes) are
both operated under the guidance of a licensed administrator with
licensed nurses and aids providing around the clock nursing care,
generally one step below that offered at an acute care hospital. In
California, these facilities must be licensed with the California
Department of Health Services.
Life Care Complex (life care community, continuing care, campus
complex): A housing development planned, designed and operated to
provide a full range of accommodations and services for older adults,
including independent living, congregate housing and medical care.
Residents may move from one level to another as their needs change.
Life care complexes typically charge a buy-in fee (sometimes
refundable) in addition to a monthly maintenance fee for services. In
California, life care contracts must be approved by the State
Department of Insurance.
Retirement Village: Developments that offer, home ownership and rental
units for older persons. Support services often are available for a
fee.
The subject is a currently existing 169 unit (192 current bed configuration)
licensed assisted living (ALF) facility. This suggests that 23 of the subject
units are currently configured for 46 semiprivate beds. The subject is licensed
to accept 112 nonambulatory residents (200 assisted living bed licensing total).
Congregate housing such as the subject is a combination of: a) an apartment
project; b) a hotel offering meals, cleaning and transportation facilities; c) a
social club offering activities; and d) a supporting living environment
providing assisted living amenities (help with bathing, medication, mobility) as
needed. A summary of subject amenities is provided on the following page.
MARKET DEFINITION
Our experience in analyzing congregate housing development indicates that these
facilities have a total market area ranging from a 5 to 30 mile radius from the
site. This area represents a reasonable driving distance for relatives and
friends and also reflects the fact that the elderly do not move great distance
when choosing the congregate housing option. Perhaps more important than a
strict definition of market area based on distance, is the overall character of
the development's environment, whether it is urban, suburban or small
town/rural. In our opinion, the primary market area for the subject site extends
approximately 5 miles outward from the site in all directions. This would
include most of the suburban area of central Contra Costa County including all
of Walnut Creek and Alamo and portions of Pleasant Hill, Concord and Lafayette.
These areas are not only located in close geographic proximity to the site, but
each is a similar, upper middle income bedroom community. This definition of
market area is consistent with the former residences of subject residents.
RETIREMENT HOUSING SUPPLY
During the course of our appraisal, we have identified those existing and
proposed elderly retirement facilities in the primary market area which may be
considered somewhat competitive
35
to the subject property. Our census of potentially competitive congregate rental
housing facilities impacting the total market area is presented on the following
pages. Photographs of the rent comparables are illustrated in the Addenda of
this report.
Each of the surveyed congregate facilities is a for-profit housing development
offering two or three meals daily, weekly maid service and many recreational
opportunities. Most of the properties surveyed offer licensed assisted living on
an as needed basis. The properties can be characterized as follows:
BOTH CONGREGATE AND ASSISTED LIVING (MOST SIMILAR TO SUBJECT)
1. Kensington Place
2. Valley View Lodge
3. Byron Park
5. Chateau Pleasant Hill
11. Villa San Ramon
ASSISTED LIVING ONLY
4. Family Affair
6. Eden Villa (Alzheimers/heavy care)
7. Concord Royale
8. Diablo Lodge
9. Moraga Royale
10. San Ramon Lodge
The subject would be most similar to those projects offering both congregate and
assisted living services although it has an overall quality, age and living
environment comparability to Comparable No. 7 (Concord Royale) which only
accepts the frailer, assisted living resident. Like the subject, this project
was built in the late 1970's and has an all studio unit mix.
Of the congregate/assisted projects, the subject would be most similar to the
older projects with more similar unit mixes such as Comparable No. 2 (Valley
View Lodge) - a sister ARV project and Comparable No. 5 (Chateau Pleasant Hill).
Valley View Lodge in particular, is similar to the subject in target market and
in the a la carte assisted living program. However, this project has a less
monolithic unit mix and better layout than the subject. It is also located
adjacent to two nursing homes one block from Rossmoor, a competitive advantage.
Comparable No. 5 (Chateau Pleasant Hill) has a more varied unit mix than the
subject and a slightly superior living environment. The other more comparable
congregate/assisted projects surveyed are generally newer projects (Comparable
Nos. 1 - Kensington Place, 3 - Byron Park and 11 - Villa San Ramon) with a more
varied unit mix and a generally superior living environment to the subject. The
subject would be competitively placed in the tier of projects below these newer
properties.
The assisted living projects are generally less directly comparable to the
subject as they target the older, frailer senior exclusively. Of the projects,
as noted Concord Royale would be most similar to the subject. Comparable No. 8 -
Diablo Lodge, is one of the higher quality assisted living
36
MONTEGO HEIGHTS LODGE
CENSUS OF MARKET AREA ACLF/AL FACILITIES
Congregate
(ACLF) Units Assisted Living (AL) Units
Age/ ----------------- -----------------------------
Miles Total Monthly Monthly
From Units/ Unit Size- Rental - Rental/ Rental - Semi- Reported
No. Name/Location Subject AL Beds Type S.F. Private S.F. Private Private % SSI Occupancy
- --- ------------- ------- ------- ---- ---- ------- ------- ------- ------- ----- ---------
1. Kensington Place 1988/ 176/44 1BR 450-560 $1,885 $3.37- +$300- N/A 0% 100%
1580 Geary Blvd. 1.5 $4.19 $1,000
Walnut Creek 2BR 760-820 $2,830 $3.45-
$3.72
2. Valley View Lodge 1975/ 62/96 Studio 390 $1,375 $3.53 +$150- +$150- 0% 96%
1228 Rossmoor Parkway 2.5 Alcove 533 $1,750 $3.28 $1,000 $1,000
Walnut Creek 1BR 571 $1,950 $3.42
SP $1,175
3. Byron Park 1991/ 187/19 Studio 431 $1,575 $3.65 $2,850 N/A 0% 98%
1700 Tice Valley Blvd. 2.6 1BR 614-834 $1,850- $3.00- $3,300
Walnut Creek $2,500 $3.01
2BR 877-1316 $2,600- $2.51- $4,250
$3,300 $2.96
4. Family Affair Ret. 1975/ 120/160 Studio 450-500 Not Available $2,000- $1,800 0% WND
1081 Mohr Lane 2.5 $2,200
Concord
5. Chateau Pleasant Hill 1985/ 112/38 Studio 400 $1,295- $3.24- +$300-$500 N/A 0% 99%
2770 Pleasant Hill Road 3.0 $1,700 $4.25
Pleasant Hill 1BR 500 $1,650- $3.30-
$2,000 $4.00
6. Eden Villa 7-95/ 36/72 Studio 300 (est.) Not Available $2,450- $1,650- 0% 3%
2015 Mt. Diablo Boulevard 1.5 $2,750 $1,950 (Opened
Walnut Creek (shared bath) 7/95)
$2,650-
$2,950
(private bath)
7. Concord Royale 1979/ 120/196 Studio 250 (est.) Not Available $1,200- $850- 25% 98%
4230 Clayton Road 4.5 $1,800 $950
Concord
37
MONTEGO HEIGHTS LODGE
CENSUS OF MARKET AREA ACLF/AL FACILITIES
(CONTINUED)
Congregate
(ACLF) Units Assisted Living (AL) Units
Age/ ----------------- --------------------------
Miles Total Monthly Monthly
From Units/ Unit Size- Rental - Rental/ Rental - Semi- Reported
No. Name/Location Subject AL Beds Type S.F. Private S.F. Private Private % SSI Occupancy
- --- ------------- ------- ------- ---- ---- ------- ------- ------- ------- ----- ---------
8. Diablo Lodge 1990/ 118/118 Studio 360 $1,795- $4.99- +$300- N/A 0% 100%
950 Diablo Road 6.0 $2,095 $5.82 $1,000
Danville 1BR 490 $2,195- $4.48- (avg.)
$2,495 $5.09
2BR 658 (avg.) $2,695- $4.10-
$2,895 $4.40
9. Moraga Royale 1987/ 95/182 Studio 525 Not Available $1,600- $ 850 0% 98%
1600 Canyon Road 7.5 $2,200
Moraga
10. San Ramon Lodge 1991/ 40/60 Studio 219-365 Not Available $2,000- $1,500- 0% 86%
1888 Bollinger Canyon Rd. 10 $2,500 $1,800
San Ramon
11. Villa San Ramon 1992/ 120/120 Studio 400 $1,650- $4.13- $2,750 N/A 0% 99%
9199 Fircrest Lane 11 $1,795 $4.49
San Ramon 1BR 500-552 $1,825- $2.85- $2,850 N/A
$1,995 $3.65
Lg. 1BR 700 $2,000- $2.86-
$2,300 $3.29
2BR 850 $2,595- $3.05- $3,600 $1,600
$2,795 $3.21
S. Montego Heights Lodge 1978/ 169/192 Studio 296-391 $1,100- $3.58- +$150- +$150- 8% 87%
1400 Montego Way - $1,400 $3.72 $1,000 $1,000
Walnut Creek 1BR 687 $1,750 $2.55
SP $ 825-
$ 850
38
projects in the local market and in the entire region. Comparable No. 6 (Eden
Villa) is a recently opened project (a converted nursing home) which targets the
heavier care and Alzheimer patient.
Our survey of local jurisdictions noted no other active proposed senior housing
projects which would pose an imminent competitive threat to the subject. The
overall occupancy of the 11 projects surveyed is a strong 96.2% (not including
the recently opened Comparable No. 6 - Eden Villa).
RETIREMENT HOUSING DEMAND
To measure the theoretical size of the subject's target market, we have analyzed
demographic statistics obtained from Urban Decision Systems for the relevant
target area market which extends about 5 miles outward from the subject site. We
obtained income by age population estimates and projections for this area in
1995 and 2000. Our analysis is as follows:
1) Determines the number of households over a minimum age, 75, and minimum
income requirement, over $15,000, from 1995 population estimates and
2000 population projections. These parameters establish the different
scenarios for calculating the market saturation rates;
2) Calculates total market saturation rates required to fill the subject's
192 beds and all other existing competitive senior facilities
(estimated at 1,779 beds);
3) Evaluates the market environment of the subject property given the
calculated saturation rates.
Our experience in comparable markets, indicates the following regarding
saturation rates.
Estimate of Overall
Saturation Rate Market Demand
--------------- -------------------
0 - 10% Lightly Competitive
10 - 20% Moderately Competitive
20 - 30% Heavily Competitive
30%+ Extremely Competitive
Our calculated market saturation rates (near 30%) for the subject market area
suggest a heavily competitive market. Overall, the subject market area can be
characterized as having a large supply of older generation retirement units
serving a very large (due to Rossmoor) and affluent, and growing age and income
eligible senior population. It is important to note that saturation analysis is
only a tool used to measure overall market saturation. It does not consider any
potential competitive advantages that a specific facility might offer.
Saturation rates can also be calculated using different factors/scenarios. Our
methodology of calculating market saturation rates is based on our experience in
analyzing the feasibility of numerous congregate senior housing developments.
39
CONCLUSIONS
Overall, we noted the following regarding the market environment of Montego
Heights Lodge:
1) The calculated saturation rates suggest a heavily competitive market
environment. However, market area occupancy rates are strong at most
projects although the subject has a soft census. This is due to its
older age, large number of units and monolithic unit mix. The overall
average occupancy of all projects surveyed was about 96%. The market's
strong demographics (size, affluence) are countered somewhat by a weak
local economy which makes seniors on fixed incomes more hesitant to
consider the congregate senior housing option and less likely to
recognize paper losses on homes which have declined in value from 1989
peaks;
2) The subject has a current occupancy of 87% and rising in the past 12
months. The subject has established a market position as a well run,
middle market project with reasonable rents. The subject's physical
plant is below average in comparison to the other comparable projects
in its market. Most of the locally competitive projects are newer and
have a less institutional living environment and more varied unit mix
than the subject. The subject is also somewhat competitively hurt by
its greater distance from the Rossmoor senior subdivision, with its
significant concentration of seniors;
3) The subject market area is projected to experience a good increase of
13.4% (7,986/7,045) in the age and income eligible target market in the
next five years;
4) The subject is owned and operated by ARV Housing Group, one of the
leading owner/operators in highly saturated market areas;
5) The subject offers assisted living amenities on an a la carte basis
(three different levels of assisted living care) which is not typical
in the market area (most other projects charge one flat higher rent).
This is a competitive advantage for the subject as residents only need
pay for assisted living amenities when needed and at the level needed.
These specific conclusions are addressed more fully and used to project pro
forma income and expense cash flows in the Income Approach section of this
report.
40
HIGHEST AND BEST USE
Highest and best use is defined as that use, from among reasonably probable and
legally alternative uses, found to be physically possible, appropriately
supported, financially feasible, and which results in the highest land value.
The highest and best use concept must also give recognition of that use to
community environment and to community development goals, in addition to wealth
maximization of individual property owners.
The highest and best use of the land or site, if vacant and available for use,
may be different from the highest and best use of the existing improved
property. This will be true when the improvement is not an optimum use and yet
makes a contribution to total property value in excess of the value of the land
only. In order to determine the property's highest and best use, it is necessary
to analyze the factors discussed below.
AS VACANT
The site's physical characteristics are similar to those found throughout the
area in terms of size (average), topography (sloping), exposure (fair) and
access (fair). The total land area is large enough to support most other types
of development and it is located near but not on a major thoroughfare. The site
is probably too small for a lower density residential subdivision. Therefore,
the site's physical characteristics do not seem to limit many development
alternatives.
The subject site is currently zoned C-O, a commercial office/professional zoning
classification. This is not inconsistent with other mixed use development along
Montego Drive to the east (including medical offices and a nursing home, both
within the sphere of influence of the nearby John Muir Hospital), but is not
consistent with our experience with the zoning of most sites for senior housing
(usually high density residential). The subject is an appropriate transitional
land use to apartments to the west and south. It is likely that Walnut Creek
would allow many alternate light office, institutional and residential uses on
the subject site. The subject's 40.2 units per acre density is misleading due to
its small, all studio unit mix. Extreme high density residential or retail land
uses are unlikely for the site. Finally, the site itself is not known to be
affected by significant easements or encumbrances.
In determining which possible use of the land represents the highest and best
use of the site, we have analyzed those physical and legal factors affecting the
site. It is then necessary to analyze not only the feasibility of potential
alternate development but determine which types of these developments is
maximally feasible. Our analysis of the congregate housing market in the area
indicates a strengthening local market and generally good occupancies, including
the subject's below average current 86% occupancy. Also, a large increase in the
number of age and income eligible seniors over the next five years suggests
adequate long term demand for well run projects like the subject. The subject is
a profitable project though it is in the middle to lower tier of senior housing
facilities in its market. The subject, if it can be filled, would be more
feasible than alternate residential uses due to its higher margin per unit and
higher density. The subject is also more profitable than almost all possible
institutional land uses. However, uncertainties about the depth of the local
market demand for smaller, lower rent units, a competitive market and a flat
41
regional economy suggest that the subject (or any alternate commercial/apartment
land use) would not clearly be built in 1995. Few to no senior housing projects
have been built anywhere in California in the last five years although this is
beginning to change in 1995. An owner of the subject site would probably develop
a senior housing use on the site although the decision is not clear. Therefore,
in our opinion, the highest and best use of the site as vacant in early 1995 is
probably to develop a senior housing project on the subject site.
AS IMPROVED
Our experience in comparable projects indicate that a senior project of 192 beds
is more than large enough to achieve operating economies of scale. In fact, the
subject's larger number of units has been factor in its inability to achieve
higher occupancies. Higher densities for the site would generate difficulties in
meeting parking and density requirements with Walnut Creek. Also, short term
demand for additional middle market assisted living units probably does not
exist in the local market as indicated by the subject's SSI census and
occupancy.
Considering the factors noted above, the purpose of this appraisal (to value the
subject as is) and because the subject improvements clearly add value over and
above the land alone, we have concluded that the highest and best use of the
site, as improved, is probably as the subject site as built and operating. The
existing improvements and living environment are competitive and functional for
congregate and assisted living uses. The subject's overall quality, unit mix and
unit sizes (though not optimal given their smaller size and limited variety),
common areas, parking and landscaping are average to below average in the local
senior housing market which is dominated by several newer projects.
42
SITE VALUATION
In order to estimate the fair market value of the subject site, a Sales
Comparison Approach is utilized. Recent sales and listings/offers of vacant land
considered somewhat comparable to the subject in location, zoning, and utility
were analyzed. Adjustments are made as necessary for: date of sale, location,
financing terms, physical characteristics such as size, shape, utilities and
topography, and development limitations such as zoning restrictions, easements
and encumbrances.
A number of sales were reviewed in order to determine the market value of the
subject site. We have considered the sales of local vacant land sites with
somewhat comparable land uses, zoning and locations. In general, we noted few
recent vacant land sales in the area due to the lack of recent development
activity. Those sales that were considered most comparable are presented in a
summary grid on a following page and detailed in the Addenda of this report.
Comparable Sale No. 1 is a current listing located at the southeast corner of
Ygnacio Valley Road and Tampico, adjacent to the subject to the northwest. The
43,560 square foot parcel is currently being listed for $653,400 or $15.00 per
square foot. The site was to be combined with Sale No. 2 for a medical office
building and 12 townhomes development. These plans were recently terminated and
this parcel was relisted for sale. The site has major thoroughfare frontage and
a smaller size, both factors suggesting downward adjustment to the subject.
Comparable Sale No. 2 is located along Ygnacio Valley Road, next Sale No. 1 and
just north of the subject. The 43,996 square foot site was formerly in escrow
(the contracted sale price was not disclosed) with Sale No. 1. The site was
formerly listed for sale at $550,000 or $12.50 per square foot. The site has yet
to be relisted for sale. Like Sale No. 1, the site's major street frontage and
smaller size suggests downward adjustment to the subject although it has no
current (and none would likely be allowed) access from Ygnacio Valley Road. This
site was to be combined with Comparable Sale No. 1, however, due to lack of
access to the site, the pending sale fell through.
Comparable Sale No. 3 is located at 123 Brodia Way about five blocks southeast
of the subject. The 49,658 square foot parcel sold in March, 1995 for $720,000
or $14.40 per square foot. The site is zoned for low density residential and
several single family lots are available for sale in the adjacent area. In
comparison to the subject, this site requires downward adjustment for its
smaller parcel size and upward for its less intensive zoning and land use
(despite its R-4 zoning).
Comparable Sale No. 4 is located at 3073 N. Main Street, about 1.5 miles
northwest of the subject near the northern Walnut Creek city limits. The 44,431
square foot site sold in December, 1993 for $19.06 per square foot. The site was
developed with 36 apartments although it is zoned for a commercial use in a
mixed use commercial/residential neighborhood, along a major thoroughfare.
Downward adjustment to the subject is suggested by its smaller parcel size,
level topography and major street frontage and location in a commercial area
despite a similar land use and density to the subject.
43
MONTEGO HEIGHTS LODGE
VACANT LAND SALES
Sale Price Proposed
Sale Size-SF Proposed -------------- Density -
No. Location/APN Date Sale Price (Acres) Development SF Unit Zoning Units/Acre
- --- ------------ ---- ---------- ------- ----------- -- ---- ------ ----------
1. SEC Ygnacio Valley Road Listing $ 653,400 43,560 Unknown $15.00 N/A P-D N/A
& Tampico (1.00)
Walnut Creek
140-026-024
2. Ygnacio Valley Road, Formerly $ 550,000 43,996 12 Townhomes $12.50 N/A C-O N/A
East of Tampico in Escrow (Old Listed (1.01) (Portion)
Walnut Creek (1995) Price)
140-026-021
3. 123 Brodia Way 3/95 $ 720,000 49,658 Low Density $14.50 N/A R-4 N/A
Walnut Creek (1.14) Residential
140-170-006-5
4. 3073 N. Main Street 12/93 $ 850,000 44,431 36 Apartments $19.06 $23,611 C-C 35.3
Walnut Creek (1.02)
184-462-018
S. 1400 Montego Drive - - 213,180 169 Senior - - C-O 40.2
Walnut Creek (4.89 gross); Housing Units
140-250-024 182,952
(4.20 net)
44
Before adjustment, the sales discussed above indicate a sale price per square
foot range of approximately $12.50 to $19.06. The above adjustments to the
comparable sales can be summarized as follows:
Sale Price/
Comp No. SF Material Adjustment
- -------- ----------- -------------------
1 $15.00 Downward (list/sale price differential, major street frontage, parcel size)
2 $12.50 Downward (list/sale price differential, major street frontage, parcel size)
Upward (no site access)
3 $14.40 Downward (parcel size);
Upward (density)
4 $19.06 Downward (parcel size, zoning, location, topography)
The overall degree of comparability of these sales to the subject is only fair
reflecting the lack of recent comparable vacant land sales in the immediate
area. Overall, Comparable Land Sale Nos. 1 and 2 are most similar to the subject
in location, but neither reflects on actual consummated sale transaction. Sale
No. 3 is somewhat similar to the subject in location but has a less intensive
land use. Sale No. 4 has a density similar to the subject, but is located on a
heavily travelled street and is located in a commercial area. All of the sales
are smaller parcels than the subject.
After considering the specific location and density of the subject site and the
evidence provided by the adjusted comparables and recent trends in land values,
it is concluded that the fair market value of the fee simple interest for the
subject site as of July, 1995, is at a rate of $15.00 per square foot, or for
the subject's 182,952 net square feet, an overall site value of $2,744,280
($15.00/SF x 182,952/SF) or $16,238 per unit.
45
COST APPROACH
The Cost Approach considers an estimate of the fair market value of the land,
the direct and indirect replacement costs (new) of the improvements,
entrepreneurial profit, and accrued depreciation from all causes. Land value is
taken from the Site Valuation section of this appraisal. Sources for replacement
costs of improvements include: (1) Cost bids or reported actual recent cost of
the subject; (2) Actual costs of recently completed comparable improvements; (3)
Local contractors' opinions; (4) Marshall and Swift Computer Data Base; and, (5)
Marshall and Swift (monthly updated) Cost Manual. Entrepreneurial profit is a
necessary element in the motivation to construct improvements. In estimating any
accrued depreciation, the appraiser takes into consideration: age, condition,
functional utility, detrimental external factors, and any existing leases with
contract rent below fair market (economic) rent. The sum total of land costs,
direct improvement costs, indirect costs and entrepreneurial profit is the
estimated replacement cost new. Subtracting any required depreciation from the
replacement cost new indicates the value by the Cost Approach.
DIRECT COSTS
The estimated building cost per square foot replacement cost new in 1995 for the
subject improvements is derived from the Marshall Cost Data Service (and
comparable projects as a part of total costs) as calculated below:
Class D,
Average Quality
Home for the Elderly
(Sec. 11, Page 17)
--------------------
Base Cost/SF $ 54.16
Sprinkler Adjustment 1.20
HVAC Adjustment (1.20)
----------
$ 54.16
Location Multiplier x 1.23
Time Multiplier x 1.05
----------
Adjusted Base Cost/SF $ 69.95
Square Footage - GBA x 99,897
----------
Adjusted Base Cost $6,987,559
==========
The indicated base rate for the replacement cost new per square foot in 1995 for
the existing improvements is $69.95. Our estimate of the base building cost on a
per square foot basis includes architectural and engineering fees, overall
construction financing cost and operational
46
overhead. They do not include unusual construction and fixtures, loan points,
pre-marketing costs, furniture and city/public utility fees.
In addition to the adjusted base construction for the building improvements, an
allowance for furniture and equipment was included to arrive at total direct
construction costs of the development. The allowance for furniture and equipment
was estimated using an analysis of the Marshall Cost Manual allowance and
industry experience (as shown below) or $2,500 per unit ($422,500 for 169
units).
INDIRECT COSTS
Indirect Costs - In addition to these direct building costs, we have estimated
indirect costs at 7% of total direct building costs. Indirect costs include
legal/accounting/appraisal fees, loan fees, premarketing advertising and
promotion, city/public utility fees and a contingency fund.
The above estimates reflect a replacement cost new (without land or profit) of
$8,120,863 or $81.29 per square foot or $48,052 per unit. This is compared using
an overall reasonableness test (no specific adjustment is made) to other
recently built comparable congregate senior projects as follows:
Total Total
No. of Cost/SF Cost/Unit FF&E
Project Units Location (w/o Land)* (w/o Land)* Unit
- ------- ------ -------- ----------- ----------- ----
Windsor ALF 75 Windsor $111.89 $71,904 $3,333
Park Ridge 93 Vallejo $79.40 $71,138 $2,688
Palm Court 100 Culver City $97.41 $84,000 $3,000
*Includes FF&E, shown separately for comparison purposes.
The estimated replacement cost new for the subject is within the lower end of
the range of the costs incurred at these similar projects on a square foot basis
and well below the range on a per unit basis which is reconcilable given the
subject's smaller units sizes, more modest quality and all studio unit mix (one
bedrooms are combined studios).
Finally, an entrepreneur or developer will typically expect to be compensated
for the time, money, and risk expended in bringing a project to a completed
income producing unit. Profit typically ranges from 10% to over 25% of the total
construction and land costs, depending on the type of property, anticipated
absorption or stabilization period, risk, and the size of the project. A modest
allocation of 10% for entrepreneurial profit or toward the bottom of the range
is considered appropriate for the subject given that the highest and best use of
the subject as vacant in 1995 is to probably develop a senior housing project
although this decision is not clear cut. The large number of subject units, its
more monolithic unit mix and current overall market conditions mute the
project's rent/profit potential as evidenced by the subject's lower estimated
stabilized occupancy.
47
DEPRECIATION
Our site inspection noted no material physical curable or economic depreciation.
We did, however, note the following forms of depreciation.
Physical Incurable Depreciation - An amount for physical incurable depreciation
(or the normal wear and tear on improvements as they age) is appropriate
considering the subject's 17 year chronological and effective age, calculated as
follows:
Direct Building
Cost FF&E
--------------- ----------
Base Cost New $6,987,559 $ 422,500
Plus: Indirect Cost Allocation x 1.07 x 1.07
Plus: Profit Allocation x 1.10 x 1.10
---------- ----------
Depreciable Base $8,224,357 $ 497,283
Depreciation Estimate (per MVS) 25% 50%
---------- ----------
Total Physical Incurable Depreciation $2,056,089 $ 248,641
========== ==========
Total $2,304,730
==========
The depreciation percentages are based on our site inspection and Marshall
Valuation estimates considering the subject's current 17 year old effective age
(5 years for FF&E considering ongoing replacement) and 45 year old total
economic life (10 years for FF&E). Physical incurable depreciation must be
deducted from estimates of cost new to arrive at an as is valuation.
Functional Incurable Depreciation - As mentioned throughout this report, the
subject's large number of units and monolithic unit mix are factors in the
subject's lower estimated stabilized occupancy and less favorable competitive
market position. These influences were factors in our conclusion of a 90%
stabilized occupancy rate for the subject as discussed in the Income Approach
section of this report. In our opinion, the capitalized value of the lost income
from the higher vacancy is a reasonable approximation of the lost value
attributable to the subject unit mix. This is calculated as follows:
48
Projected Stabilized Occupancy (90%) - No. of Beds 172.8
Market Area Typical Occupancy (95%) - No. of Beds 182.4
--------
Excess Beds (Small Units) 9.6
Estimated Annual Lost Revenue ($1,305/Month) $150,336
Less: Expenses Savings (25%) ($ 37,584)
---------
Estimated Annual Lost Income $112,752
========
Capitalized Value .12
--------
Estimated Functional Incurable Depreciation $939,600
========
SUMMARY
Our estimate of value by the Cost Approach is summarized on the following page
with an indicated value conclusion as is, in July, 1995 of $8,707,327, called
$8,700,000.
49
MONTEGO HEIGHTS LODGE
COST APPROACH CALCULATION (CALCULATOR METHOD)
Total Land Value (182,952 Net SF @ $15.00/SF) $ 2,744,280
DIRECT BUILDING COSTS
Building Cost $6,987,559
Furniture & Equipment
(169 Units @ $2,500/each) 422,500
-----------
Total Direct Building Costs $ 7,410,059
-----------
Total Direct Building and Land Costs $10,154,339
Indirect Costs - 7% $ 710,804
------------
Total Construction and Land Costs $10,865,143
Plus Entrepreneurial Profit @ 10% $ 1,086,514
-----------
Total Cost New (Including Land) $11,951,657
LESS DEPRECIATION
Physical Curable 0
Physical Incurable ($2,304,730)
Functional Curable 0
Functional Incurable (939,600)
External Obsolescence 0
-------------
Total Depreciation ($ 3,244,330)
-------------
Indicated Value, Cost Approach, As Is $ 8,707,327
===========
Rounded to $ 8,700,000
50
INCOME APPROACH
The Income Approach is based upon the economic principle that the value of a
property capable of producing real estate income is the present worth of
anticipated future net benefits. The net income projection is translated into a
present capital value indication using a capitalization process. There are
various methods of capitalization that are based on inherent assumptions
concerning the quality, durability, and pattern of the income projection.
Our Income Approach analysis applies an overall capitalization rate to the
subject's projected net income over the next 12 months. This method was
considered appropriate as the subject is currently operating at a stabilized
cash flow (occupancy and expenses). A discounted cash flow model was not
considered of primary usefulness in valuing the subject for the following
reasons:
1) buyers of properties like the subject typically do not use discounted
cash flow analyses;
2) because the subject is a stabilized property, a discounted cash flow
model would simply be inflating revenues and expenses at a fixed rate
and then canceling out the inflation estimate using an appropriate
discount rate. In other words, if properly applied, a discounted cash
flow analysis would arrive at the same value estimate as applying an
overall capitalization rate methodology.
Net income is calculated by subtracting a vacancy and credit allowance and all
fixed and operating expenses from the indicated gross income. The methods
utilized to estimate gross income, vacancy, expenses and an overall
capitalization rate are discussed in detail in the following paragraphs.
PROJECTION PERIOD
In our analysis of the subject's net income, we have utilized a projection
period of 12 months (7/95 to 6/96) which reflects a stabilized cash flow and
occupancy level. Based on this premise, the owner of the property will enjoy the
net proceeds of sale (reversion) at July, 1995 based on the projected July, 1995
to June, 1996 net income. The theory is that the investor purchasing the
property in July, 1995 would be more interested in the anticipated net income in
their first year of ownership than they would be in the previous year's income
prior to their ownership.
POTENTIAL GROSS ANNUAL INCOME
In estimating the potential gross annual income for the subject property over
the projection period, we have reviewed the current rent roll and prepared our
own survey of the properties considered to be most competitive and comparable to
the subject. This survey was presented in the Market Analysis section of this
appraisal and summarized on a following page.
The operators of the subject property have achieved the rental census and
occupancy as summarized on the following page. The June, 1995 census reveals an
occupancy of 86.5% or 166 beds out of a maximum current configuration of 192
beds. This occupancy represents an increase from the low 80%'s over the past 12
months.
51
MONTEGO HEIGHTS LODGE
SUMMARY OF SUBJECT RENT CENSUS @ 6/19/95
Private-1BR Private-Studio Semi-Private SSI Total
(Units) (Units) (Beds) (Beds) -----
----------- -------------- ------------ ------
Number Units - Rented 23 104 26 13 166(86.5%)
Rent Range $1,750-$1,850 $1,100-$1,400 $825-$1,113 $691 $691-$1,850
Rent Average $1,777 $1,337 $972 $691 $1,290
Potential Total Rent-Rented $490,440 $1,668,300 $303,180 $107,796 $2,569,716
Number Units - Vacant (1) 1 18 5 2 26(13.5%)
Rent Range $1,750 $1,325-$1,400 $825-$850 $691 $691-$1,750
Rent Average $1,750 $1,358 $843 $691 $1,223
Total Potential Rent-Vacant $21,000 $293,400 $50,600 $16,584 $381,584
Total Units/Beds 24 122 31 15 192(100%)
Gross Potential Rent-Total $511,440 $1,961,700 $353,780 $124,380 $2,951,300
Per Unit/Bed $1,776 $1,340 $951 $691 $1,281
NOTES:
(1) Vacant units include:
Private 1BR - Unit 326/28 (1 Unit);
Private Studio - Units 101, 149, 157, 204, 215, 218, 241, 264, 266, 268,
301, 308, 339, 403, 414, 424, 427, 428 (18 Units);
Semi-Private - Beds 103, 135, 142, 144, 221, 262, 265 (7 Beds); allocated
to SSI in ratio of currently leased beds.
52
Our review of the subject's rent roll revealed a relatively variable range of
rentals with several units having different rents. Discussions with the current
operator noted that individual monthly rents were a function of the unit
location, when the resident entered the subject and negotiation of the rent when
entered. All SSI rents are fixed by governmental agency at $691 per month and
not market determined.
The comparison of the subject rents (with and without the average assisted
living surcharge) to the market area projects surveyed accumulates the monthly
rental of all facilities, the average of the 11 projects surveyed and the most
comparable projects to the existing Montego Heights Lodge. Of the projects
surveyed, Comparable Nos. 2 - Valley View Lodge (a sister ARV project), 5 -
Chateau Pleasant Hill and 7 - Concord Royale would be most similar to the
subject in age, scale, amenities, quality and unit mix.
Overall, the subject's private room rents (with and without the assisted living
surcharge) are generally within the range of the most comparable properties and
below the average (for both congregate and assisted living) of all facilities.
The subject's congregate studio and one bedroom rents are slightly below the
average of all projects surveyed (about 15% to 20%). Congregate semiprivate
living is generally not offered at other projects (with the exception of Valley
View Lodge, an ARV sister project). The subject's average assisted living rents
are also below the average for semiprivate and private rooms (also about 15% to
20%). Because the subject offers a la carte pricing for its assisted living
amenities, residents can effectively choose their rent level (the assisted
living surcharge) as their living assistance needs vary or change.
In our opinion, the most compelling evidence that the subject's rents are market
rents (and not above or below) is the subject's recent occupancy history and its
current occupancy, which is 87% (and rising) at the current rents. In our
opinion, the subject's rents have not been material factors in keeping occupancy
below the more typical 92% to 95%. The subject's lower rents are reasonable
given the subject's age and condition, large number of units and more monolithic
unit mix.
Therefore, given the above discussion, in our opinion, the subject's current
monthly average rents represent market rental rates and are used in our pro
forma estimate of income and expenses shown on a following page. All subject
rents (the average per unit/bed type noted above) are forecast to increase 2%
during the 7/95 to 6/96 projection period, reflecting market conditions and the
subject's history. The 2% estimate in the next 12 months represents an average
4% rent increase applied at each resident's move-in anniversary date which are
assumed to occur evenly over the next 12 months. SSI rates are conservatively
forecasted to remain at current levels in the next 12 months. Our cash flow
estimates are shown gross or before a vacancy and collection factor.
The above rents are base rents for unlicensed congregate living services. This
rent does not include assisted living surcharges which are billed to residents
on an a la carte basis. Currently, the subject charges for these extra amenities
on a case by case basis with an approximate average of $450 extra per month for
medication monitoring, help with bathing and doing personal laundry. Currently,
about 51 residents pay for living assistance at an approximate average of $439
extra rent per month. Our cash flow projections for the subject estimate a
stabilized 31% gross
53
MONTEGO HEIGHTS LODGE
COMPARATIVE RENT ANALYSIS
ACLF - CONGREGATE RENTS
Private - 1BR Private - Studio
---------------------------------- ----------------------------------
Comp. No. Monthly Rent Comp. No. Monthly Rent
--------- ------------ --------- ------------
1 $1,885 2* $1,400-$1,700
2* $1,850 3 $1,575
3 $1,850-$2,500 5* $1,295-$1,700
5* $1,650-$2,000 8 $1,795-$2,095
6 $2,195-$2,495 11 $1,650-$1,795
8 $2,195-$2,495
11 $1,825-$2,300
Range $1,650-$2,500 $1,295-$2,095
Average $2,070 $1,658
AL - ASSISTED LIVING RENTS
Private - 1BR Private (Studio) Semi-Private
------------------------------ ------------------------------ -----------------------------
Comp. No. Monthly Rent Comp. No. Monthly Rent Comp. No. Monthly Rent
--------- ------------ --------- ------------ --------- ------------
1 $2,185-$2,885 2* $1,550-$2,700 2* $1,000-$1,850
2* $2,000-$2,850 3 $2,850 3 $2,150-$2,850
3 $3,300 5* $1,595-$2,200 4 $1,800
4 $2,000-$2,200 6 $2,450-$2,950 5* $2,495-$3,495
5* $1,950-$2,500 7* $1,200-$1,800 6 $1,650-$1,950
8 $2,495-$3,495 8 $2,095-$3,195 7* $850-$950
11 $2,850 9 $1,600-$2,200 9 $850
10 $2,000-$2,500 10 $1,500-$1,800
11 $2,750 11 $1,600
Range $1,950-$3,495 $1,200-$3,195 $850-$3,495
Average $2,633 $2,291 $1,724
Private - 1BR Private - Studio Semi-Private
------------- ---------------- ------------
Subject Rented Beds -
Subject Range $1,750-$1,850 $1,100-$1,400 $825-$1,113
Subject Average $1,777/$2,227** $1,337/$1,787** $972/$1,422**
(23 Units) (104 Units) (26 Beds)
Subject Vacant Beds -
Subject Range $1,750 $1,325-$1,400 $825-$850
Subject Average $1,750/$2,200** $1,358/$1,808** $843/$1,293**
(1 Unit) (19 Units) (6 Beds)
*Comparable Nos. 2 - Valley View Lodge; 5 - Chateau Pleasant Hill; and 7 -
Concord Royale are most similar to the subject.
**Includes average assisted living surcharge of $450 per month.
54
utilization (60 beds gross) of assisted living amenities at stabilization,
calculating to the following gross assisted living surcharge income:
Avg. Surcharge/ Resident Projected
Period Month/Bed Utilization Annual Income
------ --------------- ----------- --------------
at 6/95 $439 51 (net) -
at 7/95 to 6/96 $450 60 (gross) $324,000
In addition to total potential gross room revenue, we have included
miscellaneous income at 1.5% of effective gross income reflecting historical
receipts for guest meals, processing fees, extra services to residents, and
beauty shop income.
VACANCY AND COLLECTION LOSSES
Our cash flow projections deduct a total vacancy and collection loss in the
stabilized projection period as follows:
Average Average
Occupancy Vacancy
--------- -------
As Is at 6/95 86.5% 13.5%
7/95 to 6/96 (Stabilization) 90.0% 10.0%
The above estimate of stabilized occupancy/vacancy is meant to incorporate 172.8
residents or an occupancy/vacancy of 90.0% (172.8/192). This conclusion is
slightly above the current occupancy (166 beds) but is consistent with the
subject's recent occupancy trends, occupancies at similar projects and operator
projections. Because the difference in the currently occupied beds and our
stabilized estimate of occupied beds is small (7 beds) and the time needed to
achieve this additional occupancy is projected to take less than 6 months, in
our opinion, it is not necessary to specifically quantify a discounted cash flow
for a few months as the impact on the reported value conclusion would be
immaterial.
The higher than typical and average market vacancy factor (5% to 8%) reflects
the subject's occupancy history and current occupancy, discussions with the
current operator, the subject's competitive position and local market conditions
as reflected in the occupancies at similar projects in the market. The subject's
market position (lower rents in a more affluent market) and large number of beds
(including physical plant deficiencies) mitigate against a lower stabilized
vacancy estimate (or higher occupancy).
55
OPERATING EXPENSES
In determining pro forma estimates of operating expenses, we have primarily
relied on the specific expense histories (1993, 1994, and four months of 1995)
and budget (1995) of the subject property as summarized on the following page
and the experience at comparable projects. The expenses enumerated below would
be those of a typical operator at the subject. We have summarized our expense
estimates as follows:
Real Estate Taxes - Real estate taxes are estimated to reflect an assumed sale
of the subject property and a reassessment at current market rates at July, 1995
($8,200,000 times the tax rate of 1.0371% plus approximately $1,173 in direct
assessments). This real estate tax expense reflects taxes that would have to be
incurred by a buyer of the subject wherein the subject would be reassessed to
market value;
Insurance - estimated at 1.0% of effective gross income, reflecting typical
charges for liability/fire insurance, historical costs incurred, and the fixed
nature of this expense;
Management - estimated at 5% of effective gross income reflecting the current
typical or average industry charge which would be appropriate for the subject
considering its average complexity of operation;
General and Administrative - estimated at 12% of effective gross income;
representing additional on site costs incurred to manage the subject including
salaries and benefits for the administrator and assistants and all miscellaneous
costs to operate the subject (office supplies, miscellaneous rentals);
Utilities - estimated at 7% of effective gross income, which is consistent with
historical costs incurred. Includes all common area and unit utility costs
(telephone, electric, gas, water, sewer);
Maintenance - estimated at 4% of effective gross income, including all
maintenance/security salary and supplies (including land maintenance and pest
control), derived from historical expenses;
Activities/Transportation - all social/recreational service costs including
salaries and supplies (including van service) are estimated at 2% of effective
gross income;
Marketing - all advertising, marketing and sales expenses are estimated at 2% of
effective gross income. This allocation is higher than typical but reflects the
subject's lower occupancy, high turnover (relative to all senior properties) and
weak local real estate conditions, requiring a more intensive marketing effort;
Housekeeping - estimated at 6% of effective gross income to include salaries,
supplies, for both an internal laundry and linen service and housekeeping and
consistent with historical costs incurred;
56
MONTEGO HEIGHTS LODGE
HISTORICAL INCOME AND EXPENSE
Historical
------------------------------------------------------------------------ Operator
4 Months Goal
Year Ending Year Ending Ending 1995 Budget
REVENUES 12/93 12/94 4/30/95 Annualized 1995
- -------- ----------- ----------- --------- ----------- ----------
Rental Income $ 2,409,320 $ 2,424,953 $ 871,676 $ 2,615,028 $ 2,736,955
Assisted Living Income 224,506 271,387 95,162 285,486 396,000
Non-Operating Revenue $ 40,777 $ 38,982 $ 13,569 $ 40,707 $ 34,862
----------- ----------- --------- ----------- -----------
Total Revenues $ 2,674,603 $ 2,735,322 $ 980,407 $ 2,941,221 $ 3,167,817
EXPENSES (1)
Real Estate Taxes $ 103,349 $ 110,291 (2) (2) $ 104,494
Insurance 28,252 31,714 (2) (2) 35,251
G&A 37,374 60,293 (2) (2) 59,794
Utilities 199,945 191,180 (2) (2) 193,440
Payroll/Benefits 866,227 913,460 (2) (2) 962,563
Maintenance 78,684 80,636 (2) (2) 76,320
Activities 17,004 14,889 (2) (2) 17,697
Marketing 21,991 26,654 (2) (2) 28,100
Laundry & Linen 17,121 12,974 (2) (2) 18,738
Dietary 230,260 222,738 (2) (2) 241,106
Supplies 52,634 48,343 (2) (2) 50,904
----------- ----------- --------- ----------- -----------
Total Operating Expense $ 1,652,841 $ 1,713,172 $ 596,591 $ 1,789,773 $ 1,788,407
(61.8%) (62.6%) (60.9%) (60.9%) (56.5%)
Net Operating Income $ 1,021,762 $ 1,022,150 $ 383,816 $ 1,151,448 $1 ,379,410
=========== =========== ========= =========== ==========+
NOTES:
(1) Does not include management fee or replacement reserves.
(2) Detail not available.
57
Dietary - estimated at anticipated dietary costs to a typical operator or $8.50
per day per resident (172.8 occupied beds x $8.50/day x 365 days). This estimate
includes all dietary related salaries and benefits and cost of food. These
estimates are within current industry averages and historical costs incurred;
Personal Care - estimated at 6.0% of effective gross income to include all
salaries and supplies necessary to provide assisted living services to
approximately 31% of the residents (about $9.25 per resident day for 54
residents);
Replacement Reserve - estimated at 15% of the estimated furniture and equipment
cost new ($422,500 or $2,500 per unit) to include the annual reserve necessary
to replace furniture and equipment and other short lived capital items
(carpeting, painting). The stabilized estimate of $63,375 is equal to 2.1% of
the estimate effective gross income.
As shown, total stabilized expenses (not including management fees and reserves)
to a typical operator accumulate to 60.5% of effective gross income or $10,642
per occupied bed (172.8 beds). A comparison to similar congregate/assisted
living properties before management fees and reserves illustrates the following:
Inflated
Stabilized Per to 1995
Location Expense Ratio Resident/Yr. at 4%/Yr.
-------- ------------- ------------ ---------
10 ARV Properties California 61.7% $ 9,782 (1994) $10,173
13 Angeles
Housing Properties National 56.6% $ 8,966 (1993) $ 9,698
Greenhills Millbrae 55.7% $ 8,234 (1992) $ 9,262
Meadows Napa 56.3% $ 8,418 (1992) $ 9,469
Country Inn Fremont 52.5% $ 7,718 (1992) $ 8,682
Westmont Santa Clara 57.7% $ 9,520 (1992) $10,296
Canyon Hills Club Anaheim 61.2% $11,918 (1994) $12,395
Courtyard San Marcos 51.6% $ 9,181 (1993) $ 9,930
6 Facility Averages 55.8% $10,006
Subject - 1993 Historical 61.8% $10,330
Subject - 1994 Historical 62.6% $10,575
Subject - 1995 Historical
Annualized 60.9% $10,847
Subject - 1995 Budget 56.5% $10,338
Subject Projected
(7/95 to 6/96) 60.5% $10,642
58
As illustrated, the projected expenses for the subject are slightly above the
average of the expense histories of the projects listed above and slightly below
the averages of 10 other ARV facilities. The subject will always have slightly
higher expenses on a percentage of income basis because of its lower revenue
base (smaller units, SSI census) and higher on a per patient basis due to the
location within a market area of higher operating costs/rents. Our projections
consider the experience at the comparable properties and historical costs
incurred.
On the following page, we have illustrated average annual operating costs per
unit as accumulated in a recent national survey of operating expenses for
various types of senior facilities including assisted living. The survey
indicated a median annual cost per unit of $10,577 before management fees
($11,541 total less $964 in management fees). This compares to our per unit
estimate for the subject of $10,882 ($1,839,081/169) in the next 12 months.
Finally, a reconciliation of our adjusted period one (7/95 to 6/96) projected
expenses to 1995 actual annualized expenses illustrates the following:
Actual Total Expenses (1/95 to 4/95 Annualized) $1,789,773
==========
Operator Budget (1995) $1,788,407
==========
Projected Total Expenses Per SLVS (7/95 to 6/96) $2,054,369
Less: Management Fees ($ 151,963)
Less: Replacement Reserves ($ 63,375)
----------
Adjusted Projected Total Expenses (7/95 to 6/96) $1,839,031
==========
Difference
(over 1995 actual, reflects inflation, higher occupancy) +2.8%
(over 1995 budget, reflects inflation) +2.8%
CAPITALIZATION PROCESS
Because Montego Heights Lodge is being appraised as of June, 1995 wherein it has
reached a stabilized cash flow, we have utilized a procedure where the
stabilized net income for the period of July, 1995 to June, 1996 is capitalized
at a rate of 12.0% to get an indicated total property value at July, 1995. This
calculation is shown on a following page.
We have been involved in the analysis and valuation of numerous retirement
facilities around California which have generally exhibited overall
capitalization rates ranging from 11% to 15%. These are illustrated in sales of
comparable facilities in the Sales Comparison Approach of this report and are
summarized as follows:
59
Comparable Indicated
Sale No. Property Cap Rate
-------- ---------- ---------
1 Oak Tree Villa 12.3%
2 El Camino Gardens 11.2%
3 Casa Sandoval 9.0%
4 Lomita Lodge 12.2%
5 Carson Oaks 12.4%
6 Park Ridge 11.3%
Range 9.0%-12.4%
Average 11.4%
25 Facility Average 12.5%
In April, 1995, Senior Living Valuation Services, Inc. conducted the second
annual survey of close to 300 participants in the senior housing industry
regarding their investment criteria or perception of criteria used in evaluating
different types of senior housing properties. The investment criteria survey
polled included capitalization rates, discount rates and returns on equity. A
copy of this survey is provided in the Addenda of this report. The survey
indicated a capitalization rate range of 9% to 16% and an average of 12.1% for
assisted living facilities. Though the survey is not definitive, it does provide
some market evidence of the investment criteria being used (or perceived to be
used) by industry professionals.
Another method of estimating a capitalization rate is the band of investment
weighted average technique. If the available mortgage terms are known, the debt
service or mortgage constant can be calculated, and if the equity dividend rate
required to attract equity capital is known or can be estimated, the overall
rate applicable in direct capitalization can be computed. Available mortgage
terms are 70% of value at 10.0% interest with an amortization term of 20 years
reflects market terms based on our experience of specific financing transactions
and recent national surveys of financing parameters for senior housing
properties. Based on these terms, the mortgage constant is .1158. The equity
dividend rate required to attract equity capital for properties similar to the
subject is approximately 15%. The indicated overall capitalization rate using
this approach is:
Band of Investment
Portion Weighted
of Value Rate Contribution
-------- ---- ------------
Mortgage 0.70 x .1158 .0811
Equity 0.30 x .15 .0450
-----
1.0 x Overall Rate .1261
OAR 12.61%
60
These sources of capitalization rates can be summarized as follows:
Indicated
Cap Rates
---------
6 Detailed Sales 11.4%
25 Statewide Sales 12.5%
SLVS Investment Survey 12.1%
Band of Investment 12.61%
Based upon the current characteristics of the subject, namely, its overall
average cash flow risk as reflected in its lower stable occupancy (90%) and cash
flow (including a lower risk SSI census) and considering the subject's market
position (below average rents, full assisted living licensing, older physical
plant and more monolithic unit mix), which is derived from the subject's
established niche as a middle market, average quality assisted living project in
the area, and considering the affluent local market, we have concluded that
12.0% or toward the middle portion of the approximate range is an appropriate
capitalization rate for the subject property.
SUMMARY
Our estimate of value by the Income Approach is summarized on the following page
and produces an indicated value for the subject property as is, at July 14, 1995
of $8,215,767, rounded to $8,200,000 ($48,521/unit).
61
MONTEGO HEIGHTS LODGE
PRO FORMA INCOME/EXPENSE & CAPITALIZATION
Projected
Stabilized
(7/95-6/96)
Average Occupancy 90.0%(172.8 Beds)
Average Net Rental (All Beds) $1,305
Potential Gross Rent Income -
1BR Private - 24 Units @ $1,811/Mo. Avg. $ 521,669
Studio Private - 122 Units @ $1,367/Mo. Avg. 2,000,934
Semiprivate - 31 Beds @ $970/Mo. Avg. 360,856
SSI - 15 Beds @ $691/Mo. Avg. $ 124,380
----------
Potential Gross Rent Income $3,007,839
Plus: Assisted Living Surcharges (60 Beds @ $450/mo.) $ 324,000
Plus: Miscellaneous Income (1.5% of PGRI) $ 45,118
----------
Potential Gross Income $3,376,957
Less: Stabilized Vacancy & Collection Losses - 10% ($ 337,696)
----------
Effective Gross Income $3,039,261
% of EGI
--------
Expenses -
Real Estate Taxes - $ 86,215
Insurance 1.0% 30,393
Management 5.0% 151,963
G&A 12.0% 364,711
Utilities 7.0% 212,748
Maintenance 4.0% 121,570
Activity & Trans. 2.0% 60,785
Marketing 2.0% 60,785
Housekeeping 6.0% 182,356
Dietary $8.50/PRD 536,112
Personal Care 6.0% 182,356
Replacement Reserves - $ 63,375
----------
Total Expenses $2,053,369
(67.6%)
Stabilized Net Operating Income $ 985,892
Capitalization Rate .12
----------
Capitalized Value (Fee Simple) $8,215,767
==========
Called $8,200,000
Per Unit $ 48,521
62
SALES COMPARISON APPROACH
The Sales Comparison Approach is a method of comparing the subject property to
recent sales and/or listings of similar types of properties located in the
subject or competing areas. Each of these sales must be analyzed to establish
estimate elements of comparability. The reliability of this technique depends on
1) the degree of comparability between the subject and the sales properties; 2)
the length of time since the sales were consummated; 3) the accuracy of the
sales data; and, 4) the absence of unusual conditions affecting the sale.
On the following page, we have included 25 sales of congregate senior housing
properties which can be considered somewhat similar to the subject. The purpose
of including this listing is to provide the reader with some context of western
US senior housing sales beyond those specifically discussed below. This
additional information can be helpful because of the special purpose nature and
general illiquidity of the senior housing market. Some of the sales in the last
18 months represent REO's. Some project buyers present in today's market are
still "bottom fishing" where distressed properties can be purchased at
substantial discounts from replacement cost. However, these buyers have a
shrinking supply of properties available to choose from. This has resulted in an
overall trend of decreasing cap rates (higher sale prices). Those more recent
transactions considered most comparable to the subject are summarized on the
following page and discussed in greater detail in the Addenda of this report.
The sale prices noted below are discussed and reported on a sale price per unit
(total going concern) basis.
Comparable Sale No. 1 is Oak Tree Villa in Scotts Valley which just recently
sold in June, 1995 for $11,900,000 or $58,900 per unit. The 202
congregate/assisted living project, built in 1988 was only 72% occupied at the
date of sale with an indicated cap rate at a full occupancy of 12.3%. The
project has a high quality physical plant although it is located in a relatively
less densely populated area (20 mile south of Silicon Valley; about 5 miles
north of Santa Cruz). 20% of the units of this project are allocated to low
income (HUD) residents.
Comparable Sale No. 2 is El Camino Gardens in Carmichael which sold in May, 1995
for a contracted price of $9,350,000. An estimated $650,000 in deferred
maintenance makes the effective sale price of the project approximately
$10,000,000 or $34,965 per unit. This 286 ACLF/112 ALF, 1984 built project, was
about 82% occupied at the time of sale and has an average physical plant. The
property had an indicated cap rate at a stabilized occupancy of 11.2%. The
property was purchased by entities affiliated with the subject owner (ARV
Housing). The lower cap rate of this sale is partially explained by the buyer's
plans to substantially upgrade the property in order to increase the assisted
living census.
Comparable Sale No. 3 is the February, 1995 sale of Casa Sandoval which sold at
auction for $15,000,000 or $63,205 per unit. The 1989 built, Hayward project
includes 238 total units. The property was only 81% occupied at the sale date,
reflecting a slightly forced sale due to the financial difficulties of the prior
owner. The property was underperforming at the date of sale and the buyer plans
an aggressive conversion of many units of the project to assisted living. The
overall quality of this project is average despite its newness. The indicated
cap rate of the sale has been estimated at a low 9.0% at a stabilized occupancy
(before consideration of any assisted living conversion).
63
MONTEGO HEIGHTS LODGE
COMPARABLE IMPROVED SALES
Indicated
Age/No. Sale Price/ Sale Occupancy Overall
No. Name/Location of Units Date Sale Price Unit Price/SF @ Sale Rate
- --- ------------- -------- ---- ---------- ----- -------- ---------- -------
1. Oak Tree Villa 1988/ 6/95 $11,900,000 $58,911 $69.19 72% 12.3% (1)
100 Lockwood Lane 202
Scotts Valley, CA
2. El Camino Gardens 1984/ 5/95 $10,000,000 $34,965 $62.19 82% 11.2% (1)
2426 Garfield 286
Carmichael, CA
3. Casa Sandoval 1989/ 2/95 $15,000,000 $63,025 $69.23 81% 9.0% (1)
1200 Russell Way 238
Hayward, CA
4. Lomita Lodge 1970's/ 12/94 $1,350,000 $51,923 $135.00 81% 12.2% (1)
225 N. Lomita 26
Ojai, CA
5. Carson Oaks 1989/ 7/94 $4,200,000 $55,263 $66.95 95% 12.4%
6725 Inglewood Avenue 76
Stockton, CA
6. Park Ridge 1991/ 7/94 $5,785,000 $62,204 $68.10 55% 11.3% (1)
2261 Tuolumne 93
Vallejo, CA
(1) Estimated at 92% occupancy
64
Comparable Sale No. 4 is the December, 1994 sale of Lomita Lodge, a small
assisted living project located in Ojai. The 26 unit project sold for $1,350,000
or $51,923 per unit. The property was originally built in the 1940's and
expanded in the 1970's. The project has high rents but was only 81% occupied at
the date of sale. The indicated cap rate at a stabilized occupancy is 12.2%.
Comparable Sale No. 5 is the July, 1994 sale of Carson Oaks, a 76 unit
congregate senior project located in Stockton (bought by the same buyer as
Comparable No. 1). Stockton is a Central Valley community with an overall
affluence below Livermore. The 1989 built project was purchased for $4,200,000
or $55,263 per unit. The project was 95% occupied at the date of sale. This
project has an overall average to above quality, a weak location (behind a
shopping mall) and can be considered a middle to upper middle market project.
The sale price suggested an estimated capitalization rate of 12.4%.
Comparable Sale No. 6 is the Park Ridge in Vallejo which sold in July, 1994 for
$5,785,000 or $62,204 per unit. The 93 ACLF (including 14 licensed assisted
living beds) is a recently built (1991), modern project in a generally less
affluent Bay Area suburb. The project was only 55% occupied at the date of sale
and has had a very difficult time leasing. The property could be considered
mildly distressed. This is attributable to several factors including a crowded
local competitive market, a weak real estate market and the project possibly
being too high end for its market. The indicated overall capitalization rate of
this sale at a 92% occupancy is estimated at 11.3%.
The comparables described above indicate unit values of between $34,965 per unit
to $63,025 per unit before adjustments. Overall, in reviewing these sales for
comparability to the subject, we observed significant differences. Most notably,
differences in location, physical plant, occupancy, and unit mix make direct and
precise comparison to the subject property difficult. Therefore, in our opinion,
the overall degree of comparability of these sales to the subject is only fair.
Nevertheless, after the adjustments described below, these comparables should
provide approximate parameters for an indicated value of the subject property.
The first adjustment to the comparable sales (the yet to stabilize Sale Nos. 1,
2, 3, 4 and 6) reflects the difference in the stabilized occupancy of the
comparables at their date of sale to the projected stabilized 90% occupancy of
the subject. The amount of the adjustment is interpolated assuming an
approximate 20% to 25% difference in value between an empty project and one that
is stabilized.
On a following page, we have also adjusted each of the comparable sales for the
difference in the ratio of net income per the total number of units. These
adjustments should provide an approximate value range from the subject. We have
adjusted each comparable by the ratio of the estimated stabilized net income per
unit of the subject ($5,834) to the net income per unit of the comparables. This
ratio should theoretically reflect differences in stabilized occupancy, location
and quality (through rents), unit mix and operating efficiencies (through
expenses).
65
As illustrated, after adjustment, these sales indicate a value range for the
subject of $46,974 per unit to $59,374 per unit (less the outlying Sale No. 3).
This range provides approximate parameters for a value indication for the
subject. In our opinion, given the above adjustments, the indicated value of the
subject as is in July, 1995 is between $46,974 to $59,374 per unit, calculating
to a total indicated fee simple value using a Sales Comparison Approach of
$7,938,606 ($46,974/unit x 169 units) to $10,034,206 ($59,374/unit x 169 units),
rounded to $7,950,000 to $10,050,000.
As described in the Reconciliation and Conclusion section of this appraisal, due
to significant differences in location, occupancy, quality and amenities
package, our final value conclusion does not place great weight on this value
estimate reflecting the general lack of comparability, large adjustments and
wide range of indicated values.
66
MONTEGO HEIGHTS LODGE
COMPARABLE IMPROVED SALES ADJUSTMENTS
No. 1 No. 2 No. 3 No. 4 No. 5 No. 6
----- ----- ----- ----- ----- -----
Sale Price Per Unit $58,911 $34,965 $63,025 $51,923 $55,263 $62,204
Before Adjustment
Occupancy Adjustment +10% +5% +5% +5% - +15%
Net Income Per Unit -20% +49% +3% -8% -15% -17%
Adjustment (Subject (1) ($ 5,834/ ($ 5,834/ ($ 5,834/ ($ 5,834/ ($ 5,834/ ($ 5,834/
NOI/Unit/Comp/NOI/Unit $ 7,256) $ 3,923) $ 5,653) $ 6,314) $ 6,851) $ 7,020)
------- ------- ------- ------- ------- -------
Sale Price Per Unit
After Adjustment $51,842 $54,703 $68,162 $50,158 $46,974 $59,374
======= ======= ======= ======= ======= =======
Range (Less Outlying Sale No. 3): $ 46,974 - $ 59,374
x 169 Units x 169 Units
---------- -----------
Indicated Value Range: $7,938,606 - $10,034,206
========== ===========
Called: $7,950,000 to $10,050,000
(1) Subject stabilized NOI/Unit - $985,892/169 Units
67
VALUATION OF FAVORABLE FINANCING
The preceding valuation assumes conventional market financing. However, the
subject includes favorable financing in the form of a deed of trust issued in
1978 ($3,683,200, 40 year note). The current balance due of the note is
approximately $3,446,920. The present value of this financing must be added to
our valuation estimates described above because a third party buyer of the
subject should be willing to pay for the debt service savings accruing from this
assumable note.
Our estimate of the effect of the favorable financing is illustrated on the
following page. These assumptions are as follows:
Note Principal at 7/95: $3,446,920
Interest Rate: 7.5%, Fixed
Note Term: 8/2018, Assumable
Conventional Financing
- Interest Rate: 9.5%, Fixed
To calculate the value of this favorable financing, we have extensively surveyed
leading lenders (REITS, conventional banks, pension funds, FANNIE MAE lenders)
in the senior housing industry to determine a conventional financing interest
rate. The consensus of these lenders is that although conventional taxable
financing of any projects and senior projects in particular is still difficult
in mid 1995, that an average taxable interest rate of 9.5% to 10.0% would not be
considered unreasonable given the specialized nature of a senior housing
project. This is confirmed by a late 1994 survey of lenders as illustrated on
the following pages and supporting an approximate 9.5% to 10.0% loan rate for
senior housing properties. Therefore, considering recent downward trends in
interest rates for senior housing properties, we have estimated a current market
interest rate of 9.5%.
Our calculations estimate the present value of the remaining monthly interest
payment on net funds to be received from the bond financing discounted by the
market interest rate less an approximation of the incremental costs to be
incurred as part of the HUD financing compared to conventional financing (annual
audits) and the current value of the current balance of required reserves. The
total differential or contribution to value from the favorable financing is
estimated at $621,765, rounded to $625,000 as calculated on the following page.
COMPARABLE MARKET TRANSACTION
As noted in the Special Conditions section of this report, actual market
transactions involving the sale of senior housing properties and tax exempt
financing are rare. We are familiar with the August, 1992 of The Meadows,
located along Atrium Parkway in Napa. The 1988 built, 221 unit congregate
facility was sold by Sacramento Savings and Loan to Old Fellows of Napa, Inc. (a
not-for-profit) for $11,945,000 ($11,500,000 contracted sale price plus $445,000
sales transaction charges). The buyer partially funded the purchase with a
$6,500,000 tax exempt bond issue
68
MONTEGO HEIGHTS LODGE
VALUATION OF FAVORABLE FINANCING
Present value of financing at market rate (9.5%): $ 3,446,920
Present value of financing at below market rate (7.5%):
Present value of $26,171 (1) monthly payment
for 23.05 remaining years at 9.5% market rate $ 2,916,912
-----------
Difference in present value of financing $ 530,008
Less: $6,000/year annual HUD audit charges (through 2018)
discounted to 7/95 @ 9.5% ($ 55,325)
Plus: Present value of replacement reserve balance @ 7/95
($204,988) discounted to 7/95 @ 6.0% (9.5% market interest
rate less 3.5% estimated interest earned on escrow funds) $ 148,326
-----------
Net Difference in present value of financing $ 623,009
===========
Called $ 625,000
(1) Monthly payment for $3,683,200, 40 years, 7.5% interest rate plus reserve
obligations.
69
(floating interest rate, 30 year amortization). The value of this favorable
financing was estimated at $1,100,000 using the same market financing comparison
described above for the subject. This would suggest that the capitalized cash
flow or going concern value of the property was about $10,845,000 ($11,945,000
less $1,100,000). Our appraisal value of the subject's going concern value was
within 2% of this figure. This example provides some credibility (in addition to
a theoretical analysis) to the methodology and conclusions set forth above for
the subject.
70
RECONCILIATION AND CONCLUSION
Market Value
As Is - 7/14/95
---------------
Indicated Value, Cost Approach $ 8,700,000*
Indicated Value, Income Approach $ 8,200,000*
Indicated Value, Sales Comparison Approach $ 7,950,000-
$10,050,000*
*before addition of value of favorable financing
The development of a final estimate of value involves judgment in a careful and
logical analysis of the procedures leading to each indication of value. The
judgment criteria are appropriateness, accuracy and quantity of evidence.
The Sales Comparison Approach is most applicable when closely comparable
properties are bought and sold in the market on a regular basis. We relied on
the sales of somewhat comparable facilities to estimate value using this
approach. However, due to overall property type illiquidity, differences in
occupancy, location and components of income, direct comparison to the subject
property is difficult as suggested by the wide range of indicated values.
Considering these factors, the Sales Comparison Approach is considered to
produce a less reliable indication of value.
The Cost Approach is most applicable when the improvements are new or nearly new
and where a few number of subjective adjustments must be made to reflect
depreciation, if any. In estimating construction cost new, we relied on well
documented general cost information provided by the Marshall Valuation Service
which was generally supported by actual costs incurred at similar projects. Our
estimate of land value is somewhat supported by the sale of similarly zoned
vacant land parcels in the region. Adjustments for physical incurable and
functional incurable depreciation are approximations but were estimated using
reasonable analyses. Considering these factors and our Highest and Best Use
conclusions, the Cost Approach is considered to produce a less accurate
indication of value. This approach is also rarely relied on by investors in this
type of property.
The Income Approach is typically considered the strongest value indicator for
properties purchased primarily for their income producing potential. This
approach most accurately reflects the impact of stabilized occupancy rates for
properties such as the subject. Comparable market rental rates and an analysis
of the current census were available for the subject units to arrive at an
estimate of fair market rent and gross income. Expense data was substantiated by
historical data and comparable projects. Finally, our estimate of the
capitalization rate is appropriate reflecting current market trends and the
subject's overall average cash flow risk and market position. Overall, the
Income Approach is considered a strong and only truly reliable indicator of
value for the subject property.
71
After considering the factors leading to each indication of value, the Income
Approach is considered to be the most appropriate for the purpose of this
appraisal. The Sales Comparison Approach is given little to no weight due to the
illiquidity of the market, shifting market trends and the wide range of
indicated values. The Cost Approach is also given little to no emphasis, based
on the deductions for depreciation and our highest and best use discussion. The
final market value estimate of the fee simple total going concern interest of
the subject property as is, on July 14, 1995, without the value of any favorable
financing, is:
EIGHT MILLION TWO HUNDRED THOUSAND ($8,200,000) DOLLARS
The inclusion of an estimated $625,000 in value attributable to assumable
favorable financing suggest a total reported valuation of $8,825,000.
72
ALLOCATION OF FINAL VALUE DETERMINATION TO COMPONENTS
We have allocated our total going concern value determination to various
components including real estate, business and personal property value. To
allocate the going concern value estimate, we have utilized both the Cost and
Income Approaches to estimate a reliable and reasonable allocation to each
component. A summary of our allocation is illustrated below:
Allocation of Final Going Concern Value Determination
As Is -
7/14/95
-------
Total Going Concern Value $8,200,000 (3)
Personal Property (1) 200,000
Business Value (2) 1,225,000
----------
Real Estate Value $6,775,000
==========
(1) FF&E estimated from Cost Approach estimates less accrued
depreciation.
(2) Business value estimated from the calculated difference in
value of the subject as is (full occupancy) compared to its
value as if it were vacant as shown below.
(3) Before addition of value of favorable financing.
The personal property value is taken from the Cost Approach estimates set forth
in Cost Approach section of this report. This estimate reflected a replacement
cost new of $2,500 per unit (total of $422,500 FF&E cost new for 169 units)
which must be adjusted to its current depreciated value. Given the estimated
five year old average age of the subject's personal property items and ongoing
replacement, we have estimated a 50% allocation for depreciation at 7/14/95 or
an as is value of $422,500 x 50% = $211,500, rounded to $200,000.
The business component of the subject value reflects the fact that the subject
is a business requiring specialized management services such as meals,
housekeeping and social activities represent complications in the operation of a
senior housing facility and require specific managerial expertise. An
appropriate method to estimate the business value component is to compare the
value of the subject as is ($8,200,000) as a fully operating stabilized property
to its estimated value as if it were empty, as estimated below ($6,975,000). The
estimated business value would be the difference in these values or $1,225,000.
73
Approximate Valuation of Subject As If Empty @ 7/95
Period 1 Period 2 Period 3
(7/95-6/96) (7/96-6/97) (7/97-6/98)
----------- ----------- -----------
Average Occupancy 36.0% 72.0% 90.0%
Potential Gross Income $3,376,957 $3,512,035 $3,652,517
Effective Gross Income $1,215,705 $2,528,665 $3,287,265
Total Expenses $1,438,178 $1,923,050 $2,222,191
---------- ---------- ----------
Net Income ($ 222,473) $ 605,615 $1,065,074
========== ========== ==========
Discounted Value ($ 193,463) $ 457,906 $6,710,854
========== ========== ==========
Total $6,975,297
==========
Called $6,975,000
==========
Assumptions: 20% preleasing; 5.76 beds/month absorption; 4% annual rent
increases; stabilized expense estimated at 67.6% of stabilized effective gross
income; expenses decreasing from the stabilized period three at 4%/year for
inflation and also for lower occupancy by 10% in period two, 30% in period one;
12.0% terminal cap rate; 15.0% discount rate.
The real estate component is the remainder or residual of the final value
determination after a subtraction for the personal property and business value
components, or as illustrated for the subject: $6,775,000 at July 14, 1995, as
is, or 82.6% of the total going concern value. In our opinion, though these
allocations are estimates, they can be considered reliable and reasonable given
the analysis set forth above.
74
MARKETING PERIOD
The subject's estimated marketing time is 6 months. This conclusion is based on
discussions with those brokers specializing in the sale of senior housing
projects, our knowledge of specific sale transactions (which have had widely
variable marketing times) and considering current market conditions and the
characteristics of the subject. Marketing times at several similar projects
indicate the following:
Casa Sandoval Hayward 6 months
Fulton Villa Stockton 4 months
Pacific Springs Escondido/El Cajon 5 months
Park Ridge Vallejo 5 months
In our opinion, the subject would probably experience an average marketing time
(regarded as about 6 months). The majority of buyers of senior housing projects
are still seeking (and have fewer and fewer available opportunities) distressed
properties where large increases in cash flow value are possible. The subject is
not a distressed property given the projected 90% stabilized occupancy and as
such would have a lesser appeal to some market buyers (subject has some upside
potential in occupancy and its assisted living utilization could be increased).
Nevertheless, the subject would be viewed as a solid cash flow project with an
average physical plant (and a limited unit mix) in a good overall, affluent
location. The subject's most likely buyer would be a larger facility
owner/operator of other comparable congregate senior housing properties in
California (i.e. Holiday Retirement, Manor Care, Leisure Care, Capital Senior
Living, Brim, Health Care Group, etc.).
75
CERTIFICATION
1. We have no present or contemplated future interest in the real estate
that is the subject of this appraisal report.
2. We have no personal interest or bias with respect to the subject matter
of this appraisal report or the parties involved.
3. To the best of our knowledge and belief, the statements of fact
contained in this appraisal report, upon which the analyses, opinions
and conclusions expressed herein are based, are true and correct.
4. This appraisal report sets forth all of the limiting conditions
(imposed by the terms of my assignment or by the undersigned) affecting
the analyses, opinions and conclusions contained in this report.
5. This appraisal report has been made in conformity with and is subject
to the requirements of the Code of Professional Ethics and Standards of
Professional Conduct of the Appraisal Institute and is prepared in
accordance with the requirements of the Office of the Comptroller of
the Currency and the Uniform Standards of Professional Appraisal
Practice.
6. Our compensation is not contingent on an action or event resulting from
the analysis, opinions, conclusions reached or the use of this report.
7. The value estimates set forth in this report are not predetermined or
based on any requested minimum valuation, a specific valuation or the
approval of a loan.
8. The use of this report is subject to the requirements of the Appraisal
Institute relating to review by its duly authorized representatives.
9. Mary Catherine Wiederhold, Appraisal Associate provided significant
professional assistance to the person signing this report.
10. As of the date of this report, Michael G. Boehm, MAI has completed the
requirements of the continuing education program of the Appraisal
Institute.
11. A personal inspection of the property was made by Michael G. Boehm, MAI
on May 9, 1995 and by Mary Catherine Wiederhold on July 14, 1995.
76
12. The concluded total going concern market value estimate of the fee
simple interest of Montego Heights Lodge, including the value of
favorable financing, is as follows:
MARKET VALUE "AS IS" (JULY 14, 1995):
EIGHT MILLION EIGHT HUNDRED TWENTY FIVE THOUSAND ($8,825,000) DOLLARS
SENIOR LIVING VALUATION SERVICES, INC.
- ----------------------------
Michael G. Boehm, MAI
77
A D D E N D A
78
COMPARABLE MARKET AREA SENIOR HOUSING FACILITIES
No. 1 - Kensington Place
1580 Geary Boulevard
Walnut Creek
No. 2 - Valley View Lodge
1228 Rossmoor
Walnut Creek
79
COMPARABLE MARKET AREA SENIOR HOUSING FACILITIES
No. 3 - Byron Park
1700 Tice Valley Boulevard
Walnut Creek
No. 4 - Family Affair Retirement
1081 Mohr Lane
Concord
80
COMPARABLE MARKET AREA SENIOR HOUSING FACILITIES
No. 5 - Chateau Pleasant Hill
2770 Pleasant Hill Road
Pleasant Hill
No. 6 - Eden Villa
2015 Mt. Diablo Boulevard
Walnut Creek
81
COMPARABLE MARKET AREA SENIOR HOUSING FACILITIES
No. 7 - Concord Royale
4230 Clayton Road
Concord
No. 8 - Diablo Lodge
950 Diablo Road
Danville
82
COMPARABLE MARKET AREA SENIOR HOUSING FACILITIES
No. 9 - Moraga Royale
1600 Canyon Road
Moraga
No. 10 - San Ramon Lodge
18888 Bollinger Canyon Road
San Ramon
83
COMPARABLE MARKET AREA SENIOR HOUSING FACILITIES
No. 11 - Villa San Ramon
9199 Fircrest Lane
San Ramon
84
VACANT LAND SALE COMPARABLE NO. 1
Location: SEC Ygnacio Valley Road & Tampico
Walnut Creek, CA
Assessor's Parcel No.: 140-026-024 (Contra Costa County)
Sale Date: Listing
Document No.: N/A
Listing Price: $653,400
Size: 43,560 Square Feet (1.00 Acres)
List Price/SF: $15.00
Topography: Sloping
Shape: Irregular
Proposed Use/Density: Medical Office Building
Zoning: P-D
Grantor: Alex Bobbin
Grantee: N/A
Terms: N/A
Comments: This parcel was to be combined with Land
Sale No. 2 for a medical office building
and 12 townhomes; site has no Ygnacio
Valley Road access though it is a corner
parcel (at Tampico).
85
VACANT LAND SALE COMPARABLE NO. 2
Location: Ygnacio Valley Road, East of Tampico
Walnut Creek, CA
Assessor's Parcel No.: 140-026-021 (Contra Costa County)
Sale Date: Formerly in Escrow
Document No.: N/A
List Price: $450,000 (previous list price)
Size: 43,996 Square Feet (1.01 Acres)
List Price/SF: $12.50
Topography: Sloping
Shape: Irregular
Proposed Use/Density: 12 Townhomes (Portion)
Zoning: C-O
Grantor: Carolyn Mitchell
Grantee: N/A
Terms: N/A
Comments: According to the broker, the development
to build 12 townhomes and a medical
office building (Montego Heights Lodge)
on this site and the Sale No. 1 site fell
through after the owners of the adjoining
lot refused to allow development of the
Lodge's parking lot for a driveway onto
this site. This site is not currently
being listed for sale. The contracted
sale price of this parcel was not
disclosed; adjacent to subject to north.
86
VACANT LAND SALE COMPARABLE NO. 3
Location: 123 Brodia Way
Walnut Creek, CA
Assessor's Parcel No.: 140-170-006-5 (Contra Costa County)
Sale Date: 3/3/95
Document No.: 35433
Sale Price: $720,000
Size: 49,658 Square Feet (1.14 Acres)
Sale Price/SF: $14.50
Topography: Level
Shape: Rectangular
Proposed Use/Density: Unknown; probable low density residential
Zoning: R-4
Grantor: Edward Sonnenberg
Grantee: M/M Richard and Lynne Chapman
Terms: All Cash to Seller
Comments: In large lot, rolling hill residential
area; owner holding for future
development.
87
VACANT LAND SALE COMPARABLE NO. 4
Location: 3073 North Main Street
Walnut Creek, CA
Assessor's Parcel No.: 170-100-029-9 (Contra Costa County)
Sale Date: 12/8/93
Document No.: 349330
Sale Price: $850,000
Size: 44,605 Square Feet (1.02 Acres)
Sale Price/SF: $19.06
Topography: Level
Shape: Irregular
Proposed Use/Density: 36 Apartments; 35.2 Units/Acre
Sale Price Per Unit: $23,611
Zoning: C-C
Grantor: Mark & Hillary Gorden
Grantee: Three Oaks Housing, L.P.
Terms: Would not disclose
Comments: Located on a heavily travelled street in
a mixed use commercial/residential area.
88
IMPROVED SALE COMPARABLE NO. 1
Name: Oak Tree Villa
Location: 100 Lockwood Lane, Scotts Valley, CA
Assessor's Parcel No.: 021-052-01 (Santa Cruz County)
Sale Date: 6/6/95
Sale Price: $11,900,000
No. of Units: 202 Units (includes 40 assisted living
units)
Age: 1988
% Private Pay: 100% (includes 20% low income
residents)
Size (GBA): 172,000 Square Feet
Average Unit Size (GBA/Unit): 851 Square Feet
Sale Price/Unit: $58,911
Sale Price/SF: $69.19
Occupancy Rate: 72%
Gross Operating Income: $3,390,984 (estimated at 90% occupancy)
Expenses: $1,925,343
Net Operating Income: $1,465,641 (estimated at 90% occupancy)
% Expenses: 56.8%
G.I.M.: 3.51
O.A.R.: 12.3 (estimated at 90% occupancy)
N.O.I./Unit: $7,256
Grantor: Oak Tree Villa Partnership
Grantee: Birtcher Senior Properties
Terms: $4,955,000 cash (39%); $7,745,000
assumption of existing debt, 30 year
amortization, due in 15 years, 10.25%
rate.
Comments: 20% of units must be allocated to low
income (HUD) residents; unit mix: 102
alcove units (450 SF) and 100 one
bedroom units (600 SF); located in
lightly populated area.
Confirmation: Keith Louie (415) 391-9220
89
IMPROVED SALE COMPARABLE NO. 2
Name: El Camino Gardens
Location: 2426 Garfield Avenue, Carmichael, CA
Assessor's Parcel No.: 283-0030-14 (Sacramento County)
Sale Date: 5/31/95 (Document No. 8309302142)
Sale Price: $10,000,000 (includes $650,000 in
deferred maintenance)
No. of Units: 286 Units (174 ACLF/112 ALF)
Age: 1984
Size (GBA): 160,810 Square Feet
Average Unit Size (GBA/Unit): 562 Square Feet
Sale Price/Unit: $34,965
Sale Price/SF: $62.19
Occupancy Rate: 82%
Gross Operating Income: $2,814,240 (estimated at 93% occupancy)
Expenses: $1,692,240
Net Operating Income: $1,122,000 (estimated at 93% occupancy)
% Expenses: 60.1%
G.I.M.: 3.55
O.A.R.: 11.2% (estimated at 93% occupancy)
N.O.I./Unit: $3,923
Grantor: Joseph Benvenuti
Grantee: Nationwide Health Properties (REIT)
Terms: All Cash to Seller
Comments: Project had approximately $650,000 in
deferred maintenance at time of sale;
purchased by REIT and leased to ARV
Housing Group; licensed to include
up to 224 assisted living beds.
Confirmation: Eric Davidson (714) 751-7400
90
IMPROVED SALE COMPARABLE NO. 3
Name: Casa Sandoval
Location: 1200 Russell Way, Hayward, CA
Assessor's Parcel No.: 415-240-007, 008 (Alameda County)
Sale Date: 2/27/95
Sale Price: $15,000,000
No. of Units: 238 Units
Age: 1989
Size (GBA): 216,639 Square Feet
Average Unit Size (GBA/Unit): 920 Square Feet
Sale Price/Unit: $63,025
Sale Price/SF: $69.23
Occupancy Rate: 81%
Gross Operating Income: $3,844,396 (estimated at 92% occupancy)
Expenses: $2,498,857
Net Operating Income: $1,345,539
% Expenses: 65% (estimated at 92% occupancy)
G.I.M.: 3.90
O.A.R.: 9.0%
N.O.I./Unit: $5,653
Grantor: Casa Sandoval Investors, L.P.
Grantee: Weh Chang
Terms: All Cash to Seller
Comments: Average quality project in middle
income suburban area; sold at auction
on 2/9/95; property underperforming at
date of sale; buyer plans significant
licensing/conversion of many units to
assisted living.
Confirmation: John Rosenfeld (310) 473-8900 ext. 119
91
IMPROVED SALE COMPARABLE NO. 4
Name: Lomita Lodge
Location: 225 N. Lomita Avenue, Ojai, CA
Assessor's Parcel No.: 017-083-200 (Ventura County)
Sale Date: 12/30/94 (Doc. No. 206073)
Sale Price: $1,350,000
No. of Units: 26 Units/36 Beds (Licensed AL)
Age: 1940's/1970's
Size (GBA): 10,000 Square Feet
Average Unit Size (GBA/Unit): 385 Square Feet
Sale Price/Unit: $51,923
Sale Price/SF: $135.00
Occupancy Rate: 81%
Gross Operating Income: $656,640 (estimated at 95% occupancy)
Expenses: $492,480
Net Operating Income: $164,160 (estimated at 95% occupancy)
% Expenses: 75.0%
G.I.M.: 2.06
O.A.R.: 12.2% (estimated at 95% occupancy)
N.O.I./Unit: $6,314
Grantor: Raymond & Judy Berard
Grantee: Ojai Retirement Inn #1, Ltd.
Terms: $270,000 Cash; $1,080,000 variable rate
loan at 8.5%, 20 year amortization.
Comments: Property underperformed at date of
sale; currently 95% occupied; rents
range from $1,500 to $2,350 per month
per bed; property includes about 25%
SSI.
Confirmation: Gerry Meglin (805) 646-5533
92
IMPROVED SALE COMPARABLE NO. 5
Name: Carson Oaks (now called Merrill Gardens
at Carson Oaks)
Location: 6725 Inglewood Avenue, Stockton, CA
Assessor's Parcel No.: 081-260-053 (San Joaquin County)
Sale Date: 7/27/94 (Doc. No. 87023)
Sale Price: $4,200,000
No. of Units: 76 Units
Age: 1989
% Private Pay: 100%
Size (GBA): 62,733 Square Feet
Average Unit Size (GBA/Unit): 612 Square Feet (average unit)
Sale Price/Unit: $55,263
Sale Price/SF: $66.95
Occupancy Rate: 95%
Gross Operating Income: $1,301,712
Expenses: $781,027
Net Operating Income: $520,685
% Expenses: 60%
G.I.M.: 3.23
O.A.R.: 12.4%
N.O.I./Unit: $6,851
Grantor: Tuolumne Commons, Limited Partner
Grantee: Merrill Associates, Limited Partner
Terms: All Cash to Seller
Comments: Newer facility with large number of one
bedroom with full kitchens in an
affluent neighborhood; not licensed for
assisted living.
Confirmation: Lee Haris (415) 391-9220
93
IMPROVED SALE COMPARABLE NO. 6
Name: Park Ridge (now called Merrill Gardens)
Location: 2261 Tuolumne Street, Vallejo, CA
Assessor's Parcel No.: 0052-330-008 (Solano County)
Sale Date: 7/27/94 (Doc. No. 69837)
Sale Price: $5,785,000
No. of Units: 93 ACLF; 14 Beds (Licensed AL)
Age: 1991
% Private Pay: 100%
Size (GBA): 84,989 Square Feet
Average Unit Size (GBA/Unit): 654 Square Feet
Sale Price/Unit: $62,204
Sale Price/SF: $68.10
Occupancy Rate: Project stabilized at 90%; at sale date
55%
Gross Operating Income: $1,632,150
Expenses: $979,290
Net Operating Income: $652,860
% Expenses: 60%
G.I.M.: 3.54
O.A.R.: 11.3%
N.O.I./Unit: $7,020
Grantor: Tuolumne Commons, Limited Partner
Grantee: Merrill Associates, Limited Partner
Terms: All Cash to Seller
Comments: Modern congregate/assisted living with
15 studios, 59 - 1 bedrooms and 19 - 2
bedrooms; located in residential area
and bounded by Sutter Solano Medical
Center and Crestwood Convalescent
Hospital.
Confirmation: Lee Haris (415) 391-9220
94
A D D E N D A
95
APPRAISAL REPORT
VALLEY VIEW LODGE
1228 ROSSMOOR PARKWAY
WALNUT CREEK, CALIFORNIA
AS IS ON JULY 14, 1995
SLVS FILE NO. 95-04-21
PREPARED FOR
AMERICAN RETIREMENT VILLAS PROPERTIES II, L.P.
PREPARED BY
MICHAEL G. BOEHM, MAI
96
July 25, 1995
American Retirement Villas Properties II, L.P.
c/o ARV Housing Group
245 Fischer Avenue, Suite D-1
Costa Mesa, California 92626
Attention: Mr. Graham Espley-Jones
Re: Valley View Lodge
1228 Rossmoor Parkway
Walnut Creek, California
SLVS File No. 95-04-21
Gentlemen:
In accordance with your request, we have conducted the required investigation,
gathered the necessary data, and made certain analyses that have enabled us to
form an opinion of the market value of the above captioned property. This report
has been prepared to be in compliance with the requirements of the Uniform
Standards of Professional Appraisal Practice.
The value stated herein is based on our understanding of the site and
improvement descriptions as represented to us by the client and/or the client's
representatives and professional consultants as well as other available sources.
We direct your attention to the "Introduction," "Site Description," and
"Description of Improvements" sections of this appraisal report. It is your
responsibility to read the report and inform the appraiser of any errors or
omissions you are aware of prior to utilizing the report or making it available
to any third party.
Based on an inspection of the property and the investigation and analysis
undertaken, we have formed the opinion, subject to the assumptions and limiting
conditions set forth in this report, that as of July 14, 1995, the fee simple
total going concern interest of the subject, as is, including the value of
favorable financing, has a market value of:
TEN MILLION THREE HUNDRED SEVENTY FIVE THOUSAND ($10,375,000) DOLLARS
97
Mr. Graham Espley-Jones
July 25, 1995
Page 2
This total going concern value estimate can be allocated to the following
components:
Market Value
As Is -
7/14/95
------------
Real Estate Value $ 8,725,000
Furniture, Fixtures & Equipment 150,000
Business Value 1,225,000
-----------
Total Going Concern Valuation $10,100,000
===========
Plus: Favorable Financing $ 275,000
-----------
Total Reported Valuation $10,375,000
===========
The narrative appraisal report that follows sets forth the identification of the
property and limiting conditions, pertinent facts about the area and the subject
property, comparable data, results of our investigation and analyses and the
reasoning leading to the conclusions set forth. Should you desire a quick
reference to the most important information, I direct your attention to the
"Introduction", "Executive Summary" and the "Reconciliation and Conclusion"
sections of this report.
Respectfully submitted,
SENIOR LIVING VALUATION SERVICES, INC.
Michael G. Boehm, MAI
President
98
SUBJECT PHOTOGRAPHS
Subject from Main Parking Area,
View East
Main Entrance of Subject
99
TABLE OF CONTENTS
Title Page 1
Letter of Transmittal 2
Subject Photographs 4
Table of Contents 5
Introduction 7
Property Identification 7
Property Ownership and History 7
Scope of the Assignment 7
Purpose of the Appraisal 8
Function of the Appraisal 8
Property Inspection 8
Date of Appraisal 8
Date of Value 8
Property Rights Appraised 8
Definition of Market Value 8
Assumptions and Standard Limiting Conditions 9
Special Conditions 10
Experience of Appraisal Firm 11
Representative Assisted Living Appraisal Experience 12
Executive Summary 13
Regional and City Analysis 15
Regional Location Map 16
City Location Map 17
Comparative Zip Code Demographic Data 19
Anecdotal Description of Walnut Creek 21
Neighborhood Description 25
Neighborhood Map 26
Neighborhood Zoning Map 29
Neighborhood Photographs 30
Site Description 32
Assessor's Parcel Map 33
Flood Map 34
Taxes and Assessments 36
100
Description of Improvements 37
Site Plan 38
First Floor Plan 40
Unit Plans 41
Subject Photographs 42
Market Analysis 48
Subject Amenities 50
Census of Market Area ACLF/AL Facilities 53
Comparable Facilities Map 55
Market Area Saturation Analysis 58
Highest and Best Use 60
Site Valuation 62
Vacant Land Sales Map 64
Cost Approach Analysis 66
Cost Approach Summary 69
Income Approach Analysis 70
Pro Forma Cash Flow Analysis & Capitalization 82
Sales Comparison Approach 83
Improved Sales Map 86
Valuation of Favorable Financing 90
Reconciliation and Conclusion 94
Allocation of Going Concern Value Determination To Components 96
Total Estimated Marketing Time 98
Certification 99
Addenda 101
Comparable ACLF/AL Facility Photographs 102
Legal Description 108
Vacant Land Sale Data 110
6/21/95 Rent Roll 114
(1993, 1994, 1/95 to 4/95) Historical/(1995) Budgeted Operating Statements 119
Senior Housing Investment Survey 131
Improved Sale Data/Photographs 133
Favorable Financing Detail 142
Qualifications of Michael G. Boehm, MAI 143
MGB State of California Appraisal License 144
101
INTRODUCTION
PROPERTY IDENTIFICATION
The subject property consists of a 198,198 square foot (4.55 gross acres) site
that is currently improved with a 125 unit congregate senior housing project
(including up to 96 licensed assisted living beds) project known as Valley View
Lodge. The subject has a designated street address of 1228 Rossmoor Parkway,
Walnut Creek, Contra Costa County, California.
A detailed legal description of the site is presented in the Addenda of this
report.
PROPERTY OWNERSHIP AND HISTORY
The fee simple title to the subject property is currently vested in the name of
American Retirement Villas Properties II (ARVP II), a California Limited
Partnership. The current owners purchased the subject in December, 1989 as part
of a purchase of several Retirement Inns of America (Avon Products, Inc.) senior
properties. The subject has not been sold/purchased in the past three years.
The subject was built as a senior congregate facility which opened in 1976. The
subject, as part of the original conditions of approval and a condition
necessary to obtain the favorable HUD financing, was required to allocate 20% of
the subject units to "very and low" income residents. This restriction was
reportedly waived when the subject was purchased by the current owners allowing
a market rate to be charged for all units. The subject is currently in the
process of increasing its assisted living licensing maximum from 96 to 136 beds.
Verbal approval has been received and the formal approval is imminent. It is
anticipated that almost immediately the subject's assisted living utilization
will increase by 15 to 20 residents. The subject's recent occupancy history
includes near 100% occupancy and it is currently approximately 96.1% occupied
(123 beds/128 beds).
SCOPE OF THE ASSIGNMENT
The scope of this assignment is to inspect the subject property, conduct an
investigation of market data, and prepare a full narrative appraisal report in
accordance with the requirements of the Office of the Comptroller of the
Currency and the Uniform Standards of Professional Appraisal Practice. All
information deemed pertinent to the completion of the appraisal was made
available.
The appraisal was performed so that the analysis, opinions and conclusions are
that of a disinterested third party, employing due diligence in the
investigation, analyses and conclusions. This appraisal report was developed and
prepared to comply with the reporting requirements noted in the "Certification"
section of this report.
The investigation associated with this report includes the general economy of
the industry, the market area, and the local neighborhood. Research and studies
include supply and demand factors, comparable land and property sales,
competitive property rents/rates and occupancy. Buyers, sellers, developers,
public officials, management at competitive facilities, real estate brokers, and
the current management of the property were interviewed concerning these and
other associated matters. Specific references are made throughout this report.
102
PURPOSE OF THE APPRAISAL
The purpose of the appraisal is to estimate the subject's market value as is.
FUNCTION OF THE APPRAISAL
It is understood the appraisal shall be used by American Retirement Villas
Properties II, L.P., in evaluating the subject partnership for possible transfer
to an ownership real estate investment trust.
PROPERTY INSPECTION
The subject property was inspected on May 9, 1995 by Michael G. Boehm, MAI who
was accompanied by Ms. Nancy Peterson, Administrator. The subject was
reinspected on July 14, 1995 by Mary Catherine Wiederhold, Appraisal Associate.
DATE OF APPRAISAL
July 25, 1995
DATE OF VALUE
July 14, 1995
PROPERTY RIGHTS APPRAISED
This appraisal estimates the fee simple total going concern market value of the
subject operating as a congregate senior housing business. Going concern value
is defined by the Appraisal Institute as the value created by a proven property
operation; considered a separate entity to be valued with an established
business. This total going concern value can be allocated to its real estate,
furniture, fixtures and equipment and business value components. An estimated
allocation of our total going concern valuation is set forth in a separate
section of this report.
Fee Simple is defined by the Appraisal Institute as absolute ownership
unencumbered by any other interest or estate subject only to the limitations of
eminent domain, escheat, police power, and taxation.
DEFINITION OF MARKET VALUE
As defined by the Office of the Comptroller of the Currency under 12 CFR, Part
34, Sub-part C-Appraisals, 34.42 Definitions (f), market value is defined as:
"The most probable price which a property should bring in a competitive and open
market under all conditions requisite to a fair sale, the buyer and seller each
acting prudently, and knowledgeably and assuming the price is not affected by
undue stimulus. Implicit in this definition is the consummation of a sale as of
a specified date and the passing of title from seller to buyer under conditions
whereby:
103
(i) buyer and seller are typically motivated;
(ii) both parties are well informed or well advised, and acting in what they
consider their best interests;
(iii) a reasonable time is allowed for exposure in the open market;
(iv) payment is made in terms of cash in U.S. dollars or in terms of
financial arrangements comparable thereto; and
(v) the price represents the normal consideration for the property sold
unaffected by special or creative financing or sales concessions
granted by anyone associated with the sale."
ASSUMPTIONS AND STANDARD LIMITING CONDITIONS
1. The legal description furnished to the appraiser is assumed to be
correct, and the title is assumed to be marketable.
2. The appraiser assumes no responsibility for legal matters.
3. Report exhibits are only visual aids. All sizes indicated for land and
improvements are from indicated sources and assumed to be correct.
4. Unless otherwise noted herein, it is assumed there are no detrimental
easements, encumbrances, encroachments, liens, zoning violations,
building code violations, or environmental violations, etc. affecting
the subject property.
5. Information, estimates, and opinions furnished to the appraiser are
obtained from sources considered reliable; however, no liability for
their accuracy can be assumed by the appraiser.
6. It is assumed that there are no hidden or unapparent conditions in the
land or improvements that render the property more or less valuable or
that would reduce its utility, development potential, marketability.
All improvements are assumed to be structurally sound unless otherwise
noted. No responsibility is assumed for hidden or undisclosed
conditions or for arranging for engineering studies that may be
required to discover any defects or uniquely favorable conditions.
7. The appraiser has inspected the subject property with the due diligence
expected of a professional real estate appraiser. The appraiser is not
qualified to detect hazardous waste and/or toxic materials. Any comment
by the appraiser that might suggest the possibility of the presence of
such substances should not be taken as confirmation of the presence of
hazardous waste and/or toxic materials. Such determination would
require investigation by a qualified expert in the field of
environmental assessment.
104
8. The presence of substances such as asbestos, urea-formaldehyde foam
insulation or other potentially hazardous materials may affect the
value of the property. The appraiser's value estimate is predicated on
the assumption that there is no such material on or in the property
that would cause a loss in value.
9. No responsibility is assumed for any environmental conditions, or for
any expertise or engineering knowledge required to discover them. The
appraiser's description and resulting comments are the result of the
routine observations made during the appraisal process.
10. Responsible ownership and competent management are assumed.
11. Where the discounted cash flow analysis is utilized, it has been
prepared on the basis of the information and assumptions stipulated in
this appraisal report. The achievement of any financial projections
will be affected by fluctuating economic conditions and is dependent
upon the occurrence of other future events that cannot be assured.
Therefore, the actual results achieved may well vary from the
projections and such variation may be material.
12. The appraiser is not required to give testimony or appear in court, or
at public hearings, or at any special meeting or hearing with reference
to the property appraised herein by reason of preparation of this
report, unless arrangements have been made prior to preparation of this
report.
13. Possession of this report does not carry with it the right of
publication. It shall be used for its intended purpose only and by the
parties to whom it is addressed. Neither all nor any part of the
contents of this report shall be conveyed to the public through
advertising, public relations, news, sales, or other media without the
written consent or approval of the author. This applies particularly to
value conclusions, the identity of the appraiser or firm with which it
is connected, and any reference to the Appraisal Institute, or MAI
designation.
14. Property values are influenced by a large number of external factors.
The information contained in the report comprises the pertinent data
considered necessary to support the value estimate. We have not
knowingly withheld any pertinent facts, but we do not guarantee that we
have knowledge of all factors which might influence the value of the
subject property. Due to rapid changes in external factors, the value
estimate is considered reliable only as of the effective date of the
appraisal.
SPECIAL CONDITIONS
The subject is currently encumbered by an approximately $2,800,000 HUD loan
which extends to the year 2016 at a fixed interest rate of 8.25%. Because this
interest rate is below the estimated interest rate of current conventional
financing (estimated at 9.5%), the subject has a theoretical value over and
above the capitalized value of operational cash flows. Caution should be used in
interpreting this added value as actual market transactions involving the
assumption of
105
below market rate financing are rare. The value of this favorable financing has
been added to the going concern value set forth in this report. These issues are
discussed and the value of the favorable financing is calculated in a separate
section of this report.
The subject is licensed as a residential care facility for the elderly (assisted
living) for 96 beds (plus 40 additional beds, pending) with the California
Department of Social Services. This appraisal assumes that the subject meets all
physical plant and operating requirements as an assisted living facility.
The appraisers were not provided with a title report describing any current
easements or encumbrances that might affect the subject operation as a
congregate senior housing business. This appraisal assumes that there are no
adverse easements or encumbrances affecting the subject.
We recommend review of a current title report.
The estimates of value set forth in this report are partially relying on the
current rent roll, historical operating statements and limited building drawings
and building statistical data provided to the appraiser by ARV Housing Group.
EXPERIENCE/COMPETENCY OF APPRAISAL FIRM
Senior Living Valuation Services, Inc. is a San Francisco based appraisal firm
that exclusively specializes in the appraisal and analysis of all forms of
senior housing properties. On the following page is a listing of recent assisted
living facility assignments that have been completed by the firm. Qualifications
of Michael G. Boehm, MAI are included in the Addenda of this report.
106
EXECUTIVE SUMMARY
Property Name: Valley View Lodge
Location: 1228 Rossmoor Parkway
Walnut Creek, California
Assessor's Parcel No.: 189-040-045 (Contra Costa County)
Property Rights Appraised: Fee Simple (Total Going Concern)
Date of Value: As Is on July 14, 1995
Land Area: 198,198 Square Feet, 4.55 Acres Gross;
154,638 Square Feet, 3.55 Acres Net (estimated)
Excess Land: None
Zoning: PD (656), a planned unit development specifically allowing
the subject.
Improvements: Type: One, average to good quality, one to two story, Class
D congregate retirement apartment building and
common areas.
Age: Year Built - 1976; Improvement Age - 19 Years;
Effective Age - 19 Years;
Remaining Economic Life - 26 Years
Size: 125 congregate retirement apartment units (128
currently configured maximum bed count) and
common areas in approximately 97,590 square feet of
gross building area.
Condition: Average to Good
H & B Use (if vacant): Senior Housing
H & B Use (as improved): See Highest and Best Use Discussion
Capitalization Rate: 12.0%
Projected Stabilized Net Income: $1,212,831 (7/95-6/96)
107
Total Going Concern Market
Value, as is, as of
July 14, 1995: Cost Approach: $ 8,625,000*
Income Approach: $10,100,000*
Sales Comparison Approach: $ 9,800,000-
$12,350,000*
Value Conclusion: $10,100,000*
($80,800/unit)
Allocation of Final
Value Determination
to Components:
Market Value
As Is -
7/14/95
------------
Real Estate $ 8,725,000
FF&E 150,000
Business Value 1,225,000
-----------
Total Going Concern Valuation $10,100,000*
===========
* before addition of value for
favorable financing
Value of Favorable Financing: $275,000
Total Estimated Marketing Time: 6 Months
108
REGIONAL AND CITY ANALYSIS
The subject site is located east of Rossmoor Parkway (north of Tice Valley
Boulevard) about two blocks north of the gated Rossmoor senior subdivision in
the southern incorporated portion of the City of Walnut Creek, Contra Costa
County, California. The subject is located about one mile south of downtown
Walnut Creek. Walnut Creek is located approximately 20 miles east of San
Francisco.
COUNTY OVERVIEW
Contra Costa County is one of the nine San Francisco Bay Area counties. It is
situated northeast of San Francisco, and bordered by the counties of Solano and
Sacramento on the north, San Joaquin on the east, Alameda on the south and the
San Francisco Bay to the west.
The County consists of three distinct regions. Divided by significant
topographical obstacles (primarily ranges of hills) and the interstate and state
highway system, the western, central, and eastern portions of the County have
tended to develop separately. The western portion, with its access to San
Francisco Bay, is largely urban and industrialized. This area is dominated by
the city of Richmond, with its active, deep water port. The eastern part of the
County is undergoing substantial changes, evolving from a wild, agricultural
area, to an affordable suburban residential region (Antioch, Pittsburg).
The subject is located in the central portion of the County (known as the Diablo
Valley at the foot of Mt. Diablo) which follows the path of Interstate 680 and
extends from Martinez on the shore of the Carquinez strait of the Sacramento
river to the north, south through the cities of Concord, Pleasant Hill, Walnut
Creek, Lafayette, Alamo, Orinda, Danville and San Ramon. This central County
area evolved as a bedroom community by the 1960's as residents commuted to jobs
in San Francisco, Oakland, and other cities. Motivated by an increasingly
congested commute and higher rental rates in San Francisco, corporations began
locating in central Contra Costa in the late 1970's. Today, the central County
has developed into a major suburban commercial and financial headquarters
submarket of the larger Bay Area.
The climate of Contra Costa County is somewhat similar to other parts of the
inland Bay Area, with a year-round mean temperature of 60.4 degrees, and an
annual average rainfall of 19 inches. As in the other parts of the region, most
rain occurs during the winter months and is rare from May through November. The
location of Walnut Creek, southeast of the Berkeley Hills and at a distance from
the moderating influence of the San Francisco Bay, allows some light frosts in
the winter months and warm to hot summer days.
CITY POPULATION AND DEMOGRAPHICS
Walnut Creek (population 63,400 in 1995), incorporated in 1914, evolved from a
small agricultural town of several hundred residents. In the 1950's and 1960's
with the completion of Highway 24 and Interstate 680, Walnut Creek, and many
communities in the central County, became "bedroom" suburbs for the core cities
of San Francisco and Oakland. It was during this
109
period that Walnut Creek experienced its most rapid population growth.
Population growth has slowed as the region has become predominantly built out.
Increased resistance to additional growth has (and will continue to) muted
recent population expansion. During the past decade, Walnut Creek, along with
the adjacent cities of Concord and Pleasant Hill, have become an important
suburban employment center in the East Bay. The economy is largely influenced by
significant office employment including Federal and County governments.
Nevertheless, a large portion of the population continues to commute to Oakland
and San Francisco.
Today, Walnut Creek is one of the largest cities in the County and the focal
point of the central County region. Population trends and forecasts for Walnut
Creek are as follows:
Population Data
Walnut Creek Contra Costa County
---------------------------- -----------------------------
Year Population % Change Population % Change
---- ---------- -------- ---------- --------
1960 9,900 - 406,030 -
1970 39,844 302% 558,389 37.5%
1980 53,600 34.5% 650,748 16.5%
1990 60,400 12.7% 797,600 22.6%
1995 63,400 5.0% 883,400 10.8%
2000* 66,634 5.1% 971,300 9.9%
* Estimate
--------------------------------------------------------
Sources: ABAG (Association of Bay Area Governments)
Demographically as illustrated in comparative zip code data presented on the
following page, the subject zip code has the following characteristics relative
to the surrounding region:
1) A much older median age (66.0) compared to the surrounding
region and City as a whole (which is older than regional
averages), reflecting a largely retired population with 52% of
the total population over the age of 65 (largely influenced by
the Rossmoor subdivision);
2) A higher than average median household income ($49,653). The
subject zip code ranks in the 80th percentile in California in
per capita income (92nd percentile nationally) which is
slightly below other Walnut Creek zip codes;
3) A less diverse ethnicity with about 97% of its resident
consisting of non-minority whites.
An anecdotal description of Walnut Creek is provided on a following page.
110
HOUSING
Walnut Creek housing stock is concentrated in low-density residential uses,
chiefly single-family dwellings, with higher densities allowed in designated
areas generally around the downtown core. According to ABAG projections, the
City is projected to be built out in about 10 years. Currently, the housing
stock consists of approximately 37,000 dwelling units. The City has
approximately 350 acres of vacant land designated for residential development
which could include about 6,000 additional units (located on the fringes of town
to the east and south).
An important influence on the City housing stock (20% of total) and the subject
is the 2,000 acre Rossmoor Retirement Community located in southwestern Walnut
Creek. Rossmoor, begun in 1964, is one of California's largest retirement
communities with a current population of about 8,200 residents in 5,900 mostly
lower density units (capacity for about an additional 1,500 units). Prices range
from $55,000 to $400,000. Rossmoor is restricted to persons 55 and older and has
an average resident age population of about 75. The presence of Rossmoor has
been a major factor in the recent construction of several new higher density
senior housing projects built close to Rossmoor but "outside the gates",
including the subject. Additional detail on Rossmoor is provided in the
Neighborhood section of this appraisal.
The average home price in Walnut Creek for a single family dwelling in 1995 is
about $300,000. This is below more exclusive suburban areas such as Blackhawk
and Lafayette but above nearby Pleasant Hill and Concord. These statistics
reflect a 15% decline in average home price since 1989 peaks, consistent with
regional trends (down about 0% to 5% in the last 12 months). Rental rates of
apartments in Walnut Creek are slightly above County averages with a broad range
of $500 to $1,000 and up per month.
EMPLOYMENT & ECONOMIC DEVELOPMENT
Walnut Creek enjoys a diversified economic base. A number of residents commute
to other locations in the Bay Area for work, but the City is seen as a major
suburban office center. The largest firms in the community are as follows:
Major Employers
Name Type of Business Employees
- ---- ---------------- ---------
Lesher Communications, Inc. Newspaper 1,800
John Muir Hospital Health Care 1,750
Kaiser Permanente Center Health Care 1,250
Safeway Grocer 1,100
Western Temporary Services Temporary Employment 600
Nordstrom Retail 600
- --------------------------------------------------------
Source: Walnut Creek Chamber of Commerce
111
Explosive downtown core (known as the Golden Triangle) commercial growth in the
early 1980's made growth control the major issue in Walnut Creek in the late
1980's. In 1985, Walnut Creek voters passed Measure H which approved a citywide
moratorium on construction of most buildings greater than 10,000 square feet
until certain traffic volume to capacity ratios are met. The measure designed to
limit further traffic congestion, has been the subject of court battles but has
been incorporated into the City's zoning ordinance. The result of this
antigrowth sentiment has been the virtual extinction of new commercial
proposals. Current development trends to be enforced by the City include
limiting increased traffic whenever possible, concentrating high density
development in the downtown core, emphasized retail commercial development and
creating open space. The City has been transformed from a progrowth community to
one that has become built out and congested and now seeks to maintain its
current high quality of life without additional deterioration. Recent
development activity has been very modest (some smaller infill projects).
TRANSPORTATION
Walnut Creek is served by three major highways: Interstate 680, providing north
to south access throughout central Contra Costa County; Highway 24, providing
highway access east to San Francisco and Oakland via the Caldecott Tunnel; and
Highway 4, providing east to west access through northern Contra Costa County. A
major redesign and expansion of the 680/24 intersection is underway (a 5 year
project) to alleviate severe traffic congestion in the area. The new design will
facilitate access to Rossmoor from Walnut Creek. Major north to south
thoroughfares in Walnut Creek include Buena Vista, California, Main and
Oak/Civic. Major east to west thoroughfares include Olympic, Tice Valley, Treat,
Ygnacio Valley and Walnut.
A high-speed commuter train service, the Bay Area Rapid Transit (BART), provides
public transportation throughout the Bay Area. Walnut Creek is one of 34 BART
stops along a network that extends to San Francisco, Oakland, Fremont, Richmond
and other cities. Rail service is (Amtrak) available in Martinez or Oakland.
Air service is available at Buchanan Field in Concord (regional air service), or
at the Oakland International Airport (18 miles to the southwest) and San
Francisco International Airport ( 36 miles to the southwest). Local residents
can also take advantage of the County Connection, a local bus service.
COMMUNITY DATA
Walnut Creek's location as a part of the greater nine county San Francisco Bay
Area allows its residents to take advantage of all of the cultural and
recreational opportunities of the larger Bay Area. Other major local features
include a regional center for the arts (with theater) and Mt. Diablo State Park,
located southeast of Walnut Creek, offers outdoor activities from trails to
camping and picnic sites. Mt. Diablo, with an elevation of 3,849 feet, is the
highest peak in the Bay Area and provides a panoramic view from the Pacific
Ocean to the Sierras. Located in the foothills of Mt. Diablo is the Concord
Pavilion, a popular 8,500 seat open theater for concerts and festivals.
112
Walnut Creek has one general acute hospital, the John Muir Medical Center , with
280 beds and 677 physicians. This hospital is located approximately three miles
northeast of the subject property along Ygnacio Valley Boulevard. Additional
medical facilities in the area include Rossmoor Medical Clinic (just outside the
Rossmoor entrance and adjacent to the subject), Mt. Diablo Medical Center,
Kaiser Medical Center (201 beds), and CPC Walnut Creek, the largest psychiatric
hospital in the Bay Area. Walnut Creek is located in HSA 5, HFPA 411 with a
total of 25 skilled nursing facilities comprising a total approximately 2,328
licensed beds (including several newer facilities). Walnut Creek is also home to
a large number of high density congregate senior housing projects (rentals) as
discussed in detail in the Market Analysis section of this report.
CONCLUSION
Walnut Creek is primarily built out with an established land use pattern of
residential developments surrounding a densely developed downtown core. Future
development and population expansion will be slow, focused in infilling vacant
or underdeveloped land parcels. Local antigrowth sentiment is still strong and
the City has experienced extreme traffic congestion which threatens the City's
traditional suburban/bucolic residential character. Nevertheless, the City still
has a high quality of life. The City's central location, affluence and extremely
large elderly population focused at Rossmoor, make Walnut Creek attractive for
elderly housing.
113
NEIGHBORHOOD DESCRIPTION
LARGER NEIGHBORHOOD - ROSSMOOR COMMUNITY
The larger subject neighborhood consists of the 2,000 acre, master planned
retirement community of Rossmoor which is a separate neighborhood planning
district of Walnut Creek within Tice Creek Valley. The northern portions of Tice
Creek Valley consist of flat valley land and gently sloping hills while the
southern and central portions are characterized by steep hillsides with sloping
valleys lying between East Ridge to the east and Las Trampas Ridge to the west
and south. The Rossmoor community lies approximately two and one-half miles
southwest of downtown Walnut Creek and 20 miles east of San Francisco. Rossmoor
is located about two miles south of the Interstate 680 - State Highway 24
interchange. The entrance to Rossmoor is along Rossmoor Parkway, approximately
2,000 feet southwest of the intersection of Rossmoor Parkway and Tice Valley
Boulevard and about three blocks south of the subject.
Rossmoor is a planned retirement development that dates back to 1963. Originally
planned for 11,000 dwelling units, the permitted number was reduced in 1977 to
7,350 units. To date, about 6,000 residential units have been built, most of
which are attached, stacked flats. Though UDC Homes is the exclusive
builder/developer of Rossmoor, the Golden Rain Foundation is responsible for the
management and operation of the ongoing community. The Foundation is composed of
elected Rossmoor residents and acts as a homeowners association for all Rossmoor
residents.
The Rossmoor community is developed with two golf courses laid out in the
central flatland of the Tice Creek Valley and condominium buildings built
primarily on the surrounding hillsides. The terrain surrounding Rossmoor and the
manned, security entry afford considerable security to the residents.
Recreational amenities include the two golf courses with a total of 27 holes,
four clubhouses, tennis courts, swimming pools, lawn bowling greens, and a
variety of special interest activity clubhouses. Bus service is provided within
the community as well as to downtown Walnut Creek population for shopping and
the area BART station.
A fully equipped and staffed medical clinic is located just outside Rossmoor
across Tice Valley Boulevard on Rossmoor Parkway and just west of the subject.
Additional neighborhood development just outside the Rossmoor gates include the
subject; a Bank of America branch; Byron Park, another congregate rental project
and the 180-bed Manor Care and 99 bed Guardian Foundation skilled nursing
facilities located immediately adjacent to the subject. The Rossmoor Shopping
Center is located at the northwest corner of the intersection of Rossmoor
Parkway and Tice Valley Boulevard, approximately two blocks southwest of the
subject. This neighborhood center is anchored by a Safeway supermarket. The
center also contains a travel agency, liquor store, real estate office,
restaurant, cleaners, barber, beauty salon, gift shop and five bank branches.
This neighborhood center, along with several other nearby retail centers,
provide a variety of services for Rossmoor and nearby residents.
114
Based on data provided by UDC Homes, nearly 6,000 housing units have been sold
within Rossmoor. The average annual sales of new product over Rossmoor's 26 year
history is roughly 250 units per year. Over the last ten years, however, new
home sales have fallen to an average of about 80 units annually while reaching a
post-1980 high of 122 units in 1987. Reliable absorption figures for 1988
through 1995 are difficult to determine due to limits in available new supply.
Development of Neighborhood 4 in southern Rossmoor began in 1992/1993.
Conversations with Rossmoor's resale brokers indicate that resales of existing
units have slowed somewhat during the past few years. These brokers indicated
that units that would previously sell in two weeks might now take up to three
months to successfully market. This phenomenon is generally consistent with a
recent downturn in the local and larger San Francisco Bay Area housing markets.
According to a Rossmoor resale broker, current resale listings within Rossmoor
range from a low of $49,000 for a cooperative unit to about $350,000 for a new
condominium (average of about $158,000).
Rossmoor is reported to have approximately 8,000 residents with an average age
of approximately 75 years. The population is 31 percent male and 69 percent
female reflecting actuarial reality. The early Covenants, Conditions and
Restrictions (CC&Rs) required one owner to be at least 45 years old. That
restriction has since been amended to a minimum age of 55 years.
IMMEDIATE NEIGHBORHOOD
The subject site was originally part of a larger 10.3 acre site which is located
just northeast of the medical clinic and about two blocks northeast of Rossmoor.
The site is located along the Rossmoor Parkway extension, an approximately 500
foot long east/west roadway extending from Rossmoor Parkway to the west to the
cul-de-sac at the western boundary of the subject site. The Guardian nursing
home, located to the immediate southwest of the subject was built in the mid
1970's (before the subject which was built in 1975/76). The Manor Care nursing
home to the west of the subject was built in the late 1980's. To the north, east
and south of the subject, lie open space rolling hills and several large lot
single family homes.
As noted, the subject is located about three blocks northeast of the entry gates
to Rossmoor. The Highway 24/Interstate 680 interchange (which is currently
undergoing a major upgrading) is located about one mile to the north and
downtown Walnut Creek about 1.5 miles to the north.
John Muir Hospital is located about three miles to the northeast.
CONCLUSION
Overall, the subject's location near Rossmoor and adjacent to a clinic and two
nursing homes is a competitive advantage. The subject enjoys good access to
recreational and retail amenities and fair highway and acute medical care
access. Overall, the subject site is adequately situated for a congregate senior
housing project and it is compatible with neighborhood developments. Because the
subject is located at the end of a cul-de-sac on a minor street extension,
overall exposure is limited.
115
NEIGHBORHOOD PHOTOGRAPHS
Guardian Nursing Home Immediately West of Subject
View West toward Exit Driveway, Guardian Nursing Home to Left,
Manor Care Nursing Home to Right
116
NEIGHBORHOOD PHOTOGRAPHS
Open Space/Homes Surrounding Subject
117
SITE DESCRIPTION
LOCATION: The subject site is located at 1228 Rossmoor Parkway in Walnut Creek,
California which is about two blocks northeast of the intersection of Tice Creek
Boulevard and Rossmoor Parkway. The subject is located at the end of the
cul-de-sac of the Rossmoor Parkway extension, about 450 feet east of Rossmoor
Parkway. The subject site consists of one irregular shaped parcel identified as
Contra Costa Assessor's Parcel Number is 189-040-045. An Assessor's Parcel Map
is shown on a following page. A detailed legal description of the site is
provided in the Addenda of this report.
PHYSICAL CHARACTERISTICS: The subject property consists of an irregularly shaped
parcel containing 4.55 acres or 198,198 square feet gross and approximately 3.55
acres or 154,638 square feet net developable. The site is bounded by medical
office/convalescent hospital properties to the west and open space/single family
homes to the north, east and south.
The topography of the site is irregular although its developed portion is
generally flat. The site slopes downward significantly at its northern and
eastern boundaries. The southern portion of the site is currently an open space
rolling hill area (an approximately one acre area).
The site appears to have adequate drainage and is not located within a flood
plain area. The subject is located in a flood zone C, an area of minimal
flooding per Map Number 065070 0603B, dated 5/1/85. No report of soil conditions
was provided to the appraisers and it is assumed that there are no adverse soil
or subsoil conditions affecting existing developments. No obvious toxic or
hazardous conditions were noted during our site inspection. The site can be
considered as having the same overall risk of earthquakes as the San Francisco
Bay Area. The subject is not located in an Alquist-Priolo Special earthquake
study zone.
EXISTING IMPROVEMENTS: The subject site is developed with a 125 unit, 2 story
W-shaped, 97,590 square foot residential congregate senior apartment building.
The subject site is bordered by an asphalt surface parking lot to the west. The
development's entry is oriented towards the parking lot, Rossmoor Parkway
extension and cul-de-sac to the west. Additional improvement detail is discussed
in the Description of Improvements section of this appraisal.
The Rossmoor Parkway extension is a fully improved but minor, two-lane east to
west street extending about 450 feet to the west to Rossmoor Parkway. Street
improvements include asphalt paving, concrete curbs, gutters and sidewalks. The
subject site is served by all utilities including water (City of Walnut Creek),
natural gas and electrical power (Pacific Gas & Electric) and telephone (Pacific
Bell).
ACCESS AND EXPOSURE: The subject site can be accessed from Rossmoor Parkway to
the extension and to the cul-de-sac with one curb cut out. Rossmoor Parkway is a
secondary north to south residential street in southern Walnut Creek. The
subject is located approximately two blocks northeast of Tice Valley Boulevard
and Rossmoor Parkway and about one mile south of Highway 680. The visibility of
the subject from Rossmoor Parkway is limited because of surrounding development
and the varying topography of the immediate neighborhood.
118
EASEMENTS AND ENCUMBRANCES: Though a title report was not available for the
subject, the subject is not affected by any significant easements or
encumbrances which affect its operation as a senior housing project. The subject
is impacted by right of way easements along its western portions which allow
joint usage of the parking lot and overall access with The Guardian nursing home
to the immediate west of the subject. The subject also has right of way access
along the Rossmoor Parkway extension.
As noted in the special conditions section of this report, the site was formerly
required to accept 20% "very low and low" income residents as a condition for
the $3,696,000 favorable HUD financing obtained in 1978. This restriction was
reportedly lifted when the subject's current owner purchased the subject in the
1980's. However, the benefit from the remaining term of the favorable financing
was assumed by the current owners.
ZONING: The subject is classified as a limited care complex for ambulatory
senior citizens and is allowed in the PD - a planned development zone (PD 656),
specifically allowing the subject and the adjacent nursing homes. The subject
development was built in 1976 and has been operating on the subject site as a
legal conforming use since that time.
The subject includes up to 96 beds which are currently licensed with the
California Department of Health Services as a residential facility for the
elderly, also known as residential care or assisted living. This licensing
allows the subject to offer nonmedical daily living assistance to these
residents.
EXCESS LAND: None. The subject is fully built out to the developable portions of
its property limits.
119
TAXES AND ASSESSMENTS
Since passage of Proposition 13, or the Jarvis Gann Initiative, in 1978, real
property has been assessed at its 1976 value, trended upward at a maximum rate
of 2% annually, unless there is a transfer of ownership or new construction.
When either of these occur, the property is reassessed at full market value.
Furthermore, Proposition 13 limits annual taxes to 1%, plus a small amount for
bonded indebtedness of the assessed value.
Assessor's Parcel No.: 189-040-045 (Contra Costa County)
Assessed Value 1994-95:
Land $1,478,601
Improvements $4,385,915
Personal Property $ 722,622
----------
Total $6,587,138
==========
1994-95 Tax Rate: 1.0626%
1994-95 Taxes: $83,637.72 (includes $13,642.80 in direct assessments)
Status: Current and paid as due. Our cash flow projections of stabilized
real estate taxes assumes a sale and reassessment of the subject to
market value ($10,100,000) at July, 1995 (does not include value
created by favorable financing).
120
DESCRIPTION OF IMPROVEMENTS
The discussion of the improvements addressed below was accumulated through our
site inspection, a review of limited site plans and through discussions with the
subject's administrator. Detailed architectural drawings were not available.
GENERAL TYPE: The existing main improvement known as Valley View Lodge consists
of one, 1 to 2 story, 125-unit, good quality, Class D retirement apartment
building containing 97,590 square feet of gross building area. The facility
contains 125 units currently configured for 128 beds, including up to 96
licensed assisted living beds. The W-shaped main building improvement fronts the
entry cul-de-sac and a parking lot to the west. A site plan is provided on the
following page.
AGE: The subject improvements were constructed and completed in 1976. Since
1976, the subject has been operating as a congregate senior facility. In the
late 1980's, the subject became licensed by the Department of Social Services to
provide assisted living to residents in 96 beds.
Our site inspection noted a normal amount of wear and tear on a 19 year old
building and no material deferred maintenance. The subject improvement have an
estimated total economic life of 45 years. A chronological and effective age of
19 years suggests a remaining economic life of approximately 26 years.
SIZES: The subject has the following component size and unit mix:
Unit
No. of Size
Unit Type Units S.F. (est.) Total S.F.
--------- ------ ---- ----------
Studios 26 391 10,166
Studios/Alcoves 87 531 46,197
1BR 12 571 6,852
---- ------
Total 125 63,215 (64.8%)
Common Areas/Circulation 34,375 (35.2%)
------
Gross Building Area 97,590
======
STRUCTURAL AND EXTERIOR: The subject improvements are constructed on a level
concrete slab foundation with a 1-story (central entry wing) and 2-story (north
and south wings), wood frame construction under a sloping wood shake roof.
Building exterior consists of stucco, protruding balcony decks and extensive
wood trim.
121
Interior walls are wood frame and painted or wallpapered gypsum board (with wood
handrails in corridors). The main common areas, hallways and room exteriors are
carpeted. Unit baths have vinyl tile. Ceilings in units are painted gypsum board
with common area ceilings and hallways consisting of dropped acoustical tile
with hanging incandescent and fluorescent light fixtures. The entire development
is fully sprinklered with smoke and heat alarms. Units include sliding glass
doors leading to the balconies and patios and sliding windows in aluminum
frames.
MECHANICAL: The development has average lighting and plumbing fixtures. HVAC in
the units consist of individual room heating. HVAC in common areas features hot
water boiler central forced air heating system. The subject also features an
intercom system with paging. The development includes three elevators. Four
stairwells are located throughout the improvement.
INTERIORS: Based on our site inspection, the interiors appear to be functional
for congregate senior apartment use. Unit plans are presented on a following
page. The facility includes 125 apartment units with separate baths. The unit
mix includes 26 small size studios (391 SF), 87 larger studio/alcove units (531
SF) and 12 small one bedroom units (571 SF). Each unit contains a full bath area
with grab bars and a sink with a built-in cabinet, vanity and water closet. Each
unit also contains two emergency pull cords, one each in the bath and living
area. The units also contain a small kitchenette which consists of a sink, two
burners and a half-refrigerator. Each unit includes an outdoor extended iron
rail balcony or open patio.
The focal point of the development is the facility's common areas located on the
centrally located one story ground floor. The facility's main entry area
includes the lobby, main lounge, a reception desk and administrative offices.
The common areas include a card room, theater with stage, exercise room,
activity room, beauty salon and general store. The subject also has four
resident lounges and two day rooms (with larger floor to ceiling windows).
Laundry rooms with washers and dryers for the residents are located on each
floor. The subject also has an employee lounge and restroom and linen closets.
The facility's dining area has a tastefully decorated restaurant atmosphere
located off of the commercial kitchen.
PARKING AND LANDSCAPING: Site parking is located in one open paved parking
areas, west of the development accessed from Rossmoor Parkway extension
cul-de-sac. There are approximately 88 parking spaces (.70/unit) located in the
parking areas (which are shared with the adjacent Guardian nursing home).
Approximately 30% of the site is landscaped with mature trees, flowering
perennials, bushes and grass. Facility landscaping is centered in the open
courtyard surrounded by the southern wing which includes a covered canopy and
seating areas. Concrete walkways surround the building.
Overall site landscaping is above average.
122
SUBJECT PHOTOGRAPHS
Reception Area
Main Dining Room
123
SUBJECT PHOTOGRAPHS
Typical Lounge Area
Auditorium
124
SUBJECT PHOTOGRAPHS
Typical Unit Interiors
125
SUBJECT PHOTOGRAPHS
Typical Interior Courtyard/Walkways
Typical Interior Corridor
126
SUBJECT PHOTOGRAPHS
Main Access Driveway Entry to Subject,
View East
Parking Lot, View North
127
CONCLUSION: In our opinion the subject property's exteriors, common area
interiors, landscaped areas and parking appear average to slightly above average
and competitive for residential retirement uses. The subject is an attractive
project which shows exceptionally well for one that is 19 years old. The
subject's relatively small units are typical of 1970's senior housing
construction. The subject has a more varied unit mix than many projects built in
the 1970's but its units are still smaller and less varied than competitive
projects built in the 1980's. Our site inspection noted no material deferred
maintenance and a good condition reflecting its 19 year old chronological and
effective age.
128
MARKET ANALYSIS
INTRODUCTION
The elderly are by far the fastest growing population segment, whether expressed
in percentage increase or actual number of persons. Although not as well
documented statistically, the elderly have more money than ever before because
of social security, pension programs, savings and the substantial increase in
the market value of their residences. Most of them are active and in reasonably
good health. This increased health and life expectancy lends them to seek life
enriching activities through an independent lifestyle that provides assistance
when needed.
INDUSTRY OVERVIEW
The housing industry for the elderly can be classified by the three major types
of buyers: the active elderly (go-gos), intermediate (slow-gos) and the person
who needs constant care (no-gos). Active retirees want recreational amenities
with the housing they buy. They want a golf course, tennis courts, swimming
pool, walking and bicycle path, saunas and spas. They want to be near good
places to eat and to be able to enjoy a wide range of cultural activities and
travel opportunities.
Intermediate retirees want a congregate-type of lifestyle that allows them
independence yet gives them the opportunity to take part in quiet activities
such as arts and crafts. Retirees in this intermediate classification also will
look for transportation to shopping, banking or medical offices, some mild form
of recreational activities, such as swimming and golf, plus the opportunity to
socialize in a common dining room or lounge area.
Retirees who need constant care are concerned with medical assistance. They will
look for facilities that offer services and conveniences such as residential
care facilities which will make their lives more comfortable. Also, they will
want a medical center where they can go when their health fails. The subject
property would be targeted at the intermediate and less active elderly.
From a real estate and financial perspective, housing for the elderly is complex
to analyze as they usually represent a combination of other businesses. The
major types of homes for the elderly include:
Adult Congregate Living Facilities (ACLF): Specially planned, designed
and managed multi-unit rental housing typically with self contained
apartments. Supportive services such as meals, housekeeping,
transportation, social and recreational activities are usually
provided. In California, these facilities are not licensed.
Assisted Living Facilities (ALF) (personal care or residential): Group
living arrangements that provide staff supervised meals, housekeeping
and personal care (assistance with bathing and medication) and private
or shared sleeping rooms. These facilities are generally licensed and
must meet designated operating standards including minimum staff
requirements. In California, these facilities must be licensed by the
California Department of Social Services, Division of Community Care.
129
Care Facilities (skilled nursing or intermediate care): Skilled nursing
and intermediate care facilities (commonly known as nursing homes) are
both operated under the guidance of a licensed administrator with
licensed nurses and aids providing around the clock nursing care,
generally one step below that offered at an acute care hospital. In
California, these facilities must be licensed with the California
Department of Health Services.
Life Care Complex (life care community, continuing care, campus
complex): A housing development planned, designed and operated to
provide a full range of accommodations and services for older adults,
including independent living, congregate housing and medical care.
Residents may move from one level to another as their needs change.
Life care complexes typically charge a buy-in fee (sometimes
refundable) in addition to a monthly maintenance fee for services. In
California, life care contracts must be approved by the State
Department of Insurance.
Retirement Village: Developments that offer, home ownership and rental
units for older persons. Support services often are available for a
fee.
The subject is a currently existing 125 unit (128 current bed configuration)
licensed assisted living (ALF) facility. This suggests that only 3 of the
subject units are currently configured for 6 semiprivate beds. The subject is
licensed to accept 46 nonambulatory residents (96 assisted living bed licensing
total).
Congregate housing such as the subject is a combination of: a) an apartment
project; b) a hotel offering meals, cleaning and transportation facilities; c) a
social club offering activities; and d) a supporting living environment
providing assisted living amenities (help with bathing, medication, mobility) as
needed. A summary of subject amenities is provided on the following page.
MARKET DEFINITION
Our experience in analyzing congregate housing development indicates that these
facilities have a total market area ranging from a 5 to 30 mile radius from the
site. This area represents a reasonable driving distance for relatives and
friends and also reflects the fact that the elderly do not move great distance
when choosing the congregate housing option. Perhaps more important than a
strict definition of market area based on distance, is the overall character of
the development's environment, whether it is urban, suburban or small
town/rural. In our opinion, the primary market area for the subject site extends
approximately 5 miles outward from the site in all directions. This would
include most of the suburban area of central Contra Costa County including all
of Walnut Creek and Alamo and portions of Pleasant Hill, Concord and Lafayette.
These areas are not only located in close geographic proximity to the site, but
each is a similar, upper middle income bedroom community. This definition of
market area is consistent with the former residences of subject residents. About
35% to 40% of subject residents formerly lived within the nearby Rossmoor
community.
130
RETIREMENT HOUSING SUPPLY
During the course of our appraisal, we have identified those existing and
proposed elderly retirement facilities in the primary market area which may be
considered somewhat competitive to the subject property. Our census of
potentially competitive congregate rental housing facilities impacting the total
market area is presented on the following pages. Photographs of the rent
comparables are illustrated in the Addenda of this report.
Each of the surveyed congregate facilities is a for-profit housing development
offering two or three meals daily, weekly maid service and many recreational
opportunities. Most of the properties surveyed offer licensed assisted living on
an as needed basis. The properties can be characterized as follows:
BOTH CONGREGATE AND ASSISTED LIVING (MOST SIMILAR TO SUBJECT)
1. Byron Park
3. Montego Heights Lodge
4. Kensington Place
5. Chateau Pleasant Hill
11. Villa San Ramon
ASSISTED LIVING ONLY
2. Eden Villa (Alzheimers/heavy care)
6. Family Affair
7. Moraga Royale
8. Diablo Lodge
9. Concord Royale
10. San Ramon Lodge
The subject would be most similar to those projects offering both congregate and
assisted living services although it has an overall quality, age and living
environment comparability to Comparable No. 9 (Concord Royale) which only
accepts the frailer, assisted living resident. Like the subject, this project
was built in the late 1970's and has a predominant studio unit mix.
Of the congregate/assisted projects, the subject would be most similar to the
older projects with more similar unit mixes such as Comparable No. 3 (Montego
Heights Lodge) - a sister ARV project - and Comparable No. 5 (Chateau Pleasant
Hill). Montego Heights Lodge in particular, is similar to the subject in target
market and in the a la carte assisted living program. However, this project has
a more monolithic unit mix and inferior layout than the subject. It is also
located within one block of John Muir Hospital but further from Rossmoor.
Comparable No. 5 (Chateau Pleasant Hill) has a more varied unit mix than the
subject and a slightly superior living environment. The other more comparable
projects surveyed are generally newer projects (Comparable Nos. 1 - Kensington
Place, 3 - Byron Park and 11 - Villa San Ramon) with a more varied unit mix and
a generally superior living environment to the subject. The subject would be
competitively placed in the tier of projects below these newer properties
although it has a strong reputation in the local market and has aged
particularly well.
131
VALLEY VIEW LODGE
CENSUS OF MARKET AREA ACLF/AL FACILITIES
Congregate
(ACLF) Units Assisted Living (AL) Units
Age/ ------------------- -----------------------
Miles Total Monthly Monthly
From Units/ Unit Size- Rental - Rental/ Rental - Semi-
No. Name/Location Subject AL Beds Type S.F. Private S.F. Private Private
- --- ------------- ------- ------- ---- ---- ------- ------- ------- -------
1. Byron Park 1991/ 187/19 Studio 431 $1,575 $3.65 $2,650- N/A
1700 Tice Valley Blvd. 0.4 1BR 614-834 $1,850- $3.00- $3,095
Walnut Creek $2,500 $3.01
2BR 877-1316 $2,600- $2.51-
$3,300 $2.96
2. Eden Villa 7-95/ 36/72 Studio 300 (est.) Not Available $2,450- $1,650-
2015 Mt. Diablo Boulevard 3.5 $2,750 $1,950
Walnut Creek (shared bath)
$2,650-
$2,950
(private bath)
3. Montego Heights Lodge 1978/ 169/192 Studio 296-391 $1,100- $3.58- +$150- +$150-
1400 Montego 2.4 $1,400 $3.72 $1,000 $1,000
Walnut Creek 1BR 687 $1,750 $2.55
SP $ 825-
$ 850
4. Kensington Place 1988/ 176/44 1BR 450-560 $1,885 $3.37- +$300- N/A
1580 Geary Blvd. 3.2 $4.19 $1,000
Walnut Creek 2BR 760-820 $2,830 $3.45-
$3.72
5. Chateau Pleasant Hill 1985/ 112/38 Studio 400 $1,295- $3.24- +$300-$500 N/A
2770 Pleasant Hill Road 3.2 $1,700 $4.25
Pleasant Hill 1BR 500 $1,650- $3.30-
$2,000 $4.00
6. Family Affair Ret. 1975/ 120/160 Studio 450-500 $1,600 $3.20- $2,000- $1,800
1081 Mohr Lane 4.5 $3.56 $2,200
Concord
7. Moraga Royale 1987/ 95/182 Studio 525 Not Available $1,600- $850
1600 Canyon Road 4.8 $2,200
Moraga
Assisted Living (AL) Units
--------------------------------
Reported
No. Name/Location % SSI Occupancy
- --- ------------- ----- ---------
1. Byron Park 0% 72%
1700 Tice Valley Blvd.
Walnut Creek
2. Eden Villa 0% 3%
2015 Mt. Diablo Boulevard (Opened
Walnut Creek 7/95)
3. Montego Heights Lodge 8% 87%
1400 Montego
Walnut Creek
4. Kensington Place 0% 100%
1580 Geary Blvd.
Walnut Creek
5. Chateau Pleasant Hill 0% 99%
2770 Pleasant Hill Road
Pleasant Hill
6. Family Affair Ret. 0% WND
1081 Mohr Lane
Concord
7. Moraga Royale 0% 98%
1600 Canyon Road
Moraga
132
VALLEY VIEW LODGE
CENSUS OF MARKET AREA ACLF/AL FACILITIES
(CONTINUED)
Congregate
Age/ (ACLF) Units Assisted Living (AL) Units
Miles Total Monthly Monthly
From Units/ Unit Size- Rental - Rental/ Rental - Semi-
No. Name/Location Subject AL Beds Type S.F. Private S.F. Private Private
- --- ------------- ------- ------- ---- ---- ------- ------- ------- -------
8. Diablo Lodge 1990/ 118/128 Studio 360 (avg.) $1,795- $4.99- +$300- N/A
950 Diablo Road 5.5 $2,095 $5.82 $1,000
Danville 1BR 490 $2,195- $4.48-
$2,495 $5.09
2BR 658 (avg.) $2,695- $4.10-
$2,895 $4.40
9. Concord Royale 1979/ 120/196 Studio 250 (est.) Not Available $1,200- $850-
4230 Clayton Road 6.5 $1,800 $950
Concord
10. San Ramon Lodge 1991/ 40/60 Studio 219-365 Not Available $2,000- $1,500-
18888 Bollinger Canyon Road 8.6 $2,500 $1,800
San Ramon
11. Villa San Ramon 1992/ 120/120 Studio 400 $1,650- $4.13- $2,750 N/A
9199 Fircrest Lane 8.5 $1,795 $4.49
San Ramon 1BR 500-552 $1,825- $2.85- $2,850 N/A
$1,995 $3.65
Lg. 1BR 700 $2,000- $2.86-
$2,300 $3.29
2BR 850-870 $2,595- $3.05- $3,600 $1,600
$2,795 $3.21
S. Valley View Lodge 1976/- 125/96 Studio 390 $1,375 $3.53 +$150- +$150-
1228 Rossmoor Parkway Alcove 533 $1,750 $3.28 $1,000 $1,000
Walnut Creek 1BR 571 $1,950 $3.42
SP $1,175
Assisted Living
(AL) Units
Reported
No. Name/Location % SSI Occupancy
- --- ------------- ----- ---------
8. Diablo Lodge 0% 100%
950 Diablo Road
Danville
9. Concord Royale 25% 98%
4230 Clayton Road
Concord
10. San Ramon Lodge 0% 86%
18888 Bollinger Canyon Road
San Ramon
11. Villa San Ramon 99%
9199 Fircrest Lane
San Ramon
S. Valley View Lodge 0% 96%
1228 Rossmoor Parkway
Walnut Creek
133
The assisted living projects are generally less directly comparable to the
subject as they target the older, frailer senior exclusively. Of the projects,
as noted Concord Royale would be most similar to the subject. Comparable No. 8 -
Diablo Lodge, is one of the higher quality assisted living projects in the local
market and in the entire region. Comparable No. 2 (Eden Villa) is a recently
opened project (a conventional vacant nursing home) which targets the heavier
care and Alzheimer patient.
Our survey of local jurisdictions noted no other active proposed senior housing
projects which would pose an imminent competitive threat to the subject. The
overall occupancy of the 11 projects surveyed is a strong 95.2% (not including
the recently opened Comparable No. 6 - Eden Villa).
RETIREMENT HOUSING DEMAND
To measure the theoretical size of the subject's target market, we have analyzed
demographic statistics obtained from Urban Decision Systems for the relevant
target area market which extends about 5 miles outward from the subject site. We
obtained income by age population estimates and projections for this area in
1995 and 2000. Our analysis is as follows:
1) Determines the number of households over a minimum age, 75, and minimum
income requirement, over $15,000, from 1995 population estimates and
2000 population projections. These parameters establish the different
scenarios for calculating the market saturation rates;
2) Calculates total market saturation rates required to fill the subject's
128 beds and all other existing competitive senior facilities
(estimated at 1,843 beds);
3) Evaluates the market environment of the subject property given the
calculated saturation rates.
Our experience in comparable markets, indicates the following regarding
saturation rates.
Estimate of Overall
Saturation Rate Market Demand
--------------- -------------------
0 - 10% Lightly Competitive
10 - 20% Moderately Competitive
20 - 30% Heavily Competitive
30%+ Extremely Competitive
Our calculated market saturation rates (near 30%) for the subject market area
suggest a heavily competitive market. Overall, the subject market area can be
characterized as having a large supply of older generation retirement units
serving a very large (due to Rossmoor) and affluent, and growing age and income
eligible senior population. It is important to note that saturation analysis is
only a tool used to measure overall market saturation. It does not consider any
134
potential competitive advantages that a specific facility might offer.
Saturation rates can also be calculated using different factors/scenarios. Our
methodology of calculating market saturation rates is based on our experience in
analyzing the feasibility of numerous congregate senior housing developments.
CONCLUSIONS
Overall, we noted the following regarding the market environment of Valley View
Lodge:
1) The calculated saturation rates suggest a heavily competitive market
environment. However, market area occupancy rates are strong at most
projects and at the subject. This is due to its good location and
reputation which offset its older age, large number of smaller units
and more monolithic unit mix. Considering its age, however, the subject
offers an above average living environment. The overall average
occupancy of all projects surveyed was about 95%. The market's strong
demographics (size, affluence) are countered somewhat by a weak local
economy which makes seniors on fixed incomes more hesitant to consider
the congregate senior housing option and less likely to recognize paper
losses on homes which have declined in value from 1989 peaks;
2) The subject has a current occupancy of 96%, consistent with its recent
history. The subject has established a market position as a well run,
middle to upper middle market project with reasonable rents. The
subject's physical plant though older can compete with the other newer
projects in its market. Most of the locally competitive projects are
newer and have a more varied unit mix than the subject. The subject is
competitively helped by its closer proximity to the Rossmoor senior
subdivision, with its significant concentration of seniors. The two
adjacent nursing homes and medical clinic are also neighborhood assets;
3) The subject is projected to experience a good increase of 10.4%
(6,828/6,183) in the age and income eligible target market in the next
five years;
4) The subject is owned and operated by ARV Housing Group, one of the
leading owner/operators in highly saturated market areas;
5) The subject offers assisted living amenities on an a la carte basis
(three different levels of assisted living care) which is not typical
in the market area (most other projects charge one flat higher rent).
This is a competitive advantage for the subject as residents only need
pay for assisted living amenities when needed and at the level needed.
These specific conclusions are addressed more fully and used to project pro
forma income and expense cash flows in the Income Approach section of this
report.
135
VALLEY VIEW LODGE
SATURATION ANALYSIS
Saturation Rate (1)
------------------- Subject
w/o Subject w/Subject Only
# H.H. (2) (1,843 Beds)(3) (1,971 Beds) (128 Beds)
---------- --------------- ------------ ----------
1995 Estimate
- -------------
75+, $15,000 Income 6,183 29.8% 31.9% 2.1%
2000 Projection
- ---------------
75+, $15,000 Income 6,828 27.0% 28.9% 1.9%
NOTES:
(1) Market saturation rates represent the percentage of total market demand
which is necessary to absorb a) existing or proposed units not including
the subject, and b) existing or proposed units including the subject.
(2) Number of income and age qualifying senior households within 5-mile radius
of site per Urban Decision Systems.
(3) Number of competitive units estimated at 100% of Comparable Nos. 1 to 7,
50% of Comparable Nos. 8 to 11, and 300 units at The Waterford (senior
congregate condominiums).
(4) Evaluation of saturation rates:
Saturation Evaluation of
Rate Market Environment
---------- -----------------------
0% - 10% Lightly Competitive
10% - 20% Moderately Competitive
20% - 30% Heavily Competitive
30%+ Extremely Competitive
136
HIGHEST AND BEST USE
Highest and best use is defined as that use, from among reasonably probable and
legally alternative uses, found to be physically possible, appropriately
supported, financially feasible, and which results in the highest land value.
The highest and best use concept must also give recognition of that use to
community environment and to community development goals, in addition to wealth
maximization of individual property owners.
The highest and best use of the land or site, if vacant and available for use,
may be different from the highest and best use of the existing improved
property. This will be true when the improvement is not an optimum use and yet
makes a contribution to total property value in excess of the value of the land
only. In order to determine the property's highest and best use, it is necessary
to analyze the factors discussed below.
AS VACANT
The site's physical characteristics are similar to those found throughout the
area in terms of size (average), topography (basically flat in its developed
portions), exposure (poor) and access (fair). The total land area is large
enough to support most other types of development and it is not located along a
major thoroughfare. The site is probably too small for a lower density
residential subdivision. Therefore, the site's physical characteristics do not
seem to limit many development alternatives.
The subject site is currently zoned P-D, a specific planned development allowing
the subject. This is consistent with other mixed use development along Rossmoor
Parkway to the east, including a medical clinic and two nursing homes. It is
likely that Walnut Creek would allow many alternate medical office,
institutional and possibly some light residential land uses on the subject site.
The subject's 27.5 units per acre density is misleading due to its small, mostly
studio unit mix. Extreme high density residential or heavy retail land uses are
unlikely for the site. Finally, the site itself is not known to be affected by
significant easements or encumbrances.
In determining which possible use of the land represents the highest and best
use of the site, we have analyzed those physical and legal factors affecting the
site. It is then necessary to analyze not only the feasibility of potential
alternate development but determine which types of these developments is
maximally feasible. Our analysis of the congregate housing market in the area
indicates a crowded local market with generally good occupancies (with some
softness), including the subject's current 96% occupancy. Also, a large increase
in the number of age and income eligible seniors over the next five years
suggests adequate long term demand for well run projects like the subject. The
subject is a profitable project and it is in the middle tier of senior housing
facilities in its market. The subject, if it can be filled, would be more
feasible than alternate residential uses due to its higher margin per unit and
higher density. The subject is also more profitable than almost all possible
institutional land uses. Though few to no senior housing projects were being
built anywhere in California in 1994 (this is beginning to change in 1995), an
owner of the site as vacant would probably develop a senior housing use on the
subject site. Therefore, in our opinion, the highest and best use of the site as
vacant in 1995 is probably to develop a senior housing project on the subject
site.
137
AS IMPROVED
Our experience in comparable projects indicate that a senior project of 128 beds
is large enough to achieve operating economies of scale. Higher densities for
the site would generate difficulties in meeting parking and density requirements
with Walnut Creek.
Considering the factors noted above, the purpose of this appraisal (to value the
subject as is) and because the subject improvements clearly add value over and
above the land alone, we have concluded that the highest and best use of the
site, as improved, is probably as the subject site as built and operating. The
existing improvements and living environment are competitive and functional for
congregate and assisted living uses. The subject's overall quality, unit mix and
unit sizes (though not optimal given their smaller size and limited variety),
common areas, parking and landscaping are average to above average in the local
senior housing market despite their relatively older age.
138
SITE VALUATION
In order to estimate the fair market value of the subject site, a Sales
Comparison Approach is utilized. Recent sales and listings/offers of vacant land
considered somewhat comparable to the subject in location, zoning, and utility
were analyzed. Adjustments are made as necessary for: date of sale, location,
financing terms, physical characteristics such as size, shape, utilities and
topography, and development limitations such as zoning restrictions, easements
and encumbrances.
A number of sales were reviewed in order to determine the market value of the
subject site. We have considered the sales of local vacant land sites with
somewhat comparable land uses, zoning and locations. In general, we noted few
recent vacant land sales in the area due to the lack of recent development
activity. Those sales that were considered most comparable are presented in a
summary grid on a following page and detailed in the Addenda of this report.
Comparable Sale No. 1 is located at 1836 San Miguel Drive, about one and a half
miles northeast of the subject. This 33,106 square foot parcel is currently
being listed for sale at $430,000 or $12.99 per square foot. Although the site
has a commercial-office zoning designation, according to the Walnut Creek
Planning Department, the zoning can be changed to residential and the site is
located in a residential area (a transitional land use). Six townhomes are
planned for the site. The subject's higher density suggests upward adjustment
although its interior cul-de-sac location and smaller parcel size suggests
downward adjustment from the comparable.
Comparable Sale No. 2 is located at 123 Brodia Way, approximately three miles
northeast of the subject. The 49,658 square foot site sold in March, 1995 for
$720,000 or $14.50 per square foot. The site is zoned for low density
residential and several single family lots are available for sale in the
adjacent area. In comparison to the subject, this site requires downward
adjustment for its smaller parcel size and residential neighborhood location and
upward for its less intensive zoning.
Comparable Sale No. 3 and 4 are part of the same larger transaction. Comparable
Sale No. 3 is located along Tice Creek Drive, northwest of Golden Rain Road
inside the retirement community of Rossmoor, about three blocks to the south of
the subject. Comparable Sale No. 4 is located on Tice Valley Boulevard,
southwest of Rossmoor Parkway immediately outside of Rossmoor and about two
blocks to the southwest. Manor Healthcare Corporation, had wanted to build a
skilled nursing facility inside Rossmoor on the site of Sale No. 3. This plan,
however, was derailed by a lawsuit threat from a Rossmoor residents group and
Manor Care agreed to exchange its site with a larger UDC site (UDC had
originally sold the Sale No. 3 site to Manor Care) located outside the gates (on
the site of Sale No. 4). The December, 1994 swap involved the sale of each site
for $1,781,500. Sale No. 4 will be developed with a nursing home. Sale No. 3
will be developed with 25 lower density duplex/triplex units. The nature of the
transaction (a somewhat forced sale) suggests upward adjustment to the subject.
Both sites are also planned for lower density land uses than the subject.
Before adjustment, the sales discussed above indicate a sale price per square
foot range of approximately $8.18 to $14.50. The above adjustments to the
comparable sales can be summarized as follows:
139
VALLEY VIEW LODGE
VACANT LAND SALES
Sale Price
Sale Size-SF Proposed -----------------
No. Location/APN Date Sale Price (Acres) Development SF Unit
--- ------------ ---- ---------- ------- ----------- -- ----
1. 1836 San Miguel Drive Listing $ 430,000 33,106 6 Townhomes $12.99 $71,667
Walnut Creek (0.76)
180-010-029
2. 123 Brodia Way 3/95 $ 720,000 49,658 Low Density $14.50 N/A
Walnut Creek (1.14) Residential
140-170-006-5
3. Tice Creek Drive, 12/94 $1,781,500 185,130 2 Duplexes & $9.62 $71,260
NW of Golden Rain Road (4.25) 7 Triplexes
Walnut Creek
189-130-017-8
4. Tice Valley Boulevard, 12/94 $1,781,500 217,800 Nursing Home $8.18 N/A
SW of Rossmoor Parkway (5.00)
Walnut Creek
189-130-019-4 (Portion)
S. 1228 Rossmoor Parkway - - 198,198 125 Senior - -
Walnut Creek (4.55) Housing Units
189-040-045 gross;
154,638
(3.55)
net
140
Sale Price/
Comp No. SF Material Adjustment
-------- ----------- -------------------
1 $12.99 Downward (list/sale price differential, location, parcel size);
Upward (density)
2 $14.50 Downward (neighborhood, parcel size); Upward (density)
3 $ 9.62 Upward (conditions of sale, density)
4 $ 8.18 Upward (conditions of sale, density)
The overall degree of comparability of these sales to the subject is only fair
reflecting the lack of recent comparable vacant land sales in the immediate
area. Overall, Comparable Land Sale Nos. 3 and 4 are most similar to the subject
in general location, but they were part of a slightly forced transaction and are
planned for a lower intensity land use. Sale No. 2 is similar to the subject in
location but has a less intensive land use. Sale No. 1 is a listing and
therefore is given less weight as it is a less precise indication of value.
After considering the specific location and density of the subject site and the
evidence provided by the adjusted comparables and recent trends in land values,
it is concluded that the fair market value of the fee simple interest for the
subject site as of July, 1995, is at a rate of $12.50 per square foot, or for
the subject's 154,638 net square feet, an overall site value of $1,932,975
($12.50/SF x 154,638/SF) or $15,464 per unit.
141
COST APPROACH
The Cost Approach considers an estimate of the fair market value of the land,
the direct and indirect replacement costs (new) of the improvements,
entrepreneurial profit, and accrued depreciation from all causes. Land value is
taken from the Site Valuation section of this appraisal. Sources for replacement
costs of improvements include: (1) Cost bids or reported actual recent cost of
the subject; (2) Actual costs of recently completed comparable improvements; (3)
Local contractors' opinions; (4) Marshall and Swift Computer Data Base; and, (5)
Marshall and Swift (monthly updated) Cost Manual. Entrepreneurial profit is a
necessary element in the motivation to construct improvements. In estimating any
accrued depreciation, the appraiser takes into consideration: age, condition,
functional utility, detrimental external factors, and any existing leases with
contract rent below fair market (economic) rent. The sum total of land costs,
direct improvement costs, indirect costs and entrepreneurial profit is the
estimated replacement cost new. Subtracting any required depreciation from the
replacement cost new indicates the value by the Cost Approach.
DIRECT COSTS
The estimated building cost per square foot replacement cost new in 1995 for the
subject improvements is derived from the Marshall Cost Data Service (and
comparable projects as a part of total costs) as calculated below:
Class D,
Average Quality
Home for the Elderly
(Sec. 11, Page 17)
--------------------
Base Cost/SF $ 54.16
Sprinkler Adjustment 1.20
HVAC Adjustment (1.20)
----------
$ 54.16
Location Multiplier x 1.23
Time Multiplier x 1.05
----------
Adjusted Base Cost/SF $ 69.95
Square Footage - GBA x 97,590
----------
Adjusted Base Cost $6,826,190
==========
The indicated base rate for the replacement cost new per square foot in 1995 for
the existing improvements is $69.95. Our estimate of the base building cost on a
per square foot basis includes architectural and engineering fees, overall
construction financing cost and operational
142
overhead. They do not include unusual construction and fixtures, loan points,
pre-marketing costs, furniture and city/public utility fees.
In addition to the adjusted base construction for the building improvements, an
allowance for furniture and equipment was included to arrive at total direct
construction costs of the development. The allowance for furniture and equipment
was estimated using an analysis of the Marshall Cost Manual allowance and
industry experience (as shown below) or $2,500 per unit ($312,500 for 125
units).
INDIRECT COSTS
Indirect Costs - In addition to these direct building costs, we have estimated
indirect costs at 7% of total direct building costs. Indirect costs include
legal/accounting/appraisal fees, loan fees, premarketing advertising and
promotion, city/public utility fees and a contingency fund.
The above estimates reflect a replacement cost new (without land or profit) of
$7,773,707 or $79.66 per square foot or $62,190 per unit. This is compared using
an overall reasonableness test (no specific adjustment is made) to other
recently built comparable congregate senior projects as follows:
Total Total
No. of Cost/SF Cost/Unit FF&E
Project Units Location (w/o Land)* (w/o Land)* Unit
- ------- ------ -------- ---------- ---------- ----
Windsor ALF 149 Windsor $79.91 $84,117 $2,516
Park Ridge 93 Vallejo $79.40 $71,138 $2,688
Palm Court 100 Culver City $97.41 $84,000 $3,000
*Includes FF&E, shown separately for comparison purposes.
The estimated replacement cost new for the subject is within the lower end of
the range of the costs incurred at these similar projects on a square foot basis
and below the range on a per unit basis which is reconcilable given the
subject's smaller units sizes, more modest quality and predominant studio unit
mix.
Finally, an entrepreneur or developer will typically expect to be compensated
for the time, money, and risk expended in bringing a project to a completed
income producing unit. Profit typically ranges from 10% to over 25% of the total
construction and land costs, depending on the type of property, anticipated
absorption or stabilization period, risk, and the size of the project. A modest
allocation of 15% for entrepreneurial profit or toward the middle of the range
is considered appropriate for the subject given that the highest and best use of
the subject as vacant in 1995 is to probably develop a senior housing project
given the subject's competitive position and crowded local market conditions.
143
DEPRECIATION
Our site inspection noted no material physical curable, functional or economic
depreciation. We did, however, note the following form of depreciation.
Physical Incurable Depreciation - An amount for physical incurable depreciation
(or the normal wear and tear on improvements as they age) is appropriate
considering the subject's 19 year chronological and effective age, calculated as
follows:
Direct Building
Cost FF&E
--------------- ----
Base Cost New $6,826,190 $ 312,500
Plus: Indirect Cost Allocation x 1.07 x 1.07
Plus: Profit Allocation x 1.15 x 1.15
---------- ----------
Depreciable Base $8,399,627 $ 384,531
Depreciation Estimate (per MVS) 28% 50%
---------- ----------
Total Physical Incurable Depreciation $2,351,896 $ 192,266
========== ==========
Total $2,544,162
==========
The depreciation percentages are based on our site inspection and Marshall
Valuation estimates considering the subject's current 19 year old effective age
(5 years for FF&E considering ongoing replacement) and 45 year old total
economic life (10 years for FF&E). Physical incurable depreciation must be
deducted from estimates of cost new to arrive at an as is valuation.
SUMMARY
Our estimate of value by the Cost Approach is summarized on the following page
with an indicated value conclusion as is, in July, 1995 of $8,618,522, called
$8,625,000.
144
VALLEY VIEW LODGE
COST APPROACH CALCULATION (CALCULATOR METHOD)
Total Land Value (154,638 Net SF at $12.50/SF) $ 1,932,975
Direct Building Costs
Building Cost $6,826,190
Furniture & Equipment
(125 Units at $2,500/each) 312,500
-----------
Total Direct Building Costs $ 7,138,690
-----------
Total Direct Building and Land Costs $ 9,071,665
Indirect Costs - 7% $ 635,017
------------
Total Construction and Land Costs $ 9,706,682
Plus Entrepreneurial Profit at 15% $ 1,456,002
-----------
Total Cost New (Including Land) $11,162,684
Less Depreciation
Physical Curable 0
Physical Incurable ($2,544,162)
Functional Curable 0
Functional Incurable 0
External Obsolescence 0
------------
Total Depreciation ($ 2,544,162)
-----------
Indicated Value, Cost Approach, As Is $ 8,618,522
===========
Rounded to $ 8,625,000
145
INCOME APPROACH
The Income Approach is based upon the economic principle that the value of a
property capable of producing real estate income is the present worth of
anticipated future net benefits. The net income projection is translated into a
present capital value indication using a capitalization process. There are
various methods of capitalization that are based on inherent assumptions
concerning the quality, durability, and pattern of the income projection.
Our Income Approach analysis applies an overall capitalization rate to the
subject's projected net income over the next 12 months. This method was
considered appropriate as the subject is currently operating at a stabilized
cash flow (occupancy and expenses). A discounted cash flow model was not
considered of primary usefulness in valuing the subject for the following
reasons:
1) buyers of properties like the subject typically do not use discounted
cash flow analyses;
2) because the subject is a stabilized property, a discounted cash flow
model would simply be inflating revenues and expenses at a fixed rate
and then canceling out the inflation estimate using an appropriate
discount rate. In other words, if properly applied, a discounted cash
flow analysis would arrive at the same value estimate as applying an
overall capitalization rate methodology.
Net income is calculated by subtracting a vacancy and credit allowance and all
fixed and operating expenses from the indicated gross income. The methods
utilized to estimate gross income, vacancy, expenses and an overall
capitalization rate are discussed in detail in the following paragraphs.
PROJECTION PERIOD
In our analysis of the subject's net income, we have utilized a projection
period of 12 months (7/95 to 6/96) which reflects a stabilized cash flow and
occupancy level. Based on this premise, the owner of the property will enjoy the
net proceeds of sale (reversion) at July, 1995 based on the projected July, 1995
to June, 1996 net income. The theory is that the investor purchasing the
property in July, 1995 would be more interested in the anticipated net income in
their first year of ownership than they would be in the previous year's income
prior to their ownership.
POTENTIAL GROSS ANNUAL INCOME
In estimating the potential gross annual income for the subject property over
the projection period, we have reviewed the current rent roll and prepared our
own survey of the properties considered to be most competitive and comparable to
the subject. This survey was presented in the Market Analysis section of this
appraisal and summarized on a following page.
The operators of the subject property have achieved the rental census and
occupancy as summarized on the following page. The July, 1995 census reveals an
occupancy of 96.1% or 123 beds out of a maximum current configuration of 128
beds.
146
VALLEY VIEW LODGE
SUMMARY OF SUBJECT RENT CENSUS at 6/21/95
Private-1BR Private-Studio Semi-Private
(Units) (Units) (Beds) Total
Number Units/Beds - Rented 9 108 6 123 (96.1%)
Rent Range $1,925-$1,950 $1,375-$1,750 $1,062-$1,175 $1,062-$1,950
Rent Average $1,942 $1,673 $1,142 $1,667
Potential Total Rent-Rented $209,700 $2,168,700 $82,200 $2,460,600
Number Units/Beds - Vacant (1) 1 4 - 5 (3.9%)
Rent Range $1,950 $1,750 - $1,750-$1,950
Rent Average $1,950 $1,750 - $1,790
Total Potential Rent-Vacant $23,400 $84,000 - $107,400
Total Units/Beds 10 112 6 128 (100%)
Gross Potential Rent-Total $233,100 $2,252,700 $82,200 $2,568,000
Per Unit/Bed $1,943 $1,676 $1,142 $1,672
NOTES:
(1) Vacant units include:
Private 1BR - Unit 125 (1 Unit);
Private Studio - Units 123, 133, 143, 150 (4 Units)
(2) Subject has no SSI residents.
147
Our review of the subject's rent roll revealed a relatively variable range of
rentals with several units having different rents. Discussions with the current
operator noted that individual monthly rents were a function of the unit
location, when the resident entered the subject and negotiation of the rent when
entered. All SSI rents are fixed by governmental agency at $691 per month and
not market determined.
The comparison of the subject rents (with and without the average assisted
living surcharge) to the market area projects surveyed accumulates the monthly
rental of all facilities, the average of the 11 projects surveyed and the most
comparable projects to the existing Valley View Lodge. Of the projects surveyed,
Comparable Nos. 3 - Montego Heights Lodge, 5 - Chateau Pleasant Hill and 9 -
Concord Royale (assisted living only) would be most similar to the subject in
age, scale, amenities, quality and unit mix.
Overall, the subject's one bedroom, studio and semiprivate room rents (with and
without the assisted living surcharge) are within the range of the most
comparable properties and near (within 5%) the averages (for both congregate and
assisted living) of all facilities. Congregate semiprivate living is generally
not offered at other projects (with the exception of the subject's sister
facility Montego Heights Lodge). Because the subject offers a la carte pricing
for its assisted living amenities, residents can effectively choose their rent
level (the assisted living surcharge) as their living assistance needs vary or
change.
In our opinion, the most compelling evidence that the subject's rents are market
rents (and not above or below) is the subject's recent occupancy history and its
current occupancy, which is 96% at the current rents. The subject's rents are
appropriate given its older age, limited unit mix and good location.
Therefore, given the above discussion, in our opinion, the subject's current
monthly average rents represent market rental rates and are used in our pro
forma estimate of income and expenses shown on a following page. All subject
rents (the average per unit/bed type noted above) are forecast to increase 2%
during the 7/95 to 6/96 projection period, reflecting market conditions and the
subject's history. The 2% estimate in the next 12 months represents an average
4% rent increase applied at each resident's move-in anniversary date which are
assumed to occur evenly over the next 12 months. SSI rates are conservatively
forecasted to remain at current levels in the next 12 months. Our cash flow
estimates are shown gross or before a vacancy and collection factor.
The above rents are base rents for unlicensed congregate living services. This
rent does not include assisted living surcharges which are billed to residents
on an a la carte basis. Currently, the subject charges for these extra amenities
on a case by case basis with an approximate average of $572 extra per month for
medication monitoring, help with bathing and doing personal laundry. Currently,
about 52 residents pay for living assistance at an approximate average of $575
extra rent per month. Our cash flow projections for the subject estimate a
stabilized 43% gross utilization (55 beds gross) of assisted living amenities at
stabilization. This estimate incorporates the current additional licensing of 40
assisted living beds and an almost immediate increase in assisted living
utilization among current residents. The gross assisted living surcharge income
is estimated as follows:
148
VALLEY VIEW LODGE
COMPARATIVE RENT ANALYSIS
ACLF - CONGREGATE RENTS
Private - 1BR Private - Studio
---------------------------------- ----------------------------------
Comp. No. Monthly Rent Comp. No. Monthly Rent
--------- ------------ --------- ------------
1 $1,850-$2,500 1 $1,575
2 $2,195-$2,495 3* $1,100-$1,400
3* $1,750 5* $1,295-$1,700
4 $1,885 8 $1,795-$2,095
5* $1,650-$2,000 11 $1,650-$1,795
8 $2,195-$2,495
11 $1,825-$2,300
Range $1,650-$2,500 $1,100-$2,095
Average $2,063 $1,598
AL - ASSISTED LIVING RENTS
Private - 1BR Private (Studio) Semi-Private
------------------------------ ------------------------------- -----------------------------
Comp. No. Monthly Rent Comp. No. Monthly Rent Comp. No. Monthly Rent
--------- ------------ --------- ------------ --------- ------------
1 $3,300 1 $2,850 1 $2,150-$2,850
3 $2,200-$2,300 2 $2,450-$2,950 2 $1,650-$1,950
4 $2,185-$2,885 3* $1,550-$1,850 3* $1,275-$1,563
5* $1,950-$2,500 5* $1,595-$2,200 5* $2,495-$3,495
6 $2,000-$2,200 7 $1,600-$2,200 6 $1,800
8 $2,495-$3,495 8 $2,095-$3,195 7 $850
11 $2,850 9* $1,200-$1,800 9* $850-$950
10 $2,000-$2,500 10 $1,500-$1,800
11 $2,750 11 $1,600
Range $1,950-$3,495 $1,200-$3,195 $850-$3,495
Average $2,607 $2,243 $1,724
Private - 1BR Private - Studio Semi-Private
------------- ---------------- ------------
Subject Rented Beds -
Subject Range $1,925-$1,950 $1,375-$1,750 $1,062-$1,175
Subject Average $1,942/$2,517** $1,673/$2,248** $1,142/$1,717**
(9 Units) (108 Units) (6 Beds)
Subject Vacant Beds -
Subject Range $1,950 $1,750 -
Subject Average $1,950/$2,575** $1,750/$2,325** -
(1 Unit) (4 Units)
*Comparable Nos. 3 - Montego Heights Lodge; 5 - Chateau Pleasant Hill; and 7 -
Concord Royale are most similar to the subject.
**Includes average assisted living surcharge of $575 per month.
149
Avg. Surcharge/ Resident Projected
Period Month/Bed Utilization Annual Income
------ --------------- ----------- -------------
at 6/95 $572 52 (net) -
at 7/95 to 6/96 $575 70 (gross) $483,000
In addition to total potential gross room revenue, we have included
miscellaneous income at 1.0% of effective gross income reflecting historical
receipts for guest meals, processing fees, extra services to residents, and
beauty shop income.
VACANCY AND COLLECTION LOSSES
Our cash flow projections deduct a total vacancy and collection loss in the
stabilized projection period as follows:
Average Average
Occupancy Vacancy
--------- -------
As Is at 6/95 96.1% 3.9%
7/95 to 6/96 (Stabilization) 95.0% 5.0%
The above estimate of stabilized occupancy/vacancy is meant to incorporate 121.6
residents or an occupancy/vacancy of 95.0% (121.6/128). This conclusion is
slightly lower than the current occupancy (123 beds) but is consistent with the
subject's actual recent occupancy trends, the subject's current higher average
of residents, long term occupancy/unit turnover and operator projections. The
estimated market vacancy factor (5% to 8%) reflects the subject's occupancy
history and current occupancy, discussions with the current operator, the
subject's competitive position and local market conditions as reflected in the
occupancies at similar projects in the market. The subject's market position (an
older project in a crowded local market) and large number of smaller units
mitigate against a lower stabilized vacancy estimate (or higher occupancy).
OPERATING EXPENSES
In determining pro forma estimates of operating expenses, we have primarily
relied on the specific expense histories (1993, 1994, 4 months ending 4/95) and
budget (1995) of the subject property as summarized on the following page and
the experience at comparable projects. The expenses enumerated below would be
those of a typical operator at the subject. We have summarized our expense
estimates as follows:
Real Estate Taxes - Real estate taxes are estimated to reflect an assumed sale
of the subject property and a reassessment at current market rates at July, 1995
($10,100,000 times the tax rate of 1.0626% plus approximately $13,643 in direct
assessments). This real estate tax expense reflects taxes that would have to be
incurred by a buyer of the subject wherein the subject would be reassessed to
market value;
150
VALLEY VIEW LODGE
HISTORICAL INCOME AND EXPENSE
Historical
--------------------------------------------- Operator
4 Months Goal
Year Ending Year Ending Ending 1995 Budget
Revenues 12/93 12/94 4/30/95 Annualized 1995
- -------- ------------ ------------- --------- ---------- ------
Rental Income $ 2,337,333 $ 2,456,025 $ 831,496 $ 2,494,488 $ 2,507,813
Assisted Living Income 231,250 321,567 123,447 370,341 457,500
Non-Operating Revenue $ 32,024 $ 35,709 $ 9,071 $ 27,213 $ 38,338
----------- ----------- --------- ----------- -----------
Total Revenues $ 2,600,607 $ 2,813,301 $ 964,014 $ 2,892,042 $ 3,003,651
Expenses (1)
- ------------
Real Estate Taxes $ 75,876 $ 82,430 (2) (2) $ 83,092
Insurance 16,912 22,500 (2) (2) 25,276
G&A 45,320 57,592 (2) (2) 55,990
Utilities 159,499 166,783 (2) (2) 162,390
Payroll/Benefits 717,863 798,708 (2) (2) 850,728
Maintenance 69,041 68,679 (2) (2) 71,520
Activities 13,826 11,965 (2) (2) 12,750
Marketing 19,051 16,848 (2) (2) 20,936
Laundry & Linen 12,571 10,195 (2) (2) 14,925
Dietary 178,270 183,906 (2) (2) 183,819
Supplies 42,555 36,469 (2) (2) 34,800
----------- ----------- ---------- ------------- -----------
Total Operating Expense $ 1,350,784 $ 1,456,075 $ 496,506 $ 1,489,518 $ 1,516,226
(51.9%) (51.8%) (51.5%) (51.5%) (50.5%)
Net Operating Income $ 1,249,823 $ 1,357,226 $ 467,508 $ 1,402,524 $ 1,487,425
=========== =========== ==== ===== =====
NOTES:
(1) Does not include management fee or replacement reserves.
(2) Detail not available.
151
Insurance - estimated at 1.0% of effective gross income, reflecting typical
charges for liability/fire insurance, historical costs incurred, and the fixed
nature of this expense;
Management - estimated at 5% of effective gross income reflecting the current
typical or average industry charge which would be appropriate for the subject
considering its average complexity of operation;
General and Administrative - estimated at 10% of effective gross income;
representing additional on site costs incurred to manage the subject including
salaries and benefits for the administrator and assistants and all miscellaneous
costs to operate the subject (office supplies, miscellaneous rentals);
Utilities - estimated at 6% of effective gross income, which is consistent with
historical costs incurred. Includes all common area and unit utility costs
(telephone, electric, gas, water, sewer);
Maintenance - estimated at 3% of effective gross income, including all
maintenance/security salary and supplies (including land maintenance and pest
control), derived from historical expenses;
Activities/Transportation - all social/recreational service costs including
salaries and supplies (including van service) are estimated at 2% of effective
gross income;
Marketing - all advertising, marketing and sales expenses are estimated at 2% of
effective gross income. This allocation reflects the costs to a typical operator
considering the locally competitive market;
Housekeeping - estimated at 4.5% of effective gross income to include salaries,
supplies, for both an internal laundry and linen service and housekeeping and
consistent with historical costs incurred;
Dietary - estimated at anticipated dietary costs to a typical operator or $8.50
per day per resident (121.6 occupied beds x $8.50/day x 365 days). This estimate
includes all dietary related salaries and benefits and cost of food. These
estimates are within current industry averages and historical costs incurred;
Personal Care - estimated at 8.0% of effective gross income to include all
salaries and supplies necessary to provide assisted living services to
approximately 55% of the residents (about $9.73 per resident day for 67
residents);
Replacement Reserve - estimated at 15% of the estimated furniture and equipment
cost new ($312,500 or $2,500 per unit) to include the annual reserve necessary
to replace furniture and equipment and other short lived capital items
(carpeting, painting). The stabilized estimate of $46,875 is equal to 1.6% of
the estimate effective gross income.
As shown, total stabilized expenses (not including management fees and reserves)
to a typical operator accumulate to 52.6% of effective gross income or $12,860
per occupied bed (121.6 beds). This percentage is lower than typical because of
the subject's high revenue base caused
152
in part by the more modest semiprivate census (and no lower rent SSI's). A
comparison to similar congregate/assisted living properties before management
fees and reserves illustrates the following:
Inflated
Stabilized Per to 1995
Location Expense Ratio Resident/Yr. at 4%/Yr.
-------- ------------- ------------ --------
10 ARV Properties California 61.7% $ 9,782 (1994) $10,173
13 Angeles
Housing Properties National 56.6% $ 8,966 (1993) $ 9,698
Greenhills Millbrae 55.7% $ 8,234 (1992) $ 9,262
Meadows Napa 56.3% $ 8,418 (1992) $ 9,469
Country Inn Fremont 52.5% $ 7,718 (1992) $ 8,682
Westmont Santa Clara 57.7% $ 9,520 (1992) $10,296
Canyon Hills Club Anaheim 61.2% $11,918 (1994) $12,395
Courtyard San Marcos 51.6% $ 9,181 (1993) $ 9,930
6 Facility Averages 55.8% $10,006
Subject - 1993 Historical 51.9% $11,164
Subject - 1994 Historical 51.8% $12,034
Subject - 1/95 to 4/95 Historical 51.5% $12,310
Subject - 1995 Budget 50.5% $12,531
Subject Projected (7/95 to 6/96) 52.6% $12,860
As illustrated, the projected expenses for the subject are above the average of
the expense histories of the projects listed above and above the averages of 10
other ARV facilities. The subject will always have slightly lower expenses on a
percentage of income basis because of its higher revenue base (limited
semiprivate and no SSI beds) and higher on a per patient basis due to the
location within a market area of higher operating costs/rents and its high
assisted living utilization. Our projections consider the experience at the
comparable properties and historical costs incurred.
On the following page, we have illustrated average annual operating costs per
unit as accumulated in a recent national survey of operating expenses for
various types of senior facilities including assisted living. The survey
indicated a median annual cost per unit of $10,577 before management fees
($11,541 total less $964 in management fees). This compares to our per unit
estimate for the subject of $12,510 ($1,563,746/125) in the next 12 months.
Finally, a reconciliation of our adjusted period one (7/95 to 6/96) projected
expenses to 1995 actual annualized expenses illustrates the following:
153
Actual Total Expenses (1/95 to 4/95 Annualized) $1,489,518
==========
Operator Budget (1995) $1,516,226
==========
Projected Total Expenses Per SLVS (7/95 to 6/96) $1,759,224
Less: Management Fees ($ 148,603)
Less: Replacement Reserves ($ 46,875)
----------
Adjusted Projected Total Expenses (7/95 to 6/96) $1,563,746
==========
Difference
(over 1995 actual, reflects increase in property taxes,
assisted living utilization, inflation) +5.0%
(over 1995 budget, reflects increase in property taxes) +3.1%
CAPITALIZATION PROCESS
Because Valley View Lodge is being appraised as of July, 1995 wherein it has
reached a stabilized cash flow, we have utilized a procedure where the
stabilized net income for the period of July, 1995 to June, 1996 is capitalized
at a rate of 12.0% to get an indicated total property value at July, 1995. This
calculation is shown on a following page.
We have been involved in the analysis and valuation of numerous retirement
facilities around California which have generally exhibited overall
capitalization rates ranging from 11% to 15%. These are illustrated in sales of
comparable facilities in the Sales Comparison Approach of this report and are
summarized as follows:
Comparable Indicated
Sale No. Property Cap Rate
-------- ---------- ---------
1 Oak Tree Villa 12.3%
2 El Camino Gardens 11.2%
3 Casa Sandoval 9.0%
4 Lomita Lodge 12.2%
5 Carson Oaks 12.4%
6 Park Ridge 11.3%
Range 9.0%-12.4%
Average 11.4%
25 Facility Average 12.5%
154
In April, 1995, Senior Living Valuation Services, Inc. conducted the second
annual survey of close to 300 participants in the senior housing industry
regarding their investment criteria or perception of criteria used in evaluating
different types of senior housing properties. The investment criteria survey
polled included capitalization rates, discount rates and returns on equity. A
copy of this survey is provided in the Addenda of this report. The survey
indicated a capitalization rate range of 9% to 16% and an average of 12.1% for
assisted living facilities. Though the survey is not definitive, it does provide
some market evidence of the investment criteria being used (or perceived to be
used) by industry professionals.
Another method of estimating a capitalization rate is the band of investment
weighted average technique. If the available mortgage terms are known, the debt
service or mortgage constant can be calculated, and if the equity dividend rate
required to attract equity capital is known or can be estimated, the overall
rate applicable in direct capitalization can be computed. Available mortgage
terms are 70% of value at 10.0% interest with an amortization term of 20 years
reflects market terms based on our experience of specific financing transactions
and recent national surveys of financing parameters for senior housing
properties. Based on these terms, the mortgage constant is .1158. The equity
dividend rate required to attract equity capital for properties similar to the
subject is approximately 15%. The indicated overall capitalization rate using
this approach is:
Band of Investment
Portion Weighted
of Value Rate Contribution
-------- ---- ------------
Mortgage 0.70 x .1158 .0811
Equity 0.30 x .15 .0450
-----
1.0 x Overall Rate .1261
OAR 12.61%
These sources of capitalization rates can be summarized as follows:
Indicated
Cap Rates
---------
6 Detailed Sales 11.4%
25 Statewide Sales 12.5%
SLVS Investment Survey 12.1%
Band of Investment 12.61%
Based upon the current characteristics of the subject, namely, its overall
average to slightly above average cash flow risk as reflected in its higher
projected stable occupancy (about 95%), higher average age and cash flow (no SSI
beds, all private pay beds) and giving weight to the subject's very high income
per bed, which is derived from the subject's established niche as a middle
155
market, good quality assisted living project in the area, and considering the
affluent local market and sales in the region in the recent past, we have
concluded that 12.0% or toward the middle portion of the approximate range is an
appropriate capitalization rate for the subject property.
Though the subject has established a strong competitive niche, is a very well
maintained property for its age and is located close to Rossmoor (all factors
suggesting a lower cap rate), its very high income per bed and indicated sale
price ($80,800/unit), almost 20% above the indicated sale price of any other
comparable California sale in the 1990's, suggest that a buyer, in our opinion,
would moderate any purchase offer to be more consistent with the recent sale of
similar properties in California and to compensate him for the greater
uncertainty of ownership at this higher price (cash flow risk, resale ability).
This increased uncertainty and the probable smaller pool of potential buyers at
this price level, both support an upward adjustment in estimating an appropriate
capitalization rate for the subject.
SUMMARY
Our estimate of value by the Income Approach is summarized on the following page
and produces an indicated value for the subject property as is, at July 14, 1995
of $10,106,925, rounded to $10,100,000 ($80,800/unit).
156
VALLEY VIEW LODGE
PRO FORMA INCOME/EXPENSE & CAPITALIZATION
Projected
Stabilized
(7/95-6/96)
-----------
Average Occupancy (All Beds) 95.0% (121.6 Beds)
Average Net Rental (All Beds) $1,705
Potential Gross Rent Income -
1BR Private - 10 Units at $1,982/Mo. Avg. $ 237,823
Studio Private - 112 Units at $1,710/Mo. Avg. 2,297,595
Semiprivate - 6 Beds at $1,165/Mo. Avg. $ 83,868
-----------
Potential Gross Rent Income $ 2,619,286
Plus: Assisted Living Surcharges (70 Beds at $575/mo.) $ 483,000
Plus: Miscellaneous Income (1% of PGRI) $ 26,193
-----------
Potential Gross Income $ 3,128,479
Less: Stabilized Vacancy & Collection Losses - 5% ($ 156,424)
-----------
Effective Gross Income $ 2,972,055
Expenses - % of EGI
Real Estate Taxes - $ 120,966
Insurance 1.0% 29,721
Management 5.0% 148,603
G&A 10.0% 297,206
Utilities 5.5% 163,467
Maintenance 3.0% 89,162
Activity & Trans. 2.0% 59,441
Marketing 2.0% 59,441
Housekeeping 4.5% 129,318
Dietary $8.50/PRD 377,264
Personal Care 8.0% 237,764
Replacement Reserves - $ 46,875
------------
Total Expenses $ 1,759,224
(59.2%)
Stabilized Net Operating Income $ 1,212,831
Capitalization Rate .12
--------------
Capitalized Value $10,106,925
======
Called $10,100,000
Per Unit $ 80,800
157
SALES COMPARISON APPROACH
The Sales Comparison Approach is a method of comparing the subject property to
recent sales and/or listings of similar types of properties located in the
subject or competing areas. Each of these sales must be analyzed to establish
estimate elements of comparability. The reliability of this technique depends on
1) the degree of comparability between the subject and the sales properties; 2)
the length of time since the sales were consummated; 3) the accuracy of the
sales data; and, 4) the absence of unusual conditions affecting the sale.
On the following page, we have included 25 sales of congregate senior housing
properties which can be considered somewhat similar to the subject. The purpose
of including this listing is to provide the reader with some context of western
US senior housing sales beyond those specifically discussed below. This
additional information can be helpful because of the special purpose nature and
general illiquidity of the senior housing market. Some of the sales in the last
18 months represent REO's. Some project buyers present in today's market are
still "bottom fishing" where distressed properties can be purchased at
substantial discounts from replacement cost. However, these buyers have a
shrinking supply of properties available to choose from. This has resulted in an
overall trend of decreasing cap rates (higher sale prices). Those more recent
transactions considered most comparable to the subject are summarized on the
following page and discussed in greater detail in the Addenda of this report.
The sale prices noted below are discussed and reported on a sale price per unit
(total going concern) basis.
Comparable Sale No. 1 is Oak Tree Villa in Scotts Valley which just recently
sold in June, 1995 for $11,900,000 or $58,900 per unit. The 202
congregate/assisted living project, built in 1988 was only 72% occupied at the
date of sale with an indicated cap rate at a full occupancy of 12.3%. The
project has a high quality physical plant although it is located in a relatively
less densely populated area (20 miles south of Silicon Valley; about 5 miles
north of Santa Cruz). 20% of the units of this project are allocated to low
income (HUD) residents.
Comparable Sale No. 2 is El Camino Gardens in Carmichael which sold in May, 1995
for a contracted price of $9,350,000. An estimated $650,000 in deferred
maintenance makes the effective sale price of the project approximately
$10,000,000 or $34,965 per unit. This 286 ACLF/112 ALF, 1984 built project, was
82% occupied at the time of sale and has an average physical plant. The property
had an indicated cap rate at a stabilized occupancy of 11.2%. The property was
purchased by entities affiliated with the subject owner (ARV Housing). The lower
cap rate of this sale is partially explained by the buyer's plans to
substantially upgrade the property in order to increase the assisted living
census.
Comparable Sale No. 3 is the February, 1995 sale of Casa Sandoval which sold at
auction for $15,000,000 or $63,205 per unit. The 1989 built, Hayward project
includes 238 total units. The property was only 81% occupied at the sale date,
reflecting a slightly forced sale due to the financial difficulties of the prior
owner. The property was underperforming at the date of sale and the buyer plans
an aggressive conversion of many units of the project to assisted living. The
overall quality of this project is average despite its newness. The indicated
cap rate of the sale has been estimated at a low 9.0% at a stabilized occupancy
(before consideration of any assisted living conversion).
158
WESTERN US ACLF/AL SENIOR HOUSING SALES SUMMARY
LAST 24 MONTHS
Gross Expense
Inc. Ratio
No. Facility Name Location Age Units $/Unit/Mo (%) Date
- --- ----------------------- ------------------ ----- ----- --------- ------- ----
1. The Highlander Seattle, WA 1979 121 $1,066 55.0% 6/93
2. Almond Avenue Orangevale, CA 1987 39 $1,598 65.2% 7/93
3. Summerfield Tigard, OR 1980 155 $1,100 60.0% 8/93
4. Renton Villa Renton, WA 1983 78 $1,366 66.7% 8/93
5. Sherwood Villa Tacoma, WA 1981 98 $1,328 69.0% 8/93
6. Celeste Villa Modesto, CA 1975 81 $1,080 72.5% 10/93
7. Springs of Napa Napa, CA 1986 102 $1,332 55.0% 11/93
8. Summerhill Puyallup, WA 1987 96 $1,241 59.4% 2/94
9. Chula Vista Inn Chula Vista, CA 1975 112 $1,034 75.0% 6/94
10. Villa San Marcos San Marcos, CA 1986 100 $1,191 65.0% 6/94
11. Camlu Phoenix, AZ 1979 88 $1,153 65.0% 6/94
12. Gold Star Manor Fullerton, CA 1985 80 $1,146 70.0% 6/94
13. Hacienda de Monterey Palm Desert, CA 1989 180 $1,813 65.8% 7/94
14. Park Ridge Vallejo, CA 1991 93 $1,632 60.0% 7/94
15. Carson Oaks Stockton, CA 1989 76 $1,462 60.0% 7/94
16. Villa Ocotillo Scottsdale, AZ 1973 102 $1,242 60.0% 9/94
17. Lomita Lodge Ojai, CA 1970 26 $1,999 75.0% 12/94
18. Brea Residential Brea, CA 1990 98 $1,377 67.0% 1/95
19. Whittier Retirement Whittier, CA 1973 72 $1,187 67.0% 1/95
20. Canyon Hills Club Anaheim, CA 1989 212 $1,661 67.1% 2/95
21. Casa Sandoval Hayward, CA 1989 238 $1,346 65.0% 2/95
22. Valley Crest Apple Valley, CA 1985 37 $1,600 65.0% 2/95
23. Amaryllis Court Anaheim, CA 1969 33 $1,391 75.0% 3/95
24. Fulton Villa Stockton, CA 1973 76 $ 763 72.1% 3/95
25. Oak Tree Villa Scotts Valley, CA 1988 202 $1,399 56.8% 6/95
Low 1969 26 $ 763 55.0%
High 1991 238 $1,999 75.0%
Low (minus 2 lowest) 1973 37 $1,066 56.8%
High (minus 2 highest) 1982 104 $1,340 65.3%
Average: 1983 110 $1,330 64.9%
Sale
Price
No. Facility Name (000) $/Unit OAR $/SF GIM
- --- ----------------------- ------- -------- --------- -------- ---
1. The Highlander $ 5,200 $41,322 13.4% $52.73 3.36
2. Almond Avenue $ 2,100 $53,864 12.4% $57.00 2.81
3. Summerfield $ 6,550 $42,532 13.2% $80.84 3.20
4. Renton Villa $ 3,000 $38,462 14.2% $46.51 2.35
5. Sherwood Villa $ 2,800 $28,571 17.3% $45.67 1.79
6. Celeste Villa $ 1,900 $23,457 13.7% $32.75 1.81
7. Springs of Napa $ 6,300 $61,765 11.7% $69.23 3.86
8. Summerhill $ 5,500 $57,292 10.5% $62.74 4.40
9. Chula Vista Inn $ 2,675 $23,884 13.0% $41.10 1.92
10. Villa San Marcos $ 3,951 $39,510 12.7% $73.17 2.76
11. Camlu $ 3,800 $43,182 11.2% $83.66 3.12
12. Gold Star Manor $ 2,880 $36,000 11.5% $128.34 2.62
13. Hacienda de Monterey $ 7,250 $40,278 18.5% $41.36 1.85
14. Park Ridge $ 5,785 $62,204 11.3% $68.10 3.54
15. Carson Oaks $ 4,200 $55,263 12.4% $66.95 3.23
16. Villa Ocotillo $ 3,500 $34,314 14.9% $43.34 2.30
17. Lomita Lodge $ 1,350 $51,923 12.2% $135.00 2.06
18. Brea Residential $ 4,800 $48,980 11.1% $84.24 2.96
19. Whittier Retirement $ 2,875 $39,937 11.8% $75.16 2.80
20. Canyon Hills Club $13,450 $63,443 10.3% $65.92 3.18
21. Casa Sandoval $15,000 $63,025 9.0% $69.23 3.90
22. Valley Crest $ 2,200 $59,459 11.3% $118.71 3.10
23. Amaryllis Court $ 1,150 $34,848 11.0% $71.72 2.09
24. Fulton Villa $ 1,450 $19,079 11.5% $25.29 2.08
25. Oak Tree Villa $11,900 $58,911 12.3% $69.18 3.51
Low $ 1,150 $19,079 9.0% $32.75 1.79
High $15,000 $63,443 18.5% $135.00 4.40
Low (minus 2 lowest) $ 1,450 $23,884 10.5% $41.36 1.85
High (minus 2 highest) $11,900 $62,204 14.9% $118.71 3.86
Average: $ 4,863 $44,860 12.5% $68.72 2.82
159
VALLEY VIEW LODGE
COMPARABLE IMPROVED SALES
Age/No. Sale Price/ Sale
No. Name/Location of Units Date Sale Price Unit Price/SF
--- ------------- -------- ---- ---------- ----- --------
1. Oak Tree Villa 1988/ 6/95 $11,900,000 $58,911 $69.19
100 Lockwood Lane 202
Scotts Valley, CA
2. El Camino Gardens 1984/ 5/95 $10,000,000 $34,965 $62.19
2426 Garfield 286
Carmichael, CA
3. Casa Sandoval 1989/ 2/95 $15,000,000 $63,025 $69.23
1200 Russell Way 238
Hayward, CA
4. Lomita Lodge 1970's/ 12/94 $1,350,000 $51,923 $135.00
225 N. Lomita 26
Ojai, CA
5. Carson Oaks 1989/ 7/94 $4,200,000 $55,263 $66.95
6725 Inglewood Avenue 76
Stockton, CA
6. Park Ridge 1991/ 7/94 $5,785,000 $62,204 $68.10
2261 Tuolumne 93
Vallejo, CA
(1) Estimated at 92% occupancy
Indicated
Occupancy Overall
No. Name/Location at Sale Rate
--- ------------- ---------- -------
1. Oak Tree Villa 72% 12.3% (1)
100 Lockwood Lane
Scotts Valley, CA
2. El Camino Gardens 82% 11.2% (1)
2426 Garfield
Carmichael, CA
3. Casa Sandoval 81% 9.0% (1)
1200 Russell Way
Hayward, CA
4. Lomita Lodge 81% 12.2% (1)
225 N. Lomita
Ojai, CA
5. Carson Oaks 95% 12.4%
6725 Inglewood Avenue
Stockton, CA
6. Park Ridge 55% 11.3% (1)
2261 Tuolumne
Vallejo, CA
160
Comparable Sale No. 4 is the December, 1994 sale of Lomita Lodge, a small
assisted living project located in Ojai. The 26 unit project sold for $1,350,000
or $51,923 per unit. The property was originally built in the 1940's and
expanded in the 1970's. The project has high rents but was only 81% occupied at
the date of sale. The indicated cap rate at a stabilized occupancy is 12.2%.
Comparable Sale No. 5 is the July, 1994 sale of Carson Oaks, a 76 unit
congregate senior project located in Stockton (bought by the same buyer as
Comparable No. 1). Stockton is a Central Valley community with an overall
affluence below Livermore. The 1989 built project was purchased for $4,200,000
or $55,263 per unit. The project was 95% occupied at the date of sale. This
project has an overall average to above quality, a weak location (behind a
shopping mall) and can be considered a middle to upper middle market project.
The sale price suggested an estimated capitalization rate of 12.4%.
Comparable Sale No. 6 is the Park Ridge in Vallejo which sold in July, 1994 for
$5,785,000 or $62,204 per unit. The 93 ACLF (including 14 licensed assisted
living beds) is a recently built (1991), modern project in a generally less
affluent Bay Area suburb. The project was only 55% occupied at the date of sale
and has had a very difficult time leasing. The property could be considered
mildly distressed. This is attributable to several factors including a crowded
local competitive market, a weak real estate market and the project possibly
being too high end for its market. The indicated overall capitalization rate of
this sale at a stabilized 92% occupancy is estimated at 11.3%.
The comparables described above indicate unit values of between $34,965 per unit
to $63,025 per unit before adjustments. Overall, in reviewing these sales for
comparability to the subject, we observed significant differences. Most notably,
differences in location, physical plant, occupancy, unit mix and income
producing ability make direct and precise comparison to the subject property
difficult. Therefore, in our opinion, the overall degree of comparability of
these sales to the subject is only fair. Nevertheless, after the adjustments
described below, these comparables should provide approximate parameters for an
indicated value of the subject property.
The first adjustment to the comparable sales (the yet to stabilize Sale Nos. 1,
2, 3, 4 and 6) reflects the difference in the stabilized occupancy of the
comparables at their date of sale to the 95% projected stabilized occupancy of
the subject. The amount of the adjustment is interpolated assuming an
approximate 20% to 25% difference in value between an empty project and one that
is stabilized.
On a following page, we have also adjusted each of the comparable sales for the
difference in the ratio of net income per the total number of units. These
adjustments should provide an approximate value range from the subject. We have
adjusted each comparable by the ratio of the estimated stabilized net income per
unit of the subject ($9,703) to the net income per unit of the comparables. This
ratio should theoretically reflect differences in stabilized occupancy, location
and quality (through rents), unit mix and operating efficiencies (through
expenses).
161
VALLEY VIEW LODGE
COMPARABLE IMPROVED SALES ADJUSTMENTS
No. 1 No. 2 No. 3 No. 4 No. 5 No. 6
----- ----- ----- ----- ----- -----
Sale Price Per Unit $58,911 $34,965 $ 63,025 $51,923 $55,263 $62,204
Before Adjustment
Occupancy Adjustment +10% +5% +5% +5% - +15%
Net Income Per Unit +34% +147% +72% +54% +42% +38%
Adjustment (Subject (1) ($ 9,703/ ($ 9,703/ ($ 9,703/ ($ 9,703/ ($ 9,703/ ($ 9,703/
NOI/Unit/Comp/NOI/Unit $ 7,246) $ 3,923) $ 5,653) $ 6,314) $ 6,851) $ 7,020)
------- ------- -------- ------- ------- -------
Sale Price Per Unit
After Adjustment $86,835 $90,684 $113,823 $83,959 $78,473 $98,718
======= ======= ======== ======= ======= =======
Range (Less Outlying Sale No. 3): $ 78,473 - $ 98,718
x 125 Units x 125 Units
------------ --------------
Indicated Value Range: $9,809,125 - $12,339,750
========== ===========
Called: $9,800,000 to $12,350,000
(1) Subject stabilized NOI/Unit - $1,212,831/125 Units
162
As illustrated, after adjustment, these sales indicate a value range for the
subject of $78,473 per unit to $98,718 per unit (less the outlying Sale No. 3).
This range provides approximate parameters for a value indication for the
subject. In our opinion, given the above adjustments, the indicated value of the
subject as is in July, 1995 is between $78,473 to $98,718 per unit, calculating
to a total indicated fee simple value using a Sales Comparison Approach of
$9,809,125 ($78,473/unit x 125 units) to $12,339,750 ($98,718/unit x 125 units),
rounded to $9,800,000 to $12,350,000.
As described in the Reconciliation and Conclusion section of this appraisal, due
to significant differences in location, occupancy, quality, income producing
ability and amenities package, our final value conclusion does not place great
weight on this value estimate reflecting the general lack of comparability,
large adjustments and wide range of indicated values.
163
VALUATION OF FAVORABLE FINANCING
The preceding valuation assumes conventional market financing. However, the
subject includes favorable financing in the form of a deed of trust issued in
1976 ($3,286,200, 40 year note). The current balance due of the note is
approximately $2,822,704. The present value of this financing must be added to
our valuation estimates described above because a third party buyer of the
subject should be willing to pay for the debt service savings accruing from this
assumable note.
Our estimate of the effect of the favorable financing is illustrated on the
following page. These assumptions are as follows:
Note Principal at 7/95: $2,822,704
Interest Rate: 8.25%, Fixed
Note Term: 11/2016, Assumable
Conventional Financing
- Interest Rate: 9.5%, Fixed
To calculate the value of this favorable financing, we have extensively surveyed
leading lenders (REITS, conventional banks, pension funds, FANNIE MAE lenders)
in the senior housing industry to determine a conventional financing interest
rate. The consensus of these lenders is that although conventional taxable
financing of any projects and senior projects in particular is still difficult
in mid 1995, that an average taxable interest rate of 9.5% to 10.0% would not be
considered unreasonable given the specialized nature of a senior housing
project. This is confirmed by a late 1994 survey of lenders as illustrated on
the following pages and supporting an approximate 9.5% to 10.0% loan rate for
senior housing properties. Therefore, considering recent downward trends in
interest rates for senior housing properties, we have estimated a current market
interest rate of 9.5%.
Our calculations estimate the present value of the remaining monthly interest
payment on net funds to be received from the bond financing discounted by the
market interest rate less an approximation of the incremental costs to be
incurred as part of the HUD financing compared to conventional financing (annual
audits) plus the present value of current replacement reserve balances. The
total differential or contribution to value from the favorable financing is
estimated at $269,528, rounded to $275,000 as calculated on the following page.
COMPARABLE MARKET TRANSACTION
As noted in the Special Conditions section of this report, actual market
transactions involving the sale of senior housing properties and tax exempt
financing are rare. We are familiar with the August, 1992 of The Meadows,
located along Atrium Parkway in Napa. The 1988 built, 221 unit congregate
facility was sold by Sacramento Savings and Loan to Old Fellows of Napa, Inc. (a
not-for-profit) for $11,945,000 ($11,500,000 contracted sale price plus $445,000
sales transaction charges). The buyer partially funded the purchase with a
$6,500,000 tax exempt bond issue
164
VALLEY VIEW LODGE
VALUATION OF FAVORABLE FINANCING
Present value of financing at market rate (9.5%): $2,822,704
Present value of financing at below market rate (8.25%):
Present value of $23,468 (1) monthly payment
for 21.3 remaining years at 9.5% market rate $2,555,366
----------
Difference in present value of financing $ 267,338
Less: $6,000/year annual HUD audit charges (through 2016)
discounted to 7/95 at 9.5% ($ 53,766)
Plus: Present value of replacement reserve balance at 7/95
($88,817) discounted to 7/95 at 6.0% (9.5% market interest
rate less 3.5% estimated interest earned on escrow funds) $ 55,261
----------
Net Difference in present value of financing $ 268,833
==========
Called $ 275,000
(1) Monthly payment for $3,286,200, 40 years, 8.25% interest rate plus reserve
obligations.
165
(floating interest rate, 30 year amortization). The value of this favorable
financing was estimated at $1,100,000 using the same market financing comparison
described above for the subject. This would suggest that the capitalized cash
flow or going concern value of the property was about $10,845,000 ($11,945,000
less $1,100,000). Our appraisal value of the subject's going concern value was
within 2% of this figure. This example provides some credibility (in addition to
a theoretical analysis) to the methodology and conclusions set forth above for
the subject.
166
RECONCILIATION AND CONCLUSION
Market Value
As Is - 7/14/95
---------------
Indicated Value, Cost Approach $ 8,625,000*
Indicated Value, Income Approach $10,100,000*
Indicated Value, Sales Comparison Approach $ 9,800,000-
$12,350,000*
*before addition of value for favorable financing
The development of a final estimate of value involves judgment in a careful and
logical analysis of the procedures leading to each indication of value. The
judgment criteria are appropriateness, accuracy and quantity of evidence.
The Sales Comparison Approach is most applicable when closely comparable
properties are bought and sold in the market on a regular basis. We relied on
the sales of somewhat comparable facilities to estimate value using this
approach. However, due to overall property type illiquidity, differences in
occupancy, location and income producing ability, direct comparison to the
subject property is difficult as suggested by the wide range of indicated
values. Considering these factors, the Sales Comparison Approach is considered
to produce a less reliable indication of value.
The Cost Approach is most applicable when the improvements are new or nearly new
and where a few number of subjective adjustments must be made to reflect
depreciation, if any. In estimating construction cost new, we relied on well
documented general cost information provided by the Marshall Valuation Service
which was generally supported by actual costs incurred at similar projects. Our
estimate of land value is somewhat supported by the sale of similarly zoned
vacant land parcels in the region. Adjustments for physical incurable
depreciation are approximations but were estimated using reasonable analyses.
Considering these factors and the subject's high income producing ability, the
Cost Approach is considered to produce a less accurate indication of value. This
approach is also rarely relied on by investors in this type of property.
The Income Approach is typically considered the strongest value indicator for
properties purchased primarily for their income producing potential. This
approach most accurately reflects the impact of stabilized occupancy rates for
properties such as the subject. Comparable market rental rates and an analysis
of the current census were available for the subject units to arrive at an
estimate of fair market rent and gross income. Expense data was substantiated by
historical data and comparable projects. Finally, our estimate of the
capitalization rate is appropriate reflecting current market conditions, the
subject's overall average cash flow risk and market position and the indicated
capitalized cash flow sale price in comparison to the sale prices of other
similar properties in the recent past. Overall, the Income Approach is
considered a strong and only truly reliable indicator of value for the subject
property.
167
After considering the factors leading to each indication of value, the Income
Approach is considered to be the most appropriate for the purpose of this
appraisal. The Sales Comparison Approach is given little to no weight due to the
illiquidity of the market, shifting market trends and the wide range of
indicated values. The Cost Approach is also given little to no emphasis, based
on the deductions for depreciation and our highest and best use discussion. The
final market value estimate of the fee simple total going concern interest of
the subject property as is, without the value of any favorable financing, on
July 14, 1995, is:
TEN MILLION ONE HUNDRED THOUSAND ($10,100,000) DOLLARS
The inclusion of an estimated $275,000 in value attributable to assumable
favorable financing suggest a total reported valuation of $10,375,000.
168
ALLOCATION OF FINAL VALUE DETERMINATION TO COMPONENTS
We have allocated our total going concern value determination to various
components including real estate, business and personal property value. To
allocate the going concern value estimate, we have utilized both the Cost and
Income Approaches to estimate a reliable and reasonable allocation to each
component. A summary of our allocation is illustrated below:
Allocation of Final Going Concern Value Determination
As Is -
7/14/95
-------
Total Going Concern Value $10,100,000(3)
Personal Property (1) 150,000
Business Value (2) 1,225,000
-----------
Real Estate Value $ 8,725,000
===========
(1) FF&E estimated from Cost Approach estimates less accrued
depreciation.
(2) Business value estimated from the calculated difference in
value of the subject as is (full occupancy) compared to its
value as if it were vacant as shown below.
(3) Before addition of value of favorable financing.
The personal property value is taken from the Cost Approach estimates set forth
in Cost Approach section of this report. This estimate reflected a replacement
cost new of $2,500 per unit (total of $312,500 FF&E cost new for 125 units)
which must be adjusted to its current depreciated value. Given the estimated
five year old average age of the subject's personal property items and ongoing
replacement, we have estimated a 50% allocation for depreciation at 7/14/95 or
an as is value of $312,500 x 50% = $156,250, rounded to $150,000.
The business component of the subject value reflects the fact that the subject
is a business requiring specialized management services such as meals,
housekeeping and social activities represent complications in the operation of a
senior housing facility and require specific managerial expertise. An
appropriate method to estimate the business value component is to compare the
value of the subject as is ($10,100,000) as a fully operating stabilized
property to its estimated value as if it were empty, as estimated below
($8,875,000). The estimated business value would be the difference in these
values or $1,225,000.
169
Approximate Valuation of Subject As If Empty at 7/95
Period 1 Period 2 Period 3
(7/95-6/96) (7/96-6/97) (7/97-6/98)
----------- ----------- -----------
Average Occupancy 38.75% 76.25% 95.0%
Potential Gross Income $3,128,479 $3,253,618 $3,383,763
Effective Gross Income $1,212,286 $2,480,884 $3,214,575
Total Expenses $1,231,619 $1,646,851 $1,903,028
---------- ---------- ----------
Net Income ($ 19,333) $ 834,033 $1,311,547
========== ========== ==========
Discounted Value ($ 16,812) $ 630,612 $8,263,839
========== ========== ==========
Total $8,877,639
==========
Called $8,875,000
==========
Assumptions: 20% preleasing; 4.0 units/month absorption; 4% annual rent
increases; stabilized expense estimated at 59.8% of stabilized effective gross
income; expenses decreasing from the stabilized period three at 4%/year for
inflation and also for lower occupancy by 10% in period two, 30% in period one;
12.0% terminal cap rate; 15.0% discount rate.
The real estate component is the remainder or residual of the final value
determination after a subtraction for the personal property and business value
components, or as illustrated for the subject: $8,725,000 at July 14, 1995, as
is, or 86.4% of the total going concern value. In our opinion, though these
allocations are estimates, they can be considered reliable and reasonable given
the analysis set forth above.
170
MARKETING PERIOD
The subject's estimated marketing time is 6 months. This conclusion is based on
discussions with those brokers specializing in the sale of senior housing
projects, our knowledge of specific sale transactions (which have had widely
variable marketing times) and considering current market conditions and the
characteristics of the subject. Marketing times at several similar projects
indicate the following:
Casa Sandoval Hayward 6 months
Fulton Villa Stockton 4 months
Pacific Springs Escondido/El Cajon 5 months
Park Ridge Vallejo 5 months
In our opinion, the subject would probably experience an average marketing time
(regarded as about 6 months). The majority of buyers of senior housing projects
are still seeking (and have fewer and fewer available opportunities) distressed
properties where large increases in cash flow value are possible. The subject is
not a distressed property given the current 96%+/- stabilized occupancy and as
such would have a lesser appeal to some market buyers (subject has limited
upside potential although its assisted living utilization could be increased).
The subject's high indicated sale price per unit would likely cause some
potential buyers to be more cautious in any purchase of the subject.
Nevertheless, the subject would be viewed as a solid cash flow project with a
very well maintained physical plant (albeit with a limited unit mix) in a good
overall, affluent location. The subject's most likely buyer would be a larger
facility owner/operator of other comparable congregate senior housing properties
in California (i.e. Holiday Retirement, Manor Care, Leisure Care, Capital Senior
Living, Brim, Health Care Group, etc.).
171
CERTIFICATION
1. We have no present or contemplated future interest in the real estate
that is the subject of this appraisal report.
2. We have no personal interest or bias with respect to the subject matter
of this appraisal report or the parties involved.
3. To the best of our knowledge and belief, the statements of fact
contained in this appraisal report, upon which the analyses, opinions
and conclusions expressed herein are based, are true and correct.
4. This appraisal report sets forth all of the limiting conditions
(imposed by the terms of my assignment or by the undersigned) affecting
the analyses, opinions and conclusions contained in this report.
5. This appraisal report has been made in conformity with and is subject
to the requirements of the Code of Professional Ethics and Standards of
Professional Conduct of the Appraisal Institute and is prepared in
accordance with the requirements of the Office of the Comptroller of
the Currency and the Uniform Standards of Professional Appraisal
Practice.
6. Our compensation is not contingent on an action or event resulting from
the analysis, opinions, conclusions reached or the use of this report.
7. The value estimates set forth in this report are not predetermined or
based on any requested minimum valuation, a specific valuation or the
approval of a loan.
8. The use of this report is subject to the requirements of the Appraisal
Institute relating to review by its duly authorized representatives.
9. Mary Catherine Wiederhold, Appraisal Associate provided significant
professional assistance to the person signing this report.
10. As of the date of this report, Michael G. Boehm, MAI has completed the
requirements of the continuing education program of the Appraisal
Institute.
11. A personal inspection of the property was made by Michael G. Boehm, MAI
on May 9, 1995 and by Mary Catherine Wiederhold on July 14, 1995.
172
12. The concluded total going concern market value estimate of the fee
simple interest of Valley View Lodge, including the value of favorable
financing, is as follows:
MARKET VALUE "AS IS" (JULY 14, 1995):
TEN MILLION THREE HUNDRED SEVENTY FIVE THOUSAND ($10,375,000) DOLLARS
SENIOR LIVING VALUATION SERVICES, INC.
- -------------------------------
Michael G. Boehm, MAI
173
A D D E N D A
174
COMPARABLE MARKET AREA SENIOR HOUSING FACILITIES
No. 1 - Byron Park
1700 Tice Valley Boulevard
Walnut Creek
No. 2 - Eden Villa
2015 Mt. Diablo Boulevard
Walnut Creek
175
COMPARABLE MARKET AREA SENIOR HOUSING FACILITIES
No. 3 - Montego Heights Lodge
1400 Montego
Walnut Creek
No. 4 - Kensington Place
1580 Geary Boulevard
Walnut Creek
176
COMPARABLE MARKET AREA SENIOR HOUSING FACILITIES
No. 5 - Chateau Pleasant Hill
2770 Pleasant Hill Road
Pleasant Hill
No. 6 - Family Affair
1081 Mohr Lane
Concord
177
COMPARABLE MARKET AREA SENIOR HOUSING FACILITIES
No. 7 - Moraga Royale
1600 Canyon Road
Moraga
No. 8 - Diablo Lodge
950 Diablo Road
Danville
178
COMPARABLE MARKET AREA SENIOR HOUSING FACILITIES
No. 9 - Concord Royale
4230 Clayton Road
Concord
No. 10 - San Ramon Lodge
18888 Bollinger Canyon Road
San Ramon
179
COMPARABLE MARKET AREA SENIOR HOUSING FACILITIES
No. 11 - Villa San Ramon
9199 Fircrest Lane
San Ramon
180
VACANT LAND SALE COMPARABLE NO. 1
Location: 1836 San Miguel Drive
Walnut Creek, CA
Assessor's Parcel No.: 180-010-029 (Contra Costa County)
Sale Date: Listing
Document No.: N/A
Listing Price: $430,000
Size: 33,106 Square Feet (0.76 Acres)
Listing Price/SF: $12.99
Topography: Level
Shape: Rectangular
Proposed Use/Density: 6 Townhomes; 7.9 Units/Acre
Sale Price Per Unit: $71,667
Zoning: C-O
Grantor: Kenneth Nazari & Sahrab Firoozeh Nazari
Grantee: N/A
Terms: N/A
Comments: Located across San Miguel Drive from
professional offices; in overall
residential area; property has been
listed for over one year, according to
the broker with no offers; listing price
includes approved townhome plans.
181
VACANT LAND SALE COMPARABLE NO. 2
Location: 123 Brodia Way
Walnut Creek, CA
Assessor's Parcel No.: 140-170-006-5 (Contra Costa County)
Sale Date: 3/3/95
Document No.: 35433
Sale Price: $720,000
Size: 49,658 Square Feet (1.14 Acres)
Sale Price/SF: $14.50
Topography: Level
Shape: Rectangular
Proposed Use/Density: Unknown
Zoning: R-4
Grantor: Edward Sonnenberg
Grantee: M/M Richard and Lynne Chapman
Terms: N/A
Comments: In rolling hill, high end residential
area; owner holding for future
development.
182
VACANT LAND SALE COMPARABLE NO. 3
Location: Tice Creek Drive, Northwest of Golden
Rain Road
Walnut Creek, CA
Assessor's Parcel No.: 189-130-019-4 (Contra Costa County)
Sale Date: 12/2/94
Document No.: 287278
Sale Price: $1,781,500
Size: 185,130 Square Feet (4.25 Acres)
Sale Price/SF: $9.62
Topography: Flat to Slightly Sloping
Shape: Irregular
Proposed Use/Density: 2 Duplexes and 7 Triplexes; 5.88
Units/Acre
Sale Price Per Unit: $71,260 at 25 units
Zoning: PD-1829
Grantor: Manor Healthcare Corp.
Grantee: UDC Homes, Inc.
Terms: All Cash to Seller
Comments: Site located inside the gated Rossmoor
Retirement Community; this transaction
was a direct exchange with Land Sale No.
4; development of condominiums underway;
parcel is located across Golden Rain Road
from The Waterford (congregate senior
condos).
183
VACANT LAND SALE COMPARABLE NO. 4
Location: Tice Valley Boulevard, Southwest of
Rossmoor Parkway
Walnut Creek, CA
Assessor's Parcel No.: 189-130-019-4 (Contra Costa County)
Sale Date: 12/2/94
Document No.: 287282
Sale Price: $1,781,500
Size: 217,800 Square Feet (5.0 Acres)
Sale Price/SF: $8.18
Topography: Sloping
Shape: Irregular
Proposed Use/Density: 120 Bed Nursing Home; 13 Rooms/Acre
(estimated)
Zoning: PD
Grantor: UDC Homes, Inc.
Grantee: Manor Health Care Corp.
Terms: All Cash to Seller
Comments: Site located outside the gated Rossmoor
Retirement Community; sale was a direct
exchange with Land Sale No. 3; parcel has
451 feet of frontage along Rossmoor
Parkway and 406 feet of frontage along
Tice Valley Boulevard.
184
IMPROVED SALE COMPARABLE NO. 1
Name: Oak Tree Villa
Location: 100 Lockwood Lane, Scotts Valley, CA
Assessor's Parcel No.: 021-052-01 (Santa Cruz County)
Sale Date: 6/6/95
Sale Price: $11,900,000
No. of Units: 202 Units (includes 40 assisted living
units)
Age: 1988
% Private Pay: 100% (includes 20% low income
residents)
Size (GBA): 172,000 Square Feet
Average Unit Size (GBA/Unit): 851 Square Feet
Sale Price/Unit: $58,911
Sale Price/SF: $69.19
Occupancy Rate: 72%
Gross Operating Income: $3,390,984 (estimated @ 90% occupancy)
Expenses: $1,925,343
Net Operating Income: $1,465,641 (estimated @ 90% occupancy)
% Expenses: 56.8%
G.I.M.: 3.51
O.A.R.: 12.3 (estimated @ 90% occupancy)
N.O.I./Unit: $7,256
Grantor: Oak Tree Villa Partnership
Grantee: Birtcher Senior Properties
Terms: $4,955,000 cash (39%); $7,745,000
assumption of existing debt, 30 year
amortization, due in 15 years, 10.25%
rate.
Comments: 20% of units must be allocated to low
income (HUD) residents; unit mix: 102
alcove units (450 SF) and 100 one
bedroom units (600 SF); located in
lightly populated area.
Confirmation: Keith Louie (415) 391-9220
185
IMPROVED SALE COMPARABLE NO. 2
Name: El Camino Gardens
Location: 2426 Garfield Avenue, Carmichael, CA
Assessor's Parcel No.: 283-0030-14 (Sacramento County)
Sale Date: 5/31/95 (Document No. 8309302142)
Sale Price: $10,000,000 (includes $650,000 in
deferred maintenance)
No. of Units: 286 Units (174 ACLF/112 ALF)
Age: 1984
Size (GBA): 160,810 Square Feet
Average Unit Size (GBA/Unit): 562 Square Feet
Sale Price/Unit: $34,965
Sale Price/SF: $62.19
Occupancy Rate: 95%
Gross Operating Income: $2,814,240
Expenses: $1,788,544
Net Operating Income: $1,025,696
% Expenses: 63.6%
G.I.M.: 3.55
O.A.R.: 10.3%
N.O.I./Unit: $3,586
Grantor: Joseph Benvenuti
Grantee: Nationwide Health Properties (REIT)
Terms: All Cash to Seller
Comments: Project had approximately $650,000 in
deferred maintenance at time of sale;
purchased by REIT and leased to ARV
Housing Group; licensed to include up
to 224 assisted living beds.
Confirmation: Eric Davidson (714) 751-7400
186
IMPROVED SALE COMPARABLE NO. 3
Name: Casa Sandoval
Location: 1200 Russell Way, Hayward, CA
Assessor's Parcel No.: 415-240-007, 008 (Alameda County)
Sale Date: 2/27/95
Sale Price: $15,000,000
No. of Units: 238 Units
Age: 1989
Size (GBA): 216,639 Square Feet
Average Unit Size (GBA/Unit): 920 Square Feet
Sale Price/Unit: $63,025
Sale Price/SF: $69.23
Occupancy Rate: 81%
Gross Operating Income: $3,844,396 (estimated @ 92% occupancy)
Expenses: $2,498,857
Net Operating Income: $1,345,539
% Expenses: 65% (estimated @ 92% occupancy)
G.I.M.: 3.90
O.A.R.: 9.0%
N.O.I./Unit: $5,653
Grantor: Casa Sandoval Investors, L.P.
Grantee: Weh Chang
Terms: All Cash to Seller
Comments: Average quality project in middle
income suburban area; sold at auction
on 2/9/95; property underperforming at
date of sale; buyer plans significant
licensing/conversion of many units to
assisted living.
Confirmation: John Rosenfeld (310) 473-8900 ext. 119
187
IMPROVED SALE COMPARABLE NO. 4
Name: Lomita Lodge
Location: 225 N. Lomita Avenue, Ojai, CA
Assessor's Parcel No.: 017-083-200 (Ventura County)
Sale Date: 12/30/94 (Doc. No. 206073)
Sale Price: $1,350,000
No. of Units: 26 Units/36 Beds (Licensed AL)
Age: 1940's/1970's
Size (GBA): 10,000 Square Feet
Average Unit Size (GBA/Unit): 385 Square Feet
Sale Price/Unit: $51,923
Sale Price/SF: $135.00
Occupancy Rate: 81%
Gross Operating Income: $656,640 (estimated @ 95% occupancy)
Expenses: $492,480
Net Operating Income: $164,160 (estimated @ 95% occupancy)
% Expenses: 75.0%
G.I.M.: 2.06
O.A.R.: 12.2% (estimated @ 95% occupancy)
N.O.I./Unit: $6,314
Grantor: Raymond & Judy Berard
Grantee: Ojai Retirement Inn #1, Ltd.
Terms: $270,000 Cash; $1,080,000 variable rate
loan at 8.5%, 20 year amortization.
Comments: Property underperformed at date of
sale; currently 95% occupied; rents
range from $1,500 to $2,350 per month
per bed; property includes about 25%
SSI.
Confirmation: Gerry Meglin (805) 646-5533
188
IMPROVED SALE COMPARABLE NO. 5
Name: Carson Oaks (now called Merrill Gardens
at Carson Oaks)
Location: 6725 Inglewood Avenue, Stockton, CA
Assessor's Parcel No.: 081-260-053 (San Joaquin County)
Sale Date: 7/27/94 (Doc. No. 87023)
Sale Price: $4,200,000
No. of Units: 76 Units
Age: 1989
% Private Pay: 100%
Size (GBA): 62,733 Square Feet
Average Unit Size (GBA/Unit): 612 Square Feet (average unit)
Sale Price/Unit: $55,263
Sale Price/SF: $66.95
Occupancy Rate: 95%
Gross Operating Income: $1,301,712
Expenses: $781,027
Net Operating Income: $520,685
% Expenses: 60%
G.I.M.: 3.23
O.A.R.: 12.4%
N.O.I./Unit: $6,851
Grantor: Tuolumne Commons, Limited Partner
Grantee: Merrill Associates, Limited Partner
Terms: All Cash to Seller
Comments: Newer facility with large number of one
bedroom with full kitchens in an
affluent neighborhood; not licensed for
assisted living.
Confirmation: Lee Haris (415) 391-9220
189
IMPROVED SALE COMPARABLE NO. 6
Name: Park Ridge (now called Merrill Gardens)
Location: 2261 Tuolumne Street, Vallejo, CA
Assessor's Parcel No.: 0052-330-008 (Solano County)
Sale Date: 7/27/94 (Doc. No. 69837)
Sale Price: $5,785,000
No. of Units: 93 ACLF; 14 Beds (Licensed AL)
Age: 1991
% Private Pay: 100%
Size (GBA): 84,989 Square Feet
Average Unit Size (GBA/Unit): 654 Square Feet
Sale Price/Unit: $62,204
Sale Price/SF: $68.10
Occupancy Rate: Project stabilized at 90%; at sale date
55%
Gross Operating Income: $1,632,150
Expenses: $979,290
Net Operating Income: $652,860
% Expenses: 60%
G.I.M.: 3.54
O.A.R.: 11.3%
N.O.I./Unit: $7,020
Grantor: Tuolumne Commons, Limited Partner
Grantee: Merrill Associates, Limited Partner
Terms: All Cash to Seller
Comments: Modern congregate/assisted living with
15 studios, 59 - 1 bedrooms and 19 - 2
bedrooms; located in residential area
and bounded by Sutter Solano Medical
Center and Crestwood Convalescent
Hospital.
Confirmation: Lee Haris (415) 391-9220
190
IMPROVED SALE COMPARABLE PHOTOGRAPHS
No. 1 - Oak Tree Villa
100 Lockwood Lane
Scotts Valley
No. 2 - El Camino Gardens
2426 Garfield
Carmichael
191
IMPROVED SALE COMPARABLE PHOTOGRAPHS
No. 3 - Casa Sandoval
1200 Russell Way
Hayward
No. 4 - Lomita Lodge
225 N. Lomita
Ojai
192
IMPROVED SALE COMPARABLE PHOTOGRAPHS
No. 5 - Carson Oaks
6725 Inglewood Avenue
Stockton
No. 6 - Park Ridge
2261 Tuolumne
Vallejo
193
APPRAISAL REPORT
RETIREMENT INN - FULLERTON
1621 E. COMMONWEALTH AVENUE
FULLERTON, CALIFORNIA
AS IS ON AUGUST 1, 1995
SLVS FILE NO. 95-04-23
PREPARED FOR
AMERICAN RETIREMENT VILLAS PROPERTIES II, L.P.
PREPARED BY
MICHAEL G. BOEHM, MAI
194
August 3, 1995
American Retirement Villas Properties II, L.P.
c/o ARV Housing Group
245 Fischer Avenue, Suite D-1
Costa Mesa, California 92626
Attention: Mr. Graham Espley-Jones
Re: Retirement Inn - Fullerton
1621 East Commonwealth Avenue
Fullerton, California
SLVS File No. 95-04-23
Gentlemen:
In accordance with your request, we have conducted the required investigation,
gathered the necessary data, and made certain analyses that have enabled us to
form an opinion of the market value of the above captioned property. This report
has been prepared to be in compliance with the requirements of the Uniform
Standards of Professional Appraisal Practice.
The value stated herein is based on our understanding of the site and
improvement descriptions as represented to us by the client and/or the client's
representatives and professional consultants as well as other available sources.
We direct your attention to the "Introduction," "Site Description," and
"Description of Improvements" sections of this appraisal report. It is your
responsibility to read the report and inform the appraiser of any errors or
omissions you are aware of prior to utilizing the report or making it available
to any third party.
Based on an inspection of the property and the investigation and analysis
undertaken, we have formed the opinion, subject to the assumptions and limiting
conditions set forth in this report, that as of August 1, 1995, the fee simple
total going concern interest of the subject, as is, has a market value of:
TWO MILLION THREE HUNDRED FIFTY THOUSAND ($2,350,000) DOLLARS
195
Mr. Graham Espley-Jones
August 3, 1995
Page 2
This total going concern value estimate can be allocated to the following
components:
Market Value
As Is -
8/1/95
------------
Real Estate Value $1,925,000
Furniture, Fixtures & Equipment 100,000
Business Value 325,000
-----------
Total Going Concern Valuation $2,350,000
==========
The narrative appraisal report that follows sets forth the identification of the
property and limiting conditions, pertinent facts about the area and the subject
property, comparable data, results of our investigation and analyses and the
reasoning leading to the conclusions set forth. Should you desire a quick
reference to the most important information, I direct your attention to the
"Introduction", "Executive Summary" and the "Reconciliation and Conclusion"
sections of this report.
Respectfully submitted,
SENIOR LIVING VALUATION SERVICES, INC.
Michael G. Boehm, MAI
President
196
SUBJECT PHOTOGRAPHS
Subject from Commonwealth Avenue,
View Northeast
Main Entrance of Subject
197
TABLE OF CONTENTS
Title Page 1
Letter of Transmittal 2
Subject Photographs 4
Table of Contents 5
Introduction 7
Property Identification 7
Property Ownership and History 7
Scope of the Assignment 7
Purpose of the Appraisal 7
Function of the Appraisal 8
Property Inspection 8
Date of Appraisal 8
Date of Value 8
Property Rights Appraised 8
Definition of Market Value 8
Assumptions and Standard Limiting Conditions 9
Special Conditions 10
Experience of Appraisal Firm 11
Representative Assisted Living Appraisal Experience 12
Executive Summary 13
Regional and City Analysis 15
Regional Location Map 16
City Location Map 17
Comparative Zip Code Demographic Data 19
Anecdotal Discussion of Fullerton 21
Neighborhood Description 24
Neighborhood Map 25
Neighborhood Zoning Map 26
Neighborhood Photographs 27
Site Description 30
Assessor's Parcel Map 31
Flood Map 32
Taxes and Assessments 34
198
Description of Improvements 35
Floor Plans 37
Unit Plans 38
Subject Photographs 39
Market Analysis 45
Subject Amenities 47
Census of Market Area ACLF/AL Facilities 50
Comparable Facilities Map 52
Market Area Saturation Analysis 54
Highest and Best Use 57
Site Valuation 59
Vacant Land Sales Map 61
Cost Approach Analysis 63
Cost Approach Summary 66
Income Approach Analysis 67
Pro Forma Cash Flow Analysis & Capitalization 79
Sales Comparison Approach 80
Improved Sales Map 83
Reconciliation and Conclusion 86
Allocation of Going Concern Value Determination To Components 88
Total Estimated Marketing Time 90
Certification 91
Addenda 93
Comparable ACLF/AL Facility Photographs 94
Legal Description 103
Vacant Land Sale Data 104
6/19/95 Rent Roll 108
(1993, 1994, 1/95 to 4/95) Historical/(1995) Budgeted Operating Statements 111
Senior Housing Investment Survey 123
Improved Sale Data/Photographs 125
Qualifications of Michael G. Boehm, MAI 134
MGB State of California Appraisal License 135
199
INTRODUCTION
PROPERTY IDENTIFICATION
The subject property consists of a 43,124 square foot (0.99 acres) site that is
improved with a 68 unit congregate senior housing project (including up to 99
licensed assisted living beds) known as Retirement Inn - Fullerton. The subject
has a designated street address of 1621 East Commonwealth Avenue, Fullerton,
Orange County, California. A detailed legal description of the site is presented
in the Addenda of this report.
PROPERTY OWNERSHIP AND HISTORY
The fee simple title to the subject site, all improvements and furnishings
comprising Retirement Inn - Fullerton is currently vested in American Retirement
Villas Properties II, L.P. (ARVP II). The subject was purchased by ARVP II in
the late 1980's as part of a larger group of senior properties from the
Retirement Inns of America (Avon Products, Inc.). The subject has not been
sold/purchased within the last three years.
The subject retirement building was originally planned and developed in the
early 1970's. The existing subject improvements became available for occupancy
in 1973. The subject's recent history includes effective full occupancies with a
current occupancy of 91.7% (77/84 total beds) despite a competitive market area
and weak local real estate market and economy.
SCOPE OF THE ASSIGNMENT
The scope of this assignment is to inspect the subject property, conduct an
investigation of market data, and prepare a full narrative appraisal report in
accordance with the requirements of the Office of the Comptroller of the
Currency and the Uniform Standards of Professional Appraisal Practice. All
information deemed pertinent to the completion of the appraisal was made
available.
The appraisal was performed so that the analysis, opinions and conclusions are
that of a disinterested third party, employing due diligence in the
investigation, analyses and conclusions. This appraisal report was developed and
prepared to comply with the reporting requirements noted in the "Certification"
section of this report.
The investigation associated with this report includes the general economy of
the industry, the market area, and the local neighborhood. Research and studies
include supply and demand factors, comparable land and property sales,
competitive property rents/rates and occupancy. Buyers, sellers, developers,
public officials, management at competitive facilities, real estate brokers, and
the current management of the property were interviewed concerning these and
other associated matters. Specific references are made throughout this report.
PURPOSE OF THE APPRAISAL
The purpose of the appraisal is to estimate the subject's market value as is.
200
FUNCTION OF THE APPRAISAL
It is understood the appraisal shall be used by American Retirement Villas
Properties II, L.P. in an evaluation of the subject for the possible sale to an
ownership real estate investment trust.
PROPERTY INSPECTION
The subject property was inspected on May 4, 1995 by Michael G. Boehm, MAI who
was accompanied by Ms. Lana Hammers, Administrator. The subject was briefly
reinspected on August 1, 1995.
DATE OF APPRAISAL
August 3, 1995
DATE OF VALUE
August 1, 1995
PROPERTY RIGHTS APPRAISED
This appraisal estimates the fee simple total going concern market value of the
subject operating as a congregate senior housing business. Going concern value
is defined by the Appraisal Institute as the value created by a proven property
operation; considered a separate entity to be valued with an established
business. This total going concern value can be allocated to its real estate,
furniture, fixtures and equipment and business value components. An estimated
allocation of our total going concern valuation is set forth in a separate
section of this report.
Fee Simple is defined by the Appraisal Institute as absolute ownership
unencumbered by any other interest or estate subject only to the limitations of
eminent domain, escheat, police power, and taxation.
DEFINITION OF MARKET VALUE
As defined by the Office of the Comptroller of the Currency under 12 CFR, Part
34, Sub-part C-Appraisals, 34.42 Definitions (f), market value is defined as:
"The most probable price which a property should bring in a competitive and open
market under all conditions requisite to a fair sale, the buyer and seller each
acting prudently, and knowledgeably and assuming the price is not affected by
undue stimulus. Implicit in this definition is the consummation of a sale as of
a specified date and the passing of title from seller to buyer under conditions
whereby:
(i) buyer and seller are typically motivated;
(ii) both parties are well informed or well advised, and acting in what they
consider their best interests;
201
(iii) a reasonable time is allowed for exposure in the open market;
(iv) payment is made in terms of cash in U.S. dollars or in terms of financial
arrangements comparable thereto; and
(v) the price represents the normal consideration for the property sold
unaffected by special or creative financing or sales concessions granted
by anyone associated with the sale."
ASSUMPTIONS AND STANDARD LIMITING CONDITIONS
1. The legal description furnished to the appraiser is assumed to be correct,
and the title is assumed to be marketable.
2. The appraiser assumes no responsibility for legal matters.
3. Report exhibits are only visual aids. All sizes indicated for land and
improvements are from indicated sources and assumed to be correct.
4. Unless otherwise noted herein, it is assumed there are no detrimental
easements, encumbrances, encroachments, liens, zoning violations, building
code violations, or environmental violations, etc. affecting the subject
property.
5. Information, estimates, and opinions furnished to the appraiser are
obtained from sources considered reliable; however, no liability for their
accuracy can be assumed by the appraiser.
6. It is assumed that there are no hidden or unapparent conditions in the
land or improvements that render the property more or less valuable or
that would reduce its utility, development potential, marketability. All
improvements are assumed to be structurally sound unless otherwise noted.
No responsibility is assumed for hidden or undisclosed conditions or for
arranging for engineering studies that may be required to discover any
defects or uniquely favorable conditions.
7. The appraiser has inspected the subject property with the due diligence
expected of a professional real estate appraiser. The appraiser is not
qualified to detect hazardous waste and/or toxic materials. Any comment by
the appraiser that might suggest the possibility of the presence of such
substances should not be taken as confirmation of the presence of
hazardous waste and/or toxic materials. Such determination would require
investigation by a qualified expert in the field of environmental
assessment.
8. The presence of substances such as asbestos, urea-formaldehyde foam
insulation or other potentially hazardous materials may affect the value
of the property. The appraiser's value estimate is predicated on the
assumption that there is no such material on or in the property that would
cause a loss in value.
202
9. No responsibility is assumed for any environmental conditions, or for any
expertise or engineering knowledge required to discover them. The
appraiser's description and resulting comments are the result of the
routine observations made during the appraisal process.
10. Responsible ownership and competent management are assumed.
11. Where the discounted cash flow analysis is utilized, it has been prepared
on the basis of the information and assumptions stipulated in this
appraisal report. The achievement of any financial projections will be
affected by fluctuating economic conditions and is dependent upon the
occurrence of other future events that cannot be assured. Therefore, the
actual results achieved may well vary from the projections and such
variation may be material.
12. The appraiser is not required to give testimony or appear in court, or at
public hearings, or at any special meeting or hearing with reference to
the property appraised herein by reason of preparation of this report,
unless arrangements have been made prior to preparation of this report.
13. Possession of this report does not carry with it the right of publication.
It shall be used for its intended purpose only and by the parties to whom
it is addressed. Neither all nor any part of the contents of this report
shall be conveyed to the public through advertising, public relations,
news, sales, or other media without the written consent or approval of the
author. This applies particularly to value conclusions, the identity of
the appraiser or firm with which it is connected, and any reference to the
Appraisal Institute, or MAI designation.
14. Property values are influenced by a large number of external factors. The
information contained in the report comprises the pertinent data
considered necessary to support the value estimate. We have not knowingly
withheld any pertinent facts, but we do not guarantee that we have
knowledge of all factors which might influence the value of the subject
property. Due to rapid changes in external factors, the value estimate is
considered reliable only as of the effective date of the appraisal.
SPECIAL CONDITIONS
The subject is licensed as a residential care facility for the elderly (assisted
living) for up to a maximum of 99 beds with the California Department of Social
Services. This appraisal assumes that the subject meets all physical plant and
operating requirements as an assisted living facility.
The appraisers were not provided with a title report to specifically describe
the site's legal description nor any current easements or encumbrances that
might affect the subject operation as a congregate senior housing business. This
appraisal assumes that there are no adverse easements or encumbrances affecting
the subject. We recommend review of a current title report.
203
The estimates of value set forth in this report are partially relying on the
current rent roll, historical operating statements and limited building drawings
and building statistical data provided to the appraiser by ARV Housing Group.
EXPERIENCE/COMPETENCY OF APPRAISAL FIRM
Senior Living Valuation Services, Inc. is a San Francisco based appraisal firm
that exclusively specializes in the appraisal and analysis of all forms of
senior housing properties. On the following page is a listing of recent assisted
living facility assignments that have been completed by the firm. Qualifications
of Michael G. Boehm, MAI are included in the Addenda of this report.
204
EXECUTIVE SUMMARY
Property Name: Retirement Inn - Fullerton
Location: 1621 East Commonwealth Avenue
Fullerton, California
Assessor's Parcel No.: 269-106-016 (Orange County)
Property Rights Appraised: Fee Simple (Total Going Concern)
Date of Value: As Is on August 1, 1995
Land Area: 43,124 Square Feet, 0.99 Acres
Excess Land: None
Zoning: R-3 (Fullerton) a multi family zoning district
Improvements: Type: One, average quality, two story, Class D
congregate retirement apartment building
and common areas.
Age: Year Built - 1973; Improvement Age -
22 Years; Effective Age - 22 Years;
Remaining Economic Life - 23 Years
Size: 68 congregate retirement apartment units
(84 currently configured maximum bed
count) and common areas in approximately
38,155 square feet of gross building
area.
Condition: Average
H & B Use (if vacant): Senior Housing
H & B Use (as improved): See Highest and Best Use Discussion
Capitalization Rate: 12.0%
Projected Stabilized Net Income: $283,439 (7/95-6/96)
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Total Going Concern Market
Value, as is, as of
August 1, 1995: Cost Approach: $2,825,000
Income Approach: $2,350,000
Sales Comparison Approach: $2,350,000-
$2,750,000
Value Conclusion: $2,350,000
($34,559/unit)
Allocation of Final
Value Determination
to Components: Market Value
As Is -
8/1/95
------------
Real Estate $1,925,000
FF&E 100,000
Business Value 325,000
----------
Total Going Concern Valuation $2,350,000
==========
Total Estimated Marketing Time: 6 Months
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REGIONAL AND CITY ANALYSIS
The subject site is located at 1621 East Commonwealth Avenue in southeastern
portion of the City of Fullerton, Orange County, California. Fullerton is
located in northern Orange County, bounded by the communities of Buena Park to
the west, La Habra and Brea to the north, Anaheim to the south and Placentia to
the east. The southern portions of the City lie predominantly on the larger flat
Los Angeles Basin with the northern portions of the City having rolling hills
(Los Coyotes Hills) and view topographies. Fullerton is located 20 miles
southeast of downtown Los Angeles, about 12 miles northeast of the Pacific
Ocean, 95 miles north of San Diego and about 440 miles south of San Francisco.
REGIONAL OVERVIEW
Orange County occupies almost all the land south of Los Angeles County and is
therefore an integral part of the Los Angeles metropolitan area. Orange County
is formed by the coastal mountains to the east and the Pacific Ocean to the west
which merge in the southern portions of the County. Orange County is one of the
nation's largest counties and has experienced extraordinary population growth
since 1950. Orange County has typified the rapid urbanization of the Los Angeles
basin which has continued into the 1990's.
Orange County, California's second most populated County has passed into an era
of increasing resistance to growth as the County matures and its once beautiful
rolling hills, clean air and easy lifestyle have been transformed into a place
covered with highrise office buildings and rows of houses. As the center portion
of the County has developed as a regional employment center, growing
transportation problems have led to increasing resistance to growth and linking
future development to transportation improvements. This trend combined with
recent and ongoing heavy defense industry cutbacks have severely affected the
local economy and area real estate. This recession is expected to continue into
the immediate future. The recent County investment debacle is also expected to
exacerbate weak local market conditions in the short run.
Part of the region's attraction is its temperate climate, marked by small median
temperature changes, ranging from an average of 55 degrees in January to 71
degrees in July. The region experiences warm, dry summers and temperate, wet
winters and a chronic, almost year round smog problem.
POPULATION AND DEMOGRAPHICS
The City of Fullerton (1995 population 123,700) is located in the north central
portion of Orange County and comprises approximately 22 square miles. The City
of Fullerton has shared in the rapid growth of the region since construction of
regional freeways in the 1950's. Fullerton, which is the fifth largest city in
Orange County, projects an ultimate population of about 125,000. The source of
this additional population will be the development of the City's few remaining
vacant residential acreage and redevelopment of underutilized parcels.
Therefore, future population growth is expected to slow as the City has become
built-out. City and regional population trends are illustrated below:
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Fullerton Orange County
---------------------------- --------------------------------
Population % Inc. Population % Inc.
---------- ------ ---------- ------
1960 56,160 - 688,920 -
1970 84,450 50.4% 1,408,240 104.4%
1980 102,240 21.1% 1,931,570 37.2%
1990 114,144 11.6% 2,238,721 15.9%
1995 123,700 8.4% 2,641,400 17.9%
2000 (est.) 125,000 1.1% 2,866,800 8.5%
Source: Fullerton Chamber of Commerce
As illustrated in demographic data presented on the following pages, Fullerton
has the following demographic characteristics:
1) A median age close to Statewide averages. This is primarily due to
Fullerton's large, middle aged (25 to 44) population and relatively small
older and younger, dependent populations;
2) A higher (ranked in the 67th to 95th percentile within all zip codes in
California) than average County median income reflecting the City's
attraction to educated professionals;
3) A predominantly white ethnicity/racial composition with about 80 percent
categorized as non-minority white with a significant and growing Asian
community.
An anecdotal description of Fullerton is provided on a following page.
HOUSING
Fullerton's housing stock of approximately 43,000 units can be characterized by
its large supply of multi family units (45%), approximate balance of supply and
demand, newness (90% built after 1950) and relative affordability. The median
price for single-family homes in Fullerton in late 1995 is about $200,000 which
is down about 25% from 1989 peaks (down about 10% in the last 12 months). This
median price is about 10% below Countywide averages. Recent residential
construction (very modest) has been focused in new multi family units in the
Coyote Hills areas. Homes north of Commonwealth Avenue tend to be newer and
higher priced than those south of Commonwealth Avenue. Rental rates for one and
two bedroom apartments range from $475 to $850 a month and up.
EMPLOYMENT AND ECONOMIC DEVELOPMENT
Total employment in Fullerton accounts for only 1.8% of Orange County's total
employment of about 1,400,000 people. Fullerton's major employers
(non-manufacturing) include California State University at Fullerton, St. Jude's
Hospital, Fullerton College and the Fullerton High School District. Major
manufacturing companies in Fullerton include Hughes Aircraft, Hunt-Wesson and
Beckman Instruments. The City has over 6,500 licensed businesses dominated by
service
208
companies and 900 manufacturing concerns. Leading product group classes are air
defense (which has been significantly scaled back), electric components, food
and paper processing.
Although predominantly a bedroom residential community, Fullerton has
significant commercial and industrial districts dispersed throughout the city.
The recently completed downtown commercial district is centered along Harbor
Boulevard, Commonwealth and Chapman Avenues, located in the south central
portion of the City. Recent redevelopment includes the downtown business
district, transportation district and Orange Fair Mall. The early 1990's
completed Morningside continuing care retirement community was one of the
largest ongoing development projects in Fullerton.
TRANSPORTATION
Fullerton's geographic location in northern Orange County allows its residents
to take advantage of the massive and sprawling highway system typical of the Los
Angeles basin. The City is served by three major highways: the Orange Freeway
(Highway 57) running in a north to south direction providing direct access to
eastern Los Angeles County to the north and to central Orange County to the
south; the Riverside Freeway (Highway 91) running east to west; and Interstate
Highway 5 to the southwest providing direct access to downtown Los Angeles and
southern Orange County. These highways experience the extreme traffic congestion
common to the Los Angeles metropolitan area freeway system. Major City surface
thoroughfares include the east/west Bastanchury, Malvern, Chapman, Commonwealth
(subject) and Orangethorpe, and the north/south Gilbert, Brookhurst, Euclid,
Harbor, Brea and State College.
Fullerton's geographic location allows it a choice of four major airports: Los
Angeles International Airport located 30 miles to the west; Ontario
International Airport located 20 miles to the northeast; Long Beach Airport
located 15 miles to the southwest; and the Orange County/John Wayne Airport
located 15 miles to the south. Local residents can also take advantage of the
Orange County Transit District bus system providing spotty bus service
throughout Orange County.
COMMUNITY DATA
Because Fullerton is located in Orange County, a major portion of the Los
Angeles metropolitan area, its residents can take advantage of an almost
unlimited array of recreational and cultural opportunities. The City has its own
recreation and cultural centers, two museums, an arboretum, 46 parks, a civic
light opera and is the home of California State University at Fullerton.
Fullerton is located approximately 18 miles north of the Newport Beach area,
about 5 miles northeast of Disneyland and about 25 miles southeast of downtown
Los Angeles. Beaches, deserts and mountain resorts are all within easy driving
distance from Fullerton.
Fullerton has one general hospital, St. Jude, located along Harbor Boulevard
about three miles northwest of the subject, with a 331 total bed capacity. Other
major hospital facilities are located in nearby Placentia and Anaheim (such as
Martin Luther). Fullerton is located in HSA 13, HPFA 1011 having a total of nine
skilled nursing facilities with 999 licensed beds and several congregate senior
and assisted living projects (including the subject). In fact, northern Orange
County has
209
one of the heaviest concentrations of congregate senior housing within
California. The recently completed 326 unit Morningside continuing care
retirement community is one of the largest senior housing projects in
California. These projects are discussed further in the Market Analysis section
of this report.
CONCLUSION
The long-term outlook for Fullerton is positive although the short run outlook
is significantly dampened by the current deep regional recession, fueled by
cutbacks in the locally dominant defense related industries and the Orange
County near bankruptcy which has led to cutbacks in County services. These
economic and real estate declines when combined with increased crime in the
County has and will continue to contribute to flat to slightly declining
population growth in the near future and a general deterioration of the quality
of life. However, overall population aging in place and the concentration of a
large population and their relative affluence in the immediate area, suggest
that long term demand for the subject facility should be good although short
term demand is more problematic.
210
NEIGHBORHOOD DESCRIPTION
The subject is located in the southeastern portion of the City of Fullerton
along Commonwealth Avenue at Acacia Street, about one-half mile east of central
Fullerton. Commonwealth Avenue is a major east/west thoroughfare through
Fullerton. Acacia Street is a secondary north/south street in eastern Fullerton.
The subject neighborhood is in an older portion of Fullerton. The neighborhood
is residential in character with pockets of institutional development (mostly
schools) along major thoroughfares. The subject neighborhood is about 98%
developed and is approximately bounded by Harbor Boulevard to the west, Dorothy
Lane to the north, State College Boulevard to the east and Walnut Avenue to the
south. To the west of the neighborhood lies Hillcrest and Brea Dam parks.
This neighborhood lies just west of Cal State - Fullerton and includes the
eastern portions of central Fullerton and Fullerton College. More intensive
commercial, office and industrial uses lie to the east and south of the
neighborhood. The subject itself is bounded by modest quality two story
apartments to the north and west. Apartment uses are typical in the neighborhood
along major thoroughfares, buffering lower density interior residential homes.
The quality of these homes and apartments are average although they are
generally well maintained. Across Commonwealth Avenue to the south lie
additional apartments. To the east across Acacia lies the Ladera Vista junior
high school. Additional smaller elementary schools dot the neighborhood.
Fullerton Guest Home (Rent Comparable No. 2) is located about two blocks to the
west. Acacia Villa (Rent Comparable No. 1 and a sister ARV project) is located
about two blocks to the north.
The subject is located about one-half mile east of central Fullerton. Major
retail amenities are located about one-half mile to the northeast. The campus of
Cal State - Fullerton is located about one mile to the northeast, as is access
to Highway 57 at Chapman or Nutwood. Highway 91 is located about one mile to the
southeast via State College. Anaheim Memorial Hospital and Martin Luther
Hospital are located about four miles to the southwest. Fullerton Community
Hospital is located about two miles to the northwest along Harbor. St. Jude
Hospital is located about three miles to the northwest. The Brea Mall is located
about three miles to the northeast.
Overall, the subject is a corner parcel located in a residential/institutional
neighborhood along a major thoroughfare at a significant intersection. Access to
retail amenities, recreation, acute medical care and freeways is good although
none can be considered as being within easy walking distance. On balance, the
subject is adequately situated for a major congregate senior housing project.
211
NEIGHBORHOOD PHOTOGRAPHS
View West along Commonwealth Avenue,
Subject on Right
View East along Commonwealth Avenue,
Subject on Left
212
NEIGHBORHOOD PHOTOGRAPHS
View South along Acacia Avenue across Commonwealth Avenue,
Subject on Right
View North on Acacia Avenue, Ladera Vista Junior High School on Right,
Subject on Left
213
NEIGHBORHOOD PHOTOGRAPHS
High School across Acacia Avenue from Subject,
View Northeast
Single Family Homes across Commonwealth Avenue from Subject,
View Southwest
214
SITE DESCRIPTION
LOCATION: The subject property is located at the northwest corner of
Commonwealth Avenue and North Acacia Avenue in the southeastern portion of the
incorporated City of Fullerton, Orange County, California. The site has a formal
street address of 1621 East Commonwealth Avenue. The site consists of Orange
County Assessor's Parcel No. 269-103-016. An assessor's parcel map is presented
on the following page. A legal description of the site is provided in the
Addenda of this report.
PHYSICAL CHARACTERISTICS: The subject site is a corner parcel and has a basic
rectangular shape (about 270' by 150') with approximately 260 feet of southern
frontage along Commonwealth and approximately 125 feet of eastern frontage along
Acacia Street to the east. To the north and west of the subject lies an
approximately 20 to 30 foot wide paved alleyway. The site has a total land area
of approximately 43,124 square feet or 0.99 acres.
The topography of the site is flat, consistent with the neighborhood. The
subject building pad is slightly above street grade with Commonwealth Avenue to
the south. The subject building improvement is built on one level pad. Although
no soils report was made available to the appraisers, it is assumed that the
soils are capable of continuing to support the existing improvements. No obvious
hazardous or toxic conditions were noted during our site inspection.
According to the U.S. Department of Housing and Urban Development Flood
Insurance Rate Map (Map No. 060591 0007E, dated September 15, 1989), the subject
is located in a Flood Zone X, an area of minimal flooding. Flood insurance is
not required. The subject is not located in an Alquist-Priolo special earthquake
study zone. The subject can be considered as having the same earthquake risk as
much of the Los Angeles larger area which is fairly significant.
EXISTING IMPROVEMENTS: The subject site is currently improved with one, two
story, wood frame, congregate retirement building surrounding an enclosed
central courtyard. Parking areas are located in the western portion of the site
(off of Commonwealth). The subject building is setback a minimum of about 20
feet north of Commonwealth Avenue and west of Acacia Street. Additional detail
is provided in the Description of Improvements section of this report.
Commonwealth Avenue and North Acacia Streets are both 80 foot wide, four lane
(with turning lane), fully improved commercial streets with curbs, gutters,
streetlights and public sidewalks on both sides. The intersection of
Commonwealth Avenue and Acacia Street is a four stoplight intersection. A bus
stop is located on the eastern public access sidewalk of the subject site. A
utility line runs along the northern and eastern boundaries of the site.
The subject site is served by underground utilities, including storm and
sanitary sewers, natural gas and telephone. Water and sewer service are provided
by the City of Fullerton, natural gas by Southern California Gas, electricity by
Southern California Edison and telephone by Pacific Bell. Fire and ambulance
services is provided by Fullerton.
215
ACCESS AND EXPOSURE: The subject is accessed via one curb cutout along
Commonwealth Avenue onto the western parking area. Secondary access is possible
via the northern alleyway from Acacia Street. Access to Highway 91 (east/west)
and 57 (north/south) is via State College (located two blocks to the east),
about 1.5 miles to the southeast and northeast, respectively.
Highway 91 (east/west) and 57 (north/south) provide highway access through the
northern and central Orange County metropolitan area. Interstate 5 is located
about five miles to the southwest.
The subject is easily visible from both Commonwealth Avenue and Acacia Street.
Exposure and views in other directions (north, west) is blocked by adjacent
development.
EASEMENTS AND ENCUMBRANCES: No title report was available. No easements and
encumbrances are known to materially impact the subject's continued operation as
a congregate senior housing business. We recommend a review of a current title
report to identify any easements or encumbrances which could affect the subject
site and its continued operation as a congregate senior housing project.
ZONING: The subject site is zoned R-3, Fullerton, a high density residential
zoning classification. Multi family housing up to 27 units per acre are allowed.
The subject is consistent with residential and institutional land uses along
Commonwealth Avenue and Acacia Street. The existing subject retirement building
was approved with a conditional use permit in the early 1970's (allowing its
68.7 unit per acre density). The subject appears to be a legal, nonconforming
land use and has been operating on the site since 1973.
The subject is licensed to provide 99 beds with the California Department of
Social Services as an assisted living facility.
EXCESS LAND: None, the subject is fully developed to its boundaries.
216
TAXES AND ASSESSMENTS
Since passage of Proposition 13, or the Jarvis-Gann Initiative, in 1978, real
property has been assessed at its 1976 value, trended upward at a maximum rate
of 2% annually, unless there is a transfer of ownership or new construction.
When either of these occur, the property is reassessed at full market value.
Furthermore, Proposition 13 limits annual taxes to 1%, plus a small amount for
bonded indebtedness of the assessed value.
Assessor's Parcel No.: 269-0103-16 (Orange County)
Tax Rate Area: 03-0000
Assessed Value 1994-95:
Land $ 734,954
Improvements $1,799,371
Personal Property $ 0
----------
Total $2,534,325
=========
1994-95 Tax Rate: 1.00968%
1994-95 Taxes: $31,596.24 (includes $6,007.67 in direct assessments)
Status: Current and paid as due. Our cash flow projections of
stabilized real estate taxes assumes a sale and
reassessment of the subject to market value at July,
1995.
217
DESCRIPTION OF IMPROVEMENTS
The discussion of the improvements addressed below was accumulated through our
site inspection, a review of limited site plans and through discussions with the
subject's administrator. Detailed architectural drawings were not available.
GENERAL TYPE: The existing main improvement known as Retirement Inn - Fullerton
consists of one 2 story, 68-unit, average quality, Class D retirement apartment
building containing 38,155 square feet of gross building area. The facility
contains 68 units currently configured for 84 beds, including up to 99 licensed
assisted living beds. The rectangular shaped building improvement surrounds an
interior courtyard and borders a parking lot to the west.
AGE: The subject improvements were constructed and completed in 1973. Since
1973, the subject has been operating as an congregate senior facility. The
overall condition of the subject is average. Our site inspection noted a normal
amount of wear and tear on a 22 year old building and no material deferred
maintenance. The subject improvement have an estimated total economic life of 45
years. A chronological and effective age of 22 years suggests a remaining
economic life of approximately 23 years.
SIZES: The subject has the following component size and unit mix:
Unit
No. of Size
Unit Type Units S.F. (est.) Total S.F.
--------- ------ ----------- ----------
Studios 68 374 25,432 (66.7%)
Common Areas/Circulation 12,723 (33.3%)
------
Gross Building Area 38,155
======
STRUCTURAL AND EXTERIOR: The subject improvements are constructed on a level and
slightly raised concrete slab foundation with a 2-story, wood frame construction
under a sloping clay tile/flat mansard roof. Building exterior consists of
stucco and protruding balcony/patios decks formed by wing walls. The main
building entry faces south of Commonwealth Avenue and includes decorative stucco
arches.
Interior walls are wood frame and painted or wallpapered gypsum board with wood
handrails in corridors. The main common areas, hallways and room exteriors are
carpeted. Unit baths have vinyl tile. Ceilings in units are painted gypsum board
and sprayed acoustical with common area ceilings and hallways consisting of
sprayed acoustical with hanging incandescent and fluorescent light fixtures. The
entire development is fully sprinklered with smoke and heat alarms. Units
include full length sliding glass doors leading to the balconies and patios and
sliding windows in aluminum frames.
218
MECHANICAL: The development has average lighting and plumbing fixtures. HVAC in
the units consist of individual room heating units. HVAC in common areas
features a hot water boiler central forced air heating system. The subject also
features an intercom system with paging. The development includes one elevator.
Two stairwells are located throughout the improvement.
INTERIORS: Based on our site inspection, the interiors appear to be functional
for congregate senior apartment use. Floor and unit plans are presented on a
following page. The facility includes 68 apartment units with separate baths.
The unit mix consists of 68, same size studio units (374 SF). Each unit contains
a full bath area with grab bars and a sink with a built-in cabinet, vanity and
water closet. Each unit also contains two emergency pull cords, one each in the
bath and living area. The units contain no kitchenettes. Each unit has its own
outdoor iron railing balcony or patio.
The focal point of the development is the facility's modest common areas located
on the centrally located one story ground floor. The facility's main entry area
includes the small lobby, a reception desk and administrative offices. The
common areas include a lounge and dining room adjacent to the commercial
kitchen. Laundry rooms with washers and dryers for the residents are located on
each floor. The second floor includes a hobby room, billiards room and lounge.
Overall interior common areas are modest and less than newer projects in the
local market.
PARKING AND LANDSCAPING: Site parking is located in one open paved parking
areas, west of the building and accessed from Commonwealth Avenue. There are
approximately 29 (0.43/unit) parking spaces located in the parking area. Street
parking is not available along Commonwealth Avenue (south) but is available
along Acacia Street (east). The western building face includes seven partially
enclosed first floor garage spaces (no garage door) underneath second floor
units (adjacent to the service areas).
The site is modestly landscaped with building perimeter mature trees, flowering
perennials, bushes and grass. Facility landscaping is centered in the small
interior courtyard which includes a large tree and seating areas. Overall site
landscaping is average.
CONCLUSION: In our opinion, the subject property's exteriors, common area
interiors, landscaped areas and parking appear average and competitive for
residential retirement uses. The subject's relatively small units are typical of
1970's senior housing construction. The subject has a less varied unit mix and
more modest common areas than many projects built in the 1980's. The subject is
also smaller than most projects in its market which helps create a more
residential, close knit living environment (while preventing full operating
economies of scale). Our site inspection noted no material deferred maintenance
and a good condition reflecting its 22 year old chronological and effective age.
219
SUBJECT PHOTOGRAPHS
Main Entry Lobby
Typical Corridor
220
SUBJECT PHOTOGRAPHS
Dining Room
Activity Room
221
SUBJECT PHOTOGRAPHS
Typical Unit Interiors
222
SUBJECT PHOTOGRAPHS
Subject's Commonwealth Avenue Frontage,
View East
Western Site Boundary, Single Family Residence to Right,
View South
223
SUBJECT PHOTOGRAPHS
Northern Boundary of Subject, Subject to Right,
View East
Main Parking Lot (West of Subject)
224
MARKET ANALYSIS
INTRODUCTION
The elderly are by far the fastest growing population segment, whether expressed
in percentage increase or actual number of persons. Although not as well
documented statistically, the elderly have more money than ever before because
of social security, pension programs, savings and the substantial increase in
the market value of their residences. Most of them are active and in reasonably
good health. This increased health and life expectancy lends them to seek life
enriching activities through an independent lifestyle that provides assistance
when needed.
INDUSTRY OVERVIEW
The housing industry for the elderly can be classified by the three major types
of buyers: the active elderly (go-gos), intermediate (slow-gos) and the person
who needs constant care (no-gos). Active retirees want recreational amenities
with the housing they buy. They want a golf course, tennis courts, swimming
pool, walking and bicycle path, saunas and spas. They want to be near good
places to eat and to be able to enjoy a wide range of cultural activities and
travel opportunities.
Intermediate retirees want a congregate-type of lifestyle that allows them
independence yet gives them the opportunity to take part in quiet activities
such as arts and crafts. Retirees in this intermediate classification also will
look for transportation to shopping, banking or medical offices, some mild form
of recreational activities, such as swimming and golf, plus the opportunity to
socialize in a common dining room or lounge area.
Retirees who need constant care are concerned with medical assistance. They will
look for facilities that offer services and conveniences such as residential
care facilities which will make their lives more comfortable. Also, they will
want a medical center where they can go when their health fails. The subject
property would be targeted at the intermediate and less active elderly.
From a real estate and financial perspective, housing for the elderly is complex
to analyze as they usually represent a combination of other businesses. The
major types of homes for the elderly include:
Adult Congregate Living Facilities (ACLF): Specially planned, designed
and managed multi-unit rental housing typically with self contained
apartments. Supportive services such as meals, housekeeping,
transportation, social and recreational activities are usually
provided. In California, these facilities are not licensed.
Assisted Living Facilities (ALF) (personal care or residential): Group
living arrangements that provide staff supervised meals, housekeeping
and personal care (assistance with bathing and medication) and private
or shared sleeping rooms. These facilities are generally licensed and
must meet designated operating standards including minimum staff
requirements. In California, these facilities must be licensed by the
California Department of Social Services, Division of Community Care.
225
Care Facilities (skilled nursing or intermediate care): Skilled nursing
and intermediate care facilities (commonly known as nursing homes) are
both operated under the guidance of a licensed administrator with
licensed nurses and aids providing around the clock nursing care,
generally one step below that offered at an acute care hospital. In
California, these facilities must be licensed with the California
Department of Health Services.
Life Care Complex (life care community, continuing care, campus
complex): A housing development planned, designed and operated to
provide a full range of accommodations and services for older adults,
including independent living, congregate housing and medical care.
Residents may move from one level to another as their needs change.
Life care complexes typically charge a buy-in fee (sometimes
refundable) in addition to a monthly maintenance fee for services. In
California, life care contracts must be approved by the State
Department of Insurance.
Retirement Village: Developments that offer, home ownership and rental
units for older persons. Support services often are available for a
fee.
The subject is a currently existing 68 unit (84 current bed configuration)
licensed assisted living (ALF) facility. This suggests that the subject includes
16 units configured for 32 semiprivate beds. The subject is licensed to accept
28 nonambulatory residents (99 assisted living bed licensing maximum).
Congregate housing such as the subject is a combination of: a) an apartment
project; b) a hotel offering meals, cleaning and transportation facilities; c) a
social club offering activities; and d) a supporting living environment
providing assisted living amenities (help with bathing, medication, mobility) as
needed. A summary of subject amenities is provided on the following page.
MARKET DEFINITION
Our experience in analyzing congregate housing development indicates that these
facilities have a total market area ranging from a 5 to 30 mile radius from the
site. This area represents a reasonable driving distance for relatives and
friends and also reflects the fact that the elderly do not move great distance
when choosing the congregate housing option. Perhaps more important than a
strict definition of market area based on distance, is the overall character of
the development's environment, whether it is urban, suburban or small
town/rural. In our opinion, the primary market area for the subject site extends
approximately 5 miles outward from the site in all directions. This would
include most of the suburban area of northern Orange County including most of
Fullerton and Placentia and portions of Brea, La Habra and Anaheim. These areas
are not only located in close geographic proximity to the site, but each is a
similar, middle to upper middle income bedroom community. This definition of
market area is consistent with the former residences of subject residents and
reflects the heavy concentration of senior projects in the area.
226
RETIREMENT HOUSING SUPPLY
During the course of our appraisal, we have identified those existing and
proposed elderly retirement facilities in the primary market area which may be
considered somewhat competitive to the subject property. Our census of
potentially competitive congregate rental housing facilities impacting the total
market area is presented on the following pages. Photographs of the rent
comparables are illustrated in the Addenda of this report.
Each of the surveyed congregate facilities is a for-profit housing development
offering two or three meals daily, weekly maid service and many recreational
opportunities. Most of the properties surveyed offer licensed assisted living on
an as needed basis. The properties can be characterized as follows:
BOTH CONGREGATE AND ASSISTED LIVING (MOST SIMILAR TO SUBJECT)
2. Acacia Villa (ARV property)
5. Bradford Square (ARV property)
6. Sunnycrest Chalet
7. Villa De Palma (ARV property)
9. Anaheim Gardens
10. Emerald Court
11. Walnut Manor
13. Fullerton Manor
14. La Habra Villa
15. Meadows of La Habra
16. Park Regency
17. Nohl Ranch Inn
18. Canyon Hills Club
ASSISTED LIVING ONLY
1. Fullerton Guest Home (Alzheimers, heavy care)
3. Rosewood Court
4. Park Vista
8. La Veranda (Alzheimers) (ARV property)
12. Amaryllis Court
The subject would be most similar to those projects offering both congregate and
assisted living services although it has an overall quality, age and living
environment comparability to Comparable No. 3 (Rosewood Court) which only
accepts the frailer, assisted living resident. Like the subject, this project
has a smaller, all studio unit mix.
Of the congregate/assisted projects, the subject would be most similar to the
older projects with more similar unit mixes (mostly or all studios) such as
Comparable No. 2 (Acacia Villa), No. 7 (Villa De Palma) and No. 9 (Anaheim
Gardens). Acacia Villa and Villa De Palma are sister ARV projects and are
similar to the subject in target market and in the a la carte assisted living
227
RETIREMENT INN - FULLERTON
CENSUS OF MARKET AREA ACLF/AL FACILITIES
Age/ Congregate
Miles (ACLF) Units
From Total Units/ Unit Size- ---------------------------
No. Name/Location Subject AL Beds Type S.F. Monthly Rent Rental/S.F.
- --- ------------- ------- ----------- ---- ---- ------------ -----------
1. Fullerton Guest Home 1950's/ 36/ Studio 243 Not Available
1510 E. Commonwealth Ave. 1 Block 72
Fullerton
2. Acacia Villa* 1967/ 66/ Studio 320-360 $1,250-$1,800 $3.91-$5.00
1620 E. Chapman Ave. 2 Blocks 99 SP $850-$950
Fullerton
3. Rosewood Court 1985/ 80/ Studio 300 Not Available
411 E. Commonwealth Ave. 0.75 149 1BR 360
Fullerton (est.)
4. Park Vista @ Morningside 1992/ 54/ Studio 410-428 Not Available
2527 Brea Boulevard 1.75 70 1BR 730-840
Fullerton 2BR 1,100-1,300
5. Bradford Square* 1987/ 92/ Studio 288-405 $1,275-$1,850 $4.43-$4.57
1180 N. Bradford Avenue 2.0 120 SP $850
Placentia
6. Sunnycrest Chalet 1988/ 130/ Studio 340-363 $1,125-$1,200 $3.31
1925 Sunny Crest Drive 2.0 210 1BR 563 $1,700-$1,800 $3.02-$3.20
Fullerton
7. Villa De Palma* 1981-84/ 111/ Studio 252-504 $1,150-$1,650 $3.27-$4.56
351 E. Palm Drive 2.25 138 SP $850-$900
Placentia
8. La Veranda* 1974/ 71/ Studio 260 Not Available
312 N. Roosevelt Avenue 2.50 85
Fullerton
9. Anaheim Gardens 1962/ 130/ Studio 240 $1,250-$2,000 $5.21-$8.33
625 W. La Palma 2.50 250 SP $850
Anaheim
Assisted Living (AL) Units
-----------------------------------
Monthly Rental
----------------------- Total
Semi- Reported
No. Name/Location Private Private % SSI Occupancy
- --- ------------- ------- ------- ----- ---------
1. Fullerton Guest Home $3,375-$3,600 $2,450 0% 86%
1510 E. Commonwealth Ave.
Fullerton
2. Acacia Villa* +$150-$1,000 +$150-$1,000 33% 87%
1620 E. Chapman Ave.
Fullerton
3. Rosewood Court $1,150-$1,250 $800-$900 15% 75%
411 E. Commonwealth Ave. $1,500
Fullerton
4. Park Vista @ Morningside $2,350-$2,650 N/A 0% 95%
2527 Brea Boulevard $2,750-$3,050
Fullerton $3,500-$3,350
5. Bradford Square* +$150-$1,000 +$150-$1,000 5% 95%
1180 N. Bradford Avenue
Placentia
6. Sunnycrest Chalet +$100-$500 N/A 0% 90%
1925 Sunny Crest Drive
Fullerton
7. Villa De Palma* +$150-$1,000 +$150-$1,000 20% 96%
351 E. Palm Drive
Placentia
8. La Veranda* $2,300-$2,500 $1,900-$2,300 13% 84%
312 N. Roosevelt Avenue (Dementia only)
Fullerton
9. Anaheim Gardens $1,500-$2,500 $1,000 50% 85%
625 W. La Palma
Anaheim
228
RETIREMENT INN - FULLERTON
CENSUS OF MARKET AREA ACLF/AL FACILITIES
(CONTINUED)
Age/ Congregate
Miles (ACLF) Units
From Total Units/ Unit Size- ---------------------------
No. Name/Location Subject AL Beds Type S.F. Monthly Rent Rental/S.F.
- --- ------------- -------- ----------- ---- ---- ------------ -----------
10. Emerald Court 1989/ 178/ Studio 400 Not Available
1731 W. Medical Court
Center Dr. 3.0 50 1BR 600 $1,395-$1,595 $2.33-$2.66
Anaheim 2BR 900 $1,895-$2,300 $2.11-$2.56
11. Walnut Manor 1937/ 158/ Studio 250 $1,185 $4.74
891 S. Walnut Street 4.0 175 Suite 500 $1,730 $3.46
Anaheim Cottage 600 $1,895 $3.16
12. Amaryllis Court 1969/ 33/ Studio 250 Not Available
1652 W. Broadway 4.0 66 (est.)
Anaheim
13. Fullerton Manor 1976/ 90/ Studio 300 (est.) $785-$1,000 $2.62-$3.33
2441 W. Orangethorpe 4.25 100 SP $750
Fullerton
14. La Habra Villa 1981/ 175/ Studio 224 $900-$1,500 $4.02-$6.70
1100 E. Whittier Boulevard 5.0 352 SP $696
La Habra
15. Meadows of La Habra 1987/ 187/ Studio 312-364 $1,200 $3.30-$3.85
200 W. Whittier Boulevard 5.40 190
La Habra
16. Park Regency 1989/ 84/ Studio 300-400 $1,400-$1,800 $4.50-$4.67
1750 W. La Habra Boulevard 6.0 168
La Habra
17. Nohl Ranch Inn 1987/ 133/ Studio 340 $1,195 $3.51
380 S. Anaheim Hills Road 7.15 266 1BR 401-485 $1,450-$1,650 $3.40-$3.62
Anaheim Hills
18. Canyon Hills Club 1989/ 167/ Studio 323-382 $1,025 $2.68-$3.17
525 S. Anaheim Hills Road 7.20 49 1BR 585-664 $1,458-$1,850 $2.49-$2.79
Anaheim Hills 2BR 912 $1,995 $2.19
S. Retirement Inn of Fullerton* 1973/- 68/ Studio 374 $1,250 $3.34
1621 E. Commonwealth Avenue 84 SP $800
Fullerton
Assisted Living (AL) Units
------------------------------------
Monthly Rental
----------------------- Total
Semi- Reported
No. Name/Location Private Private % SSI Occupancy
- --- ------------- ------- ------- ----- ---------
10. Emerald Court $1,445 N/A 0% 93%
1731 W. Medical Court
Center Dr. $1,735-$1,835
Anaheim $2,095
(+$100-$800)
11. Walnut Manor $2,380 N/A 0% 88%
891 S. Walnut Street (est.)
Anaheim
12. Amaryllis Court $1,300-$1,800 $1,000-$1,300 70% 70%
1652 W. Broadway
Anaheim
13. Fullerton Manor $960-$1,175 N/A WND 88%
2441 W. Orangethorpe
Fullerton
14. La Habra Villa +$60-$125 N/A WND 90%
1100 E. Whittier Boulevard (est.)
La Habra
15. Meadows of La Habra $1,300-$1,500 $800-$850 25% 98%
200 W. Whittier Boulevard
La Habra
16. Park Regency +$200-$500 N/A 0% 100%
1750 W. La Habra Boulevard
La Habra
17. Nohl Ranch Inn +$120-$800 N/A 0% 91%
380 S. Anaheim Hills Road
Anaheim Hills
18. Canyon Hills Club $1,995-$2,750 N/A 0% 96%
525 S. Anaheim Hills Road
Anaheim Hills
S. Retirement Inn of Fullerton* +$150-$1,000 +$150-$1,000 26% 92%
1621 E. Commonwealth Avenue
Fullerton
*ARV owned/operated facilities
229
RETIREMENT INN - FULLERTON
SATURATION ANALYSIS
Saturation Rate (1)
----------------------------------- Subject
w/o Subject w/Subject Only
# H.H. (2) (2,100 Beds)(3) (2,184 Beds) (84 Beds)
---------- --------------- ------------ ---------
1995 Estimate
75+, $15,000 Income 6,115 34.3% 35.7% 1.4%
2000 Projection
75+, $15,000 Income 7,409 28.3% 29.5% 1.1%
NOTES:
(1) Market saturation rates represent the percentage of total market demand
which is necessary to absorb a) existing or proposed units not including
the subject, and b) existing or proposed units including the subject.
(2) Number of income and age qualifying senior households within 5-mile radius
of site per Urban Decision Systems.
(3) Number of competitive units estimated at 100% of Comparable Nos. 1 to 9,
50% of Comparable Nos. 10 to 18 and 340 units at Morningside (a CCRC).
(4) Evaluation of saturation rates:
Saturation Evaluation of
Rate Market Environment
---------- ------------------
0% - 10% Lightly Competitive
10% - 20% Moderately Competitive
20% - 30% Heavily Competitive
30%+ Extremely Competitive
230
program. The other more comparable congregate/assisted projects surveyed are
generally newer projects (Comparable Nos. 5 - Bradford Square (ARV project), 6 -
Sunnycrest Chalet, 10 Emerald Court, 15 - Meadows of La Habra, 16 - Park
Regency, 17 - Nohl Ranch Inn and 18 Canyon Hills Club) with a more varied unit
mix and a generally superior living environment to the subject. The subject
would be competitively placed in the tier of projects below these newer
properties although it has a good reputation in the local market.
The assisted living projects are generally less directly comparable to the
subject as they target the older, frailer senior exclusively. Of the projects,
as noted Rosewood Court would be most similar to the subject. Comparable No. 1 -
Fullerton Guest Home, 4 - Park Vista and 8 - La Veranda (ARV project) generally
target the heavier care/Alzheimer patient. Park Vista is part of the larger
Morningside CCRC and is combined with a skilled nursing facility, creating a
more institutional living environment and catering to the heavier care assisted
living project.
Our survey of local jurisdictions noted no other active proposed senior housing
projects which would pose an imminent competitive threat to the subject. The
overall occupancy of the 18 projects surveyed is 89.2% (several market area
projects exhibit weak below 90% occupancies).
RETIREMENT HOUSING DEMAND
To measure the theoretical size of the subject's target market, we have analyzed
demographic statistics obtained from Urban Decision Systems for the relevant
target area market which extends about 5 miles outward from the subject site. We
obtained income by age population estimates and projections for this area in
1995 and 2000. Our analysis is as follows:
1) Determines the number of households over a minimum age, 75, and minimum
income requirement, over $15,000, from 1995 population estimates and 2000
population projections. These parameters establish the different scenarios
for calculating the market saturation rates;
2) Calculates total market saturation rates required to fill the subject's 84
beds and all other existing competitive senior facilities (estimated at
2,100 beds);
3) Evaluates the market environment of the subject property given the
calculated saturation rates.
Our experience in comparable markets, indicates the following regarding
saturation rates.
Estimate of Overall
Saturation Rate Market Demand
--------------- -------------
0 - 10% Lightly Competitive
10 - 20% Moderately Competitive
20 - 30% Heavily Competitive
30%+ Extremely Competitive
231
Our calculated market saturation rates (slightly over 30%) for the subject
market area suggest an extremely competitive market. Overall, the subject market
area can be characterized as having a very large supply of retirement units
serving a large and affluent, and growing age and income eligible senior
population. Northern Orange County has had the reputation of one of the most
competitive senior housing market areas in all of California. This perception is
confirmed by the high calculated saturation rates. It is important to note that
saturation analysis is only a tool used to measure overall market saturation.
However, saturation rates do not consider any potential competitive advantages
that a specific facility might offer. Saturation rates can also be calculated
using different factors/scenarios. Our methodology of calculating market
saturation rates is based on our experience in analyzing the feasibility of
numerous congregate senior housing developments.
CONCLUSIONS
Overall, we noted the following regarding the market environment of Retirement
Inn - Fullerton:
1) The calculated saturation rates suggest an extremely competitive market
environment. This is supported by soft market area occupancy rates. The
subject has been able to maintain a 90% plus occupancy. This is due to its
good location and reputation which offset its older age, large number of
smaller units and monolithic unit mix. The subject also benefits by its
smaller size with fewer units to keep occupied. The overall average
occupancy of all projects surveyed was 89%. The market's strong
demographics (size, affluence) are countered somewhat by a weak local
economy which makes seniors on fixed incomes more hesitant to consider the
congregate senior housing option and less likely to recognize paper losses
on homes which have declined in value from 1989 peaks;
2) The subject has a current occupancy of 92%, consistent with its recent
history. The subject has established a market position as a well run,
middle market project with reasonable rents. The subject's physical plant
is below average in comparison to most of the other comparable projects in
its market. Most of the locally competitive projects are newer and have a
less institutional living environment and more varied unit mix than the
subject;
3) The subject market area is projected to experience a very good increase of
21.2% (7,409/6,115) in the age and income eligible target market in the
next five years;
4) The subject is owned and operated by ARV Housing Group, one of the leading
owner/operators in highly saturated market areas (including the subject
market area - ARV is involved with five projects in the subject market
area);
5) The subject offers assisted living amenities on an a la carte basis (three
different levels of assisted living care) which is not typical in the
market area (most other projects charge one flat higher rent). This is a
competitive advantage for the subject as residents only need pay for
assisted living amenities when needed and at the level needed.
These specific conclusions are addressed more fully and used to project pro
forma income and expense cash flows in the Income Approach section of this
report.
232
HIGHEST AND BEST USE
Highest and best use is defined as that use, from among reasonably probable and
legally alternative uses, found to be physically possible, appropriately
supported, financially feasible, and which results in the highest land value.
The highest and best use concept must also give recognition of that use to
community environment and to community development goals, in addition to wealth
maximization of individual property owners.
The highest and best use of the land or site, if vacant and available for use,
may be different from the highest and best use of the existing improved
property. This will be true when the improvement is not an optimum use and yet
makes a contribution to total property value in excess of the value of the land
only. In order to determine the property's highest and best use, it is necessary
to analyze the factors discussed below.
AS VACANT
The site's physical characteristics are similar to those found throughout the
area in terms of size (smaller), topography (flat), exposure (good) and access
(good). The total land area is relatively small though it is large enough to
support many other types of development and it is located along a major
thoroughfare. The site is probably too small for a lower density residential
subdivision. Therefore, the site's physical characteristics do not seem to limit
most development alternatives.
The subject site is currently zoned R-3, a higher density residential zoning
classification. This is consistent with other apartment, interior single family
and institutional (schools) development in the neighborhood. It is likely that
Fullerton would allow many residential and institutional uses on the subject
site. The subject's 68.7 units per acre density is misleading due to its small,
all studio unit mix. Extreme high density residential, commercial or heavy
retail land uses are unlikely for the site. Finally, the site itself is not
known to be affected by significant easements or encumbrances.
In determining which possible use of the land represents the highest and best
use of the site, we have analyzed those physical and legal factors affecting the
site. It is then necessary to analyze not only the feasibility of potential
alternate development but determine which types of these developments is
maximally feasible. Our analysis of the congregate housing market in the area
indicates a strengthening local market with variable occupancies (some softness
at some projects), including the subject's current 92% occupancy. Also, a large
increase in the number of age and income eligible seniors over the next five
years suggests adequate long term demand for well run projects like the subject.
The subject is a profitable project and it is in the middle tier of senior
housing facilities in its market. The subject, if it can be filled, would be
more feasible than alternate residential uses due to its higher margin per unit
and higher density. The subject is also more profitable than almost all possible
institutional land uses. However, uncertainties about the depth of the local
market, current depressed housing prices and a flat regional economy suggest
that the subject (or any alternate commercial/apartment land use) would not
clearly be built in 1995. Few to no senior housing projects were being built
anywhere in California in 1994 although this is beginning to change in 1995. An
owner of the subject site would probably
233
develop a senior housing use on the site although the decision is not clear.
Therefore, in our opinion, the highest and best use of the site as vacant in
early 1995 is probably to develop a senior housing project on the subject site.
AS IMPROVED
Our experience in comparable projects indicate that a senior project of 84 beds
is large enough to achieve operating economies of scale though not optional
(need about 120 beds). Higher densities for the site would generate difficulties
in meeting parking and density requirements with Fullerton. Also, short term
demand for additional small unit assisted living units probably does not exist
in the local market as indicated by the subject's high SSI census.
Considering the factors noted above, the purpose of this appraisal (to value the
subject as is) and because the subject improvements clearly add value over and
above the land alone, we have concluded that the highest and best use of the
site, as improved, is probably as the subject site as built and operating. The
existing improvements and living environment are competitive and functional for
congregate and assisted living uses. The subject's overall quality, unit mix and
unit sizes (though not optimal given their smaller size and limited variety),
common areas, parking and landscaping are average to below average in the local
senior housing market.
234
SITE VALUATION
In order to estimate the fair market value of the subject site, a Sales
Comparison Approach is utilized. Recent sales and listings/offers of vacant land
considered somewhat comparable to the subject in location, zoning, and utility
were analyzed. Adjustments are made as necessary for: date of sale, location,
financing terms, physical characteristics such as size, shape, utilities and
topography, and development limitations such as zoning restrictions, easements
and encumbrances.
A number of sales were reviewed in order to determine the market value of the
subject site. Overall, we noted few recent vacant land sale transactions in the
area reflecting the lack of development activity. We have considered the sales
of local vacant land sites with somewhat comparable land uses, zoning and
locations. Those sales that were considered most comparable are presented in a
summary grid on a following page and detailed in the Addenda of this report.
Comparable Sale No. 1 is a current listing located along State College about two
blocks east of the subject. The 43,560 square foot parcel is currently being
listed for $700,000 or $16.07 per square foot. A commercial/office use is likely
on the site. The site has major thoroughfare frontage somewhat similar to the
subject (without the corner influence). The comparable site's higher intensity
zoning suggests downward adjustment to the subject.
Comparable Sale No. 2 is located at 100 North State College, about one mile
northeast of the subject. The 154,986 square foot site sold in September, 1994
for $2,245,000 or $14.49 per square foot. The site is located in a mixed use
commercial office/residential area along a significant thoroughfare. The site's
larger size suggests upward adjustment to the subject. This is somewhat offset
by its more intensive zoning and location.
Comparable Sale No. 3 is located at 8721 Whitaker Street about five miles
southwest of the subject. The 187,308 square foot parcel sold in July, 1994 for
$2,300,000 or $12.28 per square foot. The parcel was developed with townhomes
and is located in a lesser quality residential neighborhood. Upward adjustment
is also suggested by the site's lower density and larger parcel size.
Comparable Sale No. 4 is located at 137 West Lincoln Avenue, about four miles
southeast of the subject in the northern area of the City of Orange. The 27,007
square foot site sold in July, 1993 for $370,000 or $13.70 per square foot. A 15
unit apartment complex was developed on the site at a calculated density (24.1
units/acre) similar to the subject site (69.7 units/acre) when considering the
subject's smaller units. Upward adjustment to the subject is suggested by an
overall inferior neighborhood.
Before adjustment, the sales discussed above indicate a sale price per square
foot range of approximately $12.28 to $16.07. The above adjustments to the
comparable sales can be summarized as follows:
235
RETIREMENT INN - FULLERTON
VACANT LAND SALES
Sale Size-SF Proposed Price/ Price/ Density -
No. Location/APN Date Sale Price (Acres) Development Sq. Ft. Unit Zoning Units/Acre
- --- ------------ ---- ---------- ------- ----------- ------- ------ ------ ----------
1. 600 Block of St. College, Listing $ 700,000 43,560 Probable $16.07 N/A O-P N/A
South of Chapman (1.00) Commercial
Fullerton
2. 100 N. State College 9/94 $2,245,000 154,986 Probable $14.49 N/A R-2 N/A
Fullerton (3.64) Residential
319-011-057
3. 8721 Whitaker Street 7/94 $2,300,000 187,308 116 Units $12.28 $19,827 R-3 26.9
Fullerton (4.30) Allowed
070-241-26+
4. 137 W. Lincoln Avenue 7/93 $ 370,000 27,007 15 Apartment $13.70 $24,666 R-3 24.1
Orange (0.62) Units
360-031-20
S. 1621 E. Commonwealth Avenue - - 43,124 68 Senior - - R-3 68.7
Fullerton (0.99) Units
269-106-16
236
Sale Price/
Comp No. SF Adjustment
-------- ----------- ----------
1 $16.07 Downward (list/sale price differential,
zoning); Upward (corner)
2 $14.49 Downward (land use, location);
Upward (parcel size, corner)
3 $12.28 Upward (parcel size, location, density)
4 $13.70 Upward (location)
The overall degree of comparability of these sales to the subject is only fair
reflecting the lack of comparable (high density residential) vacant land sales
in the immediate area. Overall, Comparable Land Sale Nos. 3 and 4 are most
similar to the subject in zoned land use though each site has an inferior
neighborhood location. Sale No. 1 is most similar to the subject in location but
has a more intensive zoning and is only a listing. Sale No. 2 has more
significant locational differences with the subject. Sale Nos. 2 and 3 are also
much larger than the subject.
After considering the specific location and density of the subject site and the
evidence provided by the adjusted comparables and recent trends in land values,
it is concluded that the fair market value of the fee simple interest for the
subject site as of July, 1995, is at a rate of $15.00 per square foot, or for
the subject's 43,124 square feet, an overall site value of $646,860 ($15.00/SF x
43,124/SF) or $9,513 per unit.
237
COST APPROACH
The Cost Approach considers an estimate of the fair market value of the land,
the direct and indirect replacement costs (new) of the improvements,
entrepreneurial profit, and accrued depreciation from all causes. Land value is
taken from the Site Valuation section of this appraisal. Sources for replacement
costs of improvements include: (1) Cost bids or reported actual recent cost of
the subject; (2) Actual costs of recently completed comparable improvements; (3)
Local contractors' opinions; (4) Marshall and Swift Computer Data Base; and, (5)
Marshall and Swift (monthly updated) Cost Manual. Entrepreneurial profit is a
necessary element in the motivation to construct improvements. In estimating any
accrued depreciation, the appraiser takes into consideration: age, condition,
functional utility, detrimental external factors, and any existing leases with
contract rent below fair market (economic) rent. The sum total of land costs,
direct improvement costs, indirect costs and entrepreneurial profit is the
estimated replacement cost new. Subtracting any required depreciation from the
replacement cost new indicates the value by the Cost Approach.
DIRECT COSTS
The estimated building cost per square foot replacement cost new in 1995 for the
subject improvements is derived from the Marshall Cost Data Service (and
comparable projects as a part of total costs) as calculated below:
Class D,
Average Quality
Home for the Elderly
(Sec. 11, Page 17)
--------------------
Base Cost/SF $ 54.16
Sprinkler Adjustment 1.20
HVAC Adjustment (1.20)
-----------
$ 54.16
Location Multiplier x 1.16
Time Multiplier x 1.05
-----------
Adjusted Base Cost/SF $ 65.97
Square Footage - GBA x 38,155
-----------
Adjusted Base Cost $ 2,516,966
===========
The indicated base rate for the replacement cost new per square foot in 1995 for
the existing improvements is $65.97. Our estimate of the base building cost on a
per square foot basis includes architectural and engineering fees, overall
construction financing cost and operational
238
overhead. They do not include unusual construction and fixtures, loan points,
pre-marketing costs, furniture and city/public utility fees.
In addition to the adjusted base construction for the building improvements, an
allowance for furniture and equipment was included to arrive at total direct
construction costs of the development. The allowance for furniture and equipment
was estimated using an analysis of the Marshall Cost Manual allowance and
industry experience (as shown below) or $3,000 per unit ($204,000 for 68 units).
INDIRECT COSTS
Indirect Costs - In addition to these direct building costs, we have estimated
indirect costs at 7% of total direct building costs. Indirect costs include
legal/accounting/appraisal fees, loan fees, premarketing advertising and
promotion, city/public utility fees and a contingency fund.
The above estimates reflect a replacement cost new (without land or profit) of
$2,956,714 or $77.49 per square foot or $43,481 per unit. This is compared using
an overall reasonableness test (no specific adjustment is made) to other
recently built comparable congregate senior projects as follows:
Total Total
No. of Cost/SF Cost/Unit FF&E
Project Units Location (w/o Land)* (w/o Land)* Unit
- ------- ----- -------- ----------- ----------- ----
Sterling Court 149 San Mateo $79.91 $84,117 $2,516
Park Ridge 93 Vallejo $79.40 $71,138 $2,688
Palm Court 100 Culver City $97.41 $84,000 $3,000
*Includes FF&E, shown separately for comparison purposes.
The estimated replacement cost new for the subject is lower than the costs
incurred at these similar projects on a square foot basis and on a per unit
basis which is reconcilable given the subject's smaller units sizes, more modest
quality and all studio unit mix.
Finally, an entrepreneur or developer will typically expect to be compensated
for the time, money, and risk expended in bringing a project to a completed
income producing unit. Profit typically ranges from 10% to over 25% of the total
construction and land costs, depending on the type of property, anticipated
absorption or stabilization period, risk, and the size of the project. A modest
allocation of 10% for entrepreneurial profit or toward the bottom of the range
is considered appropriate for the subject given that the highest and best use of
the subject as vacant in 1995 is to probably develop a senior housing project
although this decision is not clear cut. The crowded local market, the subject's
unit mix and current overall market conditions mute the project's rent/profit
potential as evidenced by the subject's high SSI census.
239
DEPRECIATION
Our site inspection noted no material physical curable, functional or economic
depreciation. We did, however, note the following form of depreciation.
Physical Incurable Depreciation - An amount for physical incurable depreciation
(or the normal wear and tear on improvements as they age) is appropriate
considering the subject's 22 year chronological and effective age, calculated as
follows:
Direct Building
Cost FF&E
--------------- ----
Base Cost New $2,516,966 $ 204,000
Plus: Indirect Cost Allocation x 1.07 x 1.07
Plus: Profit Allocation x 1.10 x 1.10
------------ ----------
Depreciable Base $2,962,469 $ 240,108
Depreciation Estimate (per MVS) 34% 50%
----------- ----------
Total Physical Incurable Depreciation $1,007,239 $ 120,054
========== ==========
Total $1,127,293
==========
The depreciation percentages are based on our site inspection and Marshall
Valuation estimates considering the subject's current 22 year old effective age
(5 years for FF&E considering ongoing replacement) and 45 year old total
economic life (10 years for FF&E). Physical incurable depreciation must be
deducted from estimates of cost new to arrive at an as is valuation.
SUMMARY
Our estimate of value by the Cost Approach is summarized on the following page
with an indicated value conclusion as is, in July, 1995 of $2,836,638, called
$2,825,000.
240
RETIREMENT INN - FULLERTON
COST APPROACH CALCULATION (CALCULATOR METHOD)
Total Land Value (43,124 SF at $15.00/SF) $ 646,860
Direct Building Costs
Building Cost $2,516,966
Furniture & Equipment
(68 Units at $3,000/each) $ 204,000
----------
Total Direct Building Costs $2,720,966
Total Direct Building and Land Costs $3,367,826
Indirect Costs - 7% $ 235,748
----------
Total Construction and Land Costs $3,603,574
Plus Entrepreneurial Profit at 10% $ 360,357
----------
Total Cost New (Including Land) $3,963,931
Less Depreciation
Physical Curable $ 0
Physical Incurable ($1,127,293)
Functional Curable $ 0
Functional Incurable $ 0
External Obsolescence $ 0
------------
Total Depreciation ($1,127,293)
-----------
Indicated Value, Cost Approach, As Is $2,836,638
==========
Rounded to $2,825,000
241
INCOME APPROACH
The Income Approach is based upon the economic principle that the value of a
property capable of producing real estate income is the present worth of
anticipated future net benefits. The net income projection is translated into a
present capital value indication using a capitalization process. There are
various methods of capitalization that are based on inherent assumptions
concerning the quality, durability, and pattern of the income projection.
Our Income Approach analysis applies an overall capitalization rate to the
subject's projected net income over the next 12 months. This method was
considered appropriate as the subject is currently operating at a stabilized
cash flow (occupancy and expenses). A discounted cash flow model was not
considered of primary usefulness in valuing the subject for the following
reasons:
1) buyers of properties like the subject typically do not use discounted cash
flow analyses;
2) because the subject is a stabilized property, a discounted cash flow model
would simply be inflating revenues and expenses at a fixed rate and then
canceling out the inflation estimate using an appropriate discount rate. In
other words, if properly applied, a discounted cash flow analysis would
arrive at the same value estimate as applying an overall capitalization
rate methodology.
Net income is calculated by subtracting a vacancy and credit allowance and all
fixed and operating expenses from the indicated gross income. The methods
utilized to estimate gross income, vacancy, expenses and an overall
capitalization rate are discussed in detail in the following paragraphs.
PROJECTION PERIOD
In our analysis of the subject's net income, we have utilized a projection
period of 12 months (7/95 to 6/96) which reflects a stabilized cash flow and
occupancy level. Based on this premise, the owner of the property will enjoy the
net proceeds of sale (reversion) at July, 1995 based on the projected July, 1995
to June, 1996 net income. The theory is that the investor purchasing the
property in July, 1995 would be more interested in the anticipated net income in
their first year of ownership than they would be in the previous year's income
prior to their ownership.
POTENTIAL GROSS ANNUAL INCOME
In estimating the potential gross annual income for the subject property over
the projection period, we have reviewed the current rent roll and prepared our
own survey of the properties considered to be most competitive and comparable to
the subject. This survey was presented in the Market Analysis section of this
appraisal and summarized on a following page.
The operators of the subject property have achieved the rental census and
occupancy as summarized on the following page. The June, 1995 census reveals an
occupancy of 91.7% or 77 beds out of a maximum current configuration of 84 beds.
242
RETIREMENT INN - FULLERTON
SUMMARY OF SUBJECT RENT CENSUS at 6/19/95
Private-Studio Semi-Private SSI Total
(Units) (Beds) (Beds) -----
-------------- ------------ ------
Number Units/Beds - Rented 48 9 20 77 (91.7%)
Rent Range $1,150-$1,415 $800-$905 $671-$691 $671-$1,415
Rent Average $1,318 $871 $688 $1,102
Potential Total Rent-Rented $759,300 $94,020 $165,120 $1,018,440
Number Units/Beds - Vacant (1) 4 1 2 7 (8.3%)
Rent Range $1,250 $800 $691 $691-$1,250
Rent Average $1,250 $800 $691 $1,026
Total Potential Rent-Vacant $60,000 $9,600 $16,584 $86,184
Total Units/Beds 52 10 22 84 (100%)
Gross Potential Rent-Total $819,300 $103,620 $181,704 $1,104,624
Per Unit/Bed $1,313 $864 $688 $1,096
NOTES:
(1) Vacant units include:
Private Studio - Units 118, 212, 229, 236 (4 Units);
Semi-Private - Beds 214, 222, 228 (3 Beds); vacant beds allocated between
semi-private and SSI in ratio of leased semi-private/SSI beds.
243
Our review of the subject's rent roll revealed a relatively variable range of
rentals with several units having different rents. Discussions with the current
operator noted that individual monthly rents were a function of the unit
location, when the resident entered the subject and negotiation of the rent when
entered. All SSI rents are fixed by governmental agency at $691 per month and
not market determined.
The comparison of the subject rents (with and without the average assisted
living surcharge) to the market area projects surveyed accumulates the monthly
rental of all facilities, the average of the 18 projects surveyed and the most
comparable projects to the existing Retirement Inn - Fullerton. Of the projects
surveyed, Comparable Nos. 2 - Acacia Villa, 3 - Rosewood Court, 7 Villa De Palma
and 9 - Anaheim Gardens would be most similar to the subject in age, scale,
amenities, quality and unit mix.
As shown, the subject's private room rents (with and without the assisted living
surcharge) are within the range of all and the most similar properties and near
the averages (for both congregate and assisted living) of all facilities. The
subject's congregate studio private and semiprivate rents are near the average
of all projects surveyed (within 5%). The subject's average assisted living
rents are within the overall range of all projects, similar to the most
comparable properties, and slightly below the average of all projects (about
10%). Because the subject offers a la carte pricing for its assisted living
amenities, residents can effectively choose their rent level (the assisted
living surcharge) as their living assistance needs vary or change.
In our opinion, the most compelling evidence that the subject's rents are market
rents (and not above or below) is the subject's apparently stabilized occupancy,
which is currently 92% at the current rents. We have also considered the
subject's relatively higher occupancy rate compared to the other projects in the
northern Orange County primary market area and its high SSI census. In our
opinion, the subject's rents have been material factors in keeping its occupancy
above 90% despite its competitive position (market conditions, competition,
project age, small units).
Therefore, given the above discussion, in our opinion, the subject's current
monthly average rents represent market rental rates and are used in our pro
forma estimate of income and expenses shown on a following page. All subject
rents (the average per unit/bed type noted above) are forecast to increase 2%
during the 7/95 to 6/96 projection period, reflecting market conditions and the
subject's history. The 2% estimate in the next 12 months represents an average
4% rent increase applied at each resident's move-in anniversary date which are
assumed to occur evenly over the next 12 months. SSI rates are conservatively
forecasted to remain at current levels in the next 12 months. Our cash flow
estimates are shown gross or before a vacancy and collection factor.
The above rents are base rents for unlicensed congregate living services. This
rent does not include assisted living surcharges which are billed to residents
on an a la carte basis. Currently, the subject charges for these extra amenities
on a case by case basis with an approximate average of $400 extra per month for
medication monitoring, help with bathing and doing personal laundry. Currently,
about 31 residents pay for living assistance at an approximate average of $389
extra rent per month. Our cash flow projections for the subject estimate a
stabilized 37% gross utilization (35 beds gross; 32.6 beds net) of assisted
living amenities at stabilization, calculating to the following gross assisted
living surcharge income:
244
RETIREMENT INN - FULLERTON
COMPARATIVE RENT ANALYSIS
ACLF - CONGREGATE RENTS
Private - Studio Semi-Private - Studio
----------------------------------------- ---------------------------------------
Comp. No. Monthly Rent Comp. No. Monthly Rent
--------- ------------ --------- ------------
2* $1,250-$1,800 2* $850-$950
4 $1,263 5 $850
5 $1,275-$1,850 7* $850-$900
6 $1,125-$1,200 9* $850
7* $1,150-$1,650 13 $750
9* $1,250-$2,000 14 $696
11 $1,185
13 $785-$1,000
14 $900-$1,500
15 $1,200
16 $1,400-$1,800
17 $1,195
18 $1,025
Range $785-$2,000 $696-$950
Average $1,295 $820
AL - ASSISTED LIVING RENTS
Private - Studio Semi-Private - Studio
----------------------------------------- ---------------------------------------
Comp. No. Monthly Rent Comp. No. Monthly Rent
--------- ------------ --------- ------------
1 $3,375-$3,600 1 $2,450
2* $1,400-$2,800 3 $800-$900
3 $1,150-$1,250 5 $1,425-$1,850
4 $2,350-$2,650 7* $1,000-$1,900
5 $1,425-$2,850 8 $1,900-$2,300
6 $1,225-$1,700 9* $1,000
7* $1,300-$2,650 12 $1,000-$1,300
8 $2,300-$2,500 14 $756-$821
9* $1,500-$2,500 15 $800-$850
10 $1,445
11 $2,380
12 $1,300-$1,800
13 $960-$1,175
14 $960-$1,625
15 $1,300-$1,500
16 $1,600-$2,300
17 $1,315-$1,995
18 $1,995-$2,750
Range $960-$3,600 $756-$2,450
Average $1,910 $1,361
Private - Studio Semi-Private
---------------- ------------
Subject Rented Beds -
Subject Range $1,150-$1,415 $800
Subject Average $1,318/$1,718** $800/$1,200**
(48 Units) (9 Beds)
Subject Vacant Beds -
Subject Range $1,250 $800
Subject Average $1,250/$1,650** $800/$1,200**
(4 Units) (1 Bed)
*Comparable Nos. 2 - Acacia Villa; 7 - Villa de Palma; and 9 - Anaheim Gardens
are most similar to the subject.
**Includes average assisted living surcharge of $400 per month.
245
Avg. Surcharge/ Resident Projected
Period Month/Bed Utilization Annual Income
------ --------------- ----------- -------------
At 6/95 $389 31 (net) -
At 7/95 to 6/96 $400 35 (gross) $168,000
In addition to total potential gross room revenue, we have included
miscellaneous income at 1.0% of effective gross income reflecting historical
receipts for guest meals, processing fees, extra services to residents, and
beauty shop income.
VACANCY AND COLLECTION LOSSES
Our cash flow projections deduct a total vacancy and collection loss in the
stabilized projection period as follows:
Average Average
Occupancy Vacancy
--------- -------
As Is at 6/95 91.7% 8.3%
7/95 to 6/96 (Stabilization) 93.0% 7.0%
The above estimate of stabilized occupancy/vacancy is meant to incorporate 78.1
residents or an occupancy/vacancy of 93.0% (78.1/84). This conclusion is
slightly higher than the current occupancy (77 beds) but is consistent with the
subject's actual recent occupancy trends and operator projections. The projected
stabilized vacancy factor reflects the subject's occupancy history and current
occupancy, discussions with the current operator, the subject's competitive
position and local market conditions. The subject's market position (lower rents
in a more affluent and crowded market) and lesser quality physical plant
mitigate against a lower stabilized vacancy estimate (or higher occupancy).
OPERATING EXPENSES
In determining pro forma estimates of operating expenses, we have primarily
relied on the specific expense histories (1993, 1994, 4 months ending 4/95
annualized) and budget (1995) of the subject property as summarized on the
following page and the experience at comparable projects. The expenses
enumerated below would be those of a typical operator at the subject. We have
summarized our expense estimates as follows:
Real Estate Taxes - Real estate taxes are estimated to reflect an assumed sale
of the subject property and a reassessment at current market rates at June, 1995
($2,350,000 times the tax rate of 1.00968% plus approximately $6,008 in direct
assessments). This real estate tax expense reflects taxes that would have to be
incurred by a buyer of the subject wherein the subject would be reassessed to
market value;
246
RETIREMENT INN - FULLERTON
HISTORICAL INCOME AND EXPENSE
Historical
--------------------------------------------------------------- Operator
4 Months Goal
Year Ending Year Ending Ending 1995 Budget
Revenues 12/93 12/94 4/95 Annualized 1995
- -------- ------------ ------------- ---------- ---------- ----------
Rental Income $ 936,416 $ 956,057 $346,662 $1,039,986 $1,007,665
Assisted Living Income 48,628 74,403 38,617 115,851 83,300
Non-Operating Revenue $ 8,678 $ 8,967 $ 3,214 $ 9,642 $ 8,280
---------- ---------- -------- ---------- ----------
Total Revenues $ 993,722 $1,039,427 $388,493 $1,165,479 $1,099,245
Expenses (1)
Real Estate Taxes $ 33,465 $ 33,323 (2) $ 33,544
Insurance 12,228 12,518 (2) (2) 12,929
G&A 23,979 36,061 (2) (2) 25,245
Utilities 64,698 73,370 (2) (2) 76,215
Payroll/Benefits 427,038 430,765 (2) (2) 437,214
Maintenance 43,917 37,523 (2) (2) 47,080
Activities 9,952 9,529 (2) (2) 8,208
Marketing 8,682 7,440 (2) (2) 13,029
Laundry & Linen 6,490 8,527 (2) (2) 13,680
Dietary 97,530 103,131 (2) (2) 106,238
Supplies 20,403 24,000 (2) (2) 21,432
---------- ---------- -------- ---------- ----------
Total Operating Expense $ 748,382 $ 776,187 $276,679 $ 830,037 $ 794,814
(75.0%) (74.7%) (71.2%) (71.2%) (72.3%)
Net Operating Income $ 245,340 $ 263,240 $111,814 $ 335,442 $ 304,431
========== ========== ======== =========== ==========
NOTES:
(1) Does not include management fee or replacement reserves.
(2) Detail not available.
247
Insurance - estimated at 1.0% of effective gross income, reflecting typical
charges for liability/fire insurance, historical costs incurred, and the fixed
nature of this expense;
Management - estimated at 5% of effective gross income reflecting the current
typical or average industry charge which would be appropriate for the subject
considering its average complexity of operation;
General and Administrative - estimated at 12% of effective gross income;
representing additional on site costs incurred to manage the subject including
salaries and benefits for the administrator and assistants and all miscellaneous
costs to operate the subject (office supplies, miscellaneous rentals);
Utilities - estimated at 6.5% of effective gross income, which is consistent
with historical costs incurred. Includes all common area and unit utility costs
(telephone, electric, gas, water, sewer);
Maintenance - estimated at 5% of effective gross income, including all
maintenance/security salary and supplies (including land maintenance and pest
control), derived from historical expenses;
Activities/Transportation - all social/recreational service costs including
salaries and supplies (including van service) are estimated at 3% of effective
gross income;
Marketing - all advertising, marketing and sales expenses are estimated at 2.0%
of effective gross income. This allocation reflects the expenses of a typical
operator in the locally competitive market.
Housekeeping - estimated at 6% of effective gross income to include salaries,
supplies, for both an internal laundry and linen service and housekeeping and
consistent with historical costs incurred;
Dietary - estimated at anticipated dietary costs to a typical operator or $10.00
per day per resident reflecting the lesser number of residents (78.1 occupied
beds x $10.00/day x 365 days). This estimate includes all dietary related
salaries and benefits and cost of food. These estimates are within current
industry averages and historical costs incurred and reflect a lesser economy of
scale due to the smaller number of beds;
Personal Care - estimated at 8.0% of effective gross income to include all
salaries and supplies necessary to provide assisted living services to
approximately 42% of the residents (about $8.17 per resident day for about 33
residents);
Replacement Reserve - estimated at 12.5% of the estimated furniture and
equipment cost new ($204,000 or $3,000 per unit) to include the annual reserve
necessary to replace furniture and equipment and other short lived capital items
(carpeting, painting). The stabilized estimate of $25,500 is equal to 2.1% of
the estimate effective gross income.
As shown, total stabilized expenses (not including management fees and reserves)
to a typical operator accumulate to 69.5% of effective gross income or $10,777
per occupied bed (78.1 beds).
248
The per bed total expenses are slightly higher than typical because of the
subject's smaller number of smaller units preventing economies of scale in
operation. A comparison to similar congregate/assisted living properties before
management fees and reserves illustrates the following:
Inflated
Stabilized Per to 1995
Location Expense Ratio Resident/Yr. at 4%/Yr.
-------- ------------- ------------ --------
10 ARV Properties California 61.7% $ 9,782 (1994) $10,173
13 Angeles
Housing Properties National 56.6% $ 8,966 (1993) $ 9,698
Greenhills Millbrae 55.7% $ 8,234 (1992) $ 9,262
Meadows Napa 56.3% $ 8,418 (1992) $ 9,469
Country Inn Fremont 52.5% $ 7,718 (1992) $ 8,682
Westmont Santa Clara 57.7% $ 9,520 (1992) $10,296
Canyon Hills Club Anaheim 61.2% $11,918 (1994) $12,395
Courtyard San Marcos 51.6% $ 9,181 (1993) $ 9,930
6 Facility Averages 55.8% $10,006
Subject - 1993 Historical 75.0% $ 9,719
Subject - 1994 Historical 74.7% $10,080
Subject - 1/95 to 4/95 Historical 71.2% $10,780
Subject - 1995 Budget 72.3% $10,322
Subject Projected - Period 1
- - (7/95 to 6/96) 69.5% $10,777
As illustrated, the projected expenses for the subject are above the average of
the expense histories of the projects listed above and above the averages of 10
other ARV facilities. The subject will always have much higher expenses on a
percentage of income basis because of its lower revenue base (lower rents, SSI
census) and higher on a per patient basis due to the lesser number of beds
(preventing greater economies of scale) and higher semiprivate bed (two beds per
room) census. Our projections consider these comparable properties and
historical costs incurred.
On the following page, we have illustrated average annual operating costs per
unit as accumulated in a recent national survey of operating expenses for
various types of senior facilities including assisted living. The survey
indicated a median annual cost per unit of $10,577 before management fees
($11,541 total less $964 in management fees). This compares to our per unit
estimate for the subject of $12,377 ($841,640/68) in the next 12 months.
Finally, a reconciliation of our adjusted period one (7/95 to 6/96) projected
expenses to 1995 actual annualized expenses illustrates the following:
249
Actual Total Expenses (1/95 to 4/95 Annualized) $830,037
========
Operator Budget (1995) $794,814
========
Projected Total Expenses Per SLVS (7/95 to 6/96) $927,703
Less: Management Fees ($ 60,557)
Less: Replacement Reserves ($ 25,500)
--------
Adjusted Projected Total Expenses (7/95 to 6/96) $841,640
========
Difference (over 1995 actual, reflects inflation) +1.4%
(over 1995 budget, reflects an understated budget, inflation) +5.9%
CAPITALIZATION PROCESS
Because Retirement Inn - Fullerton is being appraised as of July, 1995 wherein
it has reached a stabilized cash flow, we have utilized a procedure where the
stabilized net income for the period of July, 1995 to June, 1996 is capitalized
at a rate of 12.0% to get an indicated total property value at July, 1995. This
calculation is shown on a following page.
We have been involved in the analysis and valuation of numerous retirement
facilities around California which have generally exhibited overall
capitalization rates ranging from 11% to 15%. These are illustrated in sales of
comparable facilities in the Sales Comparison Approach of this report and are
summarized as follows:
Comparable Indicated
Sale No. Property Cap Rate
-------- ---------- ---------
1 Valley Crest 11.3%
2 Canyon Hills Club 10.3%
3 Brea Residential 11.1%
4 Whittier 11.8%
5 Lomita Lodge 12.2%
6 Villa San Marcos 12.7%
Range 10.3%-12.7%
Average 11.6%
25 Facility Average 12.5%
250
In April, 1995, Senior Living Valuation Services, Inc. conducted the second
annual survey of close to 300 participants in the senior housing industry
regarding their investment criteria or perception of criteria used in evaluating
different types of senior housing properties. The investment criteria survey
polled included capitalization rates, discount rates and returns on equity. A
copy of this survey is provided in the Addenda of this report. The survey
indicated a capitalization rate range of 9% to 16% and an average of 12.1% for
assisted living facilities. Though the survey is not definitive, it does provide
some market evidence of the investment criteria being used (or perceived to be
used) by industry professionals.
Another method of estimating a capitalization rate is the band of investment
weighted average technique. If the available mortgage terms are known, the debt
service or mortgage constant can be calculated, and if the equity dividend rate
required to attract equity capital is known or can be estimated, the overall
rate applicable in direct capitalization can be computed. Available mortgage
terms are 70% of value at 10.0% interest with an amortization term of 20 years
reflects market terms based on our experience of specific financing transactions
and recent national surveys of financing parameters for senior housing
properties. Based on these terms, the mortgage constant is .1158. The equity
dividend rate required to attract equity capital for properties similar to the
subject is approximately 15%. The indicated overall capitalization rate using
this approach is:
Band of Investment
Portion Weighted
of Value Rate Contribution
-------- ---- ------------
Mortgage 0.70 x .1158 .0811
Equity 0.30 x .15 .0450
-----
1.0 x Overall Rate .1261
OAR 12.61%
These sources of capitalization rates can be summarized as follows:
Indicated
Cap Rates
---------
6 Detailed Sales 11.6%
25 Statewide Sales 12.5%
SLVS Investment Survey 12.1%
Band of Investment 12.61%
Based upon the current characteristics of the subject, namely, its overall
average cash flow risk as reflected in the stabilized occupancy (93%) and less
volatile cash flow (including a high SSI census), which is derived from the
subject's established niche as a middle market, average quality assisted living
project in the area, and conversely, considering the difficult and crowded local
market, the subject's full assisted living licensing, the subject's more limited
unit mix in an older
251
generation physical plant in an overall affluent market area (albeit with the
currently weak local real estate market), we have concluded that 12.0% or toward
the middle portion of the approximate range is an appropriate capitalization
rate for the subject property.
SUMMARY
Our estimate of value by the Income Approach is summarized on the following page
and produces an indicated value for the subject property as is, at May 4, 1995
of $2,361,992, rounded to $2,350,000 ($34,559/unit).
252
RETIREMENT INN - FULLERTON
PRO FORMA INCOME/EXPENSE & CAPITALIZATION
Projected
Stabilized
(7/95-6/96)
-----------
Average Occupancy (All Beds) 93.0% (78.1 Beds)
Average Net Rental (All Beds) $1,115
Potential Gross Rent Income -
Studio Private - 52 Beds at $1,339/Mo. Avg. $ 835,686
Semiprivate - 10 Beds at $881/Mo. Avg. 105,754
SSI - 22 Beds at $688/Mo. Avg. $ 181,632
----------
Potential Gross Rent Income $1,123,072
Plus: Assisted Living Surcharges (35 Beds at $400/mo.) $ 168,000
Plus: Miscellaneous Income (1% of PGRI) $ 11,231
----------
Potential Gross Income $1,302,303
Less: Stabilized Vacancy & Collection Losses - 7% ($ 91,161)
-----------
Effective Gross Income $1,211,142
Expenses - % of EGI
--------
Real Estate Taxes - $ 29,735
Insurance 1.0% 12,111
Management 5.0% 60,557
G&A 12.0% 145,337
Utilities 6.5% 78,724
Maintenance 5.0% 60,557
Activity & Trans. 3.0% 36,334
Marketing 2.0% 24,223
Housekeeping 6.0% 72,669
Dietary $10.00/PRD 285,065
Personal Care 8.0% 96,891
Replacement Reserves - $ 25,500
----------
Total Expenses $ 927,703
(76.6%)
Stabilized Net Operating Income $ 283,439
Capitalization Rate .12
----------
Capitalized Value $2,361,992
==========
Called $2,350,000
Per Unit $ 34,559
253
SALES COMPARISON APPROACH
The Sales Comparison Approach is a method of comparing the subject property to
recent sales and/or listings of similar types of properties located in the
subject or competing areas. Each of these sales must be analyzed to establish
estimate elements of comparability. The reliability of this technique depends on
1) the degree of comparability between the subject and the sales properties; 2)
the length of time since the sales were consummated; 3) the accuracy of the
sales data; and, 4) the absence of unusual conditions affecting the sale.
On the following page, we have included 25 sales of congregate senior housing
properties which can be considered somewhat similar to the subject. The purpose
of including this listing is to provide the reader with some context of western
US senior housing sales beyond those specifically discussed below. This
additional information can be helpful because of the special purpose nature and
general illiquidity of the senior housing market. Some of the sales in the last
18 months represent REO's. Some of the project buyers present in today's market
are still "bottom fishing" where distressed properties can be purchased at
substantial discounts from replacement cost. However, these buyers have a
shrinking supply of properties available to choose from. This suggests a trend
of lower capitalization rates (higher sale prices). Those more recent
transactions considered most comparable to the subject are summarized on the
following page and discussed in greater detail in the Addenda of this report.
The sale prices noted below are discussed and reported on a sale price per unit
(total going concern) basis.
Comparable Sale No. 1 is the February, 1995 sale of Valley Crest, a small
assisted living property located in Apple Valley, a less affluent desert city.
The high quality property was built in 1985 and sold for $2,200,000 or $59,459
per unit. The property was fully occupied at the date of sale and sold for an
indicated capitalization rate of 11.3%. The property includes about 20% SSI
residents and was purchased by a national owner/operator of senior properties
(Brim Housing), who is actively seeking to expand their portfolio of properties.
Comparable Sale No. 2 is the February, 1995 sale of Canyon Hills Club for
$13,450,000 or $63,443 per unit. The buyer, Brim Housing (same as Sale No. 1),
was the former operator of the project suggesting a slightly higher sales price
(due to greater familiarity with the property). The 212 unit project was built
in 1989 and has a relatively high quality physical plant with 45 of the total
units licensed for assisted living. The overall quality of this project is above
the subject. The project was 93% occupied at the date of sale with an indicated
cap rate of 10.3%.
Comparable Sale No. 3 and 4 are both sales to the national skilled
nursing/assisted living Manor Care who converted the two projects to Springhouse
Assisted Living projects, Manor Care's national chain of assisted living
projects. The purchase of these two similar projects was completed in January,
1995. Brea Residential was built in 1990 and has 98 units. The project sold for
$4,800,000 or $48,980 per unit. Whittier Retirement Villa is a slightly older
project, built in 1973 and which has 72 units. The project sold for $2,875,474
or $39,937. The indicated cap rates of the two fully occupied properties was
11.1% and 11.8%, respectively. Both of these projects are somewhat comparable to
the subject.
254
WESTERN US ACLF/AL SENIOR HOUSING SALES SUMMARY
LAST 24 MONTHS
Gross Expense Sale
Inc. Ratio Price
No. Facility Name Location Age Units $/Unit/Mo (%) Date (000) $/Unit OAR $/SF GIM
- --- ---------------------- ------------------ ----- ----- --------- ------- ---- ------- ------- ------ ------- ---
1. The Highlander Seattle, WA 1979 121 $1,066 55.0% 6/93 $ 5,200 $41,322 13.4% $ 52.73 3.36
2. Almond Avenue Orangevale, CA 1987 39 $1,598 65.2% 7/93 $ 2,100 $53,864 12.4% $ 57.00 2.81
3. Summerfield Tigard, OR 1980 155 $1,100 60.0% 8/93 $ 6,550 $42,532 13.2% $ 80.84 3.20
4. Renton Villa Renton, WA 1983 78 $1,366 66.7% 8/93 $ 3,000 $38,462 14.2% $ 46.51 2.35
5. Sherwood Villa Tacoma, WA 1981 98 $1,328 69.0% 8/93 $ 2,800 $28,571 17.3% $ 45.67 1.79
6. Celeste Villa Modesto, CA 1975 81 $1,080 72.5% 10/93 $ 1,900 $23,457 13.7% $ 32.75 1.81
7. Springs of Napa Napa, CA 1986 102 $1,332 55.0% 11/93 $ 6,300 $61,765 11.7% $ 69.23 3.86
8. Summerhill Puyallup, WA 1987 96 $1,241 59.4% 2/94 $ 5,500 $57,292 10.5% $ 62.74 4.40
9. Chula Vista Inn Chula Vista, CA 1975 112 $1,034 75.0% 6/94 $ 2,675 $23,884 13.0% $ 41.10 1.92
10. Villa San Marcos San Marcos, CA 1986 100 $1,191 65.0% 6/94 $ 3,951 $39,510 12.7% $ 73.17 2.76
11. Camlu Phoenix, AZ 1979 88 $1,153 65.0% 6/94 $ 3,800 $43,182 11.2% $ 83.66 3.12
12. Gold Star Manor Fullerton, CA 1985 80 $1,146 70.0% 6/94 $ 2,880 $36,000 11.5% $128.34 2.62
13. Hacienda de Monterey Palm Desert, CA 1989 180 $1,813 65.8% 7/94 $ 7,250 $40,278 18.5% $ 41.36 1.85
14. Park Ridge Vallejo, CA 1991 93 $1,632 60.0% 7/94 $ 5,785 $62,204 11.3% $ 68.10 3.54
15. Carson Oaks Stockton, CA 1989 76 $1,462 60.0% 7/94 $ 4,200 $55,263 12.4% $ 66.95 3.23
16. Villa Ocotillo Scottsdale, AZ 1973 102 $1,242 60.0% 9/94 $ 3,500 $34,314 14.9% $ 43.34 2.30
17. Lomita Lodge Ojai, CA 1970 26 $1,999 75.0% 12/94 $ 1,350 $51,923 12.2% $135.00 2.06
18. Brea Residential Brea, CA 1990 98 $1,377 67.0% 1/95 $ 4,800 $48,980 11.1% $ 84.24 2.96
19. Whittier Retirement Whittier, CA 1973 72 $1,187 67.0% 1/95 $ 2,875 $39,937 11.8% $ 75.16 2.80
20. Canyon Hills Club Anaheim, CA 1989 212 $1,661 67.1% 2/95 $13,450 $63,443 10.3% $ 65.92 3.18
21. Casa Sandoval Hayward, CA 1989 238 $1,346 65.0% 2/95 $15,000 $63,025 9.0% $ 69.23 3.90
22. Valley Crest Apple Valley, CA 1985 37 $1,600 65.0% 2/95 $ 2,200 $59,459 11.3% $118.71 3.10
23. Amaryllis Court Anaheim, CA 1969 33 $1,391 75.0% 3/95 $ 1,150 $34,848 11.0% $ 71.72 2.09
24. Fulton Villa Stockton, CA 1973 76 $ 763 72.1% 3/95 $ 1,450 $19,079 11.5% $ 25.29 2.08
25. Oak Tree Villa Scotts Valley, CA 1988 202 $1,399 56.8% 6/95 $11,900 $58,911 12.3% $ 69.18 3.51
Low 1969 26 $ 763 55.0% $ 1,150 $19,079 9.0% $ 32.75 1.79
High 1991 238 $1,999 75.0% $15,000 $63,443 18.5% $135.00 4.40
Low (minus 2 lowest) 1973 37 $1,066 56.8% $ 1,450 $23,884 10.5% $ 41.36 1.85
High (minus 2 highest) 1989 202 $1,661 72.5% $11,900 $62,204 14.9% $118.71 3.86
Average: 1982 104 $1,340 65.3% $ 4,863 $44,860 12.5% $ 68.72 2.82
255
RETIREMENT INN - FULLERTON
COMPARABLE IMPROVED SALES
Indicated
Age/No. Sale Price/ Sale Occupancy Overall
No. Name/Location of Units Date Sale Price Unit Price/SF at Sale Rate
- --- ------------- -------- ---- ---------- ------ -------- --------- ---------
1. Valley Crest 1985/ 2/95 $ 2,200,000 $59,459 $118.71 100% 11.3%
18521 Corwin 37
Apple Valley, CA
2. Canyon Hills Club 1989/ 2/95 $13,450,000 $63,443 $ 65.92 93% 10.3%
525 S. Anaheim Hills Road 212
Anaheim, CA
3. Brea Residential 1990/ 1/95 $ 4,800,000 $48,980 $ 84.24 94% 11.1%
285 W. Central 98
Brea, CA
4. Whittier Retirement Villa 1973/ 1/95 $ 2,875,454 $39,937 $ 75.16 94% 11.8%
8101 S. Painter 72
Whittier, CA
5. Lomita Lodge 1970's/ 12/94 $ 1,350,000 $51,923 $135.00 81% 12.2%(1)
225 N. Lomita 26
Ojai, CA
6. Villa San Marcos 1986/ 6/94 $ 3,951,000 $39,510 $ 73.17 80% 12.7%(1)
1550 Security Place 100
San Marcos, CA
(1) Estimated at 92% occupancy
256
Comparable Sale No. 5 is the December, 1994 sale of Lomita Lodge, a small
assisted living project located in Ojai. The 26 unit project sold for $1,350,000
or $51,923 per unit. The property was originally built in the 1940's and
expanded in the 1970's. The project has high rents but was only 81% occupied at
the date of sale. The indicated cap rate at a stabilized occupancy is 12.2%.
Comparable Sale No. 6 is the Villa San Marcos project in San Marcos (San Diego
County) which sold in June, 1994 for $3,951,000 or $39,510 per unit. The 100
unit project was built in 1986 and was 80% occupied at the date of sale. The
indicated capitalization rate of the sale at an assumed stabilized occupancy is
approximately 12.7%. The project has had difficulty achieving full occupancy
because of a competing project (Courtyard of San Marcos) located next door. The
overall quality of the project is average.
The comparables described above indicate unit values of between $39,510 per unit
to $63,443 per unit before adjustments. Overall, in reviewing these sales for
comparability to the subject, we observed significant differences. Most notably,
differences in location, physical plant, occupancy, and unit mix make direct and
precise comparison to the subject property difficult. Therefore, in our opinion,
the overall degree of comparability of these sales to the subject is only fair.
Nevertheless, after the adjustments described below, these comparables should
provide approximate parameters for an indicated value of the subject property.
The first adjustment to the comparable sales (the yet to stabilized Sale Nos. 5
and 6) reflects the difference in the stabilized occupancy of the comparables at
their date of sale to the projected 93% stabilized occupancy of the subject. The
amount of the adjustment is interpolated assuming an approximate 20% to 25%
difference in value between an empty project and one that is stabilized.
On a following page, we have also adjusted each of the comparable sales for the
difference in the ratio of net income per the total number of units. These
adjustments should provide an approximate value range from the subject. We have
adjusted each comparable by the ratio of the estimated stabilized net income per
unit of the subject ($4,168) to the net income per unit of the comparables. This
ratio should theoretically reflect differences in stabilized occupancy, location
and quality (through rents), unit mix and operating efficiencies (through
expenses).
As illustrated, after adjustment, these sales indicate a value range for the
subject of $34,433 per unit to $40,604 per unit. This range provides approximate
parameters for a value indication for the subject. In our opinion, given the
above adjustments, the indicated value of the subject as is in July, 1995 is
between $34,433 to $40,604 per unit, calculating to a total indicated fee simple
value using a Sales Comparison Approach of $2,341,444 ($34,433/unit x 68 units)
to $2,761,072 ($40,604/unit x 68 units), rounded to $2,350,000 to $2,750,000.
As described in the Reconciliation and Conclusion section of this appraisal, due
to significant differences in location, occupancy, quality and amenities
package, our final value conclusion does not place great weight on this value
estimate reflecting the general lack of comparability, large adjustments and
wide range of indicated values.
257
RETIREMENT INN - FULLERTON
COMPARABLE IMPROVED SALES ADJUSTMENTS
No. 1 No. 2 No. 3 No. 4 No. 5 No. 6
----- ----- ----- ----- ----- -----
Sale Price Per Unit $59,459 $63,443 $48,980 $39,937 $51,923 $39,510
Before Adjustment
Occupancy Adjustment - - - - +5% +5%
Net Income Per Unit -38% -36% -23% -12% -34% -17%
Adjustment (Subject (1) ($ 4,168/ ($ 4,168/ ($ 4,168/ ($ 4,168/ ($ 4,168/ ($ 4,168/
NOI/Unit/Comp/NOI/Unit $ 6,719) $ 6,535) $ 5,437) $ 4,713) $ 6,335) $ 5,003)
-------- -------- -------- -------- -------- --------
Sale Price Per Unit
After Adjustment $36,865 $40,604 $37,715 $35,145 $35,983 $34,433
======= ======= ======= ======= ======= =======
Range: $ 34,433 - $ 40,604
x 68 Units x 68 Units
----------- -----------
Indicated Value Range: $2,341,444 - $2,761,072
========== ==========
Called: $2,350,000 to $2,750,000
(1) Subject NOI/Unit - $283,439/68 Units
258
RECONCILIATION AND CONCLUSION
Market Value
As Is - 8/1/95
--------------
Indicated Value, Cost Approach $2,825,000
Indicated Value, Income Approach $2,350,000
Indicated Value, Sales Comparison Approach $2,350,000-
$2,750,000
The development of a final estimate of value involves judgment in a careful and
logical analysis of the procedures leading to each indication of value. The
judgment criteria are appropriateness, accuracy and quantity of evidence.
The Sales Comparison Approach is most applicable when closely comparable
properties are bought and sold in the market on a regular basis. We relied on
the sales of somewhat comparable facilities to estimate value using this
approach. However, due to overall property type illiquidity, differences in
occupancy, location and components of income, direct comparison to the subject
property is difficult as suggested by the wide range of indicated values.
Considering these factors, the Sales Comparison Approach is considered to
produce a less reliable indication of value.
The Cost Approach is most applicable when the improvements are new or nearly new
and where a few number of subjective adjustments must be made to reflect
depreciation, if any. In estimating construction cost new, we relied on well
documented general cost information provided by the Marshall Valuation Service
which was generally supported by actual costs incurred at similar projects. Our
estimate of land value is somewhat supported by the sale of similarly zoned
vacant land parcels in the region. Adjustments for physical incurable
depreciation are approximations but were estimated using reasonable analyses.
Considering these factors and our Highest and Best Use conclusions, the Cost
Approach is considered to produce a less accurate indication of value. This
approach is also rarely relied on by investors in this type of property.
The Income Approach is typically considered the strongest value indicator for
properties purchased primarily for their income producing potential. This
approach most accurately reflects the impact of stabilized occupancy rates for
properties such as the subject. Comparable market rental rates and an analysis
of the current census were available for the subject units to arrive at an
estimate of fair market rent and gross income. Expense data was substantiated by
historical data and comparable projects. Finally, our estimate of the
capitalization rate is appropriate reflecting the local competitive market and
the subject's overall average cash flow risk and market position. Overall, the
Income Approach is considered a strong and only truly reliable indicator of
value for the subject property.
After considering the factors leading to each indication of value, the Income
Approach is considered to be the most appropriate for the purpose of this
appraisal. The Sales Comparison Approach is given little to no weight due to the
illiquidity of the market, shifting market trends
259
and the wide range of indicated values. The Cost Approach is also given little
to no emphasis, based on the deductions for depreciation and our highest and
best use discussion. The final market value estimate of the fee simple total
going concern interest of the subject property as is, on August 1, 1995, is:
TWO MILLION THREE HUNDRED FIFTY THOUSAND ($2,350,000) DOLLARS
260
ALLOCATION OF FINAL VALUE DETERMINATION TO COMPONENTS
We have allocated our total going concern value determination to various
components including real estate, business and personal property value. To
allocate the going concern value estimate, we have utilized both the Cost and
Income Approaches to estimate a reliable and reasonable allocation to each
component. A summary of our allocation is illustrated below:
Allocation of Final Going Concern Value Determination
As Is -
8/1/95
------
Total Going Concern Value $2,350,000
Personal Property (1) 100,000
Business Value (2) 325,000
----------
Real Estate Value $1,925,000
==========
(1) FF&E estimated from Cost Approach estimates less accrued depreciation.
(2) Business value estimated from the calculated difference in value of
the subject as is (full occupancy) compared to its value as if it were
vacant as shown below.
The personal property value is taken from the Cost Approach estimates set forth
in Cost Approach section of this report. This estimate reflected a replacement
cost new of $3,000 per unit (total of $204,000 FF&E cost new for 68 units) which
must be adjusted to its current depreciated value. Given the estimated five year
old average age of the subject's personal property items and ongoing
replacement, we have estimated a 50% allocation for depreciation at 8/1/95 or an
as is value of $204,000 x 50% = $102,000, rounded to $100,000.
The business component of the subject value reflects the fact that the subject
is a business requiring specialized management services such as meals,
housekeeping and social activities represent complications in the operation of a
senior housing facility and require specific managerial expertise. An
appropriate method to estimate the business value component is to compare the
value of the subject as is ($2,350,000) as a fully operating stabilized property
to its estimated value as if it were empty, as estimated below ($2,025,000). The
estimated business value would be the difference in these values or $325,000.
261
Approximate Valuation of Subject As If Empty at 7/95
Period 1 Period 2 Period 3
(7/95-12/95) (1/96-12/96) (1/97-12/97)
------------ ------------ ------------
(6 months)
Average Occupancy 32.1% 68.6% 93.0%
Potential Gross Income $651,152 $1,315,327 $1,341,634
Effective Gross Income $209,020 $ 902,314 $1,247,720
Total Expenses $270,292 $ 781,145 $ 955,754
-------- ---------- ----------
Net Income ($ 61,272) $ 121,169 $ 291,966
======== ========== ==========
Discounted Value ($ 57,136) $ 98,256 $1,972,960
======== ========== ==========
Total $2,014,080
==========
Called $2,025,000
==========
Assumptions: 20% preleasing; 3.4 beds/month absorption; 4% annual rent
increases; stabilized expense estimated at 76.6% of stabilized effective gross
income; expenses decreasing from the stabilized period three at 4%/year for
inflation and also for lower occupancy by 15% in period two, 40% in period one;
12.0% terminal cap rate; 15.0% discount rate.
The real estate component is the remainder or residual of the final value
determination after a subtraction for the personal property and business value
components, or as illustrated for the subject: $1,925,000 at May 4, 1995, as is,
or 81.9% of the total going concern value. In our opinion, though these
allocations are estimates, they can be considered reliable and reasonable given
the analysis set forth above.
262
MARKETING PERIOD
The subject's estimated marketing time is 6 months. This conclusion is based on
discussions with those brokers specializing in the sale of senior housing
projects, our knowledge of specific sale transactions (which have had widely
variable marketing times) and considering current market conditions and the
characteristics of the subject. Marketing times at several similar projects
indicate the following:
Casa Sandoval Hayward 6 months
Fulton Villa Stockton 4 months
Pacific Springs Escondido/El Cajon 5 months
Park Ridge Vallejo 5 months
In our opinion, the subject would probably experience an average marketing time
(regarded as about 6 months). The majority of buyers of senior housing projects
are still seeking (and have fewer and fewer available opportunities) distressed
properties where large increases in cash flow value are possible. The subject is
not a distressed property given the current 90%+/- stabilized occupancy and as
such would have a lesser appeal to some market buyers (subject has limited
upside potential although its assisted living utilization could be increased and
its SSI census decreased). Nevertheless, the subject would be viewed as a solid
cash flow project with a good physical plant (albeit with a limited unit mix) in
a good overall, affluent location. The subject's most likely buyer would be a
larger facility owner/operator of other comparable congregate senior housing
properties in California (i.e. Holiday Retirement, Manor Care, Leisure Care,
Capital Senior Living, Brim, Health Care Group, etc.).
263
CERTIFICATION
1. We have no present or contemplated future interest in the real estate that
is the subject of this appraisal report.
2. We have no personal interest or bias with respect to the subject matter of
this appraisal report or the parties involved.
3. To the best of our knowledge and belief, the statements of fact contained
in this appraisal report, upon which the analyses, opinions and conclusions
expressed herein are based, are true and correct.
4. This appraisal report sets forth all of the limiting conditions (imposed by
the terms of my assignment or by the undersigned) affecting the analyses,
opinions and conclusions contained in this report.
5. This appraisal report has been made in conformity with and is subject to
the requirements of the Code of Professional Ethics and Standards of
Professional Conduct of the Appraisal Institute and is prepared in
accordance with the requirements of the Office of the Comptroller of the
Currency and the Uniform Standards of Professional Appraisal Practice.
6. Our compensation is not contingent on an action or event resulting from the
analysis, opinions, conclusions reached or the use of this report.
7. The value estimates set forth in this report are not predetermined or based
on any requested minimum valuation, a specific valuation or the approval of
a loan.
8. The use of this report is subject to the requirements of the Appraisal
Institute relating to review by its duly authorized representatives.
9. Mary Catherine Wiederhold, Appraisal Associate provided significant
professional assistance to the person signing this report.
10. As of the date of this report, Michael G. Boehm, MAI has completed the
requirements of the continuing education program of the Appraisal
Institute.
11. A personal inspection of the property was made by Michael G. Boehm, MAI on
May 4, 1995 and August 1, 1995.
264
12. The concluded total going concern market value estimate of the fee simple
interest of Retirement Inn - Fullerton, is as follows:
MARKET VALUE "AS IS" (AUGUST 1, 1995):
TWO MILLION THREE HUNDRED FIFTY THOUSAND ($2,350,000) DOLLARS
SENIOR LIVING VALUATION SERVICES, INC.
- -------------------------------
Michael G. Boehm, MAI
265
A D D E N D A
266
COMPARABLE RENTAL FACILITIES PHOTOGRAPHS
No. 1 - Acacia Villa
1620 E. Chapman
Fullerton
No. 2 - Fullerton Guest Home
1510 E. Commonwealth
Fullerton
267
COMPARABLE RENTAL FACILITIES PHOTOGRAPHS
No. 3 - Rosewood Court
411 E. Commonwealth
Fullerton
No. 4 - Bradford Square
1180 N. Bradford Avenue
Placentia
268
COMPARABLE RENTAL FACILITIES PHOTOGRAPHS
No. 5 - Villa De Palma
351 E. Palm Drive
Placentia
No. 6 - Park Vista at Morningside
2527 Brea Boulevard
Fullerton
269
COMPARABLE RENTAL FACILITIES PHOTOGRAPHS
No. 7 - Sunnycrest Chalet
1925 Sunny Crest Drive
Fullerton
No. 8 - La Veranda
312 N. Roosevelt Avenue
Fullerton
270
COMPARABLE RENTAL FACILITIES PHOTOGRAPHS
No. 9 - Anaheim Gardens
625 W. La Palma
Anaheim
No. 10 - Emerald Court
1731 W. Medical Court Center
Anaheim
271
COMPARABLE RENTAL FACILITIES PHOTOGRAPHS
No. 11 - Walnut Manor
891 S. Walnut Street
Anaheim
No. 12 - Amaryllis Court
1652 W. Broadway
Anaheim
272
COMPARABLE RENTAL FACILITIES PHOTOGRAPHS
No. 13 - Fullerton Manor
2441 W. Orangethorpe
Fullerton
No. 14 - La Habra Villa
1100 E. Whitier Boulevard
La Habra
273
COMPARABLE RENTAL FACILITIES PHOTOGRAPHS
No. 15 - Meadows of La Habra
200 W. Whittier
La Habra
No. 16 - Park Regency
1750 W. La Habra Boulevard
La Habra
274
COMPARABLE RENTAL FACILITIES PHOTOGRAPHS
No. 17 - Nohl Ranch Inn
380 S. Anaheim Hills Road
Anaheim Hills
No. 18 - Canyon Hills Club
525 S. Anaheim Hills Road
Anaheim Hills
275
VACANT LAND SALE COMPARABLE NO. 1
Location: 600 Block of St. College, South of
Chapman Avenue Fullerton, CA
Assessor's Parcel No.: Could Not Determine (Orange County)
Sale Date: Listing
Document No.: N/A
Sale Price: $700,000
Per Sq. Ft.: $16.07
Per Unit: N/A
Size: 43,560 Square Feet (1.00 Acres)
Topography: Level
Shape: Rectangular
Proposed Use/Density: Unknown
Zoning: O-P
Grantor: Northern California family trust (broker
would not identify)
Grantee: N/A
Terms: N/A
Comments: Property is also available for lease at
$6,000 per month, broker stated the
property has been on the market since
March, 1995; along major thoroughfare in
mixed use commercial/residential
neighborhood.
276
VACANT LAND SALE COMPARABLE NO. 2
Location: 100 North State College
Fullerton, CA
Assessor's Parcel No.: 319-011-057 (Orange County)
Sale Date: 9/30/94
Document No.: 591055
Sale Price: $2,245,000
Per Sq. Ft.: $14.49
Per Unit: N/A
Size: 154,986 Square Feet (3.64 Acres)
Topography: Level
Shape: Irregular
Proposed Use: Probable Residential
(Apartments/Townhomes)
Zoning: R-2
Grantor: Brea Building Site Joint Venture
Grantee: Brea Place Associates
Terms: All Cash to Seller
Comments: In mixed use commercial office
neighborhood along a major thoroughfare.
277
VACANT LAND SALE COMPARABLE NO. 3
PHOTO NOT AVAILABLE
Location: 8721 Whitaker Street
Fullerton, CA
Assessor's Parcel No.: 070-241-024, 25, 26, 30 (Orange County)
Sale Date: 7/14/94
Document No.: 452125
Sale Price: $2,300,000
Per Sq. Ft.: $12.28
Per Unit: $19,827
Size: 187,308 Square Feet (4.30 Acres)
Topography: Flat
Shape: Irregular
Proposed Use/Density: 116 Units Allowed; 26.9 Units/Acre
Zoning: R-3
Grantor: Jean Lamphere (Trustee)
Grantee: Fullerton Housing Investor
Terms: 1st TD $1,600,000; 2nd TD $450,000; terms
unavailable.
Comments: In average quality residential area.
278
VACANT LAND SALE COMPARABLE NO. 4
Location: 137 W. Lincoln Avenue
Orange, CA
Assessor's Parcel No.: 360-031-20 (Orange County)
Sale Date: 7/21/93
Document No.: 484756
Sale Price: $370,000
Per Sq. Ft.: $13.70
Per Unit: $24,666
Size: 27,007 Square Feet (0.62 Acres)
Topography: Level
Shape: Irregular
Proposed Use/Density: 15 unit apartment building; 24.1
units/acre
Zoning: R-3
Grantor: Arthur & Ruth Paulus (Trustee)
Grantee: M/M Joe & Lisa Valenti
Terms: Cash to seller; 1st TD Bank of Yorba
Linda $844,000 (const.).
Comments: In average quality residential area.
279
IMPROVED SALE COMPARABLE NO. 1
Name: Valley Crest Senior Living Center
Location: 18521 Corwin Road, Apple Valley, CA
Assessor's Parcel No.: 0473-091-10 (San Bernardino County)
Sale Date: 2/10/95 (Doc. No. 95-42732)
Sale Price: $2,200,000
No. of Units: 37 Units/72 Beds (Licensed AL)
Age: 1985
Size (GBA): 18,532 Square Feet
Average Unit Size: 257 Square Feet
Sale Price/Unit: $59,459
Sale Price/SF: $118.71
Occupancy Rate: 100%
Gross Operating Income: $710,700
Expenses: $461,955
Net Operating Income: $248,745
% Expenses: 65%
G.I.M.: 3.10
O.A.R.: 11.3%
N.O.I./Unit: $6,984
Grantor: Valley Crest Residential
Grantee: Brim Homestead Inc.
Terms: All Cash to Seller
Comments: Higher quality property in less affluent
market area; property includes approximate
50/50 split of private and semiprivate
beds and about 20% SSI.
Confirmation: Bruce Schoen (503) 256-2070
280
IMPROVED SALE COMPARABLE NO. 2
Name: Canyon Hills Club
Location: 525 S. Anaheim Hills Road, Anaheim, CA
Assessor's Parcel No.: 363-473-01 (Orange County)
Sale Date: 2/1/95 (Document No. 42951)
Sale Price: $13,450,000
No. of Units: 212 (includes 45 licensed
assisted living units)
Age: 1989
% Private Pay: 100%
Size (GBA): 204,028 Square Feet (GBA)
Average Unit Size (GBA/Unit): 962 Square Feet
Sale Price/Unit: $63,443
Sale Price/SF: $65.92
Occupancy Rate: 93%
Gross Operating Income: $4,225,535
Expenses: $2,894,747
Net Operating Income: $1,390,788
% Expenses: 67.1%
G.I.M.: 3.18
O.A.R.: 10.3%
N.O.I./Unit: $6,560
Grantor: Obayashi Corporation
Grantee: Brim Housing Inc.
Terms: All Cash to Seller
Comments: Buyer was former operator of subject;
property took five years to achieve
effective full occupancy.
Confirmation: Bruce Schoen (503) 256-2070
281
IMPROVED SALE COMPARABLE NO. 3
Name: Brea Residential (now known as Springhouse
Assisted Living)
Location: 285 W. Central, Brea, CA
Assessor's Parcel No.: 304-042-9 & 12 (Orange County)
Sale Date: 1/3/95
Sale Price: $4,800,000
No. of Units: 98 Units
Age: 1990
% Private Pay: 80% (Estimated)
Size (GBA): 56,981 Square Feet
Average Unit Size (GBA/Unit): 581 Square Feet
Sale Price/Unit: $48,980
Sale Price/SF: $84.24
Occupancy Rate: 94%
Gross Operating Income: $1,618,917
Expenses: $1,084,674
Net Operating Income: $534,243
% Expenses: 67.0%
G.I.M.: 2.96
O.A.R.: 11.1%
N.O.I./Unit: $5,451
Grantor: Everhealth Foundation
Grantee: Manor Care
Terms: All Cash to Seller
Comments: Average to above average quality project
in northern Orange County area; located in
heavily competitive market area.
Confirmation: Steve Roth (301) 681-9400
282
IMPROVED SALE COMPARABLE NO. 4
Name: Whittier Retirement Villa (now known as
Springhouse Assisted Living)
Location: 8101 S. Painter, Whittier, CA
Assessor's Parcel No.: 8142-032-029 (Los Angeles County)
Sale Date: 1/3/95
Sale Price: $2,875,454
No. of Units: 72 ACLF Units (145 Maximum ALF Beds)
Age: 1973
% Private Pay: 80%
Size (GBA): 38,257 Square Feet
Average Unit Size (GBA/Unit): 531 Square Feet
Sale Price/Unit: $39,937
Sale Price/SF: $75.16
Occupancy Rate: 94%
Gross Operating Income: $1,025,352
Expenses: $686,986
Net Operating Income: $338,366
% Expenses: 67.0%
G.I.M.: 2.80
O.A.R.: 11.8%
N.O.I./Unit: $4,699
Grantor: Everhealth Foundation
Grantee: Manor Care
Terms: All Cash to Seller
Comments: Average quality project in southern Los
Angeles County area; competitive project
located across the street (Posada
Whittier); on significant thoroughfare.
Confirmation: Steve Roth (301) 681-9400
283
IMPROVED SALE COMPARABLE NO. 5
Name: Lomita Lodge
Location: 225 N. Lomita Avenue, Ojai, CA
Assessor's Parcel No.: 017-083-200 (Ventura County)
Sale Date: 12/30/94 (Doc. No. 206073)
Sale Price: $1,350,000
No. of Units: 26 Units/36 Beds (Licensed AL)
Age: 1940's/1970's
Size (GBA): 10,000 Square Feet
Average Unit Size (GBA/Unit): 385 Square Feet
Sale Price/Unit: $51,923
Sale Price/SF: $135.00
Occupancy Rate: 81%
Gross Operating Income: $656,640 (estimated at 95% occupancy)
Expenses: $492,480
Net Operating Income: $164,160 (estimated at 95% occupancy)
% Expenses: 75.0%
G.I.M.: 2.06
O.A.R.: 12.2% (estimated at 95% occupancy)
N.O.I./Unit: $6,314
Grantor: Raymond & Judy Berard
Grantee: Ojai Retirement Inn #1, Ltd.
Terms: $270,000 Cash; $1,080,000 variable rate
loan at 8.5%, 20 year amortization.
Comments: Property underperformed at date of sale;
currently 95% occupied; rents range from
$1,500 to $2,350 per month per bed;
property includes about 25% SSI.
Confirmation: Gerry Meglin (805) 646-5533
284
IMPROVED SALE COMPARABLE NO. 6
Name: Villa San Marcos
Location: 1550 Security Place, San Marcos, CA
Assessor's Parcel No.: 221-031-34 (San Diego County)
Sale Date: 6/1/94 (Doc. No. 94-354892)
Sale Price: $3,951,000
No. of Units: 100 Units (160 Licensed Beds ACLF/AL)
Age: 1986
Size (GBA): 54,000 Square Feet
Average Unit Size (GBA/Unit): 600 Square Feet
Sale Price/Unit: $39,510
Sale Price/SF: $73.17
Occupancy Rate: 80%
Gross Operating Income: $1,429,349 (at 92% Occupancy)
Expenses: $929,077
Net Operating Income: $500,272
% Expenses: 65%
G.I.M.: 2.76
O.A.R.: 12.7%
N.O.I./Unit: $5,003
Grantor: John Bohannon, Inc.
Grantee: American Healthier & Retirement c/o David
Petrie
Terms: All Cash to Seller
Comments: Project has had difficulty achieving full
occupancy; major senior housing project
(The Courtyard) next door; average quality
project in its market place, located
adjacent to retail center.
Confirmation: David Petrie (619) 744-4484
285
IMPROVED SALE COMPARABLE PHOTOGRAPHS
No. 1 - Valley Crest
18521 Corwin
Apple Valley
No. 2 - Canyon Hills Club
525 S. Anaheim Hills Road
Anaheim
286
IMPROVED SALE COMPARABLE PHOTOGRAPHS
No. 3 - Brea Residential Manor
285 W. Central
Brea
No. 4 - Whittier Retirement Villa
8101 S. Painter
Whittier
287
IMPROVED SALE COMPARABLE PHOTOGRAPHS
No. 5 - Lomita Lodge
225 N. Lomita
Ojai
No. 6 - Villa San Marcos
1550 Security Place
San Marcos
288
APPRAISAL REPORT
RETIREMENT INN - DALY CITY
501 KING DRIVE
DALY CITY, CALIFORNIA
AS IS ON JULY 13, 1995
SLVS FILE NO. 95-04-25
PREPARED FOR
AMERICAN RETIREMENT VILLAS PROPERTIES II, L.P.
PREPARED BY
MICHAEL G. BOEHM, MAI
289
July 27, 1995
American Retirement Villas Properties II, L.P.
c/o ARV Housing Group
245 Fischer Avenue, Suite D-1
Costa Mesa, California 92626
Attention: Mr. Graham Espley-Jones
Re: Retirement Inn - Daly City
501 King Drive
Daly City, California
SLVS File No. 95-04-25
Gentlemen:
In accordance with your request, we have conducted the required investigation,
gathered the necessary data, and made certain analyses that have enabled us to
form an opinion of the market value of the above captioned property. This report
has been prepared to be in compliance with the requirements of the Uniform
Standards of Professional Appraisal Practice.
The value stated herein is based on our understanding of the site and
improvement descriptions as represented to us by the client and/or the client's
representatives and professional consultants as well as other available sources.
We direct your attention to the "Introduction," "Site Description," and
"Description of Improvements" sections of this appraisal report. It is your
responsibility to read the report and inform the appraiser of any errors or
omissions you are aware of prior to utilizing the report or making it available
to any third party.
Based on an inspection of the property and the investigation and analysis
undertaken, we have formed the opinion, subject to the assumptions and limiting
conditions set forth in this report, that as of July 13, 1995, the fee simple
total going concern interest of the subject, as is, has a market value of:
THREE MILLION TWENTY FIVE THOUSAND ($3,025,000) DOLLARS
290
Mr. Graham Espley-Jones
July 27, 1995
Page 2
This total going concern value estimate can be allocated to the following
components:
Market Value
As Is -
7/13/95
------------
Real Estate Value $2,380,000
Furniture, Fixtures & Equipment 120,000
Business Value 525,000
-----------
Total Going Concern Valuation $3,025,000
==========
The narrative appraisal report that follows sets forth the identification of the
property and limiting conditions, pertinent facts about the area and the subject
property, comparable data, results of our investigation and analyses and the
reasoning leading to the conclusions set forth. Should you desire a quick
reference to the most important information, I direct your attention to the
"Introduction", "Executive Summary" and the "Reconciliation and Conclusion"
sections of this report.
Respectfully submitted,
SENIOR LIVING VALUATION SERVICES, INC.
Michael G. Boehm, MAI
President
291
SUBJECT PHOTOGRAPHS
Subject from King Drive,
View East
Main Entrance of Subject
292
TABLE OF CONTENTS
Title Page 1
Letter of Transmittal 2
Subject Photographs 4
Table of Contents 5
Introduction 7
Property Identification 7
Property Ownership and History 7
Scope of the Assignment 7
Purpose of the Appraisal 7
Function of the Appraisal 8
Property Inspection 8
Date of Appraisal 8
Date of Value 8
Property Rights Appraised 8
Definition of Market Value 8
Assumptions and Standard Limiting Conditions 9
Special Conditions 10
Experience of Appraisal Firm 11
Representative Assisted Living Appraisal Experience 12
Executive Summary 13
Regional and City Analysis 15
Regional Location Map 16
City Location Map 17
Comparative Zip Code Demographic Data 19
Anecdotal Description of Daly City 22
Neighborhood Description 25
Neighborhood Map 26
Neighborhood Zoning Map 29
Neighborhood Photographs 30
Site Description 32
Assessor's Parcel Map 33
Topography/Earthquake Fault Map 34
Taxes and Assessments 36
293
Description of Improvements 37
Floor Plans 39
Subject Photographs 40
Market Analysis 46
Subject Amenities 48
Census of Market Area ACLF/AL Facilities 51
Comparable Facilities Map 53
Market Area Saturation Analysis 55
Highest and Best Use 58
Site Valuation 60
Vacant Land Sales Map 62
Cost Approach Analysis 64
Cost Approach Summary 67
Income Approach Analysis 68
Pro Forma Cash Flow Analysis & Capitalization 80
Sales Comparison Approach 81
Improved Sales Map 84
Reconciliation and Conclusion 88
Allocation of Going Concern Value Determination To Components 90
Total Estimated Marketing Time 92
Certification 93
Addenda 95
Comparable ACLF/AL Facility Photographs 96
Legal Description 101
Vacant Land Sale Data 102
6/21/95 Rent Roll 106
(1993, 1994, 1/95 to 4/95) Historical/(1995) Budgeted
Operating Statements 110
Senior Housing Investment Survey 122
Improved Sale Data/Photographs 124
Qualifications of Michael G. Boehm, MAI 133
MGB State of California Appraisal License 134
294
INTRODUCTION
PROPERTY IDENTIFICATION
The subject property consists of a 50,181 square foot (1.15 acres) site that is
improved with a 95 unit congregate senior housing project (including up to 120
licensed assisted living beds) project known as Retirement Inn - Daly City. The
subject has a designated street address of 501 King Drive, Daly City, San Mateo
County, California. A detailed legal description of the site is presented in the
Addenda of this report.
PROPERTY OWNERSHIP AND HISTORY
The fee simple title to the subject site, all improvements and furnishings
comprising Retirement Inn - Daly City is currently vested in American Retirement
Villas Properties II, L.P. (ARVP II). The subject was acquired as part of a
larger package of senior properties from Retirement Inns of America (Avon
Products, Inc.) in 1989. The subject has not been sold/purchased within the last
three years.
The subject retirement building was originally planned and developed in the mid
1970's. The existing subject improvements became available for occupancy in
1975. In approximately 1990, a small second floor addition was completed which
included the construction of several small administrative offices, adjacent to
the auditorium. The subject's recent history includes less than full occupancies
in the early 1990's and rising to a current occupancy of 92.6% (100/108 total
beds) despite a competitive market area and weak local real estate market and
economy.
SCOPE OF THE ASSIGNMENT
The scope of this assignment is to inspect the subject property, conduct an
investigation of market data, and prepare a full narrative appraisal report in
accordance with the requirements of the Office of the Comptroller of the
Currency and the Uniform Standards of Professional Appraisal Practice. All
information deemed pertinent to the completion of the appraisal was made
available.
The appraisal was performed so that the analysis, opinions and conclusions are
that of a disinterested third party, employing due diligence in the
investigation, analyses and conclusions. This appraisal report was developed and
prepared to comply with the reporting requirements noted in the "Certification"
section of this report.
The investigation associated with this report includes the general economy of
the industry, the market area, and the local neighborhood. Research and studies
include supply and demand factors, comparable land and property sales,
competitive property rents/rates and occupancy. Buyers, sellers, developers,
public officials, management at competitive facilities, real estate brokers, and
the current management of the property were interviewed concerning these and
other associated matters. Specific references are made throughout this report.
295
PURPOSE OF THE APPRAISAL
The purpose of the appraisal is to estimate the subject's market value as is.
FUNCTION OF THE APPRAISAL
It is understood the appraisal shall be used by American Retirement Villas
Properties II, L.P., in evaluating the subject for possible transfer to an
ownership real estate investment trust.
PROPERTY INSPECTION
The subject property was inspected on July 13, 1995 by Michael G. Boehm, MAI who
was accompanied by Ms. May Sunglao, Administrator.
DATE OF APPRAISAL
July 27, 1995
DATE OF VALUE
July 13, 1995
PROPERTY RIGHTS APPRAISED
This appraisal estimates the fee simple total going concern market value of the
subject operating as a congregate senior housing business. Going concern value
is defined by the Appraisal Institute as the value created by a proven property
operation; considered a separate entity to be valued with an established
business. This total going concern value can be allocated to its real estate,
furniture, fixtures and equipment and business value components. An estimated
allocation of our total going concern valuation is set forth in a separate
section of this report.
Fee Simple is defined by the Appraisal Institute as absolute ownership
unencumbered by any other interest or estate subject only to the limitations of
eminent domain, escheat, police power, and taxation.
DEFINITION OF MARKET VALUE
As defined by the Office of the Comptroller of the Currency under 12 CFR, Part
34, Sub-part C-Appraisals, 34.42 Definitions (f), market value is defined as:
"The most probable price which a property should bring in a competitive and open
market under all conditions requisite to a fair sale, the buyer and seller each
acting prudently, and knowledgeably and assuming the price is not affected by
undue stimulus. Implicit in this definition is the consummation of a sale as of
a specified date and the passing of title from seller to buyer under conditions
whereby:
296
(i) buyer and seller are typically motivated;
(ii) both parties are well informed or well advised, and acting in what they
consider their best interests;
(iii) a reasonable time is allowed for exposure in the open market;
(iv) payment is made in terms of cash in U.S. dollars or in terms of
financial arrangements comparable thereto; and
(v) the price represents the normal consideration for the property sold
unaffected by special or creative financing or sales concessions
granted by anyone associated with the sale."
ASSUMPTIONS AND STANDARD LIMITING CONDITIONS
1. The legal description furnished to the appraiser is assumed to be
correct, and the title is assumed to be marketable.
2. The appraiser assumes no responsibility for legal matters.
3. Report exhibits are only visual aids. All sizes indicated for land and
improvements are from indicated sources and assumed to be correct.
4. Unless otherwise noted herein, it is assumed there are no detrimental
easements, encumbrances, encroachments, liens, zoning violations,
building code violations, or environmental violations, etc. affecting
the subject property.
5. Information, estimates, and opinions furnished to the appraiser are
obtained from sources considered reliable; however, no liability for
their accuracy can be assumed by the appraiser.
6. It is assumed that there are no hidden or unapparent conditions in the
land or improvements that render the property more or less valuable or
that would reduce its utility, development potential, marketability.
All improvements are assumed to be structurally sound unless otherwise
noted. No responsibility is assumed for hidden or undisclosed
conditions or for arranging for engineering studies that may be
required to discover any defects or uniquely favorable conditions.
7. The appraiser has inspected the subject property with the due diligence
expected of a professional real estate appraiser. The appraiser is not
qualified to detect hazardous waste and/or toxic materials. Any comment
by the appraiser that might suggest the possibility of the presence of
such substances should not be taken as confirmation of the presence of
hazardous waste and/or toxic materials. Such determination would
require investigation by a qualified expert in the field of
environmental assessment.
297
8. The presence of substances such as asbestos, urea-formaldehyde foam
insulation or other potentially hazardous materials may affect the
value of the property. The appraiser's value estimate is predicated on
the assumption that there is no such material on or in the property
that would cause a loss in value.
9. No responsibility is assumed for any environmental conditions, or for
any expertise or engineering knowledge required to discover them. The
appraiser's description and resulting comments are the result of the
routine observations made during the appraisal process.
10. Responsible ownership and competent management are assumed.
11. Where the discounted cash flow analysis is utilized, it has been
prepared on the basis of the information and assumptions stipulated in
this appraisal report. The achievement of any financial projections
will be affected by fluctuating economic conditions and is dependent
upon the occurrence of other future events that cannot be assured.
Therefore, the actual results achieved may well vary from the
projections and such variation may be material.
12. The appraiser is not required to give testimony or appear in court, or
at public hearings, or at any special meeting or hearing with reference
to the property appraised herein by reason of preparation of this
report, unless arrangements have been made prior to preparation of this
report.
13. Possession of this report does not carry with it the right of
publication. It shall be used for its intended purpose only and by the
parties to whom it is addressed. Neither all nor any part of the
contents of this report shall be conveyed to the public through
advertising, public relations, news, sales, or other media without the
written consent or approval of the author. This applies particularly to
value conclusions, the identity of the appraiser or firm with which it
is connected, and any reference to the Appraisal Institute, or MAI
designation.
14. Property values are influenced by a large number of external factors.
The information contained in the report comprises the pertinent data
considered necessary to support the value estimate. We have not
knowingly withheld any pertinent facts, but we do not guarantee that we
have knowledge of all factors which might influence the value of the
subject property. Due to rapid changes in external factors, the value
estimate is considered reliable only as of the effective date of the
appraisal.
SPECIAL CONDITIONS
The subject is licensed as a residential care facility for the elderly (assisted
living) for up to a maximum of 120 beds with the California Department of Social
Services. This appraisal assumes that the subject meets all physical plant and
operating requirements as an assisted living facility.
298
The appraisers were not provided with a title report describing all current
easements or encumbrances that might affect the subject operation as a
congregate senior housing business. This appraisal assumes that there are no
adverse easements or encumbrances affecting the subject.
We recommend review of a current title report.
The estimates of value set forth in this report are partially relying on the
current rent roll, historical operating statements and limited building drawings
and building statistical data provided to the appraiser by ARV Housing Group.
EXPERIENCE/COMPETENCY OF APPRAISAL FIRM
Senior Living Valuation Services, Inc. is a San Francisco based appraisal firm
that exclusively specializes in the appraisal and analysis of all forms of
senior housing properties. On the following page is a listing of recent assisted
living facility assignments that have been completed by the firm. Qualifications
of Michael G. Boehm, MAI are included in the Addenda of this report.
299
EXECUTIVE SUMMARY
Property Name: Retirement Inn - Daly City
Location: 501 King Drive
Daly City, California
Assessor's Parcel No.: 091-362-006 (San Mateo County)
Property Rights Appraised: Fee Simple (Total Going Concern)
Date of Value: As Is on July 13, 1995
Land Area: 50,181 Square Feet, 1.15 Acres
Excess Land: None
Zoning: R-3 (Daly City) a multi-family housing zoning
district, allowing the subject with a
conditional use permit.
Improvements: Type: One, average quality, two story, Class
D congregate retirement apartment
building and common areas.
Age: Year Built - 1975; Effective Age - 20
Years; Remaining Economic Life - 25
Years
Size: 95 congregate retirement apartment
units (108 currently configured
maximum bed count) and common areas in
approximately 36,874 square feet of
gross building area.
Condition: Average
H & B Use (if vacant): Senior Housing
H & B Use (as improved): See Highest and Best Use Discussion
Capitalization Rate: 12.0%
Projected Stabilized Net Income: $326,016 (7/95-6/96)
300
Total Going Concern Market
Value, as is, as of
July 13, 1995:
Cost Approach: $3,350,000
Income Approach: $3,025,000
Sales Comparison Approach: $2,950,000-
$3,675,000
Value Conclusion: $3,025,000
($31,842/unit)
Allocation of Final
Value Determination
to Components:
Market Value
As Is -
7/13/95
------------
Real Estate $2,380,000
FF&E 120,000
Business Value 525,000
----------
Total Going Concern Valuation $3,025,000
==========
Total Estimated
Marketing Time: 6 Months
301
REGIONAL AND CITY ANALYSIS
The subject property is located along King Drive in the southern portion of the
City of Daly City, California. Daly City is located in northern San Mateo County
about 12 miles southwest of downtown San Francisco and 45 miles northwest of San
Jose. The City is bounded by the Pacific Ocean to the west, the cities of
Pacifica to the southwest, South San Francisco and Colma to the east and San
Francisco to the north.
REGIONAL OVERVIEW
San Mateo County occupies almost all the peninsula south of San Francisco, and
is therefore an integral part of the nine county San Francisco Bay Area. The
County is bordered by the Pacific Ocean on the west, City of San Francisco on
the north, San Francisco Bay on the east and Santa Clara and Santa Cruz Counties
on the south. It contains approximately 454 square miles, much of which is
mountainous and densely wooded. The urbanized portions of San Mateo County
extend in a narrow strip between the hills and the bay, leaving the remainder of
the County largely rural. Traditionally, San Mateo County has been categorized
into four distinct regions. Along the San Francisco Bay side of the County, the
industrial zone surrounding the San Francisco International Airport dominates
the northern area. Moving south, the industrial sites gradually merge with the
residential suburbs. Further south is the Silicon Valley. On the west side of
the mountains, the County is sparsely inhabited with the economy focused on
farming and recreational activities.
South San Francisco - Historically the industrial overflow from San Francisco
was picked up by the northern cities of San Mateo County. The region maintained
this growth by establishing new businesses and industries. San Bruno and South
San Francisco contain the greatest concentration of heavy manufacturing and
construction firms in the County. The location of the San Francisco
International Airport makes northern San Mateo County an ideal location for many
transportation and distribution related firms. Average incomes and home prices
in this area are far below the high levels of communities further south. The
economy of northern San Mateo County will continue to be dependent on economic
growth in San Francisco.
Central San Mateo - The heart of the County centers around the City of San
Mateo. Numerous smaller cities and communities, including San Bruno, Millbrae,
Burlingame, Hillsborough, Woodside, and Atherton make up the rustic and affluent
suburbs that San Mateo County is famous for. These areas are where the first
commuters to San Francisco settled. In recent years, a vigorous trade and
service economy has developed to support these various cities and towns. This is
the most self contained area in the County. Much of the income of the residents,
however, is dependent on jobs in either San Francisco or Santa Clara County.
Southern San Mateo County - Stanford University, in southern San Mateo County,
is closely tied to the nearby Silicon Valley. Redwood City, Menlo Park and
northern Palo Alto contain the sites of many high-tech firms as well as their
employees' homes. Accordingly, the economy of this area is closely tied to the
health of the electronics industry.
302
Pacific Coast Region - Well over half the area of the County, but less than 5%
of the population, lies west of the coast mountains. The towns of Pacifica and
Half Moon Bay offer homes to a few ambitious commuters and the local work force.
Industries consist mostly of agriculture, fishing and recreation. The economy of
this area is stable and is likely to remain so as development is highly
restricted by zoning regulations.
In general, dry, mild summers and moist, cool wind has characterized San Mateo
County's climate. The northern and coastal region share San Francisco's foggier
weather and tend to be somewhat cooler and receive more rainfall (including the
subject) than the mid-peninsula area. Temperatures average a high of 71 degrees
in July and a low of 42 degrees in January in the winter, and a few morning
frosts may occur in December, January and February. Winter daytime temperatures
are generally in the 50's. The summer season is usually sunny and warm,
especially in the more highly populated bayside of the County. Summer warmth is
tempered both by morning fogs and afternoon seabreezes. For many in the region,
the first word that comes to mind when mentioning Daly City is foggy.
CITY POPULATION AND DEMOGRAPHICS
The City of Daly City (population 99,600 - 1995) was incorporated in 1911 though
first settled in the 1840's. Daly City has developed as a suburban bedroom
community with many long time residents and is distinct and different from the
adjacent City of South San Francisco which is a noted warehouse/distribution and
office center. The City is almost built-out with a dwindling supply of available
vacant space despite the open space, rolling hill areas which extend throughout
the City.
Development of Daly City as a modest suburban residential suburb to San
Francisco has occurred throughout the 1900's but exploded in the 1960's with the
completion of Interstate 280 in the early 1960's. Much of the City's growth has
been through the annexation of adjacent unincorporated areas. In the past 10
years, Daly City has been the fastest growing City in San Mateo County. Future
population growth is expected to slow from recent levels as the City is
approaching buildout. City and regional population trends illustrate the
following:
Daly City San Mateo County
---------------------- ----------------------
Pop. % Inc. Pop. % Inc.
------- ------ ------- ------
1960 45,291 -- 444,387 --
1970 67,330 48.7% 557,361 25.4%
1980 78,914 17.2% 587,329 5.3%
1990 91,700 16.2% 652,100 11.0%
1995 99,600 8.6% 695,100 6.6%
2000* 106,100 6.5% 740,400 6.5%
*Estimated
Source: Association of Bay Area Government (ABAG)
303
On the following pages, we have included major demographic data for Daly City
and surrounding zip codes. These statistics indicate that compared to the area
as a whole, the City has the following demographic characteristics:
1) A median age close to regional and Statewide averages. The
City has approximately 10.6% of the population over 65 years
of age;
2) Of the 19 cities in San Mateo County, Daly City would be in
the lower half in median income, but similar to nearby
Pacifica, South San Francisco and San Bruno (above Brisbane).
Nevertheless, the City as a whole ranks in about the 93rd
percentile nationally and about the 85th percentile Statewide
in median income;
3) A majority and growing Asian racial composition (about 45%).
Daly City is the most ethnically diverse City in San Mateo
County.
An anecdotal description of Daly City is provided on the following page.
HOUSING
Daly City's housing stock of about 32,000 units can be characterized by its
modesty and relative affordability. The City includes new housing located in its
southern, western and eastern portions and older (some dilapidated) housing in
its central core (a redevelopment area) and northern portions. The City includes
an above average percentage of multi-family housing. The median price of home in
Daly City is about $250,000, down about 20% from 1989 peaks. The City's median
rent of about $670 per month is below regional averages but above Statewide
averages.
EMPLOYMENT AND ECONOMIC DEVELOPMENT
The regional County economy, unlike some other San Francisco Bay Area counties,
is not dependent on any one industry for economic stability. The diversity of
the economy is demonstrated by the fact that several of the County's top
employers are all quite different as indicated below:
Employees
---------
United Airlines, San Francisco Airport 9,000
San Mateo County Government 4,300
Raychem Corporation, Menlo Park 3,500
Veterans Administration Medical Center, Menlo Park 3,000
United States Geological Survey, Menlo Park 2,580
Kaiser Foundation Hospitals, Redwood City and South San Francisco 2,200
Dalmo Victor Company 1,250
Source: San Mateo County
304
Major employment areas in the County are in and around the San Francisco
International Airport, the Highway 101/92 intersection and the five regional
shopping centers including the Serramonte and Westlake shopping districts in
Daly City, about one mile north of the subject. Daly City's largest employers
are focused at Seton Medical Center and several retail outlets. The City
includes some modest commercial office and industrial/development although this
is dwarfed by the commercial/industrial areas in adjacent South San Francisco
and San Bruno which are bordered by the San Francisco International Airport to
the east.
TRANSPORTATION
San Mateo County is traversed by two major north-south freeways, U.S. Highway
101 and Interstate 280; the latter paralleling U.S. 101 two to four miles to the
west. The Pacific Coast Highway 1 parallels the above freeway system from north
to south along the Pacific Coast and provides transportation between the coastal
communities and rural regions along the western edge of the county. Finally,
Interstate 380 links Highway 101 and I-280 in northern San Bruno. El Camino Real
is the major north to south non-highway thoroughfare in San Mateo County. Major
surface thoroughfares in Daly City include the east/west Geneva, John Daly
Boulevard, Eastmoor/San Pedro, Serramonte, Hickey and Westborough, and
north/south Skyline Boulevard, Callan and Junipero Serra Boulevard (subject).
Northern San Mateo County is the site of the nation's fourth busiest airport,
San Francisco International. The airport is located about five miles southeast
of the subject. The airport's impact on the economy of San Mateo is great as it
is a major source of employment.
SamTrans is a County operated express and commuter bus transportation service
operating within the County and running to downtown San Francisco to connect
with other services. It also operates a connecting service to the BART (rapid
transit line) terminal in Daly City (about four miles north of the subject).
BART service is proposed to be extended southward, ultimately to San Francisco
International Airport.
COMMUNITY DATA
San Mateo County is a part of the nine County San Francisco Bay Area and its
residents can readily enjoy the cultural attainments of San Francisco, the
summer water sports of San Francisco Bay and beaches and winter sports of the
Sierra Nevada mountains which are within easy traveling distance. Local
residents have access to an almost unlimited array of economic and recreational
opportunities.
San Mateo County has five major regional shopping centers and 102 important
neighborhood and downtown shopping areas including the Serramonte Shopping
Center, located about one mile north of the subject site. The County features
miles of coastal parks along the Pacific Ocean, marinas at Half Moon Bay, Coyote
Point in Burlingame, and excellent public and semi-private 18 hole golf courses
at Half Moon Bay, Crystal Springs, Coyote Point and the Burlingame Country Club.
The County includes horse racing at Bay Meadows and the annual county fair at
the fairgrounds in San Mateo. Daly City includes the Cow Palace, a regional and
smaller all purpose arena.
305
Seven major hospitals serve the County. In addition, there are smaller satellite
hospitals of these major hospitals. The major medical facilities near the
subject include Kaiser Permanente along El Camino Real in South San Francisco,
about 1.5 miles east of the subject and the 357 bed Seton Medical Center, about
2.5 miles to the northwest along Sullivan. The subject is located in HSA 4, HFPA
425 which includes 5 nursing homes and 564 licensed beds. The subject is one of
a group of four to five major congregate senior housing projects serving
northern San Mateo County and including the subject's archrival, Westborough
Royale. These facilities are discussed further in the Market Analysis section of
this report.
CONCLUSION
The long-term outlook for Daly City is positive. The opportunities for continued
stable slow growth (mostly residential and support retail) are good although the
City is approaching buildout. The City's lesser affluence compared to the County
as a whole is a part of the City's reputation (as is its foggy climate),
although the City ranks high in median income nationally and Statewide. The
City's significant Asian population requires more directed marketing for
properties such as the subject. The City will always benefit by being close to
San Francisco and its population/economic concentration. The City already serves
as a significant retail destination of many San Franciscans. Overall, the City's
large and aging population suggest good long term demand for senior housing.
306
NEIGHBORHOOD DESCRIPTION
The subject is located in the southeastern portion of the City of Daly City
along Junipero Serra Boulevard and just east of Interstate 280. Junipero Serra
Boulevard is a major north/south thoroughfare through northern San Mateo County.
The subject neighborhood is characterized by a severely sloping upward
topography to the southwest. The subject neighborhood comprises the southern
portion of the larger Serramonte district, and is a residential neighborhood
bounded by Interstate 280 about one block to the west of the subject to Junipero
Serra Boulevard and between Hickey Boulevard to the north and Westborough
Boulevard to the south. Across Junipero Serra Boulevard to the east lies a
modest quality residential area of the City of South San Francisco. The subject
neighborhood is almost totally residential (of average quality) and undeveloped
open space. To the north of the neighborhood lie a plethora of cemeteries which
define the City of Colma. To the southeast lies the California Golf Club.
The subject itself is bounded by Junipero Serra Boulevard to the east, King
Drive to the north and west and a two story apartment building (which lies above
the subject due to neighborhood topography) to the south. Across King Drive to
the west and north lie additional apartment complexes. Extensive retail
development is located about one mile to the north along Junipero Serra
Boulevard (Serramonte and Westlake shopping areas). Interstate 280 is accessed
via Westborough Boulevard about one-half mile to the south. The Pacific Ocean is
located about two miles to the west (not visible from subject neighborhood).
Central Daly City is located about three miles to the northwest. A Kaiser
Permanente Medical Center is located about 1.5 miles to the east along El Camino
Real. Seton Medical Center is located about 2.5 miles to the northwest.
Overall, the subject is located in a rolling hill, wooded residential/apartment
neighborhood along a major thoroughfare. Access to retail and recreational
amenities and acute medical care is fair though none is within easy walking
distance of the site. Access to freeways is good. On balance, the subject is
adequately situated for a major congregate senior housing project.
307
NEIGHBORHOOD PHOTOGRAPHS
View of King Drive towards Junipero Serra Boulevard,
View Northeast, Subject on Right
View Southwest, Subject on Left
308
NEIGHBORHOOD PHOTOGRAPHS
View Northwest along King Drive toward Apartments,
Subject Behind
Apartments Immediately South of Subject,
View Southwest
309
SITE DESCRIPTION
LOCATION: The subject property is located at the southwest corner of Junipero
Serra Boulevard and King Drive, about one-half mile north of Westborough
Boulevard, in the southern portion of the incorporated City of Daly City, San
Mateo County, California. In fact, Junipero Serra Boulevard to the east of the
subject is part of the Daly City/South San Francisco boundary. The site has a
formal street address of 501 King Drive. The site consists of San Mateo County
Assessor's Parcel No. 091-362-006. An assessor's parcel map is presented on the
following page. A legal description of the site is provided in the Addenda of
this report.
PHYSICAL CHARACTERISTICS: The subject site has a baseball diamond shape with
approximately 210 feet of eastern frontage along Junipero Serra Boulevard and
about 415 feet of northern/western frontage on King Drive. The subject site
follows the curved boundary of King Drive in its northern/western portions. To
the immediate north and west (across King Drive) and abutting the site to the
south lie apartment projects. The site has a total land area of approximately
50,181 square feet or 1.15 acres.
The topography of the site slopes downward significantly to the northeast,
consistent with the neighborhood. The site is above street grade with both
Junipero Serra Boulevard and King Drive. Total subject site drop-off to Junipero
Serra Boulevard/King Drive range from zero at the main entry along King Drive to
about 10 feet higher to the southwest to about 20 feet lower to the east (and
Junipero Serra Boulevard). The subject building improvements however are built
on one level pad. Although no soils report was made available to the appraisers,
it is assumed that the soils are capable of continuing to support the existing
improvements. No obvious hazardous or toxic conditions were noted during our
site inspection.
The subject portion of Daly City does not participate in the national flood zone
insurance program (no FEMA flood zone designation). The subject is not located
in a flood plain or near a waterway. The subject is not located in an
Alquist-Priolo special earthquake study zone. The subject can be considered as
having the same earthquake risk as much of the larger area which is fairly
significant given its proximity to the San Andreas fault (located about one mile
to the southwest). A topo/earthquake fault map is shown on a following page.
EXISTING IMPROVEMENTS: The subject site is currently improved with one, two
story, wood frame, congregate retirement building forming an enclosed central
courtyard. Parking areas are located along the western portion of the site (off
of King Drive). The subject building rests high above Junipero Serra Boulevard
and King Drive and is setback a minimum of about 50 feet. Additional detail is
provided in the Description of Improvements section of this report.
Junipero Serra Boulevard is a major, four lane (with turning lane and wooded
median strip), fully improved, north/south commercial street with curbs,
gutters, streetlights (no public sidewalks) on both sides. King Drive is a
secondary, meandering, two lane fully improved residential thoroughfare with
curbs, gutters and streetlights (sidewalks to the west of the subject site
only). The intersection of King Drive and Junipero Serra Boulevard is a three
stoplight intersection.
310
The subject site is served by underground utilities, including storm and
sanitary sewers, natural gas and telephone. Water service is provided by the
City of Daly City, sewer service by the North San Mateo County Sanitation
District, natural gas and electricity by Pacific Gas and Electric and telephone
by Pacific Bell. Fire and ambulance services is provided by the City of Daly
City.
ACCESS AND EXPOSURE: The subject is accessed via one curb cutout along King
Drive onto the main entry parking lot located west of the building. Access to
Interstate 280 is via Junipero Serra Boulevard to Westborough, about one-half
mile to the southeast. Access to El Camino Real is also via Westborough, about
1.5 miles to the east. Interstate 280 provides north/south highway access
through San Mateo County, the City of San Francisco and points south including
San Jose.
The subject is not easily visible from Junipero Serra Boulevard due to
landscaping and its raised elevation. Exposure from King Drive at the driveway
entry is good.
EASEMENTS AND ENCUMBRANCES: No title report was available. No easements and
encumbrances are known to materially impact the subject's continued operation as
a congregate senior housing business. We recommend a review of a current title
report to identify any easements or encumbrances which could affect the subject
site and its continued operation as a congregate senior housing project.
ZONING: The subject site is zoned R-3, Daly City, a high density zoning
classification. Between 36 to 50 residential units per acre are allowed. The
subject land use is consistent with apartment land uses along King Drive. The
existing subject retirement building was approved in the mid 1970's (allowing
its 82.6 unit per acre density). The subject appears to be a legal,
nonconforming land use and has been operating on the site since 1975.
The subject is licensed to include up to 120 beds with the California Department
of Social Services as an assisted living facility.
EXCESS LAND: None, the subject is fully developed to its boundaries.
311
TAXES AND ASSESSMENTS
Since passage of Proposition 13, or the Jarvis-Gann Initiative, in 1978, real
property has been assessed at its 1976 value, trended upward at a maximum rate
of 2% annually, unless there is a transfer of ownership or new construction.
When either of these occur, the property is reassessed at full market value.
Furthermore, Proposition 13 limits annual taxes to 1%, plus a small amount for
bonded indebtedness of the assessed value.
Assessor's Parcel No.: 091-362-060 (San Mateo County)
Tax Rate Area: 05-023
Assessed Value 1994-95:
Land $ 552,040
Improvements $ 1,324,904
Personal Property $ 329,194
------------
Total $ 2,206,138
============
1994-95 Tax Rate: 1.00%
1994-95 Taxes: $34,915.44 (includes $12,854.06 in direct
assessments)
Status: Current and paid as due. Our cash flow
projections of stabilized real estate taxes
assumes a sale and reassessment of the
subject to market value at July, 1995.
312
DESCRIPTION OF IMPROVEMENTS
The discussion of the improvements addressed below was accumulated through our
site inspection, a review of limited site plans and through discussions with the
subject's administrator. Detailed architectural drawings were not available.
GENERAL TYPE: The existing main improvement known as Retirement Inn - Daly City
consists of one 2 story, 95-unit, average quality, Class D retirement apartment
building containing 36,874 square feet of gross building area. The facility
contains 95 units currently configured for 108 beds, including up to 120
licensed assisted living beds. The Q-shaped building improvement surrounds an
interior courtyard and borders a parking lot to the west.
AGE: The subject improvements were constructed and completed in 1975. Since
1975, the subject has been operating as an congregate senior facility. A small
protruding and enclosed second floor balcony deck was added onto the auditorium
in the early 1990's and is currently used as administrative offices. The overall
condition of the subject is average. Our site inspection noted a normal amount
of wear and tear on a 20 year old building and no material deferred maintenance.
The subject improvement have an estimated total economic life of 45 years. A
chronological and effective age of 20 years suggests a remaining economic life
of approximately 25 years.
SIZES: The subject has the following component size and unit mix:
No. of Unit Size
Unit Type Units S.F. (est.) Total S.F.
- --------- ------ ----------- ----------
Studios 95 (1) 215-395 22,230 (60.3%)
(234 avg.)
Common Areas/Circulation 14,644 (39.7%)
------
Gross Building Area 36,874
======
(1) 26 of the subject units are currently rented as 13 two room suites. The
subject's current total rentable unit count is therefore technically 82.
However, due to the shared bathroom configuration of the units and the
operators long term intention to no longer offer the suite (two adjoining
room) option, we have referred to the subject unit mix throughout this
report as 95 total units (has no material impact on value).
STRUCTURAL AND EXTERIOR: The subject improvements are constructed on a level
concrete slab foundation (built onto a graded level site on the top of the
severely sloping subject site) with a 2-story, wood frame construction under a
sloping clay tile/flat mansard roof. Building exteriors consists of stucco, wood
trim, wood doors out of residential units and at the western building face
facing King Drive, large decorative arches.
Interior walls are wood frame and painted or wallpapered gypsum board with no
wood handrails in corridors. The main common areas, hallways and room exteriors
are carpeted. Unit baths have vinyl tile. Ceilings in units are sprayed
acoustical with common area ceilings and hallways consisting of sprayed
acoustical with hanging incandescent and fluorescent light fixtures. The entire
development is fully sprinklered with smoke and heat alarms. Units include
sliding
313
windows in aluminum frames, and for first floor units facing west, a wood door
allowing outside access (unusual for a senior property). First floor units
facing north and east include a sliding glass door.
MECHANICAL: The development has average lighting and plumbing fixtures. HVAC in
the units consist of individual room heating units. HVAC in common areas
features hot water boiler central forced air heating system. The subject also
features an intercom system with paging. The development includes one elevator.
Two stairwells are located throughout the improvement.
INTERIORS: Based on our site inspection, the interiors appear to be functional
for congregate senior apartment use. Floor plans are presented on a following
page. The facility includes 95 apartment units. The unit mix consists of 95
studio units ranging in size from a puny 215 square feet to 395 square feet
(average size about 234 square feet - 44 units at 215 square feet, 46 units at
241 square feet, 2 units at 300 square feet, 2 units at 325 square feet, 1 unit
at 395 square feet). The small size of the smallest subject units is a
competitive disadvantage (even for assisted living use). Most units share a bath
area (70 units) with grab bars and a sink with a built-in cabinet, vanity and
water closet. Each unit also contains two emergency pull cords, one each in the
bath and living area and a built in closet. The units contain no kitchenettes or
balconies.
The focal point of the development is the facility's modest common areas located
on the centrally located one story ground floor. The facility's main entry area
includes the small lobby, a reception desk, staff room and administrative
offices. The common areas include a TV room and dining room adjacent to the
commercial kitchen. Laundry rooms with washers and dryers for the residents are
located on each floor. The second floor includes a lounge, auditorium and
additional office space. Overall interior areas are modest and significantly
below more recently built senior properties.
PARKING AND LANDSCAPING: Site parking is located in one open paved parking area,
located west of the building and accessed from King Drive. There are
approximately 20 (0.21/unit) parking spaces located in the parking areas.
Parking is tight but functional as most residents do not drive. Street parking
is generally available along King Drive.
The site is modestly landscaped with site perimeter large mature trees,
flowering perennials, bushes and grass. Facility landscaping includes a small
interior courtyard which includes several shrubs and no seating areas. The
site's significantly sloping northern (facing King Drive) and eastern (facing
Junipero Serra Boulevard) boundaries are thickly landscaped with ground cover
and large trees. The building is surrounded by a concrete walkway which includes
an iron railing to the north and east. Overall site landscaping is average.
CONCLUSION: In our opinion, the subject property's exteriors, common area
interiors, landscaped areas and parking appear average and reasonably
competitive for residential retirement uses. The subject's small units are
typical of 1970's senior housing construction. The subject has a less varied
unit mix, a group of very small units and more modest common areas than many
projects built in the 1980's. The subject's shared baths in most units are a
competitive disadvantage. The subject's overall scale is also smaller than many
projects in its market which helps create a more residential, close knit living
environment. Our site inspection noted no material deferred maintenance and an
average condition reflecting its 20 year old chronological and effective age.
314
SUBJECT PHOTOGRAPHS
Dining Room
Typical Lounge Area
315
SUBJECT PHOTOGRAPHS
Typical Interior Corridor
Auditorium
316
SUBJECT PHOTOGRAPHS
Typical Unit Interiors
317
SUBJECT PHOTOGRAPHS
Interior Courtyard
Western Portion of Parking Lot
318
SUBJECT PHOTOGRAPHS
Eastern Site Boundary, View North
Southern Site Boundary, View East
319
SUBJECT PHOTOGRAPHS
Subject's Junipero Serra Boulevard Frontage,
View South, Subject to Right
Northern Site Boundary, View East
320
MARKET ANALYSIS
INTRODUCTION
The elderly are by far the fastest growing population segment, whether expressed
in percentage increase or actual number of persons. Although not as well
documented statistically, the elderly have more money than ever before because
of social security, pension programs, savings and the substantial increase in
the market value of their residences. Most of them are active and in reasonably
good health. This increased health and life expectancy lends them to seek life
enriching activities through an independent lifestyle that provides assistance
when needed.
INDUSTRY OVERVIEW
The housing industry for the elderly can be classified by the three major types
of buyers: the active elderly (go-gos), intermediate (slow-gos) and the person
who needs constant care (no-gos). Active retirees want recreational amenities
with the housing they buy. They want a golf course, tennis courts, swimming
pool, walking and bicycle path, saunas and spas. They want to be near good
places to eat and to be able to enjoy a wide range of cultural activities and
travel opportunities.
Intermediate retirees want a congregate-type of lifestyle that allows them
independence yet gives them the opportunity to take part in quiet activities
such as arts and crafts. Retirees in this intermediate classification also will
look for transportation to shopping, banking or medical offices, some mild form
of recreational activities, such as swimming and golf, plus the opportunity to
socialize in a common dining room or lounge area.
Retirees who need constant care are concerned with medical assistance. They will
look for facilities that offer services and conveniences such as residential
care facilities which will make their lives more comfortable. Also, they will
want a medical center where they can go when their health fails. The subject
property would be targeted at the intermediate and less active elderly.
From a real estate and financial perspective, housing for the elderly is complex
to analyze as they usually represent a combination of other businesses. The
major types of homes for the elderly include:
Adult Congregate Living Facilities (ACLF): Specially planned, designed
and managed multi-unit rental housing typically with self contained
apartments. Supportive services such as meals, housekeeping,
transportation, social and recreational activities are usually
provided. In California, these facilities are not licensed.
Assisted Living Facilities (ALF) (personal care or residential): Group
living arrangements that provide staff supervised meals, housekeeping
and personal care (assistance with bathing and medication) and private
or shared sleeping rooms. These facilities are generally licensed and
must meet designated operating standards including minimum staff
requirements. In California, these facilities must be licensed by the
California Department of Social Services, Division of Community Care.
321
Care Facilities (skilled nursing or intermediate care): Skilled nursing
and intermediate care facilities (commonly known as nursing homes) are
both operated under the guidance of a licensed administrator with
licensed nurses and aids providing around the clock nursing care,
generally one step below that offered at an acute care hospital. In
California, these facilities must be licensed with the California
Department of Health Services.
Life Care Complex (life care community, continuing care, campus
complex): A housing development planned, designed and operated to
provide a full range of accommodations and services for older adults,
including independent living, congregate housing and medical care.
Residents may move from one level to another as their needs change.
Life care complexes typically charge a buy-in fee (sometimes
refundable) in addition to a monthly maintenance fee for services. In
California, life care contracts must be approved by the State
Department of Insurance.
Retirement Village: Developments that offer, home ownership and rental
units for older persons. Support services often are available for a
fee.
The subject is a currently existing 95 unit (108 current bed configuration)
licensed assisted living (ALF) facility. This suggests that 13 of the subject
units are currently configured for 26 semiprivate beds. The subject is licensed
to accept 28 nonambulatory residents (120 assisted living bed licensing total).
Congregate housing such as the subject is a combination of: a) an apartment
project; b) a hotel offering meals, cleaning and transportation facilities; c) a
social club offering activities; and d) a supporting living environment
providing assisted living amenities (help with bathing, medication, mobility) as
needed. A summary of subject amenities is provided on the following page.
MARKET DEFINITION
Our experience in analyzing congregate housing development indicates that these
facilities have a total market area ranging from a 5 to 30 mile radius from the
site. This area represents a reasonable driving distance for relatives and
friends and also reflects the fact that the elderly do not move great distance
when choosing the congregate housing option. Perhaps more important than a
strict definition of market area based on distance, is the overall character of
the development's environment, whether it is urban, suburban or small
town/rural. In our opinion, the primary market area for the subject site extends
approximately 5 miles outward from the site in all directions. This would
include most of the suburban area of northern San Mateo County including all of
Daly City, South San Francisco and Pacifica. These areas are not only located in
close geographic proximity to the site, but each is a similar, middle income
bedroom community. This definition of market area is consistent with the former
residences of subject residents. The subject as rule does not draw residents
from the southern portions of the City of San Francisco (about five miles to the
north) as the City/County boundary is a significant local demarcation.
322
RETIREMENT HOUSING SUPPLY
During the course of our appraisal, we have identified those existing and
proposed elderly retirement facilities in the primary market area which may be
considered somewhat competitive to the subject property. Our census of
potentially competitive congregate rental housing facilities impacting the total
market area is presented on the following pages. Photographs of the rent
comparables are illustrated in the Addenda of this report.
Each of the surveyed congregate facilities is a for-profit housing development
offering two or three meals daily, weekly maid service and many recreational
opportunities. Most of the properties surveyed offer licensed assisted living on
an as needed basis. The properties can be characterized as follows:
BOTH CONGREGATE AND ASSISTED LIVING (MOST SIMILAR TO SUBJECT)
4. University Mound
5. Greenhills
6. Retirement Inn - Burlingame (ARV Property)
7. Sterling Court
8. Hillsdale Manor
9. Glenwood Inn
ASSISTED LIVING ONLY
1. Westborough Royale
2. Home Sweet Home (Bryant)
3. Home Sweet Home (Collins)
10. Palo Alto Commons
The subject would be most similar to those projects offering both congregate and
assisted living services although its proximity and overall quality, age and
living environment comparability to Comparable No. 1 (Westborough Royale) make
this project a direct competitor to the subject. Like the subject, this project
has a predominant studio unit mix. Westborough Royale also has an overall age
and living environment comparability to the subject although it is a much larger
project. This project and the subject are fierce competitors.
Of the congregate/assisted projects, the subject would be most similar to the
older projects with more similar unit mixes such as Comparable No. 5
(Greenhills) and Comparable No. 6 (Retirement Inn - Burlingame) - a sister ARV
project. Retirement Inn - Burlingame in particular, is similar to the subject in
target market and in the a la carte assisted living program. Its distance from
the subject mitigates direct competition (serves a different market area).
Comparable No. 5 (Greenhills) has a more varied unit mix than the subject and a
slightly superior living environment. The other more comparable
congregate/assisted projects surveyed are generally newer projects (Comparable
Nos. 7 - Sterling Court, 8 - Hillsdale Manor and 9 - Glenwood Inn) with a more
varied unit mix and a generally superior living environment to the subject. The
subject would be competitively placed in the tier of projects below these newer
properties.
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RETIREMENT INN - DALY CITY
CENSUS OF MARKET AREA ACLF/AL FACILITIES
Congregate
(ACLF) Units Assisted Living (AL) Units
Age/ -------------------- --------------------------
Miles Total Monthly Monthly
From Units/ Unit Size- Rental - Rental/ Rental - Semi- Reported
No. Name/Location Subject AL Beds Type S.F. Private S.F. Private Private % SSI Occupancy
- --- ------------- ------- ------- ---- ---- ------- ------- ------- ------- ----- ---------
1. Westborough Royale 1980/ 88/172 Studio 400 (est.) Not Available $1,500 $ 850 10% 89%
89 Westborough 1.0 Suite 500- $1,800
S. San Francisco 600 (est.)
2. Home Sweet Home 1987/ 35/57 Studio 250 (est.) Not Available $3,300 $2,100 0% 95%
1560 Bryant Street 2.5
Daly City
3. Home Sweet Home 1995/ 35/50 Studio 250 (est.) Not Available $3,000 $2,000 0% 64%
205 Collins Avenue 2.7
Colma
4. University Mound 1885/ 74/74 Studio 256 $1,360- $5.31- +$ 100- N/A WND 85%
Ladies Home 5.0 $1,940 $7.58 $ 300
350 University Street
San Francisco
5. Greenhills Retirement 1986/ 159/30 Studio 208- $1,100- $3.72- $1,965 N/A 0% 98%
1201 Broadway 5.0 456 $1,700 $5.29
Millbrae 1BR 430- $1,800- $3.92- $2,690
522 $2,050 $4.18
6. Retirement Inn - 1980/ 68/90 Studio 204- $1,350- $6.61- +$ 150- +$ 150- 8% 97%
Burlingame 8 240 $1,450 $6.04 $1,000 $1,000
250 Myrtle Road Lg. Suite 480 $1,850 $3.85
Burlingame SP $ 850
7. Sterling Court 1990/ 149/20 Studio 422 $1,600- $3.79- $2,700- N/A 0% 100%
850 N. El Camino 9 $1,700 $4.03 $2,965
San Mateo 1BR 583 $1,800- $3.09-
$2,300 $3.95
2BR 754 $2,600- $3.45-
$2,800 $3.71
324
The assisted living projects are generally less directly comparable to the
subject as they target the older, frailer senior exclusively. Of the projects,
the two more recently built Home Sweet Home projects (the Collins Avenue project
opened in 1995 and is already 64% occupied) are peripheral competitors to the
subject although they target the heavier care assisted living resident. Both
projects are smaller than the subject and have inferior locations. Comparable
No. 10 - Palo Alto Commons, is one of the higher quality assisted living
projects in the local market and in the entire region.
Our survey of local jurisdictions noted no other active proposed senior housing
projects which would pose an imminent competitive threat to the subject. The
overall occupancy of the 10 projects surveyed is a strong 92.3%, as almost all
market area projects enjoy 90% plus occupancies.
RETIREMENT HOUSING DEMAND
To measure the theoretical size of the subject's target market, we have analyzed
demographic statistics obtained from Urban Decision Systems for the relevant
target area market which extends about 5 miles outward from the subject site. We
obtained income by age population estimates and projections for this area in
1995 and 2000. Our analysis is as follows:
1) Determines the number of households over a minimum age, 75, and minimum
income requirement, over $15,000, from 1995 population estimates and
2000 population projections. These parameters establish the different
scenarios for calculating the market saturation rates;
2) Calculates total market saturation rates required to fill the subject's
108 beds and all other existing competitive senior facilities
(estimated at 1,025 beds);
3) Evaluates the market environment of the subject property given the
calculated saturation rates.
Our experience in comparable markets, indicates the following regarding
saturation rates.
Estimate of Overall
Saturation Rate Market Demand
--------------- ----------------------
0 - 10% Lightly Competitive
10 - 20% Moderately Competitive
20 - 30% Heavily Competitive
30%+ Extremely Competitive
Our calculated market saturation rates (about 18%) for the subject market area
suggest an only moderately competitive market. Overall, the subject market area
can be characterized as having a lesser supply of older generation retirement
units serving a concentrated but less affluent and growing age and income
eligible senior population. It is important to note that saturation analysis is
only a tool used to measure overall market saturation. It does not consider any
potential
325
RETIREMENT INN - DALY CITY
SATURATION ANALYSIS
Saturation Rate (1)
------------------------------------ Subject
w/o Subject w/Subject Only
# H.H. (2) (1,025 Beds)(3) (1,133 Beds) (108 Beds)
---------- --------------- ------------ ----------
1995 Estimate
- -------------
75+, $15,000 Income 6,453 15.9% 17.6% 1.7%
2000 Projection
- ---------------
75+, $15,000 Income 7,494 13.7% 15.1% 1.4%
NOTES:
(1) Market saturation rates represent the percentage of total market demand
which is necessary to absorb a) existing or proposed units not including
the subject, and b) existing or proposed units including the subject.
(2) Number of income and age qualifying senior households within 5-mile radius
of site per Urban Decision Systems.
(3) Number of competitive units estimated at 100% of Comparable Nos. 1 to 3,
50% of Comparable Nos. 4 to 7, 25% of Comparable Nos. 8.
(4) Evaluation of saturation rates:
Saturation Evaluation of
Rate Market Environment
---------- ------------------
0% - 10% Lightly Competitive
10% - 20% Moderately Competitive
20% - 30% Heavily Competitive
30%+ Extremely Competitive
326
competitive advantages that a specific facility might offer. Saturation rates
can also be calculated using different factors/scenarios. Our methodology of
calculating market saturation rates is based on our experience in analyzing the
feasibility of numerous congregate senior housing developments.
CONCLUSIONS
Overall, we noted the following regarding the market environment of Retirement
Inn - Daly City:
1) The calculated saturation rates suggest an only moderately competitive
market environment. This is consistent with market area occupancy rates
which are strong at most projects and the subject (despite a
significant SSI resident base). The subject's strong occupancy is due
to its older building age, small units, location in an area of relative
lower affluence and monolithic unit mix. The overall average occupancy
of all projects surveyed was about 92%. The market's strong
demographics (concentration) are countered somewhat by a weak local
economy which makes seniors on fixed incomes more hesitant to consider
the congregate senior housing option and less likely to recognize paper
losses on homes which have declined in value from 1989 peaks;
2) The subject has a current occupancy of about 93%, consistent with its
recent history. The subject has established a market position as a well
run, middle market project with reasonable rents. The subject's
physical plant is below average (unit size, shared baths) in comparison
to some of the other comparable projects in its market. Many of the
locally competitive projects are newer and have a less institutional
living environment and more varied unit mix than the subject. The
subject is impacted by the nearby Westborough Royale, with its large
number of units is a significant competitor to the subject. This
project will likely continue to keep rent and occupancy pressure on the
subject;
3) The subject market area is projected to experience a good increase of
16.1% (7,494/6,453) in the age and income eligible target market in the
next five years;
4) The subject is owned and operated by ARV Housing Group, one of the
leading owner/operators in more difficult market areas;
5) The subject offers assisted living amenities on an a la carte basis
(three different levels of assisted living care) which is not typical
in the market area (most other projects charge one flat higher rent).
This is a competitive advantage for the subject as residents only need
pay for assisted living amenities when needed and at the level needed.
These specific conclusions are addressed more fully and used to project pro
forma income and expense cash flows in the Income Approach section of this
report.
327
HIGHEST AND BEST USE
Highest and best use is defined as that use, from among reasonably probable and
legally alternative uses, found to be physically possible, appropriately
supported, financially feasible, and which results in the highest land value.
The highest and best use concept must also give recognition of that use to
community environment and to community development goals, in addition to wealth
maximization of individual property owners.
The highest and best use of the land or site, if vacant and available for use,
may be different from the highest and best use of the existing improved
property. This will be true when the improvement is not an optimum use and yet
makes a contribution to total property value in excess of the value of the land
only. In order to determine the property's highest and best use, it is necessary
to analyze the factors discussed below.
AS VACANT
The site's physical characteristics are similar to those found throughout the
area in terms of size (average), topography (significantly sloping), exposure
(fair) and access (good). The total land area is large enough to support most
other types of development and it is located along a major thoroughfare. The
site is probably too small for a lower density residential subdivision.
Therefore, the site's physical characteristics do not seem to limit many
development alternatives.
The subject site is currently zoned R-3, a high density multiple family zoning
classification. This is consistent with other development along King Drive
(apartments) and it is also consistent with our experience with the zoning of
most sites for senior housing (usually high density residential). It is likely
that Daly City would allow many alternate density residential and possibly
institutional uses on the subject site. The subject's 82.6 units per acre
density is misleading due to its small, all studio unit mix. Extreme high
density residential, general commercial or heavy retail land uses are unlikely
for the site. Finally, the site itself is not known to be affected by
significant easements or encumbrances.
In determining which possible use of the land represents the highest and best
use of the site, we have analyzed those physical and legal factors affecting the
site. It is then necessary to analyze not only the feasibility of potential
alternate development but determine which types of these developments is
maximally feasible. Our analysis of the congregate housing market in the area
indicates a fewer number of properties and generally good occupancies, including
the subject's current 93% occupancy. Also, a large increase in the number of age
and income eligible seniors over the next five years suggests adequate long term
demand for well run projects like the subject. The subject is a profitable
project and it is in the middle tier of senior housing facilities in its market.
The subject, if it can be filled, would be more feasible than alternate
residential uses due to its higher margin per unit and higher density. The
subject is also more profitable than almost all possible institutional land
uses. However, uncertainties about the affluence of the local market, current
depressed housing prices and a flat regional economy and the ongoing competitive
impact of Westborough Royale, suggest that the subject (or any alternate
commercial/apartment land use) would not clearly be built in 1995. Few to no
senior housing projects were being built anywhere
328
in California in 1994 although this is beginning to change in 1995. An owner of
the subject site would probably develop a senior housing use on the site
although the decision is not clear. Therefore, in our opinion, the highest and
best use of the site as vacant in early 1995 is probably to develop a senior
housing project on the subject site.
AS IMPROVED
Our experience in comparable projects indicate that a senior project of 108 beds
is large enough to achieve some operating economies of scale. Higher densities
for the site would generate difficulties in meeting parking and density
requirements with Daly City. Also, short term demand for additional small unit
assisted living units probably does not exist in the local market as indicated
by the subject's high SSI census.
Considering the factors noted above, the purpose of this appraisal (to value the
subject as is) and because the subject improvements clearly add value over and
above the land alone, we have concluded that the highest and best use of the
site, as improved, is probably as the subject site as built and operating. The
existing improvements and living environment are reasonably competitive and
functional for congregate and assisted living uses. The subject's overall
quality, unit mix and unit sizes (though not optimal given their smaller size,
limited variety and shared baths), common areas, parking and landscaping are
average in the local senior housing market.
329
SITE VALUATION
In order to estimate the fair market value of the subject site, a Sales
Comparison Approach is utilized. Recent sales and listings/offers of vacant land
considered somewhat comparable to the subject in location, zoning, and utility
were analyzed. Adjustments are made as necessary for: date of sale, location,
financing terms, physical characteristics such as size, shape, utilities and
topography, and development limitations such as zoning restrictions, easements
and encumbrances.
A number of sales were reviewed in order to determine the market value of the
subject site. We have considered the sales of local vacant land sites with
somewhat comparable land uses, zoning and locations. In general, we noted few
truly recent comparable vacant land sale transaction in the area reflecting the
lack of recent apartment development activity. Those sales that were considered
most comparable are presented in a summary grid on a following page and detailed
in the Addenda of this report.
Comparable Sale No. 1 is located at 6843 Mission Boulevard in Daly City, about
three miles north of the subject. The 160,000 square foot parcel is currently
being listed for $4,200,000 or $26.25 per square foot. A commercial use is
likely on the PD zoned site. The site has major thoroughfare frontage (similar
to the subject) with a large supermarket being developed immediately south of
this parcel. In comparison to the subject, downward adjustment is suggested by
the probable higher intensity land use and the subject site's sloping
topography.
Comparable Sale No. 2 is located at 901 Oceana Boulevard, about 2.5 miles
southwest of the subject in Pacifica. The sloping parcel has no frontage on
Oceana, but was granted a permanent easement through the adjacent parking lot
(of a school) as a condition of the sale. The 56,628 square foot site sold in
June, 1994 for $400,000 or $7.06 per square foot. The site contains 42
noncongregate senior apartments, a very similar land use to the subject. Despite
the similar land use, this site requires substantial upward adjustment for its
lack of major street frontage.
Comparable Sale No. 3 is located at 124 Linden Avenue about three miles east of
the subject in South San Francisco. This 24,227 square foot parcel sold in
October, 1993 for $465,000 or $19.19 per square foot. The buyer owns a nearby
business and plans to construct a parking lot on this site for their business.
This parcel is least similar to the subject in proposed use, zoning and overall
location. Additional downward adjustment is suggested by this site's level
topography.
Comparable Sale No. 4 is located at 530 Collins Avenue, about 1.5 miles north of
the subject in central Colma. The 46,609 square foot site sold in June, 1992 for
$775,000 or $16.61 per square foot. The site was developed with a 35 unit (50
beds) assisted living facility (Rent Comparable No. 3 - Home Sweet Home). Of the
sales described above, this parcel is the most similar to the subject in general
location, parcel size, land use and density. Downward adjustment is suggesting
by the site's level topography but upward adjustment is necessary for the
subject's major street frontage.
330
RETIREMENT INN - DALY CITY
VACANT LAND SALES
Sale Price Proposed
Sale Size-SF Proposed -------------------- Density -
No. Location/APN Date Sale Price (Acres) Development SF Unit Zoning Units/Acre
- --- ------------ ---- ---------- ------- ----------- -- ---- ------ ----------
1. 6843 Mission Boulevard Listing $4,200,000 160,000 Probable $26.25 N/A PD N/A
Daly City (3.67) Commercial
003-191-001 to 004, 016
2. 901 Oceana Boulevard 9/94 $ 400,000 56,628 42 Senior $7.06 $9,524 R-3 32.3
Pacifica (1.30) Apartments
009-293-090
3. 124 Linden Avenue 10/93 $ 465,000 24,227 Parking Lot $19.19 N/A CH-C3 N/A
South San Francisco (0.56)
012-335-590, 600
4. 530 Collins Avenue 6/92 $ 775,000 46,653 35 Unit ALF $16.61 $22,119 C-1 50.5
Colma (1.07)
008-421-160
S. 501 King Drive - - 50,181 95 Unit ALF - - R-3 82.6
Daly City (1.15)
091-362-006
331
Before adjustment, the sales discussed above indicate a wide sale price per
square foot range of approximately $7.06 to $26.25. The above adjustments to the
comparable sales can be summarized as follows:
Sale Price/
Comp No. SF Adjustment
-------- ----------- ----------
1 $26.25 Downward (list/sale price differential,
land use, topography)
2 $ 7.06 Upward (neighborhood, street frontage)
3 $19.19 Downward (topography, location)
4 $16.61 Upward (frontage); Downward (topography)
The overall degree of comparability of these sales to the subject is weak
reflecting the lack of comparable vacant land sales in the immediate area.
Overall, Comparable Land Sale No. 4 is by far the most similar to the subject in
land use though it is a slightly older sale. Sale No. 2 is similar to the
subject in land use but has an inferior location. Sale No. 3 is least similar to
the subject. Sale No. 1 is a listing and therefore is given less weight as it is
a less precise indication of value. This site is also much larger than the
subject.
After considering the specific location, topography and density of the subject
site and the evidence provided by the adjusted comparables and recent trends in
land values, it is concluded that the fair market value of the fee simple
interest for the subject site as of July, 1995, is at a rate of $17.50 per
square foot, or for the subject's 50,181 square feet, an overall site value of
$878,168 ($17.50/SF x 50,181/SF) or $9,244 per unit.
332
COST APPROACH
The Cost Approach considers an estimate of the fair market value of the land,
the direct and indirect replacement costs (new) of the improvements,
entrepreneurial profit, and accrued depreciation from all causes. Land value is
taken from the Site Valuation section of this appraisal. Sources for replacement
costs of improvements include: (1) Cost bids or reported actual recent cost of
the subject; (2) Actual costs of recently completed comparable improvements; (3)
Local contractors' opinions; (4) Marshall and Swift Computer Data Base; and, (5)
Marshall and Swift (monthly updated) Cost Manual. Entrepreneurial profit is a
necessary element in the motivation to construct improvements. In estimating any
accrued depreciation, the appraiser takes into consideration: age, condition,
functional utility, detrimental external factors, and any existing leases with
contract rent below fair market (economic) rent. The sum total of land costs,
direct improvement costs, indirect costs and entrepreneurial profit is the
estimated replacement cost new. Subtracting any required depreciation from the
replacement cost new indicates the value by the Cost Approach.
DIRECT COSTS
The estimated building cost per square foot replacement cost new in 1995 for the
subject improvements is derived from the Marshall Cost Data Service (and
comparable projects as a part of total costs) as calculated below:
Class D,
Average Quality
Home for the Elderly
(Sec. 11, Page 17)
--------------------
Base Cost/SF $ 54.16
Sprinkler Adjustment 1.20
HVAC Adjustment (1.20)
-------------
$ 54.16
Location Multiplier x 1.26
Time Multiplier x 1.05
Adjusted Base Cost/SF $ 71.65
Square Footage - GBA x 36,874
-------------
Adjusted Base Cost $ 2,642,022
=============
The indicated base rate for the replacement cost new per square foot in 1995 for
the existing improvements is $71.65. Our estimate of the base building cost on a
per square foot basis includes architectural and engineering fees, overall
construction financing cost and operational
333
overhead. They do not include unusual construction and fixtures, loan points,
pre-marketing costs, furniture and city/public utility fees.
In addition to the adjusted base construction for the building improvements, an
allowance for furniture and equipment was included to arrive at total direct
construction costs of the development. The allowance for furniture and equipment
was estimated using an analysis of the Marshall Cost Manual allowance and
industry experience (as shown below) or $2,500 per unit ($237,500 for 95 units).
INDIRECT COSTS
Indirect Costs - In addition to these direct building costs, we have estimated
indirect costs at 7% of total direct building costs. Indirect costs include
legal/accounting/appraisal fees, loan fees, premarketing advertising and
promotion, city/public utility fees and a contingency fund.
The above estimates reflect a replacement cost new (without land or profit) of
$3,142,560 or $85.22 per square foot or $33,080 per unit. This is compared using
an overall reasonableness test (no specific adjustment is made) to other
recently built comparable congregate senior projects as follows:
Total Total
No. of Cost/SF Cost/Unit FF&E
Project Units Location (w/o Land)* (w/o Land)* Unit
- ------- ------ -------- ----------- ----------- ----
Sterling Court 149 San Mateo $79.91 $84,117 $2,516
Park Ridge 93 Vallejo $79.40 $71,138 $2,688
Palm Court 100 Culver City $97.41 $84,000 $3,000
*Includes FF&E, shown separately for comparison purposes.
The estimated replacement cost new for the subject is within the range of costs
incurred at these similar projects on a square foot basis, but much lower on a
per unit basis which is reconcilable given the subject's smaller units sizes,
more modest quality and all studio unit mix.
Finally, an entrepreneur or developer will typically expect to be compensated
for the time, money, and risk expended in bringing a project to a completed
income producing unit. Profit typically ranges from 10% to over 25% of the total
construction and land costs, depending on the type of property, anticipated
absorption or stabilization period, risk, and the size of the project. A modest
allocation of 10% for entrepreneurial profit or toward the bottom of the range
is considered appropriate for the subject given that the highest and best use of
the subject as vacant in 1995 is to probably develop a senior housing project
although this decision is not clear cut. The lesser affluence of the local
market and the competitive impact of Westborough Royale mute the project's
rent/profit potential as evidenced by the subject's higher SSI census.
334
DEPRECIATION
Our site inspection noted no material physical curable, functional or economic
depreciation. We did, however, note the following form of depreciation.
Physical Incurable Depreciation - An amount for physical incurable depreciation
(or the normal wear and tear on improvements as they age) is appropriate
considering the subject's 20 year chronological and effective age, calculated as
follows:
Direct Building
Cost FF&E
--------------- ----
Base Cost New $2,642,022 $ 237,500
Plus: Indirect Cost Allocation x 1.07 x 1.07
Plus: Profit Allocation x 1.10 x 1.10
---------- ----------
Depreciable Base $3,109,660 $ 279,538
Depreciation Estimate (per MVS) 30% 50%
---------- ----------
Total Physical Incurable Depreciation $ 932,898 $ 139,769
========== ==========
Total $1,072,667
==========
The depreciation percentages are based on our site inspection and Marshall
Valuation estimates considering the subject's current 20 year old effective age
(5 years for FF&E considering ongoing replacement) and 45 year old total
economic life (10 years for FF&E). Physical incurable depreciation must be
deducted from estimates of cost new to arrive at an as is valuation.
SUMMARY
Our estimate of value by the Cost Approach is summarized on the following page
with an indicated value conclusion as is, in July, 1995 of $3,350,134, called
$3,350,000.
335
RETIREMENT INN - DALY CITY
COST APPROACH CALCULATION (CALCULATOR METHOD)
Total Land Value (50,181 SF at $17.50/SF) $ 878,168
Direct Building Costs
---------------------
Building Cost $ 2,642,022
Furniture & Equipment
(95 Units at $2,500/each) 237,500
-----------
Total Direct Building Costs $ 2,879,522
-----------
Total Direct Building and Land Costs $ 3,757,690
Indirect Costs - 7% $ 263,038
-----------
Total Construction and Land Costs $ 4,020,728
Plus Entrepreneurial Profit at 10% $ 402,073
-----------
Total Cost New (Including Land) $ 4,422,801
Less Depreciation
Physical Curable 0
Physical Incurable ($1,072,667)
Functional Curable 0
Functional Incurable 0
External Obsolescence 0
-----------
Total Depreciation ($1,072,667)
Indicated Value, Cost Approach, As Is $ 3,350,134
===========
Rounded to $ 3,350,000
336
INCOME APPROACH
The Income Approach is based upon the economic principle that the value of a
property capable of producing real estate income is the present worth of
anticipated future net benefits. The net income projection is translated into a
present capital value indication using a capitalization process. There are
various methods of capitalization that are based on inherent assumptions
concerning the quality, durability, and pattern of the income projection.
Our Income Approach analysis applies an overall capitalization rate to the
subject's projected net income over the next 12 months. This method was
considered appropriate as the subject is currently operating at a stabilized
cash flow (occupancy and expenses). A discounted cash flow model was not
considered of primary usefulness in valuing the subject for the following
reasons:
1) buyers of properties like the subject typically do not use discounted
cash flow analyses;
2) because the subject is a stabilized property, a discounted cash flow
model would simply be inflating revenues and expenses at a fixed rate
and then canceling out the inflation estimate using an appropriate
discount rate. In other words, if properly applied, a discounted cash
flow analysis would arrive at the same value estimate as applying an
overall capitalization rate methodology.
Net income is calculated by subtracting a vacancy and credit allowance and all
fixed and operating expenses from the indicated gross income. The methods
utilized to estimate gross income, vacancy, expenses and an overall
capitalization rate are discussed in detail in the following paragraphs.
PROJECTION PERIOD
In our analysis of the subject's net income, we have utilized a projection
period of 12 months (7/95 to 6/96) which reflects a stabilized cash flow and
occupancy level. Based on this premise, the owner of the property will enjoy the
net proceeds of sale (reversion) at July, 1995 based on the projected July, 1995
to June, 1996 net income. The theory is that the investor purchasing the
property in July, 1995 would be more interested in the anticipated net income in
their first year of ownership than they would be in the previous year's income
prior to their ownership.
POTENTIAL GROSS ANNUAL INCOME
In estimating the potential gross annual income for the subject property over
the projection period, we have reviewed the current rent roll and prepared our
own survey of the properties considered to be most competitive and comparable to
the subject. This survey was presented in the Market Analysis section of this
appraisal and summarized on a following page.
The operators of the subject property have achieved the rental census and
occupancy as summarized on the following page. The June, 1995 census reveals an
occupancy of 92.6% or 100 beds out of a maximum current configuration of 108
beds.
337
RETIREMENT INN - DALY CITY
SUMMARY OF SUBJECT RENT CENSUS at 6/21/95
Private-Studio Semi-Private SSI
(Units) (Beds) (Beds) Total
-------------- ------------ ------ -----
Number Units/Beds - Rented 76 6 18 100 (92.6%)
Rent Range $837-$1,495 $775 $671-$691 $671-$1,495
Rent Average $1,126 $775 $690 $1,026
Potential Total Rent-Rented $1,026,480 $55,800 $149,016 $1,231,296
Number Units/Beds - Vacant (1) 6 1 1 8 (7.4%)
Rent Range $1,200-$1,495 $775 $691 $691-$1,495
Rent Average $1,283 $775 $691 $1,145
Total Potential Rent-Vacant $92,340 $9,300 $8,292 $109,932
Total Units/Beds 82 7 19 108 (100%)
Gross Potential Rent-Total $1,118,820 $65,100 $157,308 $1,341,228
Per Unit/Bed $1,137 $775 $690 $1,035
NOTES:
(1) Vacant units include:
Private - Units 112, 113, 116, 209, 211, 216 (6 units);
Semiprivate Studio - Beds 103, 234, (2 beds), allocated to SSI in ratio of
currently leased beds.
338
Our review of the subject's rent roll revealed a relatively variable range of
rentals with several units having different rents. Discussions with the current
operator noted that individual monthly rents were a function of the unit
location, when the resident entered the subject and negotiation of the rent when
entered. The subject operator noted that approximately 26 of the subject's
studio units are currently being used as 13 "suites". The total rents collected
on these units has been included in our rent census as two studio units. The
operator has also noted their long term goal of not offering the suite option
(two adjoining studios) to prospective residents as the rent collected for two
separate units is higher than the rent for one suite unit (assuming they can be
filled). All SSI rents are fixed by governmental agency at $691 per month and
not market determined.
The comparison of the subject rents (with and without the average assisted
living surcharge) to the market area projects surveyed accumulates the monthly
rental of all facilities, the average of the 10 projects surveyed and the most
comparable projects to the existing Retirement Inn - Daly City. Of the projects
surveyed, Comparable Nos. 1 - Westborough Royale, 5 - Greenhills and 6 -
Retirement Inn - Burlingame would be most similar to the subject in age, scale,
amenities, quality and unit mix.
Overall, the subject's private room rents (with and without the assisted living
surcharge) are generally at the low end of the range of the most comparable
properties and below the average (for both congregate and assisted living) of
all facilities. The subject's congregate studio rents are well below the average
of all projects surveyed (about 28%). Congregate semiprivate living is generally
not offered at other projects with the exception being the subject's sister
facility Retirement Inn - Burlingame. The subject's average assisted living
rents are within the overall range, although they are below the most comparable
properties and the average (about 40%). Because the subject offers a la carte
pricing for its assisted living amenities, residents can effectively choose
their rent level (the assisted living surcharge) as their living assistance
needs vary or change.
In our opinion, the most compelling evidence that the subject's rents are market
rents (and not above or below) is the subject's recent occupancy history and its
current occupancy, which is 93% at the current rents. In our opinion, the
subject's much lower assisted living rents and the higher SSI census have been a
factor in keeping occupancy above the 90% level. The subject's lower rents are
appropriate for its Daly City location and the overall older age, condition,
shared baths configuration in most units and limited unit mix of the subject.
Therefore, given the above discussion, in our opinion, the subject's current
monthly average rents represent market rental rates and are used in our pro
forma estimate of income and expenses shown on a following page. All subject
rents (the average per unit/bed type noted above) are forecast to increase 2%
during the 7/95 to 6/96 projection period, reflecting market conditions and the
subject's history. The 2% estimate in the next 12 months represents an average
4% rent increase applied at each resident's move-in anniversary date which are
assumed to occur evenly over the next 12 months. SSI rates are conservatively
forecasted to remain at current levels in the next 12 months. Our cash flow
estimates are shown gross or before a vacancy and collection factor.
339
RETIREMENT INN - DALY CITY
COMPARATIVE RENT ANALYSIS
ACLF - CONGREGATE RENTS
Private - Studio
-----------------------------------------
Comp. No. Monthly Rent
--------- ------------
4 $1,360-$1,940
5* $1,100-$1,700
6* $1,350-$1,450
7 $1,600-$1,700
8 $1,700-$2,040
9 $1,795
Range $1,100-$2,040
Average $1,628
AL - ASSISTED LIVING RENTS
Private (Studio) Semi-Private
------------------------------ -----------------------------
Comp. No. Monthly Rent Comp. No. Monthly Rent
--------- ------------ --------- ------------
1* $1,500 1* $850
2 $3,300 2 $2,100
3 $3,000 3 $2,000
4 $1,460-$2,240 6* $1,000-$1,850
5* $1,965
6* $1,500-$2,450
7 $2,700-$2,965
8 $1,765-$3,140
9 $2,045-$2,795
10 $2,000-$2,300
Range $1,460-$3,300 $850-$2,100
Average $2,345 $1,594
Private - Studio Semi-Private
---------------- ------------
Subject Rented Beds -
Subject Range $837-$1,495 $775
Subject Average $1,126/$1,446** $775/$1,095**
(76 Units) (6 Beds)
Subject Vacant Beds -
Subject Range $1,200-$1,495 $775
Subject Average $1,283/$1,603** $775/$1,095**
(6 Units) (1 Bed)
*Comparable Nos. 1 - Westborough Royale; 5 - Greenhills Retirement and 6 -
Retirement Inn - Burlingame are most similar to the subject.
**Includes average assisted living surcharge of $320 per month.
340
The above rents are base rents for unlicensed congregate living services. This
rent does not include assisted living surcharges which are billed to residents
on an a la carte basis. Currently, the subject charges for these extra amenities
on a case by case basis with an approximate average of $320 extra per month for
medication monitoring, help with bathing and doing personal laundry. Currently,
about 25 residents pay for living assistance at an approximate average of $312
extra rent per month. Our cash flow projections for the subject estimate a
stabilized 26% gross utilization (28 beds gross) of assisted living amenities at
stabilization, calculating to the following gross assisted living surcharge
income:
Avg. Surcharge/ Resident Projected
Period Month/Bed Utilization Annual Income
------ --------------- ----------- -------------
at 6/95 $312 25 (net) -
at 7/95 to 6/96 $320 28 (gross) $107,520
In addition to total potential gross room revenue, we have included
miscellaneous income at 1.5% of effective gross rental income reflecting
historical receipts for guest meals, processing fees, extra services to
residents, and beauty shop income.
VACANCY AND COLLECTION LOSSES
Our cash flow projections deduct a total vacancy and collection loss in the
stabilized projection period as follows:
Average Average
Occupancy Vacancy
--------- -------
As Is at 6/95 92.6% 7.4%
7/95 to 6/96 (Stabilization) 93.0% 7.0%
The above estimate of stabilized occupancy/vacancy is meant to incorporate 100.4
residents or an occupancy/vacancy of 93.0% (100.4/108). This conclusion is very
close to the current occupancy (100 beds). The projected stabilized vacancy
factor reflects the subject's occupancy history and current occupancy,
discussions with the current operator, the subject's competitive position and
local market conditions as reflected in the occupancies at similar projects in
the market. The subject's market position (lower rents in a less affluent
market), age and condition and larger number of small units mitigate against a
lower stabilized vacancy estimate (or higher occupancy).
OPERATING EXPENSES
In determining pro forma estimates of operating expenses, we have primarily
relied on the specific expense histories (1993, 1994, 1/95 to 4/95 annualized)
and budget (1995) of the subject property as summarized on the following page
and the experience at comparable projects. The expenses enumerated below would
be those of a typical operator at the subject. We have summarized our expense
estimates as follows:
341
RETIREMENT INN - DALY CITY
HISTORICAL INCOME AND EXPENSE
Historical Operator
4 Months Goal
Year Ending Year Ending Ending 1995 Budget
Revenues 12/93 12/94 4/30/95 Annualized 1995
- -------- ----------- ----------- -------- ---------- --------
Rental Income $ 1,007,693 $ 1,167,966 $ 396,299 $ 1,188,897 $1,294,739
Assisted Living Income 71,111 88,795 41,796 125,388 136,200
Non-Operating Revenue $ 14,816 $ 15,635 $ 9,237 $ 27,711 $ 17,192
----------- ----------- --------- ----------- ----------
Total Revenues $ 1,093,620 $ 1,272,396 $ 447,332 $ 1,341,996 $1,448,131
Expenses (1)
Real Estate Taxes $ 33,650 $ 33,618 (2) (2) $ 35,264
Insurance 13,358 14,648 (2) (2) 15,660
G&A 11,363 27,415 (2) (2) 25,675
Utilities 74,830 86,722 (2) (2) 84,660
Payroll/Benefits 445,359 469,299 (2) (2) 474,335
Maintenance 25,872 28,588 (2) (2) 29,340
Activities 10,321 9,963 (2) (2) 10,359
Marketing 13,947 12,501 (2) (2) 13,400
Laundry & Linen 6,839 7,306 (2) (2) 9,784
Dietary 119,855 125,372 (2) (2) 131,401
Supplies 30,243 32,172 (2) (2) 30,673
----------- ----------- --------- ----------- ----------
Total Operating Expense $ 785,637 $ 847,604 $ 309,993 $ 929,979(3) $ 860,551
(71.8%) (66.6%) (69.3%) (69.3%) (59.4%)
Net Operating Income $ 307,983 $ 424,792 $ 137,339 $ 412,017 $ 587,580
=========== =========== ========= =========== ==========
NOTES:
(1) Does not include management fee or replacement reserves.
(2) Detail not available.
(3) Includes approximately $25,000 in nonrecurring capital expenditures.
342
Real Estate Taxes - Real estate taxes are estimated to reflect an assumed sale
of the subject property and a reassessment at current market rates at July, 1995
($3,025,000 times the tax rate of 1.00% plus approximately $12,854 in direct
assessments). This real estate tax expense reflects taxes that would have to be
incurred by a buyer of the subject wherein the subject would be reassessed to
market value;
Insurance - estimated at 1.0% of effective gross income, reflecting typical
charges for liability/fire insurance, historical costs incurred, and the fixed
nature of this expense;
Management - estimated at 5% of effective gross income reflecting the current
typical or average industry charge which would be appropriate for the subject
considering its average complexity of operation;
General and Administrative - estimated at 12% of effective gross income;
representing additional on site costs incurred to manage the subject including
salaries and benefits for the administrator and assistants and all miscellaneous
costs to operate the subject (office supplies, miscellaneous rentals);
Utilities - estimated at 6.5% of effective gross income, which is consistent
with historical costs incurred. Includes all common area and unit utility costs
(telephone, electric, gas, water, sewer);
Maintenance - estimated at 4% of effective gross income, including all
maintenance/security salary and supplies (including land maintenance and pest
control), derived from historical expenses;
Activities/Transportation - all social/recreational service costs including
salaries and supplies (including van service) are estimated at 3% of effective
gross income;
Marketing - all advertising, marketing and sales expenses are estimated at 2% of
effective gross income. This allocation is higher than historical costs but
reflects the costs to a typical operator and the competitive local market;
Housekeeping - estimated at 6% of effective gross income to include salaries,
supplies, for both an internal laundry and linen service and housekeeping and
consistent with historical costs incurred;
Dietary - estimated at anticipated dietary costs to a typical operator or $9.00
per day per resident (100.4 occupied beds x $9.50/day x 365 days). This estimate
includes all dietary related salaries and benefits and cost of food. These
estimates are within current industry averages and historical costs incurred;
Personal Care - estimated at 5.0% of effective gross income to include all
salaries and supplies necessary to provide assisted living services to
approximately 26% of the residents (about $7.32 per resident day for 26
residents);
343
Replacement Reserve - estimated at 15% of the estimated furniture and equipment
cost new ($237,500 or $2,500 per unit) to include the annual reserve necessary
to replace furniture and equipment and other short lived capital items
(carpeting, painting). The stabilized estimate of $35,625 is equal to 2.6% of
the estimate effective gross income.
As shown, total stabilized expenses (not including management fees and reserves)
to a typical operator accumulate to 66.4% of effective gross income or $9,177
per occupied bed (100.4 beds). This percentage of income is slightly higher than
typical because of the subject's larger number of smaller units and significant
SSI census. A comparison to similar congregate/assisted living properties before
management fees and reserves illustrates the following:
Inflated
Stabilized Per to 1995
Location Expense Ratio Resident/Yr. at 4%/Yr.
-------- ------------- ------------ ---------
10 ARV Properties California 61.7% $ 9,782 (1994) $10,173
13 Angeles
Housing Properties National 56.6% $ 8,966 (1993) $ 9,698
Greenhills Millbrae 55.7% $ 8,234 (1992) $ 9,262
Meadows Napa 56.3% $ 8,418 (1992) $ 9,469
Country Inn Fremont 52.5% $ 7,718 (1992) $ 8,682
Westmont Santa Clara 57.7% $ 9,520 (1992) $10,296
Canyon Hills Club Anaheim 61.2% $11,918 (1994) $12,395
Courtyard San Marcos 51.6% $ 9,181 (1993) $ 9,930
6 Facility Averages 55.8% $10,006
Subject - 1993 Historical 71.8% $ 8,729
Subject - 1994 Historical 66.6% $ 8,649
Subject - 1/95 to 4/95 Annualized 69.3% $ 9,300
Subject - 1995 Budget 59.4% $ 8,606
Subject Projected (7/95 to 6/96) 66.4% $ 9,177
As illustrated, the projected expenses for the subject are below the average of
the expense histories of the projects listed above and below the averages of 10
other ARV facilities on a dollars per bed basis. The subject will always have
slightly higher expenses on a percentage of income basis because of its lower
revenue base (smaller units, SSI census) and lower on a per patient basis due to
the location within a market area of lower operating costs/rents, lower assisted
living utilization, more modest quality and common areas and slightly lower
semiprivate census. Our projections consider the experience at the comparable
properties and historical costs incurred.
344
On the following page, we have illustrated average annual operating costs per
unit as accumulated in a recent national survey of operating expenses for
various types of senior facilities including assisted living. The survey
indicated a median annual cost per unit of $10,577 before management fees
($11,541 total less $964 in management fees). This compares to our per unit
estimate for the subject of $9,698 ($921,336/95) in the next 12 months.
Finally, a reconciliation of our adjusted period one (7/95 to 6/96) projected
expenses to 1995 actual annualized expenses illustrates the following:
Actual Total Expenses (1995 Annualized) $ 904,979
(adjusted for nonrecurring expenditures - $25,000) ===========
Operator Budget (1995) $ 860,551
===========
Projected Total Expenses Per SLVS (7/95 to 6/96) $ 1,026,381
Less: Management Fees $ (69,420)
Less: Replacement Reserves $ (35,625)
-----------
Adjusted Projected Total Expenses (7/95 to 6/96) $ 921,336
===========
Difference
(over 1995 actual annualized, reflects inflation) +1.8%
(over 1995 budget, reflects inflation, less
assisted living utilization) +7.1%
CAPITALIZATION PROCESS
Because Retirement Inn - Daly City is being appraised as of July, 1995 wherein
it has reached a stabilized cash flow, we have utilized a procedure where the
stabilized net income for the period of July, 1995 to June, 1996 is capitalized
at a rate of 12.0% to get an indicated total property value at July, 1995. This
calculation is shown on a following page.
We have been involved in the analysis and valuation of numerous retirement
facilities around California which have generally exhibited overall
capitalization rates ranging from 11% to 15%. These are illustrated in sales of
comparable facilities in the Sales Comparison Approach of this report and are
summarized as follows:
345
Comparable Indicated
Sale No. Property Cap Rate
- -------- ---------- ---------
1 Oak Tree Villa 12.3%
2 El Camino Gardens 11.2%
3 Casa Sandoval 9.0%
4 Lomita Lodge 12.2%
5 Carson Oaks 12.4%
6 Park Ridge 11.3%
Range 9.0%-12.4%
Average 11.4%
25 Facility Average 12.5%
In April, 1995, Senior Living Valuation Services, Inc. conducted the second
annual survey of close to 300 participants in the senior housing industry
regarding their investment criteria or perception of criteria used in evaluating
different types of senior housing properties. The investment criteria survey
polled included capitalization rates, discount rates and returns on equity. A
copy of this survey is provided in the Addenda of this report. The survey
indicated a capitalization rate range of 9% to 16% and an average of 12.1% for
assisted living facilities. Though the survey is not definitive, it does provide
some market evidence of the investment criteria being used (or perceived to be
used) by industry professionals.
Another method of estimating a capitalization rate is the band of investment
weighted average technique. If the available mortgage terms are known, the debt
service or mortgage constant can be calculated, and if the equity dividend rate
required to attract equity capital is known or can be estimated, the overall
rate applicable in direct capitalization can be computed. Available mortgage
terms are 70% of value at 10.0% interest with an amortization term of 20 years
reflects market terms based on our experience of specific financing transactions
and recent national surveys of financing parameters for senior housing
properties. Based on these terms, the mortgage constant is .1158. The equity
dividend rate required to attract equity capital for properties similar to the
subject is approximately 15%. The indicated overall capitalization rate using
this approach is:
Band of Investment
Portion Weighted
of Value Rate Contribution
-------- ---- ------------
Mortgage 0.70 x .1158 .0811
Equity 0.30 x .15 .0450
-----
1.0 x Overall Rate .1261
OAR 12.61%
346
These sources of capitalization rates can be summarized as follows:
Indicated
Cap Rates
---------
6 Detailed Sales 11.25%
25 Statewide Sales 12.5%
SLVS Investment Survey 12.1%
Band of Investment 12.61%
Based upon the current characteristics of the subject, namely, its overall
slightly below average cash flow risk as reflected in its stable occupancy
(about 93%) and cash flow (including a higher SSI census) and the long term
potential offered by uncoupling current suite units into higher rent separate
studios and conversely, considering the subject's older age, less favorable
shared bath room and more limited unit mix, the impact of a nearby formidable
competitor and less affluent market area, we have concluded that 12.0% or toward
the middle portion of the approximate range is an appropriate capitalization
rate for the subject property.
SUMMARY
Our estimate of value by the Income Approach is summarized on the following page
and produces an indicated value for the subject property as is, at July 13, 1995
of $3,018,800, rounded to $3,025,000 ($31,842/unit).
347
RETIREMENT INN - DALY CITY
PRO FORMA INCOME/EXPENSE & CAPITALIZATION
Projected
Stabilized
(7/95-6/96)
-----------
Average Occupancy (All Beds) 93.0% (100.4 Beds)
Average Net Rental (All Beds) $ 1,053
Potential Gross Rent Income -
Studio Private - 82 Units at $1,160/Mo. Avg. $1,141,184
Semiprivate - 7 Beds at $791/Mo. Avg. 66,402
SSI - 19 Beds at $690/Mo. Avg. $ 157,320
----------
Potential Gross Rent Income $1,364,906
Plus: Assisted Living Surcharges (28 Beds at $320/mo.) $ 107,520
Plus: Miscellaneous Income (1.5% of PGRI) $ 20,474
----------
Potential Gross Income $1,492,900
Less: Stabilized Vacancy & Collection Losses - 7% $ (104,503)
----------
Effective Gross Income $1,388,397
Expenses - % of EGI
--------
Real Estate Taxes - $ 43,104
Insurance 1.0% 13,884
Management 5.0% 69,420
G&A 12.0% 166,608
Utilities 6.5% 90,246
Maintenance 4.0% 55,536
Activity & Trans. 3.0% 41,652
Marketing 2.0% 27,768
Housekeeping 6.0% 83,304
Dietary $9.00/PRD 329,814
Personal Care 5.0% 69,420
Replacement Reserves - $ 35,625
----------
Total Expenses $1,026,381
(73.9%)
Stabilized Net Operating Income $ 362,016
Capitalization Rate .12
----------
Capitalized Value $3,018,800
==========
Called $3,025,000
Per Unit $ 31,842
348
SALES COMPARISON APPROACH
The Sales Comparison Approach is a method of comparing the subject property to
recent sales and/or listings of similar types of properties located in the
subject or competing areas. Each of these sales must be analyzed to establish
estimate elements of comparability. The reliability of this technique depends on
1) the degree of comparability between the subject and the sales properties; 2)
the length of time since the sales were consummated; 3) the accuracy of the
sales data; and, 4) the absence of unusual conditions affecting the sale.
On the following page, we have included 25 sales of congregate senior housing
properties which can be considered somewhat similar to the subject. The purpose
of including this listing is to provide the reader with some context of western
US senior housing sales beyond those specifically discussed below. This
additional information can be helpful because of the special purpose nature and
general illiquidity of the senior housing market. Some of the sales in the last
18 months represent REO's. Some project buyers present in today's market are
still "bottom fishing" where distressed properties can be purchased at
substantial discounts from replacement cost. However, these buyers have a
shrinking supply of properties available to choose from. This has resulted in an
overall trend of decreasing cap rates (higher sale prices). Those more recent
transactions considered most comparable to the subject are summarized on the
following page and discussed in greater detail in the Addenda of this report.
The sale prices noted below are discussed and reported on a sale price per unit
(total going concern) basis.
Comparable Sale No. 1 is Oak Tree Villa in Scotts Valley which just recently
sold in June, 1995 for $11,900,000 or $58,900 per unit. The 202
congregate/assisted living project, built in 1988 was only 72% occupied at the
date of sale with an indicated cap rate at a full occupancy of 12.3%. The
project has a high quality physical plant although it is located in a relatively
less densely populated area (20 mile south of Silicon Valley; about 5 miles
north of Santa Cruz). 20% of the units of this project are allocated to low
income (HUD) residents.
Comparable Sale No. 2 is El Camino Gardens in Carmichael which sold in May, 1995
for a contracted price of $9,350,000. An estimated $650,000 in deferred
maintenance makes the effective sale price of the project approximately
$10,000,000 or $34,965 per unit. This 286 ACLF/112 ALF, 1984 built project, was
82% occupied at the time of sale and has an average physical plant. The property
had an estimate cap rate at a stabilized occupancy of 11.2%. The property was
purchased by entities affiliated with the subject owner (ARV Housing). The lower
cap rate of this sale is partially explained by the buyer's plans to
substantially upgrade the property in order to increase the assisted living
census.
Comparable Sale No. 3 is the February, 1995 sale of Casa Sandoval which sold at
auction for $15,000,000 or $63,205 per unit. The 1989 built, Hayward project
includes 238 total units. The property was only 81% occupied at the sale date,
reflecting a slightly forced sale due to the financial difficulties of the prior
owner. The property was underperforming at the date of sale and the buyer plans
an aggressive conversion of many units of the project to assisted living. The
overall quality of this project is average despite its newness. The indicated
cap rate of the sale has been estimated at a low 9.0% at a stabilized occupancy
(before consideration of any assisted living conversion).
349
WESTERN US ACLF/AL SENIOR HOUSING SALES SUMMARY
LAST 24 MONTHS
Gross Expense Sale
Inc. Ratio Price
No. Facility Name Location Age Units $/Unit/Mo (%) Date (000) $/Unit
- --- ----------------------- ------------------ ----- ----- --------- ------- ---- ------- --------
1. The Highlander Seattle, WA 1979 121 $1,066 55.0% 6/93 $ 5,200 $41,322
2. Almond Avenue Orangevale, CA 1987 39 $1,598 65.2% 7/93 $ 2,100 $53,864
3. Summerfield Tigard, OR 1980 155 $1,100 60.0% 8/93 $ 6,550 $42,532
4. Renton Villa Renton, WA 1983 78 $1,366 66.7% 8/93 $ 3,000 $38,462
5. Sherwood Villa Tacoma, WA 1981 98 $1,328 69.0% 8/93 $ 2,800 $28,571
6. Celeste Villa Modesto, CA 1975 81 $1,080 72.5% 10/93 $ 1,900 $23,457
7. Springs of Napa Napa, CA 1986 102 $1,332 55.0% 11/93 $ 6,300 $61,765
8. Summerhill Puyallup, WA 1987 96 $1,241 59.4% 2/94 $ 5,500 $57,292
9. Chula Vista Inn Chula Vista, CA 1975 112 $1,034 75.0% 6/94 $ 2,675 $23,884
10. Villa San Marcos San Marcos, CA 1986 100 $1,191 65.0% 6/94 $ 3,951 $39,510
11. Camlu Phoenix, AZ 1979 88 $1,153 65.0% 6/94 $ 3,800 $43,182
12. Gold Star Manor Fullerton, CA 1985 80 $1,146 70.0% 6/94 $ 2,880 $36,000
13. Hacienda de Monterey Palm Desert, CA 1989 180 $1,813 65.8% 7/94 $ 7,250 $40,278
14. Park Ridge Vallejo, CA 1991 93 $1,632 60.0% 7/94 $ 5,785 $62,204
15. Carson Oaks Stockton, CA 1989 76 $1,462 60.0% 7/94 $ 4,200 $55,263
16. Villa Ocotillo Scottsdale, AZ 1973 102 $1,242 60.0% 9/94 $ 3,500 $34,314
17. Lomita Lodge Ojai, CA 1970 26 $1,999 75.0% 12/94 $ 1,350 $51,923
18. Brea Residential Brea, CA 1990 98 $1,377 67.0% 1/95 $ 4,800 $48,980
19. Whittier Retirement Whittier, CA 1973 72 $1,187 67.0% 1/95 $ 2,875 $39,937
20. Canyon Hills Club Anaheim, CA 1989 212 $1,661 67.1% 2/95 $13,450 $63,443
21. Casa Sandoval Hayward, CA 1989 238 $1,346 65.0% 2/95 $15,000 $63,025
22. Valley Crest Apple Valley, CA 1985 37 $1,600 65.0% 2/95 $ 2,200 $59,459
23. Amaryllis Court Anaheim, CA 1969 33 $1,391 75.0% 3/95 $ 1,150 $34,848
24. Fulton Villa Stockton, CA 1973 76 $ 763 72.1% 3/95 $ 1,450 $19,079
25. Oak Tree Villa Scotts Valley, CA 1988 202 $1,399 56.8% 6/95 $11,900 $58,911
Low 1969 26 $ 763 55.0% $ 1,150 $19,079
High 1991 238 $1,999 75.0% $15,000 $63,443
Low (minus 2 lowest) 1973 37 $1,066 56.8% $ 1,450 $23,884
High (minus 2 highest) 1982 104 $1,340 65.3% $11,900 $62,204
Average: 1983 110 $1,330 64.9% $ 4,863 $44,860
No. Facility Name Location OAR $/SF GIM
- --- -------------------------- ------------------ -------- -------- ---
1. The Highlander Seattle, WA 13.4% $52.73 3.36
2. Almond Avenue Orangevale, CA 12.4% $57.00 2.81
3. Summerfield Tigard, OR 13.2% $80.84 3.20
4. Renton Villa Renton, WA 14.2% $46.51 2.35
5. Sherwood Villa Tacoma, WA 17.3% $45.67 1.79
6. Celeste Villa Modesto, CA 13.7% $32.75 1.81
7. Springs of Napa Napa, CA 11.7% $69.23 3.86
8. Summerhill Puyallup, WA 10.5% $62.74 4.40
9. Chula Vista Inn Chula Vista, CA 13.0% $41.10 1.92
10. Villa San Marcos San Marcos, CA 12.7% $73.17 2.76
11. Camlu Phoenix, AZ 11.2% $83.66 3.12
12. Gold Star Manor Fullerton, CA 11.5% $128.34 2.62
13. Hacienda de Monterey Palm Desert, CA 18.5% $41.36 1.85
14. Park Ridge Vallejo, CA 11.3% $68.10 3.54
15. Carson Oaks Stockton, CA 12.4% $66.95 3.23
16. Villa Ocotillo Scottsdale, AZ 14.9% $43.34 2.30
17. Lomita Lodge Ojai, CA 12.2% $135.00 2.06
18. Brea Residential Brea, CA 11.1% $84.24 2.96
19. Whittier Retirement Whittier, CA 11.8% $75.16 2.80
20. Canyon Hills Club Anaheim, CA 10.3% $65.92 3.18
21. Casa Sandoval Hayward, CA 9.0% $69.23 3.90
22. Valley Crest Apple Valley, CA 11.3% $118.71 3.10
23. Amaryllis Court Anaheim, CA 11.0% $71.72 2.09
24. Fulton Villa Stockton, CA 11.5% $25.29 2.08
25. Oak Tree Villa Scotts Valley, CA 12.3% $69.18 3.51
Low 9.0% $32.75 1.79
High 18.5% $135.00 4.40
Low (minus 2 lowest) 10.5% $41.36 1.85
High (minus 2 highest) 14.9% $118.71 3.86
Average: 12.5% $68.72 2.82
350
RETIREMENT INN - DALY CITY
COMPARABLE IMPROVED SALES
Indicated
Age/No. Sale Price/ Sale Occupancy Overall
No. Name/Location of Units Date Sale Price Unit Price/SF at Sale Rate
- --- ------------- -------- ---- ---------- ----- -------- --------- --------
1. Oak Tree Villa 1988/ 6/95 $11,900,000 $58,911 $ 69.19 72% 12.3% (1)
100 Lockwood Lane 202
Scotts Valley, CA
2. El Camino Gardens 1984/ 5/95 $10,000,000 $34,965 $ 62.19 82% 11.2% (1)
2426 Garfield 286
Carmichael, CA
3. Casa Sandoval 1989/ 2/95 $15,000,000 $63,025 $ 69.23 81% 9.0% (1)
1200 Russell Way 238
Hayward, CA
4. Lomita Lodge 1970's/ 12/94 $ 1,350,000 $51,923 $135.00 81% 12.2% (1)
225 N. Lomita 26
Ojai, CA
5. Carson Oaks 1989/ 7/94 $ 4,200,000 $55,263 $ 66.95 95% 12.4%
6725 Inglewood Avenue 76
Stockton, CA
6. Park Ridge 1991/ 7/94 $ 5,785,000 $62,204 $ 68.10 55% 11.3% (1)
2261 Tuolumne 93
Vallejo, CA
(1) Estimated at 92% occupancy
351
Comparable Sale No. 4 is the December, 1994 sale of Lomita Lodge, a small
assisted living project located in Ojai. The 26 unit project sold for $1,350,000
or $51,923 per unit. The property was originally built in the 1940's and
expanded in the 1970's. The project has high rents but was only 81% occupied at
the date of sale. The indicated cap rate at a stabilized occupancy is 12.2%.
Comparable Sale No. 5 is the July, 1994 sale of Carson Oaks, a 76 unit
congregate senior project located in Stockton (bought by the same buyer as
Comparable No. 1). Stockton is a Central Valley community with an overall
affluence below Livermore. The 1989 built project was purchased for $4,200,000
or $55,263 per unit. The project was 95% occupied at the date of sale. This
project has an overall average to above quality, a weak location (behind a
shopping mall) and can be considered a middle to upper middle market project.
The sale price suggested an estimated capitalization rate of 12.4%.
Comparable Sale No. 6 is the Park Ridge in Vallejo which sold in July, 1994 for
$5,785,000 or $62,204 per unit. The 93 ACLF (including 14 licensed assisted
living beds) is a recently built (1991), modern project in a generally less
affluent Bay Area suburb. The project was only 55% occupied at the date of sale
and has had a very difficult time leasing. The property could be considered
mildly distressed. This is attributable to several factors including a crowded
local competitive market, a weak real estate market and the project possibly
being too high end for its market. The indicated overall capitalization rate of
this sale at a stabilized 92% occupancy is estimated at 11.3%.
The comparables described above indicate unit values of between $34,965 per unit
to $63,025 per unit before adjustments. Overall, in reviewing these sales for
comparability to the subject, we observed significant differences. Most notably,
differences in location, physical plant, occupancy, and unit mix make direct and
precise comparison to the subject property difficult. Therefore, in our opinion,
the overall degree of comparability of these sales to the subject is only fair.
Nevertheless, after the adjustments described below, these comparables should
provide approximate parameters for an indicated value of the subject property.
The first adjustment to the comparable sales (the yet to stabilize Sale Nos. 1,
3, 4 and 6) reflects the difference in the stabilized occupancy of the
comparables at their date of sale to the as is 93% occupancy of the subject. The
amount of the adjustment is interpolated assuming an approximate 20% to 30%
difference in value between an empty project and one that is stabilized.
On a following page, we have also adjusted each of the comparable sales for the
difference in the ratio of net income per the total number of units. These
adjustments should provide an approximate value range from the subject. We have
adjusted each comparable by the ratio of the estimated stabilized net income per
unit of the subject ($3,811) to the net income per unit of the comparables. This
ratio should theoretically reflect differences in stabilized occupancy, location
and quality (through rents), unit mix and operating efficiencies (through
expenses).
As illustrated, after adjustment, these sales indicate a value range for the
subject of $30,947 per unit to $38,629 per unit (less the outlying Sale No. 3).
This range provides approximate parameters for a value indication for the
subject. In our opinion, given the above adjustments,
352
the indicated value of the subject as is in July, 1995 is between $30,947 to
$38,629 per unit, calculating to a total indicated fee simple value using a
Sales Comparison Approach of $2,939,965 ($30,947/unit x 95 units) to $3,669,755
($38,629/unit x 95 units), rounded to $2,950,000 to $3,675,000.
As described in the Reconciliation and Conclusion section of this appraisal, due
to significant differences in location, occupancy, quality and amenities
package, our final value conclusion does not place great weight on this value
estimate reflecting the general lack of comparability, large adjustments and
wide range of indicated values.
353
RETIREMENT INN - DALY CITY
COMPARABLE IMPROVED SALES ADJUSTMENTS
No. 1 No. 2 No. 3 No. 4 No. 5 No. 6
----- ----- ----- ----- ----- -----
Sale Price Per Unit $58,911 $34,965 $63,025 $51,923 $55,263 $62,204
Before Adjustment
Occupancy Adjustment +10% +5% +5% +5% - +15%
Net Income Per Unit -47% -3% -33% -40% -44% -46%
Adjustment (Subject (1) $(3,811/ $(3,811/ $(3,811/ $(3,811/ $(3,811/ $(3,811/
NOI/Unit/Comp/NOI/Unit $ 7,246) $ 3,923) $ 5,653) $ 6,314) $ 6,851) $ 7,020)
------- ------- ------- ------- ------- -------
Sale Price Per Unit
After Adjustment $34,345 $35,612 $44,338 $32,711 $30,947 $38,629
======= ======= ======= ======= ======= =======
Range (Less Outlying Sale No. 3): $ 30,947 - $ 38,629
x 95 Units x 95 Units
------------ ------------
Indicated Value Range: $ 2,939,965 - $ 3,669,755
============ ============
Called: $ 2,950,000 to $ 3,675,000
(1) Subject stabilized NOI/Unit - $362,016/95 Units
354
RECONCILIATION AND CONCLUSION
Market Value
As Is - 7/13/95
---------------
Indicated Value, Cost Approach $3,350,000
Indicated Value, Income Approach $3,025,000
Indicated Value, Sales Comparison Approach $2,950,000-
$3,675,000
The development of a final estimate of value involves judgment in a careful and
logical analysis of the procedures leading to each indication of value. The
judgment criteria are appropriateness, accuracy and quantity of evidence.
The Sales Comparison Approach is most applicable when closely comparable
properties are bought and sold in the market on a regular basis. We relied on
the sales of somewhat comparable facilities to estimate value using this
approach. However, due to overall property type illiquidity, differences in
occupancy, location and components of income, direct comparison to the subject
property is difficult as suggested by the wide range of indicated values.
Considering these factors, the Sales Comparison Approach is considered to
produce a less reliable indication of value.
The Cost Approach is most applicable when the improvements are new or nearly new
and where a few number of subjective adjustments must be made to reflect
depreciation, if any. In estimating construction cost new, we relied on well
documented general cost information provided by the Marshall Valuation Service
which was generally supported by actual costs incurred at similar projects. Our
estimate of land value is somewhat supported by the sale of similarly zoned
vacant land parcels in the region. Adjustments for physical incurable
depreciation are approximations but were estimated using reasonable analyses.
Considering these factors and our Highest and Best Use conclusions, the Cost
Approach is considered to produce a less accurate indication of value. This
approach is also rarely relied on by investors in this type of property.
The Income Approach is typically considered the strongest value indicator for
properties purchased primarily for their income producing potential. This
approach most accurately reflects the impact of stabilized occupancy rates for
properties such as the subject. Comparable market rental rates and an analysis
of the current census were available for the subject units to arrive at an
estimate of fair market rent and gross income. Expense data was substantiated by
historical data and comparable projects. Finally, our estimate of the
capitalization rate is appropriate reflecting the subject's overall average cash
flow risk and market position. Overall, the Income Approach is considered a
strong and only truly reliable indicator of value for the subject property.
After considering the factors leading to each indication of value, the Income
Approach is considered to be the most appropriate for the purpose of this
appraisal. The Sales Comparison Approach is given little to no weight due to the
illiquidity of the market, shifting market trends and the wide range of
indicated values. The Cost Approach is also given little to no emphasis,
355
based on the deductions for depreciation and our highest and best use
discussion. The final market value estimate of the fee simple total going
concern interest of the subject property as is, on July 13, 1995, is:
THREE MILLION TWENTY FIVE THOUSAND ($3,025,000) DOLLARS
356
ALLOCATION OF FINAL VALUE DETERMINATION TO COMPONENTS
We have allocated our total going concern value determination to various
components including real estate, business and personal property value. To
allocate the going concern value estimate, we have utilized both the Cost and
Income Approaches to estimate a reliable and reasonable allocation to each
component. A summary of our allocation is illustrated below:
Allocation of Final Going Concern Value Determination
As Is -
7/13/95
-------
Total Going Concern Value $3,025,000
Personal Property (1) 120,000
Business Value (2) 525,000
----------
Real Estate Value $2,380,000
==========
(1) FF&E estimated from Cost Approach estimates less accrued
depreciation.
(2) Business value estimated from the calculated difference in
value of the subject as is (full occupancy) compared to its
value as if it were vacant as shown below.
The personal property value is taken from the Cost Approach estimates set forth
in Cost Approach section of this report. This estimate reflected a replacement
cost new of $2,500 per unit (total of $237,500 FF&E cost new for 95 units) which
must be adjusted to its current depreciated value. Given the estimated five year
old average age of the subject's personal property items and ongoing
replacement, we have estimated a 50% allocation for depreciation at 7/13/95 or
an as is value of $237,500 x 50% = $118,750, rounded to $120,000.
The business component of the subject value reflects the fact that the subject
is a business requiring specialized management services such as meals,
housekeeping and social activities represent complications in the operation of a
senior housing facility and require specific managerial expertise. An
appropriate method to estimate the business value component is to compare the
value of the subject as is ($3,025,000) as a fully operating stabilized property
to its estimated value as if it were empty, as estimated below ($2,500,000). The
estimated business value would be the difference in these values or $525,000.
357
Approximate Valuation of Subject As If Empty at 7/95
Period 1 Period 2 Period 3
(7/95-6/96) (7/96-6/97) (7/97-6/98)
----------- ----------- -----------
Average Occupancy 38.25% 74.75% 93.0%
Potential Gross Income $ 1,492,900 $1,552,616 $1,614,720
Effective Gross Income $ 571,034 $1,160,580 $1,501,690
Total Expenses $ 718,218 $ 960,360 $1,109,749
----------- ---------- ----------
Net Income ($ 147,184) $ 200,220 $ 391,941
=========== ========== ==========
Discounted Value ($ 127,991) $ 151,386 $2,469,555
=========== ========== ==========
Total $ 2,492,950
==========
Called $ 2,500,000
==========
Assumptions: 20% preleasing; 3.3 units/month absorption; 4% annual rent
increases; stabilized expense estimated at 73.9% of stabilized effective gross
income; expenses decreasing from the stabilized period three at 4%/year for
inflation and also for lower occupancy by 10% in period two, 30% in period one;
12.0% terminal cap rate; 15.0% discount rate.
The real estate component is the remainder or residual of the final value
determination after a subtraction for the personal property and business value
components, or as illustrated for the subject: $2,380,000 at July 13, 1995, as
is, or 78.7% of the total going concern value. In our opinion, though these
allocations are estimates, they can be considered reliable and reasonable given
the analysis set forth above.
358
MARKETING PERIOD
The subject's estimated marketing time is 6 months. This conclusion is based on
discussions with those brokers specializing in the sale of senior housing
projects, our knowledge of specific sale transactions (which have had widely
variable marketing times) and considering current market conditions and the
characteristics of the subject. Marketing times at several similar projects
indicate the following:
Casa Sandoval Hayward 6 months
Fulton Villa Stockton 4 months
Pacific Springs Escondido/El Cajon 5 months
Park Ridge Vallejo 5 months
In our opinion, the subject would probably experience an average marketing time
(regarded as about 6 months). The majority of buyers of senior housing projects
are still seeking (and have fewer and fewer available opportunities) distressed
properties where large increases in cash flow value are possible. The subject is
not a distressed property given the current 93%+/- stabilized occupancy and as
such would have a lesser appeal to some market buyers (subject has limited
upside potential although its assisted living utilization could be increased).
Nevertheless, the subject would be viewed as a solid cash flow project with an
average physical plant and a limited unit mix in a good overall location. The
subject's most likely buyer would be a larger facility owner/operator of other
comparable congregate senior housing properties in California (i.e. Holiday
Retirement, Manor Care, Leisure Care, Capital Senior Living, Brim, Health Care
Group, etc.).
359
CERTIFICATION
1. We have no present or contemplated future interest in the real estate
that is the subject of this appraisal report.
2. We have no personal interest or bias with respect to the subject matter
of this appraisal report or the parties involved.
3. To the best of our knowledge and belief, the statements of fact
contained in this appraisal report, upon which the analyses, opinions
and conclusions expressed herein are based, are true and correct.
4. This appraisal report sets forth all of the limiting conditions
(imposed by the terms of my assignment or by the undersigned) affecting
the analyses, opinions and conclusions contained in this report.
5. This appraisal report has been made in conformity with and is subject
to the requirements of the Code of Professional Ethics and Standards of
Professional Conduct of the Appraisal Institute and is prepared in
accordance with the requirements of the Office of the Comptroller of
the Currency and the Uniform Standards of Professional Appraisal
Practice.
6. Our compensation is not contingent on an action or event resulting from
the analysis, opinions, conclusions reached or the use of this report.
7. The value estimates set forth in this report are not predetermined or
based on any requested minimum valuation, a specific valuation or the
approval of a loan.
8. The use of this report is subject to the requirements of the Appraisal
Institute relating to review by its duly authorized representatives.
9. Mary Catherine Wiederhold, Appraisal Associate provided significant
professional assistance to the person signing this report.
10. As of the date of this report, Michael G. Boehm, MAI has completed the
requirements of the continuing education program of the Appraisal
Institute.
11. A personal inspection of the property was made by Michael G. Boehm, MAI
on July 13, 1995.
360
12. The concluded total going concern market value estimate of the fee
simple interest of Retirement Inn - Daly City, is as follows:
MARKET VALUE "AS IS" (JULY 13, 1995):
THREE MILLION TWENTY FIVE THOUSAND ($3,025,000) DOLLARS
SENIOR LIVING VALUATION SERVICES, INC.
- --------------------------------------
Michael G. Boehm, MAI
361
A D D E N D A
362
COMPARABLE MARKET AREA SENIOR HOUSING FACILITIES
No. 1 - Westborough Royale
89 Westborough
South San Francisco
No. 2 - Home Sweet Home
1560 Bryant Street
Daly City
363
COMPARABLE MARKET AREA SENIOR HOUSING FACILITIES
No. 3 - Home Sweet Home
205 Collins Avenue
Daly City
No. 4 - University Mound Ladies Home
350 University Street
San Francisco
364
COMPARABLE MARKET AREA SENIOR HOUSING FACILITIES
No. 5 - Greenhills Retirement
1201 Broadway
Millbrae
No. 6 - Retirement Inn - Burlingame
250 Myrtle Road
Burlingame
365
COMPARABLE MARKET AREA SENIOR HOUSING FACILITIES
No. 7 - Sterling Court
850 N. El Camino Real
San Mateo
No. 8 - Hillsdale Manor
2883 S. Norfolk
San Mateo
366
COMPARABLE MARKET AREA SENIOR HOUSING FACILITIES
No. 9 - Glenwood Inn
555 Glenwood
Menlo Park
No. 10 - Palo Alto Commons
4075 El Camino Way
Palo Alto
367
VACANT LAND SALE COMPARABLE NO. 1
Location: 6843 Mission Boulevard
Daly City, CA
Assessor's Parcel No.: 003-191-1, 2, 3, 4, 16 (San Mateo County)
Sale Date: Listing
Document No.: N/A
Listing Price: $4,200,000
Size: 160,000 Square Feet (3.67 Acres)
List Price/SF: $26.25
Topography: Flat to Slightly Sloping
Shape: Irregular
Proposed Use: Unknown; probable commercial
Zoning: PD
Grantor: Hugh Smith Family Trust
Grantee: N/A
Terms: N/A
Comments: Sale of former Mission Bell Motel site is being combined with additional parcels. Plans
were approved by Daly City for a 45,000 square feet supermarket with 27 residential
units and a Taco Bell restaurant, but the land was returned to the seller by the
developer. A 55,000 square feet Lucky Supersaver is planned for the southern adjacent
parcel, according to the Daly City Planning Department. There is an unknown number
of underground tanks on the site as well as a small area of contaminated soil due to gas
tank leaks from a former gas station immediately north of the site.
368
VACANT LAND SALE COMPARABLE NO. 2
Location: 901 Oceana Boulevard
Pacifica, CA
Assessor's Parcel No.: 009-293-090 (San Mateo County)
Sale Date: 9/29/94
Document No.: 94-153108
Sale Price: $400,000
Size: 56,628 Square Feet (1.30 Acres)
Sale Price/SF: $7.06
Topography: Level
Shape: Rectangular
Proposed Use/Density: 42 Noncongregate Senior Apartments; 32.3 Units/Acre
Sale Price/Unit: $9,524
Zoning: R-3
Grantor: Roman Catholic Archbishop Corporation
Grantee: Oceana Senior Housing Corporation
Terms: All Cash to Seller
Comments: Land locked site was formerly a church parking lot and basketball court in between a
church and school; sale contains a permanent easement granting access to street.
369
VACANT LAND SALE COMPARABLE NO. 3
Location: 124 Linden Avenue
South San Francisco, CA
Assessor's Parcel No.: 012-335-590, 600 (San Mateo County)
Sale Date: 10/15/93
Document No.: 175497
Sale Price: $465,000
Size: 24,227 Square Feet (0.56 Acres)
Sale Price/SF: $19.19
Topography: Level
Shape: Rectangular
Proposed Use/Density: Construct a Parking Lot
Zoning: CH-C3
Grantor: Chevron USA, Inc.
Grantee: M/M Robert & Kathleen Giorgi
Terms: All Cash to Seller
Comments: Site has 140 feet of frontage on Linden
Avenue and 175 feet on Baden Avenue in
central South San Francisco business
district; buyer owns a nearby parcel and
the planned parking lot is for their
business.
370
VACANT LAND SALE COMPARABLE NO. 4
Location: 530 Collins
Colma, CA
Assessor's Parcel No.: 008-421-160 (San Mateo County)
Sale Date: 6/25/92
Document No.: 099787
List Price: $775,000
Size: 46,653 Square Feet (1.071 Acres)
Sale Price/SF: $16.61
Topography: Level
Shape: Rectangular
Proposed Use/Density: 35 unit/54 bed assisted living project (Home Sweet Home); 32.7 Units/Acre
Sale Price/Unit: $22,119
Zoning: C-1
Grantor: Richard Venturini
Grantee: Nediljka/Mate Matijas
Terms: $325,000 Cash; $450,000 1st TD National Bank of Daly City, reportedly at market.
Comments: In mixed use, average quality neighborhood; direct competitor of subject.
371
IMPROVED SALE COMPARABLE NO. 1
Name: Oak Tree Villa
Location: 100 Lockwood Lane, Scotts Valley, CA
Assessor's Parcel No.: 021-052-01 (Santa Cruz County)
Sale Date: 6/6/95
Sale Price: $11,900,000
No. of Units: 202 Units (includes 40 assisted living units)
Age: 1988
% Private Pay: 100% (includes 20% low income residents)
Size (GBA): 172,000 Square Feet
Average Unit Size (GBA/Unit): 851 Square Feet
Sale Price/Unit: $58,911
Sale Price/SF: $69.19
Occupancy Rate: 72%
Gross Operating Income: $3,390,984 (estimated at 90% occupancy)
Expenses: $1,925,343
Net Operating Income: $1,465,641 (estimated at 90% occupancy)
% Expenses: 56.8%
G.I.M.: 3.51
O.A.R.: 12.3 (estimated at 90% occupancy)
N.O.I./Unit: $7,256
Grantor: Oak Tree Villa Partnership
Grantee: Birtcher Senior Properties
Terms: $4,955,000 cash (39%); $7,745,000 assumption of existing debt, 30 year
amortization, due in 15 years, 10.25% rate.
Comments: 20% of units must be allocated to low income (HUD) residents; unit mix:
102 alcove units (450 SF) and 100 one bedroom units (600 SF); located in
lightly populated area.
Confirmation: Keith Louie (415) 391-9220
372
IMPROVED SALE COMPARABLE NO. 2
Name: El Camino Gardens
Location: 2426 Garfield Avenue, Carmichael, CA
Assessor's Parcel No.: 283-0030-14 (Sacramento County)
Sale Date: 5/31/95 (Document No. 8309302142)
Sale Price: $10,000,000 (includes $650,000 in deferred maintenance)
No. of Units: 286 Units (174 ACLF/112 ALF)
Age: 1984
Size (GBA): 160,810 Square Feet
Average Unit Size (GBA/Unit): 562 Square Feet
Sale Price/Unit: $34,965
Sale Price/SF: $62.19
Occupancy Rate: 82%
Gross Operating Income: $2,814,240 (estimated at 93% occupancy)
Expenses: $1,692,240
Net Operating Income: $1,122,000 (estimated at 93% occupancy)
% Expenses: 60.1%
G.I.M.: 3.55
O.A.R.: 11.2% (estimated at 93% occupancy)
N.O.I./Unit: $3,923
Grantor: Joseph Benvenuti
Grantee: Nationwide Health Properties (REIT)
Terms: All Cash to Seller
Comments: Project had approximately $650,000 in deferred maintenance at time of sale;
purchased by REIT and leased to ARV Housing Group; licensed to include
up to 224 assisted living beds.
Confirmation: Eric Davidson (714) 751-7400
373
IMPROVED SALE COMPARABLE NO. 3
Name: Casa Sandoval
Location: 1200 Russell Way, Hayward, CA
Assessor's Parcel No.: 415-240-007, 008 (Alameda County)
Sale Date: 2/27/95
Sale Price: $15,000,000
No. of Units: 238 Units
Age: 1989
Size (GBA): 216,639 Square Feet
Average Unit Size (GBA/Unit): 920 Square Feet
Sale Price/Unit: $63,025
Sale Price/SF: $69.23
Occupancy Rate: 81%
Gross Operating Income: $3,844,396 (estimated at 92% occupancy)
Expenses: $2,498,857
Net Operating Income: $1,345,539
% Expenses: 65% (estimated at 92% occupancy)
G.I.M.: 3.90
O.A.R.: 9.0%
N.O.I./Unit: $5,653
Grantor: Casa Sandoval Investors, L.P.
Grantee: Weh Chang
Terms: All Cash to Seller
Comments: Average quality project in middle
income suburban area; sold at auction
on 2/9/95; property underperforming at
date of sale; buyer plans significant
licensing/conversion of many units to
assisted living.
Confirmation: John Rosenfeld (310) 473-8900 ext. 119
374
IMPROVED SALE COMPARABLE NO. 4
Name: Lomita Lodge
Location: 225 N. Lomita Avenue, Ojai, CA
Assessor's Parcel No.: 017-083-200 (Ventura County)
Sale Date: 12/30/94 (Doc. No. 206073)
Sale Price: $1,350,000
No. of Units: 26 Units/36 Beds (Licensed AL)
Age: 1940's/1970's
Size (GBA): 10,000 Square Feet
Average Unit Size (GBA/Unit): 385 Square Feet
Sale Price/Unit: $51,923
Sale Price/SF: $135.00
Occupancy Rate: 81%
Gross Operating Income: $656,640 (estimated at 95% occupancy)
Expenses: $492,480
Net Operating Income: $164,160 (estimated at 95% occupancy)
% Expenses: 75.0%
G.I.M.: 2.06
O.A.R.: 12.2% (estimated at 95% occupancy)
N.O.I./Unit: $6,314
Grantor: Raymond & Judy Berard
Grantee: Ojai Retirement Inn #1, Ltd.
Terms: $270,000 Cash; $1,080,000 variable rate loan at 8.5%, 20 year
amortization.
Comments: Property underperformed at date of sale; currently 95% occupied; rents
range from $1,500 to $2,350 per month per bed; property includes about
25% SSI.
Confirmation: Gerry Meglin (805) 646-5533
375
IMPROVED SALE COMPARABLE NO. 5
Name: Carson Oaks (now called Merrill Gardens at Carson Oaks)
Location: 6725 Inglewood Avenue, Stockton, CA
Assessor's Parcel No.: 081-260-053 (San Joaquin County)
Sale Date: 7/27/94 (Doc. No. 87023)
Sale Price: $4,200,000
No. of Units: 76 Units
Age: 1989
% Private Pay: 100%
Size (GBA): 62,733 Square Feet
Average Unit Size (GBA/Unit): 612 Square Feet (average unit)
Sale Price/Unit: $55,263
Sale Price/SF: $66.95
Occupancy Rate: 95%
Gross Operating Income: $1,301,712
Expenses: $781,027
Net Operating Income: $520,685
% Expenses: 60%
G.I.M.: 3.23
O.A.R.: 12.4%
N.O.I./Unit: $6,851
Grantor: Tuolumne Commons, Limited Partner
Grantee: Merrill Associates, Limited Partner
Terms: All Cash to Seller
Comments: Newer facility with large number of one bedroom with full kitchens in an
affluent neighborhood; not licensed for assisted living.
Confirmation: Lee Haris (415) 391-9220
376
IMPROVED SALE COMPARABLE NO. 6
Name: Park Ridge (now called Merrill Gardens)
Location: 2261 Tuolumne Street, Vallejo, CA
Assessor's Parcel No.: 0052-330-008 (Solano County)
Sale Date: 7/27/94 (Doc. No. 69837)
Sale Price: $5,785,000
No. of Units: 93 ACLF; 14 Beds (Licensed AL)
Age: 1991
% Private Pay: 100%
Size (GBA): 84,989 Square Feet
Average Unit Size (GBA/Unit): 654 Square Feet
Sale Price/Unit: $62,204
Sale Price/SF: $68.10
Occupancy Rate: Project stabilized at 90%; at sale date 55%
Gross Operating Income: $1,632,150
Expenses: $979,290
Net Operating Income: $652,860
% Expenses: 60%
G.I.M.: 3.54
O.A.R.: 11.3%
N.O.I./Unit: $7,020
Grantor: Tuolumne Commons, Limited Partner
Grantee: Merrill Associates, Limited Partner
Terms: All Cash to Seller
Comments: Modern congregate/assisted living with 15 studios, 59 - 1 bedrooms and 19
- 2 bedrooms; located in residential area and bounded by Sutter Solano
Medical Center and Crestwood Convalescent Hospital.
Confirmation: Lee Haris (415) 391-9220
377
RESTRICTED APPRAISAL REPORT
MONTEGO HEIGHTS LODGE
1400 MONTEGO DRIVE
WALNUT CREEK, CALIFORNIA
AS IS ON MARCH 29, 1996
SLVS FILE NO. 96-04-30.1
PREPARED FOR
AMERICAN RETIREMENT VILLAS PROPERTIES II, L.P.
PREPARED BY
MICHAEL G. BOEHM, MAI
378
April 4, 1996
American Retirement Villas Properties II, L.P.
c/o ARV Assisted Living
245 Fischer Avenue, Suite D-1
Costa Mesa, California 92626
Attention: Ms. Sheila Muldoon
Re: Montego Heights Lodge
1400 Montego Drive
Walnut Creek, California
SLVS File No. 96-04-30.1
Ladies and Gentlemen:
In accordance with your request, we have conducted the required investigation,
gathered the necessary data, and made certain analyses that have enabled us to
form an opinion of the market value of the above captioned property. This report
has been prepared to be in compliance with the requirements of the Uniform
Standards of Professional Appraisal Practice as a restricted appraisal report.
This letter report updates a full narrative appraisal report prepared by our
firm and dated July 14, 1995. The full narrative report discusses the subject
region, neighborhood, site, improvements and market in detail. Therefore, this
letter should be used in conjunction with the full narrative appraisal report.
This report is intended for use by the client only. This letter report cannot be
fully understood properly without a review of the previous full narrative
appraisal report and additional information currently contained in the work file
of the appraiser.
AS IS AT 3/29/96
Based on an inspection of the property and the investigation and analysis
undertaken, we have formed the opinion, subject to the assumptions and limiting
conditions set forth in this report, that as of March 29, 1996, the fee simple
total going concern interest of the subject, as is, including the value of
favorable financing, has a market value of:
EIGHT MILLION NINE HUNDRED SEVENTY FIVE THOUSAND ($8,975,000) DOLLARS
379
Ms. Sheila Muldoon
April 4, 1996
Page 2
This total going concern value estimate can be allocated to the following
components:
Market Value
As Is -
3/29/96
Real Estate Value $7,250,000
Furniture, Fixtures & Equipment 200,000
Business Value 1,250,000
----------
Total Going Concern Valuation $8,700,000
==========
Plus: Favorable Financing $ 275,000
----------
Total Reported Valuation $8,975,000
==========
As required by the Uniform Standards of Professional Appraisal Practice for a
restricted appraisal report, the pages that follow set forth the identification
of the property, property rights appraised, assumptions and limiting conditions,
the scope of appraisal procedures followed in this restricted appraisal report,
discussion and summary of cash flow projections and certification page.
Respectfully submitted,
SENIOR LIVING VALUATION SERVICES, INC.
Michael G. Boehm, MAI
President
380
INTRODUCTION
PROPERTY IDENTIFICATION
The subject site consists of a 213,180 square foot (4.89 gross acres) site
located at 1400 Montego Drive in the City of Walnut Creek, Contra Costa County,
California. The site is currently improved with a 169 unit/187 bed congregate
retirement apartment project known as Montego Heights Lodge. The subject is
licensed to accept up to 200 assisted living residents.
PROPERTY OWNERSHIP AND HISTORY
The fee simple title to the subject property is currently vested in the name of
American Retirement Villas Properties II (ARVP II), a California Limited
Partnership. The current owners purchased the subject in November, 1989 for
approximately $9,000,000. The subject has not been sold/purchased in the past
three years.
The subject was built as a senior congregate facility which opened in 1978.
Montego Heights reportedly took five years to achieve a full occupancy. The
subject, as part of the original conditions of approval and a condition
necessary to obtain the favorable HUD financing, was required to allocate 20% of
the subject units to "very and low" income residents. This restriction was
reportedly waived when the subject was purchased by the current owners allowing
a market rate to be charged for all units. The subject underwent a $500,000
renovation in the Spring of 1990. The subject is currently approximately 90.4%
occupied (169 beds/187 beds) reflecting the large number of subject units, the
subject unit mix and a crowded competitive market environment.
SCOPE OF THE ASSIGNMENT
The scope of this assignment is to inspect the subject property, conduct an
investigation of market data, and prepare a restricted appraisal report in
accordance with the requirements of the Uniform Standards of Professional
Appraisal Practice. All information deemed pertinent to the completion of this
letter update was made available. Specifically, the procedures performed in this
limited report included:
1) a 1996 site inspection noting material changes in the subject region,
neighborhood, site, improvements and market (none were noted). These
influences on value are described in detail in the 1995 full appraisal
report;
2) Updated Income Approach analysis using the current market rents,
vacancy, expenses and capitalization rates.
Our limited narrative appraisal report does not include an updated Market
Analysis (although any potentially new competition to the subject was
investigated and an overall review of competition was conducted), Cost Approach
or Sales Comparison Approach value conclusions.
381
This restricted appraisal report estimates a value of the fee simple interest in
the subject property using only an Income Approach. Determining a value estimate
for the subject using Cost and Sales Comparison Approaches was deemed
inappropriate and unnecessary for the subject property. This conclusion reflects
the difficulty of accurately incorporating depreciation and profit in a value
estimate using a Cost Approach and the overall lack of truly comparable sales.
PURPOSE OF THE APPRAISAL
The purpose of the appraisal is to estimate the subject's total fee simple going
concern market value as is.
FUNCTION OF THE APPRAISAL
It is understood the appraisal shall be used by American Retirement Villas
Properties II, L.P., in evaluating the subject partnership for possible transfer
to an ownership real estate investment trust.
PROPERTY INSPECTION
The subject property was inspected on May 9, 1995 by Michael G. Boehm, MAI who
was accompanied by Ms. Laura Regnier, administrator. The subject was reinspected
on July 14, 1995 by Mary Wiederhold, Appraisal Associate and March 29, 1996 by
Wilma Koch, Appraisal Associate.
DATE OF APPRAISAL
April 4, 1996
DATE OF VALUE
March 29, 1996
PROPERTY RIGHTS APPRAISED
This appraisal estimates the fee simple total going concern market value of the
subject operating as a congregate senior housing business. Going concern value
is defined by the Appraisal Institute as the value created by a proven property
operation; considered a separate entity to be valued with an established
business. This total going concern value can be allocated to its real estate,
furniture, fixtures and equipment and business value components. An estimated
allocation of our total going concern valuation is set forth in this report.
Fee Simple is defined by the Appraisal Institute as absolute ownership
unencumbered by any other interest or estate subject only to the limitations of
eminent domain, escheat, police power, and taxation.
382
DEFINITION OF MARKET VALUE
As defined by the Office of the Comptroller of the Currency under 12 CFR, Part
34, Sub-part C- Appraisals, 34.42 Definitions (f), market value is defined as:
"The most probable price which a property should bring in a competitive and open
market under all conditions requisite to a fair sale, the buyer and seller each
acting prudently, and knowledgeably and assuming the price is not affected by
undue stimulus. Implicit in this definition is the consummation of a sale as of
a specified date and the passing of title from seller to buyer under conditions
whereby:
(i) buyer and seller are typically motivated;
(ii) both parties are well informed or well advised, and acting in what they
consider their best interests;
(iii) a reasonable time is allowed for exposure in the open market;
(iv) payment is made in terms of cash in U.S. dollars or in terms of
financial arrangements comparable thereto; and
(v) the price represents the normal consideration for the property sold
unaffected by special or creative financing or sales concessions
granted by anyone associated with the sale."
ASSUMPTIONS AND STANDARD LIMITING CONDITIONS
1. The legal description furnished to the appraiser is assumed to be
correct, and the title is assumed to be marketable.
2. The appraiser assumes no responsibility for legal matters.
3. Report exhibits are only visual aids. All sizes indicated for land and
improvements are from indicated sources and assumed to be correct.
4. Unless otherwise noted herein, it is assumed there are no detrimental
easements, encumbrances, encroachments, liens, zoning violations,
building code violations, or environmental violations, etc. affecting
the subject property.
5. Information, estimates, and opinions furnished to the appraiser are
obtained from sources considered reliable; however, no liability for
their accuracy can be assumed by the appraiser.
6. It is assumed that there are no hidden or unapparent conditions in the
land or improvements that render the property more or less valuable or
that would reduce its utility, development potential, marketability.
All improvements are assumed to be structurally sound unless otherwise
noted. No responsibility is assumed for hidden or
383
undisclosed conditions or for arranging for engineering studies that
may be required to discover any defects or uniquely favorable
conditions.
7. The appraiser has inspected the subject property with the due diligence
expected of a professional real estate appraiser. The appraiser is not
qualified to detect hazardous waste and/or toxic materials. Any comment
by the appraiser that might suggest the possibility of the presence of
such substances should not be taken as confirmation of the presence of
hazardous waste and/or toxic materials. Such determination would
require investigation by a qualified expert in the field of
environmental assessment.
8. The presence of substances such as asbestos, urea-formaldehyde foam
insulation or other potentially hazardous materials may affect the
value of the property. The appraiser's value estimate is predicated on
the assumption that there is no such material on or in the property
that would cause a loss in value.
9. No responsibility is assumed for any environmental conditions, or for
any expertise or engineering knowledge required to discover them. The
appraiser's description and resulting comments are the result of the
routine observations made during the appraisal process.
10. Responsible ownership and competent management are assumed.
11. Where the discounted cash flow analysis is utilized, it has been
prepared on the basis of the information and assumptions stipulated in
this appraisal report. The achievement of any financial projections
will be affected by fluctuating economic conditions and is dependent
upon the occurrence of other future events that cannot be assured.
Therefore, the actual results achieved may well vary from the
projections and such variation may be material.
12. The appraiser is not required to give testimony or appear in court, or
at public hearings, or at any special meeting or hearing with reference
to the property appraised herein by reason of preparation of this
report, unless arrangements have been made prior to preparation of this
report.
13. Possession of this report does not carry with it the right of
publication. It shall be used for its intended purpose only and by the
parties to whom it is addressed. Neither all nor any part of the
contents of this report shall be conveyed to the public through
advertising, public relations, news, sales, or other media without the
written consent or approval of the author. This applies particularly to
value conclusions, the identity of the appraiser or firm with which it
is connected, and any reference to the Appraisal Institute, or MAI
designation.
14. Property values are influenced by a large number of external factors.
The information contained in the report comprises the pertinent data
considered necessary to support the value estimate. We have not
knowingly withheld any pertinent facts, but we do not guarantee that we
have knowledge of all factors which might influence the value of the
384
subject property. Due to rapid changes in external factors, the value
estimate is considered reliable only as of the effective date of the
appraisal.
SPECIAL CONDITIONS
The subject is currently encumbered by an approximately $3,400,000 HUD loan
which extends to the year 2018 at a fixed interest rate of 7.5%. Because this
interest rate is below the estimated interest rate of current conventional
financing (estimated at 8.5%), the subject has a theoretical value over and
above the capitalized value of operational cash flows. Caution should be used in
interpreting this added value as actual market transactions involving the
assumption of below market rate financing are rare. The value of this favorable
financing has been added to the going concern value set forth in this report.
These issues are discussed and the value of the favorable financing is
calculated in a separate section of this report.
The subject is licensed as a residential care facility for the elderly (assisted
living) for 200 beds with the California Department of Social Services. This
appraisal assumes that the subject meets all physical plant and operating
requirements as an assisted living facility. The subject is currently configured
for 189 beds. The inconsistency is explained by the fact that not all of the
subject beds provide assisted living services.
The appraisers were not provided with a current title report (a 1989 title
report is included in the Addenda of this report) to specifically describe all
current easements or encumbrances that might affect the subject operation as a
congregate senior housing business. This appraisal assumes that there are no
adverse easements or encumbrances affecting the subject. We recommend review of
a current title report.
The estimates of value set forth in this report are partially relying on the
current rent roll, historical operating statements and limited building drawings
and building statistical data provided to the appraiser by ARV Assisted Living.
385
EXECUTIVE SUMMARY
Property Name: Montego Heights Lodge
Location: 1400 Montego Drive
Walnut Creek, California
Assessor's Parcel No.: 140-250-024 (Contra Costa County)
Property Rights Appraised: Fee Simple (Total Going Concern)
Date of Value: As Is on March 29, 1996
Land Area: 4.89 acres (213,180 square feet)
gross;
4.2 acres (182,952 square feet)
net developable (estimated)
Excess Land: None
Zoning: C-O, Limited Commercial District
Improvements: Type: One, average quality, 2 and
4 story, Class D congregate
retirement apartment
building and common areas.
Age: Year Built - 1978;
Improvement Age - 18 Years;
Effective Age - 18 years;
Remaining Economic Life -
27 years.
Size: 169 congregate retirement
units currently configured
for 189 beds in 99,897
square feet of gross
building area.
Condition: Average
H & B Use (if vacant): Senior Housing
H & B Use (as improved): See Highest and Best Use Discussion
in 7/95 Full Narrative Appraisal
Overall Capitalization Rate: 11.5%
Projected Stabilized Net Income: $999,932 (4/96-3/97)
386
Total Going Concern Market
Value, as is, as of
March 29, 1996: Cost Approach: Not Used
Income Approach: $ 8,700,000*
Sales Comparison Approach: Not Used
Value Conclusion: $ 8,700,000*
($51,479/Unit)
Allocation of Final
Value Determination
to Components: Market Value
As Is -
3/29/96
--------------
Real Estate $ 7,250,000
FF&E 200,000
Business Value 1,250,000
--------------
Total Going Concern Valuation $ 8,700,000*
==============
*before addition of value of favorable financing
Value of Favorable Financing: $275,000
Total Estimated Marketing Time: 4 Months
387
INCOME APPROACH
The Income Approach is based upon the economic principle that the value of a
property capable of producing real estate income is the present worth of
anticipated future net benefits. The net income projection is translated into a
present capital value indication using a capitalization process. There are
various methods of capitalization that are based on inherent assumptions
concerning the quality, durability, and pattern of the income projection.
Our Income Approach analysis applies an overall capitalization rate to the
subject's projected net income over the next 12 months. This method was
considered appropriate as the subject is currently operating at a stabilized
cash flow (occupancy and expenses). A discounted cash flow model was not
considered of primary usefulness in valuing the subject for the following
reasons:
1) buyers of properties like the subject typically do not use discounted
cash flow analyses;
2) because the subject is a stabilized property, a discounted cash flow
model would simply be inflating revenues and expenses at a fixed rate
and then canceling out the inflation estimate using an appropriate
discount rate. In other words, if properly applied, a discounted cash
flow analysis would arrive at the same value estimate as applying an
overall capitalization rate methodology.
Net income is calculated by subtracting a vacancy and credit allowance and all
fixed and operating expenses from the indicated gross income. The methods
utilized to estimate gross income, vacancy, expenses and an overall
capitalization rate are discussed in detail in the following paragraphs.
PROJECTION PERIOD
In our analysis of the subject's net income, we have utilized a projection
period of 12 months (4/96 to 3/97) which reflects a stabilized cash flow and
occupancy level. Based on this premise, the owner of the property will enjoy the
net proceeds of sale (reversion) at March, 1996 based on the projected April,
1996 to March, 1997 net income. The theory is that the investor purchasing the
property in March, 1996 would be more interested in the anticipated net income
in their first year of ownership than they would be in the previous year's
income prior to their ownership.
POTENTIAL GROSS ANNUAL INCOME
In estimating the potential gross annual income for the subject property over
the projection period, we have reviewed the current rent roll and previously
prepared our own survey of the properties considered to be most competitive and
comparable to the subject. This survey was presented in the Market Analysis
section of the full narrative appraisal dated July, 1995.
The operators of the subject property have achieved the rental census and
occupancy as summarized on the following page. The March, 1996 census reveals an
occupancy of 90.4% or
388
MONTEGO HEIGHTS LODGE
SUMMARY OF SUBJECT RENT CENSUS AT 3/14/96
-----------------------------------------
Private-1BR Private-Studio Semi-Private SSI Total
-----
(Units) (Units) (Beds) (Beds)
------------- -------------- ------------ ------
Number Units - Rented 22 116 20 11 169 (90.4%)
Rent Range $1,800-$2,300 $1,300-$1,450 $825-$1,113 $702 $702-$2,300
Rent Average $1,850 $1,371 $1,002 $702 $1,346
Potential Total Rent-Rented $488,520 $1,908,540 $240,480 $92,664 $2,730,204
Number Units - Vacant (1) 2 11 3 2 18 (9.6%)
Rent Range $1,850 $1,400-$1,475 $875 $702 $702-$1,850
Rent Average $1,850 $1,432 $875 $702 $1,304
Total Potential Rent-Vacant $44,400 $189,000 $31,500 $16,848 $281,748
Total Units/Beds 24 127 23 13 187 (100%)
Gross Potential Rent-Total $532,920 $2,097,540 $271,980 $109,512 $3,011,952
Per Unit/Bed $1,850 $1,376 $985 $702 $1,342
NOTES:
- ------
(1) Vacant units include:
Private 1BR - Unit 109/111, 246/248 (2 units);
Private Studio - Units 130, 134, 204, 241, 262, 268, 301, 306, 308, 403,
409 (11 units); 427, 428 (18 Units);
Semi-Private - Beds 142, 154, 219, 265, 325 (5 Beds); allocated to SSI in
ratio of currently leased beds.
389
169 beds out of a maximum current configuration of 189 beds. This occupancy
represents an increase from the mid 80%'s over the past 9 months.
Our review of the subject's rent roll revealed a relatively variable range of
rentals with several units having different rents. Discussions with the current
operator noted that individual monthly rents were a function of the unit
location, when the resident entered the subject and negotiation of the rent when
entered. All SSI rents are fixed by governmental agency at $702 per month and
not market determined.
Overall and based upon mid 1995 market rate surveys, the subject's private room
rents (with and without the assisted living surcharge) are still at March, 1996,
generally within the range of the most comparable properties and below the
average (for both congregate and assisted living) of all facilities. The
subject's congregate studio and one bedroom rents are slightly below the average
of all projects surveyed (about 15% to 20%). Congregate semiprivate living is
generally not offered at other projects (with the exception of Valley View
Lodge, an ARV sister project). The subject's average assisted living rents are
also below the average for semiprivate and private rooms (also about 15% to
20%). Because the subject offers a la carte pricing for its assisted living
amenities, residents can effectively choose their rent level (the assisted
living surcharge) as their living assistance needs vary or change. The subject's
average rents have increased about 4.8% from July, 1995 to March, 1996.
In our opinion, the most compelling evidence that the subject's rents are market
rents (and not above or below) is the subject's recent occupancy history and its
current occupancy, which is 90% (and rising) at the current rents. In our
opinion, the subject's rents have not been material factors in keeping occupancy
below the more typical 92% to 95%. The subject's lower rents are reasonable
given the subject's age and condition, large number of units and more monolithic
unit mix.
Therefore, given the above discussion, in our opinion, the subject's current
monthly average rents represent market rental rates and are used in our pro
forma estimate of income and expenses shown on a following page. All subject
rents (the average per unit/bed type noted above) are forecast to increase 1.5%
during the 4/96 to 3/97 projection period, reflecting market conditions and the
subject's history. The 1.5% estimate in the next 12 months represents an average
3% rent increase applied at each resident's move-in anniversary date which are
assumed to occur evenly over the next 12 months. SSI rates are conservatively
forecasted to remain at current levels in the next 12 months. Our cash flow
estimates are shown gross or before a vacancy and collection factor.
The above rents are base rents for unlicensed congregate living services. This
rent does not include assisted living surcharges which are billed to residents
on an a la carte basis. Currently, the subject charges for these extra amenities
on a case by case basis with an approximate average of $420 extra per month for
medication monitoring, help with bathing and doing personal laundry. Currently,
about 59 residents pay for living assistance at an approximate average of $419
extra rent per month. Our cash flow projections for the subject estimate a
stabilized 32% gross utilization (60 beds gross) of assisted living amenities at
stabilization, calculating to the following gross assisted living surcharge
income:
390
Avg. Surcharge/ Resident Projected
Period Month/Bed Utilization Annual Income
------ --------- ----------- -------------
at 3/96 $419 59 (net) -
at 4/96 to 3/97 $430 60 (gross) $309,600
In addition to total potential gross room revenue, we have included
miscellaneous income at 1.25% of effective gross income reflecting historical
receipts for guest meals, processing fees, extra services to residents, and
beauty shop income.
VACANCY AND COLLECTION LOSSES
Our cash flow projections deduct a total vacancy and collection loss in the
stabilized projection period as follows:
Average Average
Occupancy Vacancy
--------- -------
As Is at 3/96 90.4% 9.6%
4/96 to 3/97 (Stabilization) 90.0% 10.0%
The above estimate of stabilized occupancy/vacancy is meant to incorporate 168.3
residents or an occupancy/vacancy of 90.0% (168.3/187). This conclusion is
consistent with the subject's recent occupancy trends, occupancies at similar
projects and operator projections.
The higher than typical and average market vacancy factor (5% to 8%) reflects
the subject's occupancy history and current occupancy, discussions with the
current operator, the subject's competitive position and local market conditions
as reflected in the occupancies at similar projects in the market. The subject's
market position (lower rents in a more affluent market) and large number of beds
(including physical plant deficiencies) mitigate against a lower stabilized
vacancy estimate (or higher occupancy).
OPERATING EXPENSES
In determining pro forma estimates of operating expenses, we have primarily
relied on the specific expense histories (1994, 1995, and two months of 1996)
and budget (1996) of the subject property as summarized on the following page
and the experience at comparable projects. The expenses enumerated below would
be those of a typical operator at the subject. We have summarized our expense
estimates as follows:
Real Estate Taxes - Real estate taxes are estimated to reflect an assumed sale
of the subject property and a reassessment at current market rates at March,
1996 ($8,700,000 times the tax rate of 1.0371% plus approximately $1,173 in
direct assessments). This real estate tax expense
391
MONTEGO HEIGHTS LODGE
HISTORICAL INCOME AND EXPENSE
-----------------------------
Historical Operator
--------------------------------------------------------------
2 Months Goal
Year Ending Year Ending Ending 1996 Budget
Revenues 12/94 12/95 2/29/96 Annualized 1996
- -------- ---------- ---------- -------- ---------- ------
Rental Income $2,424,953 $2,590,179 $454,939 $2,775,128 $2,843,582
Assisted Living Income 271,387 277,203 45,676 278,624 328,150
Non-Operating Revenue $ 38,982 $ 35,898 $ 5,752 $ 35,087 $ 36,100
---------- ---------- -------- ---------- ----------
Total Revenues $2,735,322 $2,903,280 $506,367 $3,088,839 $3,207,832
Expenses (1)
Real Estate Taxes $ 110,291 $ 102,720 $ 17,396 $ 106,116 $ 105,417
Insurance 31,714 36,602 6,298 38,418 38,922
G&A 60,293 61,038 9,912 60,463 67,475
Utilities 191,180 208,110 32,397 197,622 210,200
Payroll/Benefits 913,460 944,692 160,434 978,647 996,712
Maintenance 80,636 104,735 12,817 78,184 93,660
Activities 14,889 16,674 2,574 15,701 17,918
Marketing 26,654 32,092 5,417 33,044 28,080
Laundry & Linen 12,974 13,965 2,570 15,677 16,864
Dietary 222,738 228,798 39,414 240,425 242,751
Supplies 48,343 50,010 7,532 45,945 50,592
---------- ---------- -------- ---------- ----------
Total Operating Expense $1,713,172 $1,799,436 $296,761 $1,810,242 $1,868,591
(62.6%) (62.0%) (58.6%) (58.6%) (58.3%)
Net Operating Income $1,022,150 $1,103,844 $209,606 $1,278,597 $1,339,241
========== ========== ======== ========== ==========
NOTES:
- ------
(1) Does not include management fee or replacement reserves.
392
reflects taxes that would have to be incurred by a buyer of the subject wherein
the subject would be reassessed to market value;
Insurance - estimated at 1.25% of effective gross income, reflecting typical
charges for liability/fire insurance, historical costs incurred, and the fixed
nature of this expense;
Management - estimated at 5% of effective gross income reflecting the current
typical or average industry charge which would be appropriate for the subject
considering its average complexity of operation;
General and Administrative - estimated at 12% of effective gross income;
representing additional on site costs incurred to manage the subject including
salaries and benefits for the administrator and assistants and all miscellaneous
costs to operate the subject (office supplies, miscellaneous rentals);
Utilities - estimated at 7% of effective gross income, which is consistent with
historical costs incurred. Includes all common area and unit utility costs
(telephone, electric, gas, water, sewer);
Maintenance - estimated at 4% of effective gross income, including all
maintenance/security salary and supplies (including land maintenance and pest
control), derived from historical expenses;
Activities/Transportation - all social/recreational service costs including
salaries and supplies (including van service) are estimated at 2% of effective
gross income;
Marketing - all advertising, marketing and sales expenses are estimated at 2% of
effective gross income. This allocation is higher than typical but reflects the
subject's lower occupancy, high turnover (relative to all senior properties) and
large number of units, requiring a more intensive marketing effort;
Housekeeping - estimated at 6% of effective gross income to include salaries,
supplies, for both an internal laundry and linen service and housekeeping and
consistent with historical costs incurred;
Dietary - estimated at anticipated dietary costs to a typical operator or $8.50
per day per resident (168.3 occupied beds x $8.50/day x 365 days). This estimate
includes all dietary related salaries and benefits and cost of food. These
estimates are within current industry averages and historical costs incurred;
Personal Care - estimated at 6.0% of effective gross income to include all
salaries and supplies necessary to provide assisted living services to
approximately 32% of the residents (about $9.32 per resident day for 54
residents);
Replacement Reserve - estimated at 15% of the estimated furniture and equipment
cost new ($422,500 or $2,500 per unit) to include the annual reserve necessary
to replace furniture and equipment and other short lived capital items
(carpeting, painting). The stabilized estimate of $63,375 is equal to 2.1% of
the estimate effective gross income.
393
As shown, total stabilized expenses (not including management fees and reserves)
to a typical operator accumulate to 60.3% of effective gross income or $10,970
per occupied bed (168.3 beds). A comparison to similar congregate/assisted
living properties before management fees and reserves is shown on the following
page.
As illustrated, the projected expenses for the subject are slightly above the
average of the expense histories of the projects listed. The subject will always
have slightly higher expenses on a percentage of income basis because of its
lower revenue base (smaller units, SSI census) and higher on a per patient basis
due to the location within a market area of higher operating costs/rents. Our
projections consider the experience at the comparable properties and historical
costs incurred.
On the following page, we have illustrated average annual operating costs per
unit as accumulated in a recent national survey of operating expenses for
various types of senior facilities including assisted living. The subject falls
within the median expense indications for a combination congregate/assisted
living project.
Finally, a reconciliation of our adjusted period one (4/96 to 3/97) projected
expenses to 1995 actual expenses and 1996 budgeted expenses illustrates the
following:
Actual Total Expenses (1995) $1,799,436
===========
Operator Budget (1996) $1,868,591
===========
Projected Total Expenses Per SLVS (4/96 to 3/97) $ 2,062,823
Less: Management Fees ($ 153,138)
Less: Replacement Reserves ($ 63,375)
-----------
Adjusted Projected Total Expenses (4/96 to 3/97) $ 1,846,310
===========
Difference
(over 1995 actual, reflects inflation, higher occupancy) +2.6%
(under 1996 budget) -1.2%
CAPITALIZATION PROCESS
Because Montego Heights Lodge is being appraised as of March, 1996 wherein it
has reached a stabilized cash flow, we have utilized a procedure where the
stabilized net income for the period of April, 1996 to March, 1997 is
capitalized at an overall capitalization rate of 11.5% to get an indicated total
property value at March, 1996. This calculation is shown on a following page.
394
MONTEGO HEIGHTS LODGE
OPERATING EXPENSE COMPARABLES
-----------------------------
National Operator #1 - National Operator #2 - Subject
13 Projects (1995) 12 Projects (1995) Projected
------------------------ ------------------------ --------------------
% of Per % of Per % of Per
Expense Category Income Unit Income Unit Income Unit
- ---------------- ------ ---- ------ ---- ------ ----
Property Taxes 4.4% $ 838 5.2% $ 792 3.0% $ 541
Insurance 1.1% 249 1.4% 208 1.25% 227
Administration 7.2% 1,454 10.7% 1,632 12.0% 2,184
Activities 5.3% 276 (2) (2) 2.0% 364
Marketing 2.3% 276 3.6% 543 2.0% 364
Plant Operations 5.0% 1,788 10.8% 1,640 11.0% 2,002
Housekeeping 3.2% 563 3.9% 587 6.0% 1,092
Dietary 14.0% 3,128 20.2% 3,073 17.0% 3,103
Assisted Living 1.8% 791 10.3% 1,572 6.0% 1,092
----- ------ ----- ------- ----- -------
Total Expenses (1) 51.3% $9,963 66.1% $10,047 60.3% $10,969
==== ====== ==== ======= ==== =======
1st Quartile Median 4th Quartile
------------------- -------------------- ------------------
% of Per % of Per % of Per
Income Unit Income Unit Income Unit
------ ---- ------ ---- ------ ----
1995 National ASHA Survey
Congregate 57.3% $7,040 61.2% $ 9,031 63.2% $11,245
Assisted Living 69.7% $9,999 65.4% $12,320 64.7% $15,033
NOTES:
- ------
(1) Before management fees and replacement reserves.
(2) Included in other functional categories.
(3) Caution should be used in analyzing the above data as functional
categorization of expenses is not always consistent between
properties/operators.
395
We have been involved in the analysis and valuation of numerous retirement
facilities around California which have generally exhibited overall
capitalization rates ranging from 10% to 12%. These are illustrated in sales of
comparable facilities as shown on a following page.
In April, 1995, Senior Living Valuation Services, Inc. conducted the second
annual survey of close to 300 participants in the senior housing industry
regarding their investment criteria or perception of criteria used in evaluating
different types of senior housing properties. The investment criteria survey
polled included capitalization rates, discount rates and returns on equity. A
copy of this survey is provided in the Addenda of this report. The survey
indicated a capitalization rate range of 9% to 16% and an average of 12.1% for
assisted living facilities. Though the survey is not definitive, it does provide
some market evidence of the investment criteria being used (or perceived to be
used) by industry professionals.
Another method of estimating a capitalization rate is the band of investment
weighted average technique. If the available mortgage terms are known, the debt
service or mortgage constant can be calculated, and if the equity dividend rate
required to attract equity capital is known or can be estimated, the overall
rate applicable in direct capitalization can be computed. Available mortgage
terms are 70% of value at 8.5% interest with an amortization term of 25 years
reflects market terms based on our experience of specific financing transactions
and recent national surveys of financing parameters for senior housing
properties. Based on these terms, the mortgage constant is .0966. The equity
dividend rate required to attract equity capital for properties similar to the
subject is approximately 16% (per our investment survey). The indicated overall
capitalization rate using this approach is:
Band of Investment
Portion Weighted
of Value Rate Contribution
-------- ---- ------------
Mortgage 0.70 x .0966 .0676
Equity 0.30 x .16 .0480
-----
1.0 x Overall Rate .1156
OAR 11.56%
These sources of capitalization rates can be summarized as follows:
Indicated
Cap Rates
---------
6 Detailed Sales 11.0% (Average)
SLVS Investment Survey 12.1% (Assisted Living)
Band of Investment 11.6%
396
MONTEGO HEIGHTS LODGE
COMPARABLE IMPROVED ACLF/ALF SALES
----------------------------------
Indicated
Age/No. Sale Price/ Occupancy Overall
No. Name/Location of Units Date Sale Price Unit Price/SF at Sale Rate
--- ------------- --------- ---- ---------- ------ -------- --------- ---------
1. The Chanate 1984/ 2/96 $ 7,400,000 $61,667 $ 61.67 85% 11.4% (1)
3250 Chanate Road 120 (Cash
Santa Rosa, CA Equivalent)
2. Carlton Plaza 1993/ 12/95 $ 8,228,858 $64,288 $ 78.82 70% 11.0% (1)
3800 Walnut 128
Fremont, CA
3. Vinwood Lodge 1974/ 12/95 $ 4,100,000 $55,405 $ 70.09 92% 10.3%
35 Fenton 74
Livermore, CA
4. Carrington Pointe 1989/ 12/95 $11,411,000 $65,580 $ 72.03 95% 10.7%
1715 East Alluvial 174
Fresno, CA
5. Villa at Palm Desert 1989/ 11/95 $ 6,600,000 $85,714 $114.29 95% 10.4%
44-300 San Pasqual 77
Palm Desert, CA
6. Oak Tree Villa 1988/ 6/95 $11,900,000 $58,911 $ 69.19 72% 12.3% (1)
100 Lockwood Lane 202
Scotts Valley, CA
(1) estimated at projected full occupancy
397
Based upon the current characteristics of the subject, namely, its overall
average cash flow risk as reflected in its lower stable occupancy (90%) and cash
flow (including a lower risk SSI census) and considering the subject's market
position (below average rents, full assisted living licensing, older physical
plant and more monolithic unit mix), which is derived from the subject's
established niche as a middle market, average quality assisted living project in
the area, and considering the affluent local market and overall current market
conditions, we have concluded that 11.5% or toward the middle portion of the
approximate range is an appropriate capitalization rate for the subject
property.
SUMMARY
Our estimate of value by the Income Approach is summarized on the following page
and produces an indicated value for the subject property as is, at March 29,
1996 of $8,695,061, rounded to $8,700,000 ($51,479/unit).
398
MONTEGO HEIGHTS LODGE
PRO FORMA INCOME/EXPENSE & CAPITALIZATION
Projected
Stabilized
(4/96-3/97)
----------
Average Occupancy 90.0%(168.3 Beds)
Average Net Rental (All Beds) $ 1,362
Potential Gross Rent Income -
1BR Private - 24 Units at $1,850/Mo. Avg. $ 540,792
Studio Private - 127 Units at $1,376/Mo. Avg. 2,129,028
Semiprivate - 23 Beds at $985/Mo. Avg. 275,938
SSI - 13 Beds at $702/Mo. Avg. $ 109,512
----------
Potential Gross Rent Income $3,055,270
Plus: Assisted Living Surcharges (60 Beds at $430/Mo.) $ 309,600
Plus: Miscellaneous Income (1.25% of PGRI) $ 38,191
----------
Potential Gross Income $3,403,061
Less: Stabilized Vacancy & Collection Losses - 10% $ (340,306)
----------
Effective Gross Income $3,062,755
Expenses - % of EGI
--------
Real Estate Taxes - $ 91,401
Insurance 1.25% 38,284
Management 5.0% 153,138
G&A 12.0% 367,531
Utilities 7.0% 214,393
Maintenance 4.0% 122,510
Activity & Trans. 2.0% 61,255
Marketing 2.0% 61,255
Housekeeping 6.0% 183,765
Dietary $8.50/PRD 522,151
Personal Care 6.0% 183,765
Replacement Reserves - $ 63,375
-----------
Total Expenses $2,062,823
(67.4%)
Stabilized Net Operating Income $ 999,932
Overall Capitalization Rate .115
-----------
Capitalized Value (Fee Simple) $ 8,695,061
===========
Called $ 8,700,000
Per Unit $ 51,479
399
VALUATION OF FAVORABLE FINANCING
The preceding valuation assumes conventional market financing. However, the
subject includes favorable financing in the form of a deed of trust issued in
1978 ($3,683,200, 40 year note). The current balance due of the note is
approximately $3,403,894. The present value of this financing must be added to
our valuation estimates described above because a third party buyer of the
subject should be willing to pay for the debt service savings accruing from this
assumable note.
Our estimate of the effect of the favorable financing is illustrated on the
following page. These assumptions are as follows:
Note Principal @ 3/96: $3,403,894
Interest Rate: 7.5%, Fixed
Note Term: 8/2018, Assumable
Conventional Financing
- Interest Rate: 8.5%, Fixed
To calculate the value of this favorable financing, we have extensively surveyed
leading lenders (REITS, conventional banks, pension funds, FANNIE MAE lenders)
in the senior housing industry to determine a conventional financing interest
rate. The consensus of these lenders is that although conventional taxable
financing of any projects and senior projects in particular is still difficult
in early 1996, that an average taxable interest rate of 8.5% to 9.0% would not
be considered unreasonable given the specialized nature of a senior housing
project. Therefore, considering recent downward trends in interest rates for
senior housing properties, we have estimated a current market interest rate of
8.5%.
Our calculations estimate the present value of the remaining monthly interest
payment on net funds to be received from the bond financing discounted by the
market interest rate less an approximation of the incremental costs to be
incurred as part of the HUD financing compared to conventional financing (annual
audits) and the current value of the current balance of required reserves. The
total differential or contribution to value from the favorable financing is
estimated at $273,056, rounded to $275,000 as calculated on the following page.
400
MONTEGO HEIGHTS LODGE
VALUATION OF FAVORABLE FINANCING
--------------------------------
Present value of financing at market rate (8.5%): $3,403,896
Present value of financing at below market rate (7.5%):
Present value of $26,171 (1) monthly payment
for 22.3 remaining years at 8.5% market rate $3,120,267
----------
Difference in present value of financing $ 283,629
Less: $6,000/year annual HUD audit charges (through 2018)
discounted to 4/96 at 8.5% $ (57,395)
Plus: Present value of replacement reserve balance at 8/18
($92,011) discounted to 4/96 at 5.0% (8.5% market interest
rate less 3.5% estimated interest earned on escrow funds) $ 46,822
----------
Net Difference in present value of financing $ 273,056
==========
Called $ 275,000
(1) Monthly payment for $3,683,200, 40 years, 7.5% interest rate plus
reserve obligations.
401
CERTIFICATION
1. We have no present or contemplated future interest in the real estate
that is the subject of this restricted appraisal report.
2. We have no personal interest or bias with respect to the subject matter
of this restricted appraisal report or the parties involved.
3. To the best of our knowledge and belief, the statements of fact
contained in this restricted appraisal report, upon which the analyses,
opinions and conclusions expressed herein are based, are true and
correct.
4. This restricted appraisal report sets forth all of the limiting
conditions (imposed by the terms of my assignment or by the
undersigned) affecting the analyses, opinions and conclusions contained
in this report.
5. This restricted appraisal report has been made in conformity with and
is subject to the requirements of the Code of Professional Ethics and
Standards of Professional Conduct of the Appraisal Institute and is
prepared in accordance with the requirements of the Office of the
Comptroller of the Currency and the Uniform Standards of Professional
Appraisal Practice.
6. Our compensation is not contingent on an action or event resulting from
the analysis, opinions, conclusions or the use of this report.
7. The value estimates set forth in this report are not predetermined or
based on any requested minimum valuation, a specific valuation or the
approval of a loan.
8. The use of this report is subject to the requirements of the Appraisal
Institute relating to review by its duly authorized representatives.
9. Wilma Koch, Appraisal Associate provided significant professional
assistance to the persons signing this report.
10. As of the date of this report, Michael G. Boehm, MAI has completed the
requirements of the continuing education program of the Appraisal
Institute.
11. A personal inspection of the property was made by Michael G. Boehm, MAI
on May 9, 1995 and by Wilma Koch, Appraisal Associate on March 29,
1996.
402
12. The concluded total going concern market value estimate of the fee
simple interest of Montego Heights Lodge, including the value of
favorable financing, is as follows:
MARKET VALUE "AS IS" (MARCH 29, 1996):
EIGHT MILLION NINE HUNDRED SEVENTY FIVE THOUSAND ($8,975,000) DOLLARS
SENIOR LIVING VALUATION SERVICES, INC.
- -------------------------
Michael G. Boehm, MAI
403
A D D E N D A
404
RESTRICTED APPRAISAL REPORT
RETIREMENT INN - FULLERTON
1621 E. COMMONWEALTH AVENUE
FULLERTON, CALIFORNIA
AS IS ON APRIL 5, 1996
SLVS FILE NO. 96-04-30.3
PREPARED FOR
AMERICAN RETIREMENT VILLAS PROPERTIES II, L.P.
PREPARED BY
MICHAEL G. BOEHM, MAI
405
April 5, 1996
American Retirement Villas Properties II, L.P.
c/o ARV Assisted Living
245 Fischer Avenue, Suite D-1
Costa Mesa, California 92626
Attention: Ms. Sheila Muldoon
Re: Retirement Inn - Fullerton
1621 East Commonwealth Avenue
Fullerton, California
SLVS File No. 96-04-30.3
Ladies and Gentlemen:
In accordance with your request, we have conducted the required investigation,
gathered the necessary data, and made certain analyses that have enabled us to
form an opinion of the market value of the above captioned property. This report
has been prepared to be in compliance with the requirements of the Uniform
Standards of Professional Appraisal Practice as a restricted appraisal report.
This letter report updates a full narrative appraisal report prepared by our
firm and dated August 1, 1995. The full narrative report discusses the subject
region, neighborhood, site, improvements and market in detail. Therefore, this
letter should be used in conjunction with the full narrative appraisal report.
This report is intended for use by the client only. This letter report cannot be
fully understood properly without a review of the previous full narrative
appraisal report and additional information currently contained in the work file
of the appraiser.
Based on an inspection of the property and the investigation and analysis
undertaken, we have formed the opinion, subject to the assumptions and limiting
conditions set forth in this report, that as of April 5, 1996, the fee simple
total going concern interest of the subject, as is, has a market value of:
TWO MILLION FOUR HUNDRED TWENTY FIVE THOUSAND ($2,425,000) DOLLARS
406
Ms. Sheila Muldoon
April 5, 1996
Page 2
This total going concern value estimate can be allocated to the following
components:
Market Value
As Is -
4/5/96
------------
Real Estate Value $1,750,000
Furniture, Fixtures & Equipment 125,000
Business Value 550,000
----------
Total Going Concern Valuation $2,425,000
==========
As required by the Uniform Standards of Professional Appraisal Practice for a
restricted appraisal report, the pages that follow set forth the identification
of the property, property rights appraised, assumptions and limiting conditions,
the scope of appraisal procedures followed in this restricted appraisal report,
discussion and summary of cash flow projections and certification page.
Respectfully submitted,
SENIOR LIVING VALUATION SERVICES, INC.
Michael G. Boehm, MAI
President
407
INTRODUCTION
PROPERTY IDENTIFICATION
The subject property consists of a 43,124 square foot (0.99 acres) site that is
improved with a 68 unit congregate senior housing project (including up to 99
licensed assisted living beds) known as Retirement Inn - Fullerton. The subject
has a designated street address of 1621 East Commonwealth Avenue, Fullerton,
Orange County, California.
PROPERTY OWNERSHIP AND HISTORY
The fee simple title to the subject site, all improvements and furnishings
comprising Retirement Inn - Fullerton is currently vested in American Retirement
Villas Properties II, L.P. (ARVP II). The subject was purchased by ARVP II in
the late 1980's as part of a larger group of senior properties from the
Retirement Inns of America (Avon Products, Inc.). The subject has not been
sold/purchased within the last three years.
The subject retirement building was originally planned and developed in the
early 1970's. The existing subject improvements became available for occupancy
in 1973. The subject's recent history includes effective full occupancies
despite a current slightly depressed occupancy of 83.5% (71/85 total beds)
reflecting a competitive market area and weak local real estate market and
economy.
SCOPE OF THE ASSIGNMENT
The scope of this assignment is to inspect the subject property, conduct an
investigation of market data, and prepare a restricted appraisal report in
accordance with the requirements of the Uniform Standards of Professional
Appraisal Practice. All information deemed pertinent to the completion of this
letter update was made available. Specifically, the procedures performed in this
limited report included:
1) a 1996 site inspection noting material changes in the subject region,
neighborhood, site, improvements and market (none were noted). These
influences on value are described in detail in the 1995 full appraisal
report;
2) Updated Income Approach analysis using the current market rents,
vacancy, expenses and capitalization rates.
Our limited narrative appraisal report does not include an updated Market
Analysis (although any potentially new competition to the subject was
investigated and an overall review of competition was conducted), Cost Approach
or Sales Comparison Approach value conclusions.
This restricted appraisal report estimates a value of the fee simple interest in
the subject property using only an Income Approach. Determining a value estimate
for the subject using Cost and Sales Comparison Approaches was deemed
inappropriate and unnecessary for the subject property.
408
This conclusion reflects the difficulty of accurately incorporating depreciation
and profit in a value estimate using a Cost Approach and the overall lack of
truly comparable sales.
PURPOSE OF THE APPRAISAL
The purpose of the appraisal is to estimate the subject's total fee simple going
concern market value as is.
FUNCTION OF THE APPRAISAL
It is understood the appraisal shall be used by American Retirement Villas
Properties II, L.P. in an evaluation of the subject for the possible sale to an
ownership real estate investment trust.
PROPERTY INSPECTION
The subject property was inspected on May 4, 1995 by Michael G. Boehm, MAI who
was accompanied by Ms. Lana Hammers, Administrator and April 5, 1996 by Wilma
Koch, Appraisal Associate.
DATE OF APPRAISAL
April 5, 1996
DATE OF VALUE
April 5, 1996
PROPERTY RIGHTS APPRAISED
This appraisal estimates the fee simple total going concern market value of the
subject operating as a congregate senior housing business. Going concern value
is defined by the Appraisal Institute as the value created by a proven property
operation; considered a separate entity to be valued with an established
business. This total going concern value can be allocated to its real estate,
furniture, fixtures and equipment and business value components. An estimated
allocation of our total going concern valuation is set forth in this report.
Fee Simple is defined by the Appraisal Institute as absolute ownership
unencumbered by any other interest or estate subject only to the limitations of
eminent domain, escheat, police power, and taxation.
DEFINITION OF MARKET VALUE
As defined by the Office of the Comptroller of the Currency under 12 CFR, Part
34, Sub-part C- Appraisals, 34.42 Definitions (f), market value is defined as:
409
"The most probable price which a property should bring in a competitive and open
market under all conditions requisite to a fair sale, the buyer and seller each
acting prudently, and knowledgeably and assuming the price is not affected by
undue stimulus. Implicit in this definition is the consummation of a sale as of
a specified date and the passing of title from seller to buyer under conditions
whereby:
(i) buyer and seller are typically motivated;
(ii) both parties are well informed or well advised, and acting in what they
consider their best interests;
(iii) a reasonable time is allowed for exposure in the open market;
(iv) payment is made in terms of cash in U.S. dollars or in terms of
financial arrangements comparable thereto; and
(v) the price represents the normal consideration for the property sold
unaffected by special or creative financing or sales concessions
granted by anyone associated with the sale."
ASSUMPTIONS AND STANDARD LIMITING CONDITIONS
1. The legal description furnished to the appraiser is assumed to be
correct, and the title is assumed to be marketable.
2. The appraiser assumes no responsibility for legal matters.
3. Report exhibits are only visual aids. All sizes indicated for land and
improvements are from indicated sources and assumed to be correct.
4. Unless otherwise noted herein, it is assumed there are no detrimental
easements, encumbrances, encroachments, liens, zoning violations,
building code violations, or environmental violations, etc. affecting
the subject property.
5. Information, estimates, and opinions furnished to the appraiser are
obtained from sources considered reliable; however, no liability for
their accuracy can be assumed by the appraiser.
6. It is assumed that there are no hidden or unapparent conditions in the
land or improvements that render the property more or less valuable or
that would reduce its utility, development potential, marketability.
All improvements are assumed to be structurally sound unless otherwise
noted. No responsibility is assumed for hidden or undisclosed
conditions or for arranging for engineering studies that may be
required to discover any defects or uniquely favorable conditions.
7. The appraiser has inspected the subject property with the due diligence
expected of a professional real estate appraiser. The appraiser is not
qualified to detect hazardous waste and/or toxic materials. Any comment
by the appraiser that might suggest the possibility
410
of the presence of such substances should not be taken as confirmation
of the presence of hazardous waste and/or toxic materials. Such
determination would require investigation by a qualified expert in the
field of environmental assessment.
8. The presence of substances such as asbestos, urea-formaldehyde foam
insulation or other potentially hazardous materials may affect the
value of the property. The appraiser's value estimate is predicated on
the assumption that there is no such material on or in the property
that would cause a loss in value.
9. No responsibility is assumed for any environmental conditions, or for
any expertise or engineering knowledge required to discover them. The
appraiser's description and resulting comments are the result of the
routine observations made during the appraisal process.
10. Responsible ownership and competent management are assumed.
11. Where the discounted cash flow analysis is utilized, it has been
prepared on the basis of the information and assumptions stipulated in
this appraisal report. The achievement of any financial projections
will be affected by fluctuating economic conditions and is dependent
upon the occurrence of other future events that cannot be assured.
Therefore, the actual results achieved may well vary from the
projections and such variation may be material.
12. The appraiser is not required to give testimony or appear in court, or
at public hearings, or at any special meeting or hearing with reference
to the property appraised herein by reason of preparation of this
report, unless arrangements have been made prior to preparation of this
report.
13. Possession of this report does not carry with it the right of
publication. It shall be used for its intended purpose only and by the
parties to whom it is addressed. Neither all nor any part of the
contents of this report shall be conveyed to the public through
advertising, public relations, news, sales, or other media without the
written consent or approval of the author. This applies particularly to
value conclusions, the identity of the appraiser or firm with which it
is connected, and any reference to the Appraisal Institute, or MAI
designation.
14. Property values are influenced by a large number of external factors.
The information contained in the report comprises the pertinent data
considered necessary to support the value estimate. We have not
knowingly withheld any pertinent facts, but we do not guarantee that we
have knowledge of all factors which might influence the value of the
subject property. Due to rapid changes in external factors, the value
estimate is considered reliable only as of the effective date of the
appraisal.
411
SPECIAL CONDITIONS
The subject is licensed as a residential care facility for the elderly (assisted
living) for up to a maximum of 99 beds with the California Department of Social
Services. This appraisal assumes that the subject meets all physical plant and
operating requirements as an assisted living facility.
The appraisers were not provided with a title report to specifically describe
the site's legal description nor any current easements or encumbrances that
might affect the subject operation as a congregate senior housing business. This
appraisal assumes that there are no adverse easements or encumbrances affecting
the subject. We recommend review of a current title report.
The estimates of value set forth in this report are partially relying on the
current rent roll, historical operating statements and limited building drawings
and building statistical data provided to the appraiser by ARV Assisted Living.
412
EXECUTIVE SUMMARY
Property Name: Retirement Inn - Fullerton
Location: 1621 East Commonwealth Avenue
Fullerton, California
Assessor's Parcel No.: 269-106-016 (Orange County)
Property Rights Appraised: Fee Simple (Total Going Concern)
Date of Value: As Is on April 5, 1996
Land Area: 43,124 Square Feet, 0.99 Acres
Excess Land: None
Zoning: R-3 (Fullerton) a multi family zoning district
Improvements: Type: One, average quality, two story, Class D congregate
retirement apartment building and common areas.
Age: Year Built - 1973; Improvement Age - 23 Years;
Effective Age - 23 Years;
Remaining Economic Life - 22 Years
Size: 68 congregate retirement apartment units (85
currently configured maximum bed count) and
common areas in approximately 38,155 square feet of
gross building area.
Condition: Average
H & B Use (if vacant): Senior Housing
H & B Use (as improved): See Highest and Best Use Discussion in 8/95 Full Narrative
Appraisal Report
Capitalization Rate: 11.5%
Projected Stabilized Net Income: $277,547 (4/96-3/97)
413
Total Going Concern Market
Value, as is, as of
April 5, 1996: Cost Approach: Not Used
Income Approach: $2,425,000
Sales Comparison Approach: Not Used
Value Conclusion: $2,425,000
($35,662/unit)
Allocation of Final
Value Determination
to Components: Market Value
As Is -
4/5/96
----------
Real Estate $1,750,000
FF&E 125,000
Business Value 550,000
----------
Total Going Concern Valuation $2,425,000
==========
Total Estimated Marketing Time: 4 Months
414
INCOME APPROACH
The Income Approach is based upon the economic principle that the value of a
property capable of producing real estate income is the present worth of
anticipated future net benefits. The net income projection is translated into a
present capital value indication using a capitalization process. There are
various methods of capitalization that are based on inherent assumptions
concerning the quality, durability, and pattern of the income projection.
Our Income Approach analysis applies an overall capitalization rate to the
subject's projected net income over the next 12 months. This method was
considered appropriate as the subject is currently operating at a stabilized
cash flow (occupancy and expenses). A discounted cash flow model was not
considered of primary usefulness in valuing the subject for the following
reasons:
1) buyers of properties like the subject typically do not use discounted
cash flow analyses;
2) because the subject is a stabilized property, a discounted cash flow
model would simply be inflating revenues and expenses at a fixed rate
and then canceling out the inflation estimate using an appropriate
discount rate. In other words, if properly applied, a discounted cash
flow analysis would arrive at the same value estimate as applying an
overall capitalization rate methodology.
Net income is calculated by subtracting a vacancy and credit allowance and all
fixed and operating expenses from the indicated gross income. The methods
utilized to estimate gross income, vacancy, expenses and an overall
capitalization rate are discussed in detail in the following paragraphs.
PROJECTION PERIOD
In our analysis of the subject's net income, we have utilized a projection
period of 12 months (4/96 to 3/97) which reflects a stabilized cash flow and
occupancy level. Based on this premise, the owner of the property will enjoy the
net proceeds of sale (reversion) at March, 1996 based on the projected April,
1996 to March, 1997 net income. The theory is that the investor purchasing the
property in March, 1996 would be more interested in the anticipated net income
in their first year of ownership than they would be in the previous year's
income prior to their ownership.
POTENTIAL GROSS ANNUAL INCOME
In estimating the potential gross annual income for the subject property over
the projection period, we have reviewed the current rent roll and previously
prepared our own survey of the properties considered to be most competitive and
comparable to the subject. This survey was presented in the Market Analysis
section of the full narrative appraisal dated August, 1995.
The operators of the subject property have achieved the rental census and
occupancy as summarized on the following page. The March, 1996 census reveals an
occupancy of 83.5% or
415
RETIREMENT INN - FULLERTON
SUMMARY OF SUBJECT RENT CENSUS AT 3/20/96
Private-Studio Semi-Private SSI Total
(Units) (Beds) (Beds) -----
-------------- ------------ ------
Number Units/Beds - Rented 40 11 20 71 (83.5%)
Rent Range $1,150-$1,485 $850-$950 $682-$802 $682-$1,415
Rent Average $1,338 $880 $699 $1,087
Potential Total Rent-Rented $642,060 $116,220 $167,760 $926,040
Number Units/Beds - Vacant (1) 11 1 2 14 (16.4%)
Rent Range $1,250 $800 $702 $702-$1,250
Rent Average $1,250 $800 $702 $1,140
Total Potential Rent-Vacant $165,000 $9,600 $16,848 $191,448
Total Units/Beds 51 12 22 85 (100%)
Gross Potential Rent-Total $807,060 $125,820 $184,608 $1,117,488
Per Unit/Bed $1,319 $874 $699 $1,096
NOTES:
(1) Vacant units include:
Private Studio - Units 107, 123, 202, 206, 210, 216, 225, 229, 231, 234,
235 (11 Units);
Semi-Private - Beds 228, 237, 239 (3 Beds); vacant beds allocated between
semi-private and SSI in ratio of leased semi-private/SSI beds.
416
71 beds out of a maximum current configuration of 85 beds. This occupancy
represents a decrease from the low 90%'s over the past 9 months.
Our review of the subject's rent roll revealed a relatively variable range of
rentals with several units having different rents. Discussions with the current
operator noted that individual monthly rents were a function of the unit
location, when the resident entered the subject and negotiation of the rent when
entered. All SSI rents are fixed by governmental agency at $699 per month and
not market determined.
Overall and based upon mid 1995 market rate surveys, the subject's private room
rents (with and without the assisted living surcharge) are still at March, 1996,
generally within the range of the most comparable properties and near the
average (for both congregate and assisted living) of all facilities. The
subject's congregate studio and one bedroom rents are also near the average of
all projects surveyed. The subject's average assisted living rents are slightly
below the average for semiprivate and private rooms (about 10%). Because the
subject offers a la carte pricing for its assisted living amenities, residents
can effectively choose their rent level (the assisted living surcharge) as their
living assistance needs vary or change. The subject's average rents have not
increased on a net basis from July, 1995 to March, 1996.
In our opinion, the most compelling evidence that the subject's rents are market
rents (and not above or below) is the subject's recent occupancy history (mid
80%'s to low 90%'s) and its current occupancy, which is temporarily a slightly
depressed 83% at the current rents. In our opinion, the subject's rents have not
been material factors in keeping occupancy below the more typical 92% to 95%.
The subject's lower rents are reasonable given the subject's age and condition
and more monolithic unit mix.
Therefore, given the above discussion, in our opinion, the subject's current
monthly average rents represent market rental rates and are used in our pro
forma estimate of income and expenses shown on a following page. All subject
rents (the average per unit/bed type noted above) are forecast to increase 1.5%
during the 4/96 to 3/97 projection period, reflecting market conditions and the
subject's history. The 1.5% estimate in the next 12 months represents an average
3% rent increase applied at each resident's move-in anniversary date which are
assumed to occur evenly over the next 12 months. SSI rates are conservatively
forecasted to remain at current levels in the next 12 months. Our cash flow
estimates are shown gross or before a vacancy and collection factor.
The above rents are base rents for unlicensed congregate living services. This
rent does not include assisted living surcharges which are billed to residents
on an a la carte basis. Currently, the subject charges for these extra amenities
on a case by case basis with an approximate average of $425 extra per month for
medication monitoring, help with bathing and doing personal laundry. Currently,
about 21 residents pay for living assistance at an approximate average of $422
extra rent per month. Our cash flow projections for the subject estimate a
stabilized 29% gross utilization (25 beds gross) of assisted living amenities at
stabilization, calculating to the following gross assisted living surcharge
income:
417
Avg. Surcharge/ Resident Projected
Period Month/Bed Utilization Annual Income
------ --------- ----------- -------------
@ 3/96 $422 21 (net) -
@ 4/96 to 3/97 $450 25 (gross) $135,000
In addition to total potential gross room revenue, we have included
miscellaneous income at 1.0% of effective gross income reflecting historical
receipts for guest meals, processing fees, extra services to residents, and
beauty shop income.
VACANCY AND COLLECTION LOSSES
Our cash flow projections deduct a total vacancy and collection loss in the
stabilized projection period as follows:
Average Average
Occupancy Vacancy
--------- -------
As Is @ 3/96 83.5% 16.5%
4/96 to 3/97 (Stabilization) 90.0% 10.0%
The above estimate of stabilized occupancy/vacancy is meant to incorporate 76.5
residents or an occupancy/vacancy of 90.0% (76.5/85). This conclusion is
consistent with the subject's recent occupancy trends, occupancies at similar
projects and operator projections. The difference in our stabilized occupancy
level and the current occupancy is not material (5.5 beds) and within month to
month occupancy fluctuations.
The higher than typical and average market vacancy factor (5% to 8%) reflects
the subject's occupancy history and current occupancy, discussions with the
current operator, the subject's competitive position and local market conditions
as reflected in the occupancies at similar projects in the market. The subject's
market position (lower rents in a more affluent market) and average quality
mitigate against a lower stabilized vacancy estimate (or higher occupancy).
OPERATING EXPENSES
In determining pro forma estimates of operating expenses, we have primarily
relied on the specific expense histories (1994, 1995, and two months of 1996)
and budget (1996) of the subject property as summarized on the following page
and the experience at comparable projects. The expenses enumerated below would
be those of a typical operator at the subject. We have summarized our expense
estimates as follows:
418
RETIREMENT INN - FULLERTON
HISTORICAL INCOME AND EXPENSE
Historical
Operator
2 Months Goal
Year Ending Year Ending Ending 1996 Budget
Revenues 12/94 12/95 2/29/96 Annualized 1996
- -------- ----------- ----------- -------- ---------- --------
Rental Income $ 956,057 $1,024,980 $161,465 $ 984,937 $1,087,788
Assisted Living Income 74,403 126,187 20,509 125,105 121,740
Non-Operating Revenue $ 8,967 $ 8,474 $ 785 $ 4,789 $ 10,643
---------- ---------- -------- ----------- ----------
Total Revenues $1,039,427 $1,159,641 $182,759 $1,114,830 $1,220,171
Expenses (1)
Real Estate Taxes $ 33,323 $ 38,391 $ 3,925 $ 23,943 $ 33,327
Insurance 12,518 13,833 2,412 14,713 14,906
G&A 36,061 31,209 5,986 36,515 33,400
Utilities 73,370 75,256 10,677 65,130 77,705
Payroll/Benefits 430,765 421,809 72,510 442,311 453,717
Maintenance 37,523 49,928 8,512 51,923 49,300
Activities 9,529 8,483 1,111 6,777 8,559
Marketing 7,440 11,746 1,876 11,444 10,200
Laundry & Linen 8,527 8,195 1,808 11,029 11,412
Dietary 103,131 106,771 14,518 88,560 107,322
Supplies 24,000 23,164 3,263 19,904 23,845
---------- ---------- -------- ---------- ----------
Total Operating Expense $ 776,187 $ 788,785 $126,598 $ 772,249 $ 823,693
(74.7%) (68.0%) (69.3%) (69.3%) (67.5%)
Net Operating Income $ 263,240 $ 370,856 $ 56,161 $ 342,581 $ 396,478
========== ========== ======== ========== ==========
NOTES:
(1) Does not include management fee or replacement reserves.
419
Real Estate Taxes - Real estate taxes are estimated to reflect an assumed sale
of the subject property and a reassessment at current market rates at March,
1996 ($2,425,000 times the tax rate of 1.00968% plus approximately $6,008 in
direct assessments). This real estate tax expense reflects taxes that would have
to be incurred by a buyer of the subject wherein the subject would be reassessed
to market value;
Insurance - estimated at 1.25% of effective gross income, reflecting typical
charges for liability/fire insurance, historical costs incurred, and the fixed
nature of this expense;
Management - estimated at 5% of effective gross income reflecting the current
typical or average industry charge which would be appropriate for the subject
considering its average complexity of operation;
General and Administrative - estimated at 12% of effective gross income;
representing additional on site costs incurred to manage the subject including
salaries and benefits for the administrator and assistants and all miscellaneous
costs to operate the subject (office supplies, miscellaneous rentals);
Utilities - estimated at 6.5% of effective gross income, which is consistent
with historical costs incurred. Includes all common area and unit utility costs
(telephone, electric, gas, water, sewer);
Maintenance - estimated at 5% of effective gross income, including all
maintenance/security salary and supplies (including land maintenance and pest
control), derived from historical expenses;
Activities/Transportation - all social/recreational service costs including
salaries and supplies (including van service) are estimated at 3% of effective
gross income;
Marketing - all advertising, marketing and sales expenses are estimated at 2% of
effective gross income. This allocation is higher than typical but reflects the
subject's lower occupancy, high turnover (relative to all senior properties) and
large number of units, requiring a more intensive marketing effort;
Housekeeping - estimated at 6% of effective gross income to include salaries,
supplies, for both an internal laundry and linen service and housekeeping and
consistent with historical costs incurred;
Dietary - estimated at anticipated dietary costs to a typical operator or $10.00
per day per resident (76.5 occupied beds x $10.00/day x 365 days). This estimate
includes all dietary related salaries and benefits and cost of food. These
estimates are within current industry averages and historical costs incurred;
Personal Care - estimated at 6.0% of effective gross income to include all
salaries and supplies necessary to provide assisted living services to
approximately 26% of the residents (about $7.27 per resident day for 23
residents);
420
Replacement Reserve - estimated at 15% of the estimated furniture and equipment
cost new ($170,000 or $2,500 per unit) to include the annual reserve necessary
to replace furniture and equipment and other short lived capital items
(carpeting, painting). The stabilized estimate of $25,500 is equal to 2.2% of
the estimate effective gross income.
As shown, total stabilized expenses (not including management fees and reserves)
to a typical operator accumulate to 68.7% of effective gross income or $10,322
per occupied bed (76.5 beds). A comparison to similar congregate/assisted living
properties before management fees and reserves is shown on the following page.
As illustrated, the projected expenses for the subject are slightly above the
average of the expense histories of the projects listed. The subject will always
have higher expenses on a percentage of income basis because of its lower
revenue base (smaller units, lesser number of units, SSI census) and higher on a
per patient basis due to the location within a market area of higher operating
costs/rents. Our projections consider the experience at the comparable
properties and historical costs incurred.
On the following page, we have illustrated average annual operating costs per
unit as accumulated in a recent national survey of operating expenses for
various types of senior facilities including assisted living. The subject falls
with the median operating costs for a combination congregate/ assisted living
project.
Finally, a reconciliation of our adjusted period one (4/96 to 3/97) projected
expenses to 1995 actual expenses and 1996 budgeted expenses illustrates the
following:
Actual Total Expenses (1995) $ 788,785
=========
Operator Budget (1996) $ 823,693
=========
Projected Total Expenses Per SLVS (4/96 to 3/97) $ 872,712
Less: Management Fees $( 57,513)
Less: Replacement Reserves $( 25,500)
---------
Adjusted Projected Total Expenses (4/96 to 3/97) $ 789,699
=========
Difference
(over 1995 actual, reflects lower occupancy) +0.1%
(under 1996 budget) -4.2%
421
RETIREMENT INN - FULLERTON
OPERATING EXPENSE COMPARABLES
National Operator #1 - National Operator #2 - Subject
13 Projects (1995) 12 Projects (1995) Projected
---------------------- ---------------------- ---------------------
% of Per % of Per % of Per
Expense Category Income Unit Income Unit Income Unit
- ---------------- ------ ---- ------ ---- ------ ----
Property Taxes 4.4% $ 838 5.2% $ 792 2.6% $ 395
Insurance 1.1% 249 1.4% 208 1.25% 188
Administration 7.2% 1,454 10.7% 1,632 12.0% 1,804
Activities 5.3% 276 (2) (2) 3.0% 451
Marketing 2.3% 276 3.6% 543 2.0% 301
Plant Operations 5.0% 1,788 10.8% 1,640 11.5% 1,729
Housekeeping 3.2% 563 3.9% 587 6.0% 902
Dietary 14.0% 3,128 20.2% 3,073 24.3% 3,650
Assisted Living 1.8% 791 10.3% 1,572 6.0% 902
----- ------ ----- ------- ----- -------
Total Expenses (1) 51.3% $9,963 66.1% $10,047 68.7% $10,322
===== ====== ===== ======= ===== =======
1st Quartile Median 4th Quartile
------------------- -------------------- ------------------
% of Per % of Per % of Per
Income Unit Income Unit Income Unit
------ ---- ------ ---- ------ ----
1995 National ASHA Survey
Congregate 57.3% $7,040 61.2% $ 9,031 63.2% $11,245
Assisted Living 69.7% $9,999 65.4% $12,320 64.7% $15,033
NOTES:
(1) Before management fees and replacement reserves.
(2) Included in other functional categories.
(3) Caution should be used in analyzing the above data as functional
categorization of expenses is not always consistent between
properties/operators.
422
CAPITALIZATION PROCESS
Because Retirement Inn - Fullerton is being appraised as of March, 1996 wherein
it has reached a stabilized cash flow, we have utilized a procedure where the
stabilized net income for the period of April, 1996 to March, 1997 is
capitalized at a rate of 11.5% to get an indicated total property value at
April, 1996. This calculation is shown on a following page.
We have been involved in the analysis and valuation of numerous retirement
facilities around California which have generally exhibited overall
capitalization rates ranging from 10% to 12%. These are illustrated in sales of
comparable facilities as shown on a following page.
In April, 1995, Senior Living Valuation Services, Inc. conducted the second
annual survey of close to 300 participants in the senior housing industry
regarding their investment criteria or perception of criteria used in evaluating
different types of senior housing properties. The investment criteria survey
polled included capitalization rates, discount rates and returns on equity. A
copy of this survey is provided in the Addenda of this report. The survey
indicated a capitalization rate range of 9% to 16% and an average of 12.1% for
assisted living facilities. Though the survey is not definitive, it does provide
some market evidence of the investment criteria being used (or perceived to be
used) by industry professionals.
Another method of estimating a capitalization rate is the band of investment
weighted average technique. If the available mortgage terms are known, the debt
service or mortgage constant can be calculated, and if the equity dividend rate
required to attract equity capital is known or can be estimated, the overall
rate applicable in direct capitalization can be computed. Available mortgage
terms are 70% of value at 8.5% interest with an amortization term of 25 years
reflects market terms based on our experience of specific financing transactions
and recent national surveys of financing parameters for senior housing
properties. Based on these terms, the mortgage constant is .0966. The equity
dividend rate required to attract equity capital for properties similar to the
subject is approximately 16% (per our investment survey). The indicated overall
capitalization rate using this approach is:
Band of Investment
Portion Weighted
of Value Rate Contribution
-------- ---- ------------
Mortgage 0.70 x .0966 .0676
Equity 0.30 x .16 .0480
-----
1.0 x Overall Rate .1156
OAR 11.56%
423
RETIREMENT INN - FULLERTON
COMPARABLE IMPROVED ACLF/ALF SALES
Indicated
Age/No. Sale Price/ Occupancy Overall
No. Name/Location of Units Date Sale Price Unit Price/SF @ Sale Rate
- --- ------------- --------- ---- ---------- ------ -------- --------- ---------
1. The Chanate 1984/ 2/96 $ 7,400,000 $61,667 $61.67 85% 11.4% (1)
3250 Chanate Road 120 (Cash
Santa Rosa, CA Equivalent)
2. Carlton Plaza 1993/ 12/95 $ 8,228,858 $64,288 $78.82 70% 11.0% (1)
3800 Walnut 128
Fremont, CA
3. Vinwood Lodge 1974/ 12/95 $ 4,100,000 $55,405 $70.09 92% 10.3%
35 Fenton 74
Livermore, CA
4. Carrington Pointe 1989/ 12/95 $11,411,000 $65,580 $72.03 95% 10.7%
1715 East Alluvial 174
Fresno, CA
5. Villa at Palm Desert 1989/ 11/95 $ 6,600,000 $85,714 $114.29 95% 10.4%
44-300 San Pasqual 77
Palm Desert, CA
6. Oak Tree Villa 1988/ 6/95 $11,900,000 $58,911 $69.19 72% 12.3% (1)
100 Lockwood Lane 202
Scotts Valley, CA
(1) estimated at projected full occupancy
424
These sources of capitalization rates can be summarized as follows:
Indicated
Cap Rates
---------
6 Detailed Sales 11.0% (Average)
SLVS Investment Survey 12.1% (Assisted Living)
Band of Investment 11.6%
Based upon the current characteristics of the subject, namely, its overall
average cash flow risk as reflected in its lower stable occupancy (90%) and cash
flow (including a lower risk SSI census) and considering the subject's market
position (below average rents, full assisted living licensing, older physical
plant and more monolithic unit mix), which is derived from the subject's
established niche as a middle market, average quality assisted living project in
the area, and considering the affluent local market and overall current market
conditions, we have concluded that 11.5% or toward the middle portion of the
approximate range is an appropriate capitalization rate for the subject
property.
SUMMARY
Our estimate of value by the Income Approach is summarized on the following page
and produces an indicated value for the subject property as is, at April 5, 1996
of $2,413,452, rounded to $2,425,000 ($35,662/unit).
425
RETIREMENT INN - FULLERTON
PRO FORMA INCOME/EXPENSE & CAPITALIZATION
Projected
Stabilized
(4/96-3/97)
-----------
Average Occupancy (All Beds) 90.0% (76.5 Beds)
Average Net Rental (All Beds) $ 1,110
Potential Gross Rent Income -
Studio Private - 51 Beds at $1,319/Mo. Avg. $ 819,468
Semiprivate - 12 Beds at $874/Mo. Avg. 127,744
SSI - 22 Beds at $699/Mo. Avg. $ 184,536
----------
Potential Gross Rent Income $1,131,748
Plus: Assisted Living Surcharges (25 Beds at $450/Mo.) $ 135,000
Plus: Miscellaneous Income (1% of PGRI) $ 11,317
----------
Potential Gross Income $1,278,065
Less: Stabilized Vacancy & Collection Losses - 10% ($ 127,806)
----------
Effective Gross Income $1,150,259
Expenses - % of EGI
--------
Real Estate Taxes - $ 30,240
Insurance 1.25% 14,378
Management 5.0% 57,513
G&A 12.0% 138,031
Utilities 6.5% 74,767
Maintenance 5.0% 57,513
Activity & Trans. 3.0% 34,508
Marketing 2.0% 23,005
Housekeeping 6.0% 69,016
Dietary $10.00/PRD 279,225
Personal Care 6.0% 69,016
Replacement Reserves - $ 25,500
----------
Total Expenses $ 872,712
(75.9%)
Stabilized Net Operating Income $ 277,547
Overall Capitalization Rate .115
----------
Capitalized Value $2,413,452
==========
Called $2,425,000
Per Unit $ 35,662
426
CERTIFICATION
1. We have no present or contemplated future interest in the real estate
that is the subject of this restricted appraisal report.
2. We have no personal interest or bias with respect to the subject matter
of this restricted appraisal report or the parties involved.
3. To the best of our knowledge and belief, the statements of fact
contained in this restricted appraisal report, upon which the analyses,
opinions and conclusions expressed herein are based, are true and
correct.
4. This restricted appraisal report sets forth all of the limiting
conditions (imposed by the terms of my assignment or by the
undersigned) affecting the analyses, opinions and conclusions contained
in this report.
5. This restricted appraisal report has been made in conformity with and
is subject to the requirements of the Code of Professional Ethics and
Standards of Professional Conduct of the Appraisal Institute and is
prepared in accordance with the requirements of the Office of the
Comptroller of the Currency and the Uniform Standards of Professional
Appraisal Practice.
6. Our compensation is not contingent on an action or event resulting from
the analysis, opinions, conclusions or the use of this report.
7. The value estimates set forth in this report are not predetermined or
based on any requested minimum valuation, a specific valuation or the
approval of a loan.
8. The use of this report is subject to the requirements of the Appraisal
Institute relating to review by its duly authorized representatives.
9. Wilma Koch, Appraisal Associate provided significant professional
assistance to the persons signing this report.
10. As of the date of this report, Michael G. Boehm, MAI has completed the
requirements of the continuing education program of the Appraisal
Institute.
11. A personal inspection of the property was made by Michael G. Boehm, MAI
on May 9, 1995 and by Wilma Koch, Appraisal Associate on April 5, 1996.
427
12. The concluded total going concern market value estimate of the fee
simple interest of Retirement Inn - Fullerton, is as follows:
MARKET VALUE "AS IS" (APRIL 5, 1996):
TWO MILLION FOUR HUNDRED TWENTY FIVE THOUSAND ($2,425,000) DOLLARS
SENIOR LIVING VALUATION SERVICES, INC.
- -------------------------
Michael G. Boehm, MAI
428
A D D E N D A
429
RESTRICTED APPRAISAL REPORT
RETIREMENT INN - DALY CITY
501 KING DRIVE
DALY CITY, CALIFORNIA
AS IS ON MARCH 29, 1996
SLVS FILE NO. 96-04-30.4
PREPARED FOR
AMERICAN RETIREMENT VILLAS PROPERTIES II, L.P.
PREPARED BY
MICHAEL G. BOEHM, MAI
430
April 4, 1996
American Retirement Villas Properties II, L.P.
c/o ARV Assisted Living
245 Fischer Avenue, Suite D-1
Costa Mesa, California 92626
Attention: Ms. Sheila Muldoon
Re: Retirement Inn - Daly City
501 King Drive
Daly City, California
SLVS File No. 96-04-30.4
Ladies and Gentlemen:
In accordance with your request, we have conducted the required investigation,
gathered the necessary data, and made certain analyses that have enabled us to
form an opinion of the market value of the above captioned property. This report
has been prepared to be in compliance with the requirements of the Uniform
Standards of Professional Appraisal Practice as a restricted appraisal report.
This letter report updates a full narrative appraisal report prepared by our
firm and dated July 13, 1995. The full narrative report discusses the subject
region, neighborhood, site, improvements and market in detail. Therefore, this
letter should be used in conjunction with the full narrative appraisal report.
This report is intended for use by the client only. This letter report cannot be
fully understood properly without a review of the previous full narrative
appraisal report and additional information currently contained in the work file
of the appraiser.
Based on an inspection of the property and the investigation and analysis
undertaken, we have formed the opinion, subject to the assumptions and limiting
conditions set forth in this report, that as of March 29, 1996, the fee simple
total going concern interest of the subject, as is, has a market value of:
THREE MILLION FOUR HUNDRED SEVENTY FIVE THOUSAND ($3,475,000) DOLLARS
431
Ms. Sheila Muldoon
April 4, 1996
Page 2
This total going concern value estimate can be allocated to the following
components:
Market Value
As Is -
3/29/96
------------
Real Estate Value $2,880,000
Furniture, Fixtures & Equipment 120,000
Business Value 475,000
----------
Total Going Concern Valuation $3,475,000
==========
As required by the Uniform Standards of Professional Appraisal Practice for a
restricted appraisal report, the pages that follow set forth the identification
of the property, property rights appraised, assumptions and limiting conditions,
the scope of appraisal procedures followed in this restricted appraisal report,
discussion and summary of cash flow projections and certification page.
Respectfully submitted,
SENIOR LIVING VALUATION SERVICES, INC.
Michael G. Boehm, MAI
President
432
INTRODUCTION
PROPERTY IDENTIFICATION
The subject property consists of a 50,181 square foot (1.15 acres) site that is
improved with a 95 unit congregate senior housing project (including up to 120
licensed assisted living beds) project known as Retirement Inn - Daly City. The
subject has a designated street address of 501 King Drive, Daly City, San Mateo
County, California.
PROPERTY OWNERSHIP AND HISTORY
The fee simple title to the subject site, all improvements and furnishings
comprising Retirement Inn - Daly City is currently vested in American Retirement
Villas Properties II, L.P. (ARVP II). The subject was acquired as part of a
larger package of senior properties from Retirement Inns of America (Avon
Products, Inc.) in 1989. The subject has not been sold/purchased within the last
three years.
The subject retirement building was originally planned and developed in the mid
1970's. The existing subject improvements became available for occupancy in
1975. In approximately 1990, a small second floor addition was completed which
included the construction of several small administrative offices, adjacent to
the auditorium. The subject's recent history includes less than full occupancies
in the early 1990's and rising to a current occupancy of 86.9% (93/107 total
beds) reflecting a competitive market area.
SCOPE OF THE ASSIGNMENT
The scope of this assignment is to inspect the subject property, conduct an
investigation of market data, and prepare a restricted appraisal report in
accordance with the requirements of the Uniform Standards of Professional
Appraisal Practice. All information deemed pertinent to the completion of this
letter update was made available. Specifically, the procedures performed in this
limited report included:
1) a 1996 site inspection noting material changes in the subject region,
neighborhood, site, improvements and market (none were noted). These
influences on value are described in detail in the 1995 full appraisal
report;
2) Updated Income Approach analysis using the current market rents,
vacancy, expenses and capitalization rates.
Our limited narrative appraisal report does not include an updated Market
Analysis (although any potentially new competition to the subject was
investigated and an overall review of competition was conducted), Cost Approach
or Sales Comparison Approach value conclusions.
This restricted appraisal report estimates a value of the fee simple interest in
the subject property using only an Income Approach. Determining a value estimate
for the subject using Cost and
433
Sales Comparison Approaches was deemed inappropriate and unnecessary for the
subject property. This conclusion reflects the difficulty of accurately
incorporating depreciation and profit in a value estimate using a Cost Approach
and the overall lack of truly comparable sales.
PURPOSE OF THE APPRAISAL
The purpose of the appraisal is to estimate the subject's total fee simple going
concern market value as is.
FUNCTION OF THE APPRAISAL
It is understood the appraisal shall be used by American Retirement Villas
Properties II, L.P., in evaluating the subject for possible transfer to an
ownership real estate investment trust.
PROPERTY INSPECTION
The subject property was inspected on July 13, 1995 by Michael G. Boehm, MAI who
was accompanied by Ms. May Sunglao, Administrator and on March 29, 1996 by Wilma
Koch, Appraisal Associate.
DATE OF APPRAISAL
April 4, 1996
DATE OF VALUE
March 29, 1996
PROPERTY RIGHTS APPRAISED
This appraisal estimates the fee simple total going concern market value of the
subject operating as a congregate senior housing business. Going concern value
is defined by the Appraisal Institute as the value created by a proven property
operation; considered a separate entity to be valued with an established
business. This total going concern value can be allocated to its real estate,
furniture, fixtures and equipment and business value components. An estimated
allocation of our total going concern valuation is set forth in this report.
Fee Simple is defined by the Appraisal Institute as absolute ownership
unencumbered by any other interest or estate subject only to the limitations of
eminent domain, escheat, police power, and taxation.
DEFINITION OF MARKET VALUE
As defined by the Office of the Comptroller of the Currency under 12 CFR, Part
34, Sub-part C-Appraisals, 34.42 Definitions (f), market value is defined as:
434
"The most probable price which a property should bring in a competitive and open
market under all conditions requisite to a fair sale, the buyer and seller each
acting prudently, and knowledgeably and assuming the price is not affected by
undue stimulus. Implicit in this definition is the consummation of a sale as of
a specified date and the passing of title from seller to buyer under conditions
whereby:
(i) buyer and seller are typically motivated;
(ii) both parties are well informed or well advised, and acting in what they
consider their best interests;
(iii) a reasonable time is allowed for exposure in the open market;
(iv) payment is made in terms of cash in U.S. dollars or in terms of
financial arrangements comparable thereto; and
(v) the price represents the normal consideration for the property sold
unaffected by special or creative financing or sales concessions
granted by anyone associated with the sale."
ASSUMPTIONS AND STANDARD LIMITING CONDITIONS
1. The legal description furnished to the appraiser is assumed to be
correct, and the title is assumed to be marketable.
2. The appraiser assumes no responsibility for legal matters.
3. Report exhibits are only visual aids. All sizes indicated for land and
improvements are from indicated sources and assumed to be correct.
4. Unless otherwise noted herein, it is assumed there are no detrimental
easements, encumbrances, encroachments, liens, zoning violations,
building code violations, or environmental violations, etc. affecting
the subject property.
5. Information, estimates, and opinions furnished to the appraiser are
obtained from sources considered reliable; however, no liability for
their accuracy can be assumed by the appraiser.
6. It is assumed that there are no hidden or unapparent conditions in the
land or improvements that render the property more or less valuable or
that would reduce its utility, development potential, marketability.
All improvements are assumed to be structurally sound unless otherwise
noted. No responsibility is assumed for hidden or undisclosed
conditions or for arranging for engineering studies that may be
required to discover any defects or uniquely favorable conditions.
435
7. The appraiser has inspected the subject property with the due diligence
expected of a professional real estate appraiser. The appraiser is not
qualified to detect hazardous waste and/or toxic materials. Any comment
by the appraiser that might suggest the possibility of the presence of
such substances should not be taken as confirmation of the presence of
hazardous waste and/or toxic materials. Such determination would
require investigation by a qualified expert in the field of
environmental assessment.
8. The presence of substances such as asbestos, urea-formaldehyde foam
insulation or other potentially hazardous materials may affect the
value of the property. The appraiser's value estimate is predicated on
the assumption that there is no such material on or in the property
that would cause a loss in value.
9. No responsibility is assumed for any environmental conditions, or for
any expertise or engineering knowledge required to discover them. The
appraiser's description and resulting comments are the result of the
routine observations made during the appraisal process.
10. Responsible ownership and competent management are assumed.
11. Where the discounted cash flow analysis is utilized, it has been
prepared on the basis of the information and assumptions stipulated in
this appraisal report. The achievement of any financial projections
will be affected by fluctuating economic conditions and is dependent
upon the occurrence of other future events that cannot be assured.
Therefore, the actual results achieved may well vary from the
projections and such variation may be material.
12. The appraiser is not required to give testimony or appear in court, or
at public hearings, or at any special meeting or hearing with reference
to the property appraised herein by reason of preparation of this
report, unless arrangements have been made prior to preparation of this
report.
13. Possession of this report does not carry with it the right of
publication. It shall be used for its intended purpose only and by the
parties to whom it is addressed. Neither all nor any part of the
contents of this report shall be conveyed to the public through
advertising, public relations, news, sales, or other media without the
written consent or approval of the author. This applies particularly to
value conclusions, the identity of the appraiser or firm with which it
is connected, and any reference to the Appraisal Institute, or MAI
designation.
14. Property values are influenced by a large number of external factors.
The information contained in the report comprises the pertinent data
considered necessary to support the value estimate. We have not
knowingly withheld any pertinent facts, but we do not guarantee that we
have knowledge of all factors which might influence the value of the
subject property. Due to rapid changes in external factors, the value
estimate is considered reliable only as of the effective date of the
appraisal.
436
SPECIAL CONDITIONS
The subject is licensed as a residential care facility for the elderly (assisted
living) for up to a maximum of 120 beds with the California Department of Social
Services. This appraisal assumes that the subject meets all physical plant and
operating requirements as an assisted living facility.
The appraisers were not provided with a title report describing all current
easements or encumbrances that might affect the subject operation as a
congregate senior housing business. This appraisal assumes that there are no
adverse easements or encumbrances affecting the subject.
We recommend review of a current title report.
The estimates of value set forth in this report are partially relying on the
current rent roll, historical operating statements and limited building drawings
and building statistical data provided to the appraiser by ARV Assisted Living.
437
EXECUTIVE SUMMARY
Property Name: Retirement Inn - Daly City
Location: 501 King Drive
Daly City, California
Assessor's Parcel No.: 091-362-006 (San Mateo County)
Property Rights Appraised: Fee Simple (Total Going Concern)
Date of Value: As Is on March 29, 1996
Land Area: 50,181 Square Feet, 1.15 Acres
Excess Land: None
Zoning: R-3 (Daly City) a multi-family housing zoning
district, allowing the subject with a
conditional use permit.
Improvements: Type: One, average quality, two story,
Class D congregate retirement
apartment building and common areas.
Age: Year Built - 1975; Effective Age - 21
Years; Remaining Economic Life - 24
Years
Size: 95 congregate retirement apartment
units (107 currently configured
maximum bed count) and common areas
in approximately 36,874 square feet
of gross building area.
Condition: Average
H & B Use (if vacant): Senior Housing
H & B Use (as improved): See Highest and Best Use Discussion in 7/95
Full Narrative Appraisal Report
Capitalization Rate: 11.5%
Projected Stabilized Net Income: $398,383 (4/96-3/97)
438
Total Going Concern Market
Value, as is, as of
March 29, 1996:
Cost Approach: Not Used
Income Approach: $3,475,000
Sales Comparison Approach: Not Used
Value Conclusion: $3,475,000
($36,579/unit)
Allocation of Final
Value Determination
to Components: Market Value
As Is -
3/29/96
------------
Real Estate $2,880,000
FF&E 120,000
Business Value 475,000
----------
Total Going Concern Valuation $3,475,000
==========
Total Estimated
Marketing Time: 4 Months
439
INCOME APPROACH
The Income Approach is based upon the economic principle that the value of a
property capable of producing real estate income is the present worth of
anticipated future net benefits. The net income projection is translated into a
present capital value indication using a capitalization process. There are
various methods of capitalization that are based on inherent assumptions
concerning the quality, durability, and pattern of the income projection.
Our Income Approach analysis applies an overall capitalization rate to the
subject's projected net income over the next 12 months. This method was
considered appropriate as the subject is currently operating at a stabilized
cash flow (occupancy and expenses). A discounted cash flow model was not
considered of primary usefulness in valuing the subject for the following
reasons:
1) buyers of properties like the subject typically do not use discounted
cash flow analyses;
2) because the subject is a stabilized property, a discounted cash flow
model would simply be inflating revenues and expenses at a fixed rate
and then canceling out the inflation estimate using an appropriate
discount rate. In other words, if properly applied, a discounted cash
flow analysis would arrive at the same value estimate as applying an
overall capitalization rate methodology.
Net income is calculated by subtracting a vacancy and credit allowance and all
fixed and operating expenses from the indicated gross income. The methods
utilized to estimate gross income, vacancy, expenses and an overall
capitalization rate are discussed in detail in the following paragraphs.
PROJECTION PERIOD
In our analysis of the subject's net income, we have utilized a projection
period of 12 months (4/96 to 3/97) which reflects a stabilized cash flow and
occupancy level. Based on this premise, the owner of the property will enjoy the
net proceeds of sale (reversion) at March, 1996 based on the projected April,
1996 to March, 1997 net income. The theory is that the investor purchasing the
property in March, 1996 would be more interested in the anticipated net income
in their first year of ownership than they would be in the previous year's
income prior to their ownership.
POTENTIAL GROSS ANNUAL INCOME
In estimating the potential gross annual income for the subject property over
the projection period, we have reviewed the current rent roll and previously
prepared our own survey of the properties considered to be most competitive and
comparable to the subject. This survey was presented in the Market Analysis
section of the full narrative appraisal dated July, 1995.
The operators of the subject property have achieved the rental census and
occupancy as summarized on the following page. The March, 1996 census reveals an
occupancy of 86.9% or
440
RETIREMENT INN - DALY CITY
SUMMARY OF SUBJECT RENT CENSUS at 3/19/96
Private-Studio Semi-Private SSI Total
(Units) (Beds) (Beds) -----
------- ------ ------
Number Units/Beds - Rented 72 9 12 93 (86.9%)
Rent Range $838-$1,550 $775-$913 $682-$702 $682-$1,550
Rent Average $1,165 $808 $699 $1,070
Potential Total Rent-Rented $1,006,500 $87,300 $100,608 $1,194,408
Number Units/Beds - Vacant (1) 11 1 2 14 (13.1%)
Rent Range $1,925-$1,350 $825 $702 $702-$1,350
Rent Average $1,161 $825 $702 $1,072
Total Potential Rent-Vacant $153,300 $9,900 $16,848 $180,048
Total Units/Beds 83 10 14 107 (100%)
Gross Potential Rent-Total $1,159,800 $97,200 $117,456 $1,374,456
Per Unit/Bed $1,164 $810 $699 $1,070
NOTES:
(1) Vacant units include:
Private - Units 104, 127, 132, 138, 141, 143, 144, 213, 215, 229, 231 (11
units);
Semiprivate Studio - Beds 109, 128, 234 (3 beds), allocated to SSI in
ratio of currently leased beds.
441
93 beds out of a maximum current configuration of 107 beds. This occupancy
represents a slight decrease from the low 90%'s over the past 9 months.
Our review of the subject's rent roll revealed a relatively variable range of
rentals with several units having different rents. Discussions with the current
operator noted that individual monthly rents were a function of the unit
location, when the resident entered the subject and negotiation of the rent when
entered. All SSI rents are fixed by governmental agency at $699 per month and
not market determined.
Overall and based upon mid 1995 market rate surveys, the subject's private room
rents (with and without the assisted living surcharge) are still at March, 1996,
generally within the range of the most comparable properties and below the
average (for both congregate and assisted living) of all facilities. The
subject's congregate studio and one bedroom rents are well below the average of
all projects surveyed (about 25%). Congregate semiprivate living is generally
not offered at other projects (with the exception of Retirement Inn -
Burlingame, an ARV sister project). The subject's average assisted living rents
are also below the average for semiprivate and private rooms (about 40%).
Because the subject offers a la carte pricing for its assisted living amenities,
residents can effectively choose their rent level (the assisted living
surcharge) as their living assistance needs vary or change. The subject's
average rents have increased about 2.6% from July, 1995 to March, 1996.
In our opinion, the most compelling evidence that the subject's rents are market
rents (and not above or below) is the subject's recent occupancy history and its
current occupancy, which is 87% (and slightly fluctuating) at the current rents.
In our opinion, the subject's rents have not been material factors in keeping
occupancy below the more typical 92% to 95%. The subject's lower rents are
reasonable given the subject's age and condition, shared baths in most units and
more monolithic unit mix.
Therefore, given the above discussion, in our opinion, the subject's current
monthly average rents represent market rental rates and are used in our pro
forma estimate of income and expenses shown on a following page. All subject
rents (the average per unit/bed type noted above) are forecast to increase 1.5%
during the 4/96 to 3/97 projection period, reflecting market conditions and the
subject's history. The 1.5% estimate in the next 12 months represents an average
3% rent increase applied at each resident's move-in anniversary date which are
assumed to occur evenly over the next 12 months. SSI rates are conservatively
forecasted to remain at current levels in the next 12 months. Our cash flow
estimates are shown gross or before a vacancy and collection factor.
The above rents are base rents for unlicensed congregate living services. This
rent does not include assisted living surcharges which are billed to residents
on an a la carte basis. Currently, the subject charges for these extra amenities
on a case by case basis with an approximate average of $440 extra per month for
medication monitoring, help with bathing and doing personal laundry. Currently,
about 27 residents pay for living assistance at an approximate average of $436
extra rent per month. Our cash flow projections for the subject estimate a
stabilized 28% gross utilization (30 beds gross) of assisted living amenities at
stabilization, calculating to the following gross assisted living surcharge
income:
442
Avg. Surcharge/ Resident Projected
Period Month/Bed Utilization Annual Income
------ --------------- ----------- -------------
at 3/96 $436 27 (net) -
at 4/96 to 3/97 $450 30 (gross) $162,000
In addition to total potential gross room revenue, we have included
miscellaneous income at 1.5% of effective gross income reflecting historical
receipts for guest meals, processing fees, extra services to residents, and
beauty shop income.
VACANCY AND COLLECTION LOSSES
Our cash flow projections deduct a total vacancy and collection loss in the
stabilized projection period as follows:
Average Average
Occupancy Vacancy
--------- -------
As Is at 3/96 86.9% 13.1%
4/96 to 3/97 (Stabilization) 90.0% 10.0%
The above estimate of stabilized occupancy/vacancy is meant to incorporate 96.3
residents or an occupancy/vacancy of 90.0% (96.3/107). This conclusion is
consistent with the subject's recent occupancy trends, occupancies at similar
projects and operator projections. The difference between the projected
stabilized occupancy of 96.3 beds and the current occupancy of 93 beds is not
material.
The higher than typical and average market vacancy factor (5% to 8%) reflects
the subject's occupancy history and current occupancy, discussions with the
current operator, the subject's competitive position and local market conditions
as reflected in the occupancies at similar projects in the market. The subject's
market position (lower rents in a modestly affluent market) and large number of
small units (including physical plant deficiencies) mitigate against a lower
stabilized vacancy estimate (or higher occupancy).
OPERATING EXPENSES
In determining pro forma estimates of operating expenses, we have primarily
relied on the specific expense histories (1994, 1995, and two months of 1996)
and budget (1996) of the subject property as summarized on the following page
and the experience at comparable projects. The expenses enumerated below would
be those of a typical operator at the subject. We have summarized our expense
estimates as follows:
443
RETIREMENT INN - DALY CITY
HISTORICAL INCOME AND EXPENSE
Historical
----------------------------------------------------------- Operator
2 Months Goal
Year Ending Year Ending Ending 1996 Budget
Revenues 12/94 12/95 2/29/96 Annualized 1996
- -------- ----- ----- ------- ---------- ----
Rental Income $1,167,966 $1,225,595 $201,347 $1,228,217 $1,338,443
Assisted Living Income 88,795 115,587 25,155 153,446 162,200
Non-Operating Revenue $ 15,675 $ 15,624 $ 3,276 $ 19,984 $ 18,372
---------- ---------- -------- ---------- ----------
Total Revenues $1,272,396 $1,356,806 $229,778 $1,401,646 $1,518,965
Expenses (1)
Real Estate Taxes $ 33,618 $ 34,915 $ 8,991 $ 54,845 $ 56,612
Insurance 14,648 16,343 2,061 12,572 16,921
G&A 27,415 29,247 5,848 35,673 31,560
Utilities 86,722 89,195 14,460 88,206 89,025
Payroll/Benefits 469,298 455,650 67,737 413,196 473,028
Maintenance 28,588 52,055 4,768 29,085 36,240
Activities 9,963 10,501 1,464 8,930 9,927
Marketing 12,501 16,065 2,570 17,507 16,200
Laundry & Linen 7,306 8,538 1,424 8,686 9,927
Dietary 125,372 119,356 20,419 124,556 123,648
Supplies 32,172 30,156 4,211 25,687 27,575
---------- ---------- -------- ---------- ----------
Total Operating Expense $ 847,604 $ 862,021 $134,253 $ 818,943 $ 890,663
(66.6%) (63.5%) (58.4%) (58.4%) (58.6%)
Net Operating Income $ 424,792 $ 494,785 $ 95,525 $ 582,703 $ 628,302
========== ========== ======== ========== ==========
NOTES:
(1) Does not include management fee or replacement reserves.
(2) Detail not available.
444
Real Estate Taxes - Real estate taxes are estimated to reflect an assumed sale
of the subject property and a reassessment at current market rates at March,
1996 ($3,475,000 times the tax rate of 1.00% plus approximately $12,854 in
direct assessments). This real estate tax expense reflects taxes that would have
to be incurred by a buyer of the subject wherein the subject would be reassessed
to market value;
Insurance - estimated at 1.25% of effective gross income, reflecting typical
charges for liability/fire insurance, historical costs incurred, and the fixed
nature of this expense;
Management - estimated at 5% of effective gross income reflecting the current
typical or average industry charge which would be appropriate for the subject
considering its average complexity of operation;
General and Administrative - estimated at 10% of effective gross income;
representing additional on site costs incurred to manage the subject including
salaries and benefits for the administrator and assistants and all miscellaneous
costs to operate the subject (office supplies, miscellaneous rentals);
Utilities - estimated at 6.5% of effective gross income, which is consistent
with historical costs incurred. Includes all common area and unit utility costs
(telephone, electric, gas, water, sewer);
Maintenance - estimated at 4% of effective gross income, including all
maintenance/security salary and supplies (including land maintenance and pest
control), derived from historical expenses;
Activities/Transportation - all social/recreational service costs including
salaries and supplies (including van service) are estimated at 3% of effective
gross income;
Marketing - all advertising, marketing and sales expenses are estimated at 2% of
effective gross income. This allocation is higher than typical but reflects the
subject's lower occupancy, high turnover (relative to all senior properties) and
large number of less attractive units, requiring a more intensive marketing
effort;
Housekeeping - estimated at 6% of effective gross income to include salaries,
supplies, for both an internal laundry and linen service and housekeeping and
consistent with historical costs incurred;
Dietary - estimated at anticipated dietary costs to a typical operator or $9.00
per day per resident (96.3 occupied beds x $9.00/day x 365 days). This estimate
includes all dietary related salaries and benefits and cost of food. These
estimates are within current industry averages and historical costs incurred;
Personal Care - estimated at 6.0% of effective gross income to include all
salaries and supplies necessary to provide assisted living services to
approximately 28% of the residents (about $8.63 per resident day for 27
residents);
445
Replacement Reserve - estimated at 15% of the estimated furniture and equipment
cost new ($267,500 or $2,500 per unit) to include the annual reserve necessary
to replace furniture and equipment and other short lived capital items
(carpeting, painting). The stabilized estimate of $35,625 is equal to 2.5% of
the estimate effective gross income.
As shown, total stabilized expenses (not including management fees and reserves)
to a typical operator accumulate to 64.4% of effective gross income or $9,484
per occupied bed (96.3 beds). A comparison to similar congregate/assisted living
properties before management fees and reserves is shown on the following page.
As illustrated, the projected expenses for the subject are slightly below the
average of the expense histories of the projects listed. The subject will always
have slightly higher expenses on a percentage of income basis because of its
lower revenue base (smaller units, SSI census) and lower on a per patient basis
due to the location within a market area of lower operating costs/rents. Our
projections consider the experience at the comparable properties and historical
costs incurred.
On the following page, we have illustrated average annual operating costs per
unit as accumulated in a recent national survey of operating expenses for
various types of senior facilities including assisted living. The subject falls
within the median operating costs of a combination congregate/ assisted living
project.
Finally, a reconciliation of our adjusted period one (4/96 to 3/97) projected
expenses to 1995 actual expenses and 1996 budgeted expenses illustrates the
following:
Actual Total Expenses (1995) $ 862,021
===========
Operator Budget (1996) $ 890,663
===========
Projected Total Expenses Per SLVS (4/96 to 3/97) $ 1,019,761
Less: Management Fees $ (70,907)
Less: Replacement Reserves $ (35,625)
-----------
Adjusted Projected Total Expenses (4/96 to 3/97) $ 913,229
===========
Difference
(over 1995 actual, reflects inflation, higher occupancy) +5.9%
(over 1996 budget) +2.5%
446
RETIREMENT INN - DALY CITY
OPERATING EXPENSE COMPARABLES
National Operator #1 - National Operator #2 - Subject
13 Projects (1995) 12 Projects (1995) Projected
------------------ ------------------ ---------
% of Per % of Per % of Per
Expense Category Income Unit Income Unit Income Unit
- ---------------- ------ ---- ------ ---- ------ ----
Property Taxes 4.4% $ 838 5.2% $ 792 3.3% $ 492
Insurance 1.1% 249 1.4% 208 1.25% 184
Administration 7.2% 1,454 10.7% 1,632 10.0% 1,473
Activities 5.3% 276 (2) (2) 3.0% 442
Marketing 2.3% 276 3.6% 543 2.0% 295
Plant Operations 5.0% 1,788 10.8% 1,640 10.5% 1,546
Housekeeping 3.2% 563 3.9% 587 6.0% 884
Dietary 14.0% 3,128 20.2% 3,073 22.3% 3,285
Assisted Living 1.8% 791 10.3% 1,572 6.0% 884
---- ------ ---- -------- ---- ------
Total Expenses (1) 51.3% $9,963 66.1% $ 10,047 64.4% $9,484
==== ====== ==== ======== ==== ======
1st Quartile Median 4th Quartile
------------ ------ ------------
% of Per % of Per % of Per
Income Unit Income Unit Income Unit
------ ---- ------ ---- ------ ----
1995 National ASHA Survey
Congregate 57.3% $7,040 61.2% $ 9,031 63.2% $11,245
Assisted Living 69.7% $9,999 65.4% $12,320 64.7% $15,033
NOTES:
(1) Before management fees and replacement reserves.
(2) Included in other functional categories.
(3) Caution should be used in analyzing the above data as functional
categorization of expenses is not always consistent between
properties/operators.
447
CAPITALIZATION PROCESS
Because Retirement Inn - Daly City is being appraised as of March, 1996 wherein
it has reached a stabilized cash flow, we have utilized a procedure where the
stabilized net income for the period of April, 1996 to March, 1997 is
capitalized at a rate of 11.5% to get an indicated total property value at
April, 1996. This calculation is shown on a following page.
We have been involved in the analysis and valuation of numerous retirement
facilities around California which have generally exhibited overall
capitalization rates ranging from 10% to 12%. These are illustrated in sales of
comparable facilities as shown on the following page.
In April, 1995, Senior Living Valuation Services, Inc. conducted the second
annual survey of close to 300 participants in the senior housing industry
regarding their investment criteria or perception of criteria used in evaluating
different types of senior housing properties. The investment criteria survey
polled included capitalization rates, discount rates and returns on equity. A
copy of this survey is provided in the Addenda of this report. The survey
indicated a capitalization rate range of 9% to 16% and an average of 12.1% for
assisted living facilities. Though the survey is not definitive, it does provide
some market evidence of the investment criteria being used (or perceived to be
used) by industry professionals.
Another method of estimating a capitalization rate is the band of investment
weighted average technique. If the available mortgage terms are known, the debt
service or mortgage constant can be calculated, and if the equity dividend rate
required to attract equity capital is known or can be estimated, the overall
rate applicable in direct capitalization can be computed. Available mortgage
terms are 70% of value at 8.5% interest with an amortization term of 25 years
reflects market terms based on our experience of specific financing transactions
and recent national surveys of financing parameters for senior housing
properties. Based on these terms, the mortgage constant is .0966. The equity
dividend rate required to attract equity capital for properties similar to the
subject is approximately 16% (per our investment survey). The indicated overall
capitalization rate using this approach is:
Band of Investment
Portion Weighted
of Value Rate Contribution
-------- ---- ------------
Mortgage 0.70 x .0966 .0676
Equity 0.30 x .16 .0480
-----
1.0 x Overall Rate .1156
OAR 11.56%
448
RETIREMENT INN - DALY CITY
COMPARABLE IMPROVED ACLF/ALF SALES
Indicated
Age/No. Sale Price/ Occupancy Overall
No. Name/Location of Units Date Sale Price Unit Price/SF at Sale Rate
- --- ------------- -------- ---- ---------- ---- -------- ------- ----
1. The Chanate 1984/ 2/96 $ 7,400,000 $61,667 $ 61.67 85% 11.4% (1)
3250 Chanate Road 120 (Cash
Santa Rosa, CA Equivalent)
2. Carlton Plaza 1993/ 12/95 $ 8,228,858 $64,288 $ 78.82 70% 11.0% (1)
3800 Walnut 128
Fremont, CA
3. Vinwood Lodge 1974/ 12/95 $ 4,100,000 $55,405 $ 70.09 92% 10.3%
35 Fenton 74
Livermore, CA
4. Carrington Pointe 1989/ 12/95 $11,411,000 $65,580 $ 72.03 95% 10.7%
1715 East Alluvial 174
Fresno, CA
5. Villa at Palm Desert 1989/ 11/95 $ 6,600,000 $85,714 $114.29 95% 10.4%
44-300 San Pasqual 77
Palm Desert, CA
6. Oak Tree Villa 1988/ 6/95 $11,900,000 $58,911 $ 69.19 72% 12.3% (1)
100 Lockwood Lane 202
Scotts Valley, CA
(1) estimated at projected full occupancy
449
These sources of capitalization rates can be summarized as follows:
Indicated
Cap Rates
---------
6 Detailed Sales 11.0% (Average)
SLVS Investment Survey 12.1% (Assisted Living)
Band of Investment 11.6%
Based upon the current characteristics of the subject, namely, its overall
average cash flow risk as reflected in its lower stable occupancy (90%) and cash
flow (including a lower risk SSI census) and considering the subject's market
position (below average rents, full assisted living licensing, older physical
plant and more monolithic unit mix), which is derived from the subject's
established niche as a middle market, average quality assisted living project in
the area, and considering the less affluent local market and overall current
market conditions, we have concluded that 11.5% or toward the middle portion of
the approximate range is an appropriate capitalization rate for the subject
property.
SUMMARY
Our estimate of value by the Income Approach is summarized on the following page
and produces an indicated value for the subject property as is, at March 29,
1996 of $3,464,200, rounded to $3,475,000 ($36,579/unit).
450
RETIREMENT INN - DALY CITY
PRO FORMA INCOME/EXPENSE & CAPITALIZATION
Projected
Stabilized
(4/96-3/97)
Average Occupancy (All Beds) 90.0% (96.3 Beds)
Average Net Rental (All Beds) $ 1,085
Potential Gross Rent Income -
Studio Private - 83 Units at $1,164/Mo. Avg $ 1,176,734
Semiprivate - 10 Beds at $810/Mo. Avg 98,658
SSI - 14 Beds at $699/Mo. Avg $ 117,432
-----------
Potential Gross Rent Income $ 1,392,824
Plus: Assisted Living Surcharges (30 Beds at $450/Mo.) $ 162,000
Plus: Miscellaneous Income (1.5% of PGRI) $ 20,892
-----------
Potential Gross Income $ 1,575,716
Less: Stabilized Vacancy & Collection Losses - 10% ($ 157,572)
-----------
Effective Gross Income $ 1,418,144
Expenses - % of EGI
Real Estate Taxes -- $ 47,354
Insurance 1.25% 17,727
Management 5.0% 70,907
G&A 10.0% 141,814
Utilities 6.5% 92,179
Maintenance 4.0% 56,726
Activity & Trans 3.0% 42,544
Marketing 2.0% 28,363
Housekeeping 6.0% 85,087
Dietary $9.00/PRD 316,346
Personal Care 6.0% 85,089
Replacement Reserves -- $ 35,625
----------
Total Expenses $1,019,761
(71.9%)
Stabilized Net Operating Income $ 398,383
Capitalization Rate .115
----------
Capitalized Value $3,464,200
==========
Called $3,475,000
Per Unit $ 36,579
451
CERTIFICATION
1. We have no present or contemplated future interest in the real estate
that is the subject of this restricted appraisal report.
2. We have no personal interest or bias with respect to the subject matter
of this restricted appraisal report or the parties involved.
3. To the best of our knowledge and belief, the statements of fact
contained in this restricted appraisal report, upon which the analyses,
opinions and conclusions expressed herein are based, are true and
correct.
4. This restricted appraisal report sets forth all of the limiting
conditions (imposed by the terms of my assignment or by the
undersigned) affecting the analyses, opinions and conclusions contained
in this report.
5. This restricted appraisal report has been made in conformity with and
is subject to the requirements of the Code of Professional Ethics and
Standards of Professional Conduct of the Appraisal Institute and is
prepared in accordance with the requirements of the Office of the
Comptroller of the Currency and the Uniform Standards of Professional
Appraisal Practice.
6. Our compensation is not contingent on an action or event resulting from
the analysis, opinions, conclusions or the use of this report.
7. The value estimates set forth in this report are not predetermined or
based on any requested minimum valuation, a specific valuation or the
approval of a loan.
8. The use of this report is subject to the requirements of the Appraisal
Institute relating to review by its duly authorized representatives.
9. Wilma Koch, Appraisal Associate provided significant professional
assistance to the persons signing this report.
10. As of the date of this report, Michael G. Boehm, MAI has completed the
requirements of the continuing education program of the Appraisal
Institute.
11. A personal inspection of the property was made by Michael G. Boehm, MAI
on May 9, 1995 and by Wilma Koch, Appraisal Associate on March 29,
1996.
452
12. The concluded total going concern market value estimate of the fee
simple interest of Retirement Inn - Daly City, is as follows:
MARKET VALUE "AS IS" (MARCH 29, 1996):
THREE MILLION FOUR HUNDRED SEVENTY FIVE THOUSAND ($3,475,000) DOLLARS
SENIOR LIVING VALUATION SERVICES, INC.
- --------------------------------------
Michael G. Boehm, MAI
453
RESTRICTED APPRAISAL REPORT
VALLEY VIEW LODGE
1228 ROSSMOOR PARKWAY
WALNUT CREEK, CALIFORNIA
AS IS ON MARCH 29, 1996
SLVS FILE NO. 96-04-30.2
PREPARED FOR
AMERICAN RETIREMENT VILLAS PROPERTIES II, L.P.
PREPARED BY
MICHAEL G. BOEHM, MAI
454
April 4, 1996
American Retirement Villas Properties II, L.P.
c/o ARV Assisted Living
245 Fischer Avenue, Suite D-1
Costa Mesa, California 92626
Attention: Ms. Sheila Muldoon
Re: Valley View Lodge
1228 Rossmoor Parkway
Walnut Creek, California
SLVS File No. 96-04-30.2
Ladies and Gentlemen:
In accordance with your request, we have conducted the required investigation,
gathered the necessary data, and made certain analyses that have enabled us to
form an opinion of the market value of the above captioned property. This report
has been prepared to be in compliance with the requirements of the Uniform
Standards of Professional Appraisal Practice as a restricted appraisal report.
This letter report updates a full narrative appraisal report prepared by our
firm and dated July 14, 1995. The full narrative report discusses the subject
region, neighborhood, site, improvements and market in detail. Therefore, this
letter should be used in conjunction with the full narrative appraisal report.
This report is intended for use by the client only. This letter report cannot be
fully understood properly without a review of the previous full narrative
appraisal report and additional information currently contained in the work file
of the appraiser.
Based on an inspection of the property and the investigation and analysis
undertaken, we have formed the opinion, subject to the assumptions and limiting
conditions set forth in this report, that as of March 29, 1996, the fee simple
total going concern interest of the subject, as is, including the value of
favorable financing, has a market value of:
TEN MILLION NINE HUNDRED TWENTY FIVE THOUSAND ($10,925,000) DOLLARS
455
Ms. Sheila Muldoon
April 4, 1996
Page 2
This total going concern value estimate can be allocated to the following
components:
Market Value
As Is -
3/29/96
Real Estate Value $ 9,475,000
Furniture, Fixtures & Equipment 150,000
Business Value 1,250,000
-----------
Total Going Concern Valuation $10,875,000
===========
Plus: Favorable Financing $ 50,000
-----------
Total Reported Valuation $10,925,000
===========
As required by the Uniform Standards of Professional Appraisal Practice for a
restricted appraisal report, the pages that follow set forth the identification
of the property, property rights appraised, assumptions and limiting conditions,
the scope of appraisal procedures followed in this restricted appraisal report,
discussion and summary of cash flow projections and certification page.
Respectfully submitted,
SENIOR LIVING VALUATION SERVICES, INC.
Michael G. Boehm, MAI
President
456
INTRODUCTION
PROPERTY IDENTIFICATION
The subject property consists of a 198,198 square foot (4.55 gross acres) site
that is currently improved with a 125 unit congregate senior housing project
(including up to 136 licensed assisted living beds) project known as Valley View
Lodge. The subject has a designated street address of 1228 Rossmoor Parkway,
Walnut Creek, Contra Costa County, California.
PROPERTY OWNERSHIP AND HISTORY
The fee simple title to the subject property is currently vested in the name of
American Retirement Villas Properties II (ARVP II), a California Limited
Partnership. The current owners purchased the subject in December, 1989 as part
of a purchase of several Retirement Inns of America (Avon Products, Inc.) senior
properties. The subject has not been sold/purchased in the past three years.
The subject was built as a senior congregate facility which opened in 1976. The
subject, as part of the original conditions of approval and a condition
necessary to obtain the favorable HUD financing, was required to allocate 20% of
the subject units to "very and low" income residents. This restriction was
reportedly waived when the subject was purchased by the current owners allowing
a market rate to be charged for all units. The subject's recent occupancy
history includes effectively full occupancies and it is currently approximately
93.6% occupied (117 units/125 units). The subject has no semiprivate or SSI
residents.
SCOPE OF THE ASSIGNMENT
The scope of this assignment is to inspect the subject property, conduct an
investigation of market data, and prepare a restricted appraisal report in
accordance with the requirements of the Uniform Standards of Professional
Appraisal Practice. All information deemed pertinent to the completion of this
letter update was made available. Specifically, the procedures performed in this
limited report included:
1) a 1996 site inspection noting material changes in the subject region,
neighborhood, site, improvements and market (none were noted). These
influences on value are described in detail in the 1995 full appraisal
report;
2) Updated Income Approach analysis using the current market rents,
vacancy, expenses and capitalization rates.
Our limited narrative appraisal report does not include an updated Market
Analysis (although any potentially new competition to the subject was
investigated and an overall review of competition was conducted), Cost Approach
or Sales Comparison Approach value conclusions.
457
This restricted appraisal report estimates a value of the fee simple interest in
the subject property using only an Income Approach. Determining a value estimate
for the subject using Cost and Sales Comparison Approaches was deemed
inappropriate and unnecessary for the subject property. This conclusion reflects
the difficulty of accurately incorporating depreciation and profit in a value
estimate using a Cost Approach and the overall lack of truly comparable sales.
PURPOSE OF THE APPRAISAL
The purpose of the appraisal is to estimate the subject's total fee simple going
concern market value as is.
FUNCTION OF THE APPRAISAL
It is understood the appraisal shall be used by American Retirement Villas
Properties II, L.P., in evaluating the subject partnership for possible transfer
to an ownership real estate investment trust.
PROPERTY INSPECTION
The subject property was inspected on May 9, 1995 by Michael G. Boehm, MAI who
was accompanied by Ms. Nancy Peterson, Administrator. The subject was
reinspected on July 14, 1995 by Mary Catherine Wiederhold, Appraisal Associate
and March 29, 1996 by Wilma Koch, Appraisal Associate.
DATE OF APPRAISAL
April 4, 1996
DATE OF VALUE
March 29, 1996
PROPERTY RIGHTS APPRAISED
This appraisal estimates the fee simple total going concern market value of the
subject operating as a congregate senior housing business. Going concern value
is defined by the Appraisal Institute as the value created by a proven property
operation; considered a separate entity to be valued with an established
business. This total going concern value can be allocated to its real estate,
furniture, fixtures and equipment and business value components. An estimated
allocation of our total going concern valuation is set forth in this report.
Fee Simple is defined by the Appraisal Institute as absolute ownership
unencumbered by any other interest or estate subject only to the limitations of
eminent domain, escheat, police power, and taxation.
458
DEFINITION OF MARKET VALUE
As defined by the Office of the Comptroller of the Currency under 12 CFR, Part
34, Sub-part C- Appraisals, 34.42 Definitions (f), market value is defined as:
"The most probable price which a property should bring in a competitive and open
market under all conditions requisite to a fair sale, the buyer and seller each
acting prudently, and knowledgeably and assuming the price is not affected by
undue stimulus. Implicit in this definition is the consummation of a sale as of
a specified date and the passing of title from seller to buyer under conditions
whereby:
(i) buyer and seller are typically motivated;
(ii) both parties are well informed or well advised, and acting in what they
consider their best interests;
(iii) a reasonable time is allowed for exposure in the open market;
(iv) payment is made in terms of cash in U.S. dollars or in terms of
financial arrangements comparable thereto; and
(v) the price represents the normal consideration for the property sold
unaffected by special or creative financing or sales concessions
granted by anyone associated with the sale."
ASSUMPTIONS AND STANDARD LIMITING CONDITIONS
1. The legal description furnished to the appraiser is assumed to be
correct, and the title is assumed to be marketable.
2. The appraiser assumes no responsibility for legal matters.
3. Report exhibits are only visual aids. All sizes indicated for land and
improvements are from indicated sources and assumed to be correct.
4. Unless otherwise noted herein, it is assumed there are no detrimental
easements, encumbrances, encroachments, liens, zoning violations,
building code violations, or environmental violations, etc. affecting
the subject property.
5. Information, estimates, and opinions furnished to the appraiser are
obtained from sources considered reliable; however, no liability for
their accuracy can be assumed by the appraiser.
6. It is assumed that there are no hidden or unapparent conditions in the
land or improvements that render the property more or less valuable or
that would reduce its utility, development potential, marketability.
All improvements are assumed to be structurally sound unless otherwise
noted. No responsibility is assumed for hidden or undisclosed
conditions or for arranging for engineering studies that may be
required to discover any defects or uniquely favorable conditions.
459
7. The appraiser has inspected the subject property with the due diligence
expected of a professional real estate appraiser. The appraiser is not
qualified to detect hazardous waste and/or toxic materials. Any comment
by the appraiser that might suggest the possibility of the presence of
such substances should not be taken as confirmation of the presence of
hazardous waste and/or toxic materials. Such determination would
require investigation by a qualified expert in the field of
environmental assessment.
8. The presence of substances such as asbestos, urea-formaldehyde foam
insulation or other potentially hazardous materials may affect the
value of the property. The appraiser's value estimate is predicated on
the assumption that there is no such material on or in the property
that would cause a loss in value.
9. No responsibility is assumed for any environmental conditions, or for
any expertise or engineering knowledge required to discover them. The
appraiser's description and resulting comments are the result of the
routine observations made during the appraisal process.
10. Responsible ownership and competent management are assumed.
11. Where the discounted cash flow analysis is utilized, it has been
prepared on the basis of the information and assumptions stipulated in
this appraisal report. The achievement of any financial projections
will be affected by fluctuating economic conditions and is dependent
upon the occurrence of other future events that cannot be assured.
Therefore, the actual results achieved may well vary from the
projections and such variation may be material.
12. The appraiser is not required to give testimony or appear in court, or
at public hearings, or at any special meeting or hearing with reference
to the property appraised herein by reason of preparation of this
report, unless arrangements have been made prior to preparation of this
report.
13. Possession of this report does not carry with it the right of
publication. It shall be used for its intended purpose only and by the
parties to whom it is addressed. Neither all nor any part of the
contents of this report shall be conveyed to the public through
advertising, public relations, news, sales, or other media without the
written consent or approval of the author. This applies particularly to
value conclusions, the identity of the appraiser or firm with which it
is connected, and any reference to the Appraisal Institute, or MAI
designation.
14. Property values are influenced by a large number of external factors.
The information contained in the report comprises the pertinent data
considered necessary to support the value estimate. We have not
knowingly withheld any pertinent facts, but we do not guarantee that we
have knowledge of all factors which might influence the value of the
subject property. Due to rapid changes in external factors, the value
estimate is considered reliable only as of the effective date of the
appraisal.
460
SPECIAL CONDITIONS
The subject is currently encumbered by an approximately $2,800,000 HUD loan
which extends to the year 2016 at a fixed interest rate of 8.25%. Because this
interest rate is below the estimated interest rate of current conventional
financing (estimated at 8.5%), the subject has a theoretical value over and
above the capitalized value of operational cash flows. Caution should be used in
interpreting this added value as actual market transactions involving the
assumption of below market rate financing are rare. The value of this favorable
financing has been added to the going concern value set forth in this report.
These issues are discussed and the value of the favorable financing is
calculated in a separate section of this report.
The subject is licensed as a residential care facility for the elderly (assisted
living) for a maximum of 136 beds with the California Department of Social
Services. This appraisal assumes that the subject meets all physical plant and
operating requirements as an assisted living facility.
The appraisers were not provided with a title report describing any current
easements or encumbrances that might affect the subject operation as a
congregate senior housing business. This appraisal assumes that there are no
adverse easements or encumbrances affecting the subject. We recommend review of
a current title report.
The estimates of value set forth in this report are partially relying on the
current rent roll, historical operating statements and limited building drawings
and building statistical data provided to the appraiser by ARV Assisted Living.
461
EXECUTIVE SUMMARY
Property Name: Valley View Lodge
Location: 1228 Rossmoor Parkway
Walnut Creek, California
Assessor's Parcel No.: 189-040-045 (Contra Costa County)
Property Rights Appraised: Fee Simple (Total Going Concern)
Date of Value: As Is on March 29, 1996
Land Area: 198,198 Square Feet, 4.55 Acres Gross;
154,638 Square Feet, 3.55 Acres Net
(estimated)
Excess Land: None
Zoning: PD (656), a planned unit development
specifically allowing the subject.
Improvements: Type: One, average to good quality, one
to two story, Class D congregate
retirement apartment building and
common areas.
Age: Year Built - 1976; Improvement Age
- 20 Years; Effective Age - 20
Years; Remaining Economic Life - 25
Years
Size: 125 congregate retirement apartment
units and common areas in
approximately 97,590 square feet of
gross building area.
Condition: Average to Good
H & B Use (if vacant): Senior Housing
H & B Use (as improved): See Highest and Best Use Discussion in
7/95 Full Narrative Appraisal
Capitalization Rate: 11.5%
Projected Stabilized Net Income: $1,251,309 (4/96-3/97)
462
Total Going Concern Market
Value, as is, as of
March 29, 1996: Cost Approach: Not Used
Income Approach: $10,875,000*
Sales Comparison Approach: Not Used
Value Conclusion: $10,875,000*
($87,000/unit)
Allocation of Final
Value Determination
to Components: Market Value
As Is -
3/29/96
-----------
Real Estate $ 9,475,000
FF&E 150,000
Business Value 1,250,000
-----------
Total Going Concern Valuation $10,875,000*
===========
*before addition of value for favorable financing
Value of Favorable Financing: $50,000
Total Estimated Marketing Time: 4 Months
463
INCOME APPROACH
The Income Approach is based upon the economic principle that the value of a
property capable of producing real estate income is the present worth of
anticipated future net benefits. The net income projection is translated into a
present capital value indication using a capitalization process. There are
various methods of capitalization that are based on inherent assumptions
concerning the quality, durability, and pattern of the income projection.
Our Income Approach analysis applies an overall capitalization rate to the
subject's projected net income over the next 12 months. This method was
considered appropriate as the subject is currently operating at a stabilized
cash flow (occupancy and expenses). A discounted cash flow model was not
considered of primary usefulness in valuing the subject for the following
reasons:
1) buyers of properties like the subject typically do not use discounted
cash flow analyses;
2) because the subject is a stabilized property, a discounted cash flow
model would simply be inflating revenues and expenses at a fixed rate
and then canceling out the inflation estimate using an appropriate
discount rate. In other words, if properly applied, a discounted cash
flow analysis would arrive at the same value estimate as applying an
overall capitalization rate methodology.
Net income is calculated by subtracting a vacancy and credit allowance and all
fixed and operating expenses from the indicated gross income. The methods
utilized to estimate gross income, vacancy, expenses and an overall
capitalization rate are discussed in detail in the following paragraphs.
PROJECTION PERIOD
In our analysis of the subject's net income, we have utilized a projection
period of 12 months (4/96 to 3/97) which reflects a stabilized cash flow and
occupancy level. Based on this premise, the owner of the property will enjoy the
net proceeds of sale (reversion) at March, 1996 based on the projected April,
1996 to March, 1997 net income. The theory is that the investor purchasing the
property in March, 1996 would be more interested in the anticipated net income
in their first year of ownership than they would be in the previous year's
income prior to their ownership.
POTENTIAL GROSS ANNUAL INCOME
In estimating the potential gross annual income for the subject property over
the projection period, we have reviewed the current rent roll and previously
prepared our own survey of the properties considered to be most competitive and
comparable to the subject. This survey was presented in the Market Analysis
section of the full narrative appraisal dated July, 1995.
The operators of the subject property have achieved the rental census and
occupancy as summarized on the following page. The March, 1996 census reveals an
occupancy of 93.6% or 117/125 total units. This occupancy represents a slight
decrease from the mid to high 90%'s over the past 9 months.
464
VALLEY VIEW LODGE
SUMMARY OF SUBJECT RENT CENSUS AT 3/20/96
Private-1BR Private-Studio
(Units) (Units) Total
----------- -------------- -----
Number Units/Beds - Rented 11 106 117 (93.6%)
Rent Range $1,950-$2,100 $1,425-$1,825 $1,062-$2,100
Rent Average $1,970 $1,715 $1,739
Potential Total Rent-Rented $260,100 $2,218,600 $2,441,700
Number Units/Beds - Vacant (1) - 8 8 (6.4%)
Rent Range - $1,500-$1,825 $1,500-$1,825
Rent Average - $1,753 $1,753
Total Potential Rent-Vacant - $168,300 $168,300
Total Units/Beds 11 114 125 (100%)
Gross Potential Rent-Total $260,100 $2,349,900 $2,568,000
Per Unit/Bed $1,970 $1,718 $1,672
NOTES:
(1) Vacant units include:
Private Studio - Units 132, 170, 204, 205, 216, 222, 247, 250 (8 Units)
(2) Subject has no SSI residents.
465
Our review of the subject's rent roll revealed a relatively variable range of
rentals with several units having different rents. Discussions with the current
operator noted that individual monthly rents were a function of the unit
location, when the resident entered the subject and negotiation of the rent when
entered.
Overall and based upon mid 1995 market rate surveys, the subject's private room
rents (with and without the assisted living surcharge) are still at March, 1996,
generally within the range of the most comparable properties and near the
average (for both congregate and assisted living) of all facilities. Congregate
semiprivate living is generally not offered at other projects (with the
exception of Montego Heights Lodge, an ARV sister project). The subject's
average assisted living rents are also near the average for semiprivate and
private rooms. Because the subject offers a la carte pricing for its assisted
living amenities, residents can effectively choose their rent level (the
assisted living surcharge) as their living assistance needs vary or change. The
subject's average rents have increased about 5.9% from July, 1995 to March, 1996
(partially due to no semiprivate residents).
In our opinion, the most compelling evidence that the subject's rents are market
rents (and not above or below) is the subject's recent occupancy history and its
current occupancy, which is a fairly stable 94% at the current rents.
Therefore, given the above discussion, in our opinion, the subject's current
monthly average rents represent market rental rates and are used in our pro
forma estimate of income and expenses shown on a following page. All subject
rents (the average per unit type noted above) are forecast to increase 1.5%
during the 4/96 to 3/97 projection period, reflecting market conditions and the
subject's history. The 1.5% estimate in the next 12 months represents an average
3% rent increase applied at each resident's move-in anniversary date which are
assumed to occur evenly over the next 12 months. Our cash flow estimates are
shown gross or before a vacancy and collection factor.
The above rents are base rents for unlicensed congregate living services. This
rent does not include assisted living surcharges which are billed to residents
on an a la carte basis. Currently, the subject charges for these extra amenities
on a case by case basis with an approximate average of $590 extra per month for
medication monitoring, help with bathing and doing personal laundry. Currently,
about 61 residents pay for living assistance at an approximate average of $586
extra rent per month. Our cash flow projections for the subject estimate a
stabilized 52% gross utilization (65 beds gross) of assisted living amenities at
stabilization, calculating to the following gross assisted living surcharge
income:
Avg. Surcharge/ Resident Projected
Period Month/Bed Utilization Annual Income
------ --------------- ----------- -------------
@ 3/96 $586 61 (net) -
@ 4/96 to 3/97 $600 65 (gross) $468,000
466
In addition to total potential gross room revenue, we have included
miscellaneous income at 1.25% of effective gross income reflecting historical
receipts for guest meals, processing fees, extra services to residents, and
beauty shop income.
VACANCY AND COLLECTION LOSSES
Our cash flow projections deduct a total vacancy and collection loss in the
stabilized projection period as follows:
Average Average
Occupancy Vacancy
--------- -------
As Is @ 3/96 93.6% 6.4%
4/96 to 3/97 (Stabilization) 95.0% 5.0%
The above estimate of stabilized occupancy/vacancy is meant to incorporate
118.75 residents or an occupancy/vacancy of 95.0% (118.75/125). This conclusion
is consistent with the subject's recent occupancy trends, occupancies at similar
projects and operator projections.
The typical and average market vacancy factor reflects the subject's occupancy
history and current occupancy, discussions with the current operator, the
subject's competitive position and local market conditions as reflected in the
occupancies at similar projects in the market. The subject's market position
(higher rents in a more affluent market) and large number of assisted living
beds mitigate against a lower stabilized vacancy estimate (or higher occupancy).
OPERATING EXPENSES
In determining pro forma estimates of operating expenses, we have primarily
relied on the specific expense histories (1994, 1995, and two months of 1996)
and budget (1996) of the subject property as summarized on the following page
and the experience at comparable projects. The expenses enumerated below would
be those of a typical operator at the subject. We have summarized our expense
estimates as follows:
Real Estate Taxes - Real estate taxes are estimated to reflect an assumed sale
of the subject property and a reassessment at current market rates at March,
1996 ($10,875,000 times the tax rate of 1.0626% plus approximately $13,643 in
direct assessments). This real estate tax expense reflects taxes that would have
to be incurred by a buyer of the subject wherein the subject would be reassessed
to market value;
Insurance - estimated at 1.0% of effective gross income, reflecting typical
charges for liability/fire insurance, historical costs incurred, and the fixed
nature of this expense;
Management - estimated at 5% of effective gross income reflecting the current
typical or average industry charge which would be appropriate for the subject
considering its average complexity of operation;
467
VALLEY VIEW LODGE
HISTORICAL INCOME AND EXPENSE
Historical
--------------------------------------------------------------- Operator
2 Months Goal
Year Ending Year Ending Ending 1996 Budget
Revenues 12/94 12/95 2/29/96 Annualized 1996
- -------- ------------ ----------- -------- ---------- --------
Rental Income $2,456,025 $2,493,036 $406,861 $2,481,852 $2,656,586
Assisted Living Income 321,567 368,891 71,718 437,480 385,600
Non-Operating Revenue $ 35,709 $ 28,633 $ 5,240 $ 31,964 $ 34,899
---------- ---------- -------- ---------- ----------
Total Revenues $2,813,301 $2,890,560 $483,819 $2,951,296 $3,077,085
Expenses (1)
Real Estate Taxes $ 82,430 $ 83,638 $ 13,827 $ 84,345 $ 109,702
Insurance 22,500 28,831 5,163 31,494 31,901
G&A 57,592 60,358 9,861 60,152 61,350
Utilities 166,783 155,317 31,088 189,637 155,850
Payroll/Benefits 798,708 810,766 130,659 797,020 865,084
Maintenance 68,679 76,051 11,921 72,718 74,580
Activities 11,965 13,845 1,702 10,382 12,342
Marketing 16,848 19,209 2,212 13,493 18,780
Laundry & Linen 10,195 13,467 2,591 15,805 13,294
Dietary 183,906 177,841 27,407 167,183 126,043
Supplies 36,469 32,670 7,354 44,859 30,492
---------- ---------- -------- ---------- ----------
Total Operating Expense $1,456,075 $1,471,993 $243,785 $1,487,088 $1,549,918
(51.8%) (50.9%) (50.4%) (50.4%) (50.4%)
Net Operating Income $1,357,226 $1,418,567 $240,034 $1,464,208 $1,527,167
========== ========== ======== ========== ==========
NOTES:
(1) Does not include management fee or replacement reserves.
(2) Detail not available.
468
General and Administrative - estimated at 9% of effective gross income;
representing additional on site costs incurred to manage the subject including
salaries and benefits for the administrator and assistants and all miscellaneous
costs to operate the subject (office supplies, miscellaneous rentals);
Utilities - estimated at 5.5% of effective gross income, which is consistent
with historical costs incurred. Includes all common area and unit utility costs
(telephone, electric, gas, water, sewer);
Maintenance - estimated at 3% of effective gross income, including all
maintenance/security salary and supplies (including land maintenance and pest
control), derived from historical expenses;
Activities/Transportation - all social/recreational service costs including
salaries and supplies (including van service) are estimated at 2% of effective
gross income;
Marketing - all advertising, marketing and sales expenses are estimated at 2% of
effective gross income. This allocation is higher than typical but reflects the
subject's high turnover (relative to all senior properties) and large number of
units, requiring a more intensive marketing effort;
Housekeeping - estimated at 4.5% of effective gross income to include salaries,
supplies, for both an internal laundry and linen service and housekeeping and
consistent with historical costs incurred;
Dietary - estimated at anticipated dietary costs to a typical operator or $8.50
per day per resident (118.75 occupied beds x $8.50/day x 365 days). This
estimate includes all dietary related salaries and benefits and cost of food.
These estimates are within current industry averages and historical costs
incurred;
Personal Care - estimated at 8.0% of effective gross income to include all
salaries and supplies necessary to provide assisted living services to
approximately 52% of the residents (about $10.09 per resident day for 65
residents);
Replacement Reserve - estimated at 15% of the estimated furniture and equipment
cost new ($422,500 or $2,500 per unit) to include the annual reserve necessary
to replace furniture and equipment and other short lived capital items
(carpeting, painting). The stabilized estimate of $63,375 is equal to 2.1% of
the estimate effective gross income.
As shown, total stabilized expenses (not including management fees and reserves)
to a typical operator accumulate to 51.6% of effective gross income or $13,011
per occupied unit (118.75 units). A comparison to similar congregate/assisted
living properties before management fees and reserves is shown on the following
page.
As illustrated, the projected expenses for the subject are well above the
average of the expense histories of the projects listed by about 30%. The
subject will always have lower expenses on a percentage of income basis because
of its higher revenue basis and higher on a per unit basis due to its higher
quality/rents, higher assisted living utilization and location within a market
area of higher operating costs/rents. Our projections consider the experience at
the comparable properties and historical costs incurred.
469
VALLEY VIEW LODGE
OPERATING EXPENSE COMPARABLES
National Operator #1 - National Operator #2 - Subject
13 Projects (1995) 12 Projects (1995) Projected
---------------------- ---------------------- ---------------------
% of Per % of Per % of Per
Expense Category Income Unit Income Unit Income Unit
- ---------------- ------ ---- ------ ---- ------ ----
Property Taxes 4.4% $ 838 5.2% $ 792 4.3% $ 1,088
Insurance 1.1% 249 1.4% 208 1.0% 252
Administration 7.2% 1,454 10.7% 1,632 9.0% 2,268
Activities 5.3% 276 (2) (2) 2.0% 504
Marketing 2.3% 276 3.6% 543 2.0% 504
Plant Operations 5.0% 1,788 10.8% 1,640 8.5% 2,142
Housekeeping 3.2% 563 3.9% 587 4.5% 1,134
Dietary 14.0% 3,128 20.2% 3,073 12.3% 3,103
Assisted Living 1.8% 791 10.3% 1,572 8.0% 2,016
----- ------ ----- ------- ----- -------
Total Expenses (1) 51.3% $9,963 66.1% $10,047 51.6% $13,011
===== ====== ===== ======= ===== =======
1st Quartile Median 4th Quartile
------------------ -------------------- -------------------
% of Per % of Per % of Per
Income Unit Income Unit Income Unit
------ ---- ------ ---- ------ ----
1995 National ASHA Survey
Congregate 57.3% $7,040 61.2% $ 9,031 63.2% $11,245
Assisted Living 69.7% $9,999 65.4% $12,320 64.7% $15,033
NOTES:
(1) Before management fees and replacement reserves.
(2) Included in other functional categories.
(3) Caution should be used in analyzing the above data as functional
categorization of expenses is not always consistent between
properties/operators.
470
On the previous page, we have also illustrated average annual operating costs
per unit as accumulated in a recent national survey of operating expenses for
various types of senior facilities including assisted living. The subject falls
within the 75th percentile of indicated operating expenses for a combination
congregate/assisted living project.
Finally, a reconciliation of our adjusted period one (4/96 to 3/97) projected
expenses to 1995 actual expenses and 1996 budgeted expenses illustrates the
following:
Actual Total Expenses (1995) $ 1,471,993
===========
Operator Budget (1996) $ 1,549,918
===========
Projected Total Expenses Per SLVS (4/96 to 3/97) $ 1,741,700
Less: Management Fees $( 149,650)
Less: Replacement Reserves $( 46,875)
-----------
Adjusted Projected Total Expenses (4/96 to 3/97) $ 1,545,175
===========
Difference
(over 1995 actual, reflects higher assisted living utilization) +5.0%
(under 1996 budget) -0.3%
CAPITALIZATION PROCESS
Because Valley View Lodge is being appraised as of March, 1996 wherein it has
reached a stabilized cash flow, we have utilized a procedure where the
stabilized net income for the period of April, 1996 to March, 1997 is
capitalized at an overall capitalization rate of 11.5% to get an indicated total
property value at March, 1996. This calculation is shown on a following page.
We have been involved in the analysis and valuation of numerous retirement
facilities around California which have generally exhibited overall
capitalization rates ranging from 10% to 12%. These are illustrated in sales of
comparable facilities as shown on a following page.
In April, 1995, Senior Living Valuation Services, Inc. conducted the second
annual survey of close to 300 participants in the senior housing industry
regarding their investment criteria or perception of criteria used in evaluating
different types of senior housing properties. The investment criteria survey
polled included capitalization rates, discount rates and returns on equity. A
copy of this survey is provided in the Addenda of this report. The survey
indicated a capitalization rate range of 9% to 16% and an average of 12.1% for
assisted living facilities. Though the survey is not definitive, it does provide
some market evidence of the investment criteria being used (or perceived to be
used) by industry professionals.
471
VALLEY VIEW LODGE
COMPARABLE IMPROVED ACLF/ALF SALES
Indicated
Age/No. Sale Price/ Occupancy Overall
No. Name/Location of Units Date Sale Price Unit Price/SF at Sale Rate
- --- ------------- --------- ---- ---------- ------ -------- --------- -------
1. The Chanate 1984/ 2/96 $ 7,400,000 $61,667 $61.67 85% 11.4% (1)
3250 Chanate Road 120 (Cash
Santa Rosa, CA Equivalent)
2. Carlton Plaza 1993/ 12/95 $8,228,858 $64,288 $78.82 70% 11.0% (1)
3800 Walnut 128
Fremont, CA
3. Vinwood Lodge 1974/ 12/95 $4,100,000 $55,405 $70.09 92% 10.3%
35 Fenton 74
Livermore, CA
4. Carrington Pointe 1989/ 12/95 $11,411,000 $65,580 $72.03 95% 10.7%
1715 East Alluvial 174
Fresno, CA
5. Villa at Palm Desert 1989/ 11/95 $6,600,000 $85,714 $114.29 95% 10.4%
44-300 San Pasqual 77
Palm Desert, CA
6. Oak Tree Villa 1988/ 6/95 $11,900,000 $58,911 $69.19 72% 12.3% (1)
100 Lockwood Lane 202
Scotts Valley, CA
(1) estimated at projected full occupancy
472
Another method of estimating a capitalization rate is the band of investment
weighted average technique. If the available mortgage terms are known, the debt
service or mortgage constant can be calculated, and if the equity dividend rate
required to attract equity capital is known or can be estimated, the overall
rate applicable in direct capitalization can be computed. Available mortgage
terms are 70% of value at 8.5% interest with an amortization term of 25 years
reflects market terms based on our experience of specific financing transactions
and recent national surveys of financing parameters for senior housing
properties. Based on these terms, the mortgage constant is .0966. The equity
dividend rate required to attract equity capital for properties similar to the
subject is approximately 16% (per our investment survey). The indicated overall
capitalization rate using this approach is:
Band of Investment
------------------
Portion Weighted
of Value Rate Contribution
-------- ---- ------------
Mortgage 0.70 x .0966 .0676
Equity 0.30 x .16 .0480
-----
1.0 x Overall Rate .1156
OAR 11.56%
These sources of capitalization rates can be summarized as follows:
Indicated
Cap Rates
---------
6 Detailed Sales 11.0% (Average)
SLVS Investment Survey 12.1% (Assisted Living)
Band of Investment 11.6%
Based upon the current characteristics of the subject, namely, its overall
average cash flow risk as reflected in its stable occupancy and cash flow and
considering the subject's market position (higher rents, full assisted living
licensing, older physical plant and more monolithic unit mix), which is derived
from the subject's established niche as upper tier, above average quality
assisted living project in the area, and considering the affluent local market
and overall current market conditions, we have concluded that 11.5% or toward
the middle portion of the approximate range is an appropriate capitalization
rate for the subject property.
SUMMARY
Our estimate of value by the Income Approach is summarized on the following page
and produces an indicated value for the subject property as is, at March 29,
1996 of $10,880,948, rounded to $10,875,000 ($87,000/unit).
473
VALLEY VIEW LODGE
PRO FORMA INCOME/EXPENSE & CAPITALIZATION
Projected
Stabilized
(4/96-3/97)
-----------
Average Occupancy (All Beds) 95.0% (118.75 Beds)
Average Net Rental (All Beds) $ 1,766
Potential Gross Rent Income -
1BR Private - 11 Units at $1,970/Mo. Avg. $ 263,941
Studio Private - 114 Units at $1,718/Mo. Avg. $ 2,385,477
-----------
Potential Gross Rent Income $ 2,649,418
Plus: Assisted Living Surcharges (65 Beds at $600/Mo.) $ 468,000
Plus: Miscellaneous Income (1.25% of PGRI) $ 33,118
-----------
Potential Gross Income $ 3,150,536
Less: Stabilized Vacancy & Collection Losses - 5% ($ 157,527)
-----------
Effective Gross Income $ 2,993,009
Expenses - % of EGI
--------
Real Estate Taxes - $ 129,201
Insurance 1.0% 29,930
Management 5.0% 149,650
G&A 9.0% 269,371
Utilities 5.5% 164,615
Maintenance 3.0% 89,790
Activity & Trans. 2.0% 59,860
Marketing 2.0% 59,860
Housekeeping 4.5% 134,685
Dietary $8.50/PRD 368,422
Personal Care 8.0% 239,441
Replacement Reserves - $ 46,875
-----------
Total Expenses $ 1,741,700
(58.2%)
Stabilized Net Operating Income $ 1,251,309
Overall Capitalization Rate .115
-----------
Capitalized Value $10,880,948
===========
Called $10,875,000
Per Unit $ 87,000
474
VALUATION OF FAVORABLE FINANCING
The preceding valuation assumes conventional market financing. However, the
subject includes favorable financing in the form of a deed of trust issued in
1976 ($3,286,200, 40 year note). The current balance due to the note is
approximately $2,789,444. The present value of this financing must be added to
our valuation estimates described above because a third party buyer of the
subject should be willing to pay for the debt service savings accruing from this
assumable note.
Our estimate of the effect of the favorable financing is illustrated on the
following page. These assumptions are as follows:
Note Principal @ 3/96: $2,789,444
Interest Rate: 8.25%, Fixed
Note Term: 11/2016, Assumable
Conventional Financing
- Interest Rate: 8.5%, Fixed
To calculate the value of this favorable financing, we have extensively surveyed
leading lenders (REITS, conventional banks, pension funds, FANNIE MAE lenders)
in the senior housing industry to determine a conventional financing interest
rate. The consensus of these lenders is that although conventional taxable
financing of any projects and senior projects in particular is still difficult
in early 1996, that an average taxable interest rate of 8.5% to 9.0% would not
be considered unreasonable given the specialized nature of a senior housing
project. Therefore, considering recent downward trends in interest rates for
senior housing properties, we have estimated a current market interest rate of
8.5%.
Our calculations estimate the present value of the remaining monthly interest
payment on net funds to be received from the bond financing discounted by the
market interest rate less an approximation of the incremental costs to be
incurred as part of the HUD financing compared to conventional financing (annual
audits) plus the present value of current replacement reserve balances. The
total differential or contribution to value from the favorable financing is
estimated at $41,661, rounded to $50,000 as calculated on the following page.
475
VALLEY VIEW LODGE
VALUATION OF FAVORABLE FINANCING
Present value of financing at market rate (8.5%): $2,789,444
Present value of financing at below market rate (8.25%):
Present value of $23,468 (1) monthly payment
for 20.6 remaining years at 8.5% market rate $2,729,724
----------
Difference in present value of financing $ 59,720
Less: $6,000/year annual HUD audit charges (through 2016)
discounted to 4/96 at 8.5% ($ 54,025)
Plus: Present value of replacement reserve balance at 11/96
($100,104) discounted to 4/96 at 5.0% (8.5% market interest
rate less 3.5% estimated interest earned on escrow funds) $ 35,966
----------
Net Difference in present value of financing $ 41,661
==========
Called $ 50,000
(1) Monthly payment for $3,286,200, 40 years, 8.25% interest rate plus
reserve obligations.
476
CERTIFICATION
1. We have no present or contemplated future interest in the real estate
that is the subject of this restricted appraisal report.
2. We have no personal interest or bias with respect to the subject matter
of this restricted appraisal report or the parties involved.
3. To the best of our knowledge and belief, the statements of fact
contained in this restricted appraisal report, upon which the analyses,
opinions and conclusions expressed herein are based, are true and
correct.
4. This restricted appraisal report sets forth all of the limiting
conditions (imposed by the terms of my assignment or by the
undersigned) affecting the analyses, opinions and conclusions contained
in this report.
5. This restricted appraisal report has been made in conformity with and
is subject to the requirements of the Code of Professional Ethics and
Standards of Professional Conduct of the Appraisal Institute and is
prepared in accordance with the requirements of the Office of the
Comptroller of the Currency and the Uniform Standards of Professional
Appraisal Practice.
6. Our compensation is not contingent on an action or event resulting from
the analysis, opinions, conclusions or the use of this report.
7. The value estimates set forth in this report are not predetermined or
based on any requested minimum valuation, a specific valuation or the
approval of a loan.
8. The use of this report is subject to the requirements of the Appraisal
Institute relating to review by its duly authorized representatives.
9. Wilma Koch, Appraisal Associate provided significant professional
assistance to the persons signing this report.
10. As of the date of this report, Michael G. Boehm, MAI has completed the
requirements of the continuing education program of the Appraisal
Institute.
11. A personal inspection of the property was made by Michael G. Boehm, MAI
on May 9, 1995 and by Wilma Koch, Appraisal Associate on March 29,
1996.
477
12. The concluded total going concern market value estimate of the fee
simple interest of Valley View Lodge, including the value of favorable
financing, is as follows:
MARKET VALUE "AS IS" (MARCH 29, 1996):
TEN MILLION NINE HUNDRED TWENTY FIVE THOUSAND ($10,925,000) DOLLARS
SENIOR LIVING VALUATION SERVICES, INC.
_____________________________
Michael G. Boehm, MAI
478
A D D E N D A
479
IMPROVED SALE COMPARABLE PHOTOGRAPHS
No. 1 - Canyon Hills Club
525 S. Anaheim Hills Road
Anaheim
No. 2 - Brea Residential Manor
285 W. Central
Brea
480
IMPROVED SALE COMPARABLE PHOTOGRAPHS
No. 3 - Whittier Retirement Villa
8101 S. Painter
Whittier
No. 4 - Gold Star Manor
411 E. Commonwealth
Fullerton
481
IMPROVED SALE COMPARABLE PHOTOGRAPHS
No. 5 - Villa San Marcos
1550 Security Place
San Marcos
No. 6 - Chula Vista Inn
171 4th Avenue
Chula Vista
482
VACANT LAND SALE COMPARABLE NO. 4
Location: 9753 Church Street
Rancho Cucamonga, CA
Assessor's Parcel No.: 1077-332-26 (San Bernardino County)
Sale Date: 1/24/92
Document No.: 027852
Sale Price: $1,050,000
Size: 155,074 Square Feet (3.56 Acres)
Sale Price/SF: $6.77
Topography: Level
Shape: Rectangular
Proposed Use/Density: Unknown; 8-14 Units/Acre Allowed
Sale Price Per Unit: $75,000-$131,250/Unit
Zoning: MR (Medium Density Residential)
Grantor: M/M Robert & Barbara Mills, et al
Grantee: Archibald Garden Villas
Terms: All Cash to Seller
Comments: In lesser quality residential area; owner
holding for future development.
483
VACANT LAND SALE COMPARABLE NO. 1
Location: 9000 Block Foothill Boulevard, West of
Carnelian
Rancho Cucamonga, CA
Assessor's Parcel No.: 207-101-017 (San Bernardino County)
Sale Date: Listing
Document No.: N/A
List Price: $950,000
Size: 165,500 Square Feet (3.8 Acres)
List Price/SF: $5.74
Topography: Flat to Slightly Sloping
Shape: Irregular
Proposed Use/Density: Unknown; Probable Commercial/Office
List Price Per Unit: N/A
Zoning: FSP (Foothill Specific Plan)
Grantor: Daniel Miksell
Grantee: N/A
Terms: N/A
Comments: On major thoroughfare; adjacent to
railroad tracks, a negative site
influence.
484
VACANT LAND SALE COMPARABLE NO. 2
Location: North of Alta Vista Street, West of North
Rose Drive Placentia, CA
Assessor's Parcel No.: 340-021-71 (Orange County)
Sale Date: 7/6/94
Document No.: 442192
Sale Price: $4,592,500
Per Sq. Ft.: $10.35
Per Unit: $72,897
Size: 443,746 Square Feet (10.187 Acres)
Topography: Level
Shape: Irregular
Proposed Use/Density: 63 unit townhome subdivision; 6.2
units/acre
Zoning: RPC
Grantor: Chapman - Wickett Co.
Grantee: AM Homes, Ltd.
Terms: Cash to Seller
Comments: Located near the Alta Vista Golf Course;
average quality residential area.
485
VACANT LAND SALE COMPARABLE NO. 4
Location: NWC Plaza Bonita and Bonita Road
Chula Vista, CA
Assessor's Parcel No.: 570-170-53 (San Diego County)
Sale Date: 2/12/92
Document No.: 92-076593
Sale Price: $855,000
Size: 60,984 Square Feet (1.40 Acres)
Sale Price/SF: $14.02
Topography: Flat
Shape: Irregular
Proposed Use/Density: Probable retail
Sale Price Per Unit: N/A
Zoning: C (Commercial)
Grantor: Not Available
Grantee: Jamie Bonilla and Jose Gonzales, et al
Terms: All Cash to Seller
Comments: This site is a moderately busy location
on Bonita Road; one block from freeway
access.
486
RETIREMENT INN - DALY CITY
CENSUS OF MARKET AREA ACLF/AL FACILITIES
(CONTINUED)
Congregate
(ACLF) Units Assisted Living (AL) Units
Age/ ----------------- --------------------------
Miles Total Monthly Monthly
From Units/ Unit Size- Rental - Rental/ Rental - Semi- Reported
No. Name/Location Subject AL Beds Type S.F. Private S.F. Private Private % SSI Occupancy
- --- ------------- ------- ------- ---- ---- ------- ------- ------- ------- ----- ---------
8. Hillsdale Manor 1986/ 147/147 Studio 250 $1,700- $6.80- +$ 65- N/A 0% 100%
2883 South Norfolk 12 $2,040 $8.16 $1,100
San Mateo Suite 484 $2,500- $5.17-
$2,955 $6.10
9. Glenwood Inn 1990/ 80/50 Suite 530 $1,795 $3.39 +$ 250- N/A 0% 98%
555 Glenwood 20 Del. 1BR 720 $2,395- $3.33- $1,000
Menlo Park $2,895 $4.02
2BR 940 $2,895- $3.08-
$3,300 $3.51
10. Palo Alto Commons 1990/ 121/121 Studio 400 Not Available $2,000- N/A 0% 94%
4075 El Camino Way 21 $2,300
Palo Alto 1BR 500 $2,150-
$2,500
S. Retirement Inn of Daly City 1975/ 95/108 Studio 215- $1,200- $3.78- +$ 150- +$ 150- 18% 93%
501 King - 395 $1,495 $5.58 $1,000 $1,000
Daly City SP $ 775
487
COMPARABLE MARKET AREA SENIOR HOUSING FACILITIES
No. 11 - Redwood Villa
1981 Montecito Avenue
Mountain View
488
IMPROVED SALE COMPARABLE PHOTOGRAPHS
No. 1 - Canyon Hills Club
525 S. Anaheim Hills Road
Anaheim
No. 2 - Brea Residential Manor
285 W. Central
Brea
489
IMPROVED SALE COMPARABLE PHOTOGRAPHS
No. 3 - Whittier Retirement Villa
8101 S. Painter
Whittier
No. 4 - Gold Star Manor
411 E. Commonwealth
Fullerton
490
IMPROVED SALE COMPARABLE PHOTOGRAPHS
No. 5 - Villa San Marcos
1550 Security Place
San Marcos
No. 6 - Chula Vista Inn
171 4th Avenue
Chula Vista
491
VACANT LAND SALE COMPARABLE NO. 1
Location: West side of College Drive, 500 Feet South of Sharp Park Road
Pacifica, CA
Assessor's Parcel No.: 017-470-040 (San Mateo County)
Sale Date: Listing
Document No.: N/A
List Price: $1,100,000
Size: 117,621 Square Feet (2.7 Net Acres)
List Price/SF: $9.35
Topography: Flat to Sloping
Shape: Irregular
Proposed Use/Density: Unknown; Probable Residential
List Price/Unit: N/A
Zoning: PD
Grantor: Manor Healthcare Corporation
Grantee: N/A
Terms: N/A
Comments:
492
VACANT LAND SALE COMPARABLE NO. 6
Location: Francisco and Lakeside
Pacifica, CA
Assessor's Parcel No.: 016-400-080 & 100 (San Mateo County)
Sale Date: 9/17/93
Document No.: 158133
Sale Price: $335,000
Size: 11,945 Square Feet (0.27 Acres)
Sale Price/SF: $28.04
Topography: Level
Shape: Irregular
Proposed Use: 14 Townhomes; 51.8 Units/Acre
Zoning: PD
Grantor: Pacific Cooperative Housing
Grantee: Peninsula Habitat/Humanity Inc.
Terms: All Cash to Seller
Comments:
493
WESTERN US ACLF/AL SENIOR HOUSING SALES SUMMARY
LAST 24 MONTHS
Gross Expense Sale
Inc. Ratio Price
No. Facility Name Location Age Units $/Unit/Mo (%) Date (000) $/Unit OAR $/SF GIM
--- ------------- -------- --- ----- --------- --- ---- ----- ------ --- ---- ---
1. The Highlander Seattle, WA 1979 121 $1,066 55.0% 6/93 $ 5,200 $41,322 13.4% $ 52.73 3.36
2. Almond Avenue Orangevale, CA 1987 39 $1,598 65.2% 7/93 $ 2,100 $53,864 12.4% $ 57.00 2.81
3. Summerfield Tigard, OR 1980 155 $1,100 60.0% 8/93 $ 6,550 $42,532 13.2% $ 80.84 3.20
4. Renton Villa Renton, WA 1983 78 $1,366 66.7% 8/93 $ 3,000 $38,462 14.2% $ 46.51 2.35
5. Sherwood Villa Tacoma, WA 1981 98 $1,328 69.0% 8/93 $ 2,800 $28,571 17.3% $ 45.67 1.79
6. Celeste Villa Modesto, CA 1975 81 $1,080 72.5% 10/93 $ 1,900 $23,457 13.7% $ 32.75 1.81
7. Springs of Napa Napa, CA 1986 102 $1,332 55.0% 11/93 $ 6,300 $61,765 11.7% $ 69.23 3.86
8. Summerhill Puyallup, WA 1987 96 $1,241 59.4% 2/94 $ 5,500 $57,292 10.5% $ 62.74 4.40
9. Chula Vista Inn Chula Vista, CA 1975 112 $1,034 75.0% 6/94 $ 2,675 $23,884 13.0% $ 41.10 1.92
10. Villa San Marcos San Marcos, CA 1986 100 $1,191 65.0% 6/94 $ 3,951 $39,510 12.7% $ 73.17 2.76
11. Camlu Phoenix, AZ 1979 88 $1,153 65.0% 6/94 $ 3,800 $43,182 11.2% $ 83.66 3.12
12. Gold Star Manor Fullerton, CA 1985 80 $1,146 70.0% 6/94 $ 2,880 $36,000 11.5% $ 128.34 2.62
13. Hacienda de Monterey Palm Desert, CA 1989 180 $1,813 65.8% 7/94 $ 7,250 $40,278 18.5% $ 41.36 1.85
14. Park Ridge Vallejo, CA 1991 93 $1,632 60.0% 7/94 $ 5,785 $62,204 11.3% $ 68.10 3.54
15. Carson Oaks Stockton, CA 1989 76 $1,462 60.0% 7/94 $ 4,200 $55,263 12.4% $ 66.95 3.23
16. Villa Ocotillo Scottsdale, AZ 1973 102 $1,242 60.0% 9/94 $ 3,500 $34,314 14.9% $ 43.34 2.30
17. Lomita Lodge Ojai, CA 1970 26 $1,999 75.0% 12/94 $ 1,350 $51,923 12.2% $ 135.00 2.06
18. Brea Residential Brea, CA 1990 98 $1,377 67.0% 1/95 $ 4,800 $48,980 11.1% $ 84.24 2.96
19. Whittier Retirement Whittier, CA 1973 72 $1,187 67.0% 1/95 $ 2,875 $39,937 11.8% $ 75.16 2.80
20. Canyon Hills Club Anaheim, CA 1989 212 $1,661 67.1% 2/95 $13,450 $63,443 10.3% $ 65.92 3.18
21. Casa Sandoval Hayward, CA 1989 238 $1,346 65.0% 2/95 $15,000 $63,025 9.0% $ 69.23 3.90
22. Valley Crest Apple Valley, CA 1985 37 $1,600 65.0% 2/95 $ 2,200 $59,459 11.3% $ 118.71 3.10
23. Amaryllis Court Anaheim, CA 1969 33 $1,391 75.0% 3/95 $ 1,150 $34,848 11.0% $ 71.72 2.09
24. Fulton Villa Stockton, CA 1973 76 $ 763 72.1% 3/95 $ 1,450 $19,079 11.5% $ 25.29 2.08
25. Oak Tree Villa Scotts Valley, CA 1988 202 $1,399 56.8% 6/95 $11,900 $58,911 12.3% $ 69.18 3.51
Low 1969 26 $ 763 55.0% $ 1,150 $19,079 9.0% $ 32.75 1.79
High 1991 238 $1,999 75.0% $15,000 $63,443 18.5% $ 135.00 4.40
Low (minus 2 lowest) 1973 37 $1,066 56.8% $ 1,450 $23,884 10.5% $ 41.36 1.85
High (minus 2 highest) 1989 202 $1,661 72.5% $11,900 $62,204 14.9% $ 118.71 3.86
Average: 1982 104 $1,340 65.3% $ 4,863 $44,860 12.5% $ 68.72 2.82
494
ARVP II
SUMMARY OF VALUATIONS
---------------------
7/95 Values 3/96 Values % Increase
----------- ----------- ----------
Montego Heights Lodge $ 8,825,000 $ 8,975,000 +1.7%
Valley View Lodge $10,375,000 $10,925,000 +5.3%
Retirement Inn - Daly City $ 3,025,000 $ 3,475,000 +14.9%
Retirement Inn - Fullerton $ 2,350,000 $ 2,425,000 +3.2%
----------- ----------- ------
Totals $24,575,000 $25,800,000 +5.0%
=========== =========== ======
495
VALLEY VIEW LODGE
CENSUS OF MARKET AREA ACLF/AL FACILITIES
Congregate
(ACLF) Units
Age/ --------------------
Miles Total Monthly
From Units/ Unit Size- Rental - Rental/
No. Name/Location Subject AL Beds Type S.F. Private S.F.
- --- ------------- ------- ------- ---- ---- ------- -------
1. Byron Park 1991/ 187/19 Studio 431 $1,575 $3.65
1700 Tice Valley Blvd. 0.4 1BR 614-834 $1,850- $3.00-
Walnut Creek $2,500 $3.01
2BR 877-1316 $2,600- $2.51-
$3,300 $2.96
2. Eden Villa 7-95/ 36/72 Studio 300 (est.) Not Available
2015 Mt. Diablo Boulevard 3.5
Walnut Creek
3. Montego Heights Lodge 1978/ 169/192 Studio 296-391 $1,100- $3.58-
1400 Montego 2.4 $1,400 $3.72
Walnut Creek 1BR 687 $1,750 $2.55
SP $ 825-
$ 850
4. Kensington Place 1988/ 176/44 1BR 450-560 $1,885 $3.37-
1580 Geary Blvd. 3.2 $4.19
Walnut Creek 2BR 760-820 $2,830 $3.45-
$3.72
5. Chateau Pleasant Hill 1985/ 112/38 Studio 400 $1,295- $3.24-
2770 Pleasant Hill Road 3.2 $1,700 $4.25
Pleasant Hill 1BR 500 $1,650- $3.30-
$2,000 $4.00
6. Family Affair Ret. 1975/ 120/160 Studio 450-500 $1,600 $3.20-
1081 Mohr Lane 4.5 $3.56
Concord
7. Moraga Royale 1987/ 95/182 Studio 525 Not Available
1600 Canyon Road 4.8
Moraga
Assisted Living (AL) Units
-----------------------------------------------
Monthly
Rental - Semi- Reported
No. Name/Location Private Private % SSI Occupancy
- --- ------------- ------- ------- ----- ---------
1. Byron Park $2,650- N/A 0% 72%
1700 Tice Valley Blvd. $3,095
Walnut Creek
2. Eden Villa $2,450- $1,650- 0% 3%
2015 Mt. Diablo Boulevard $2,750 $1,950 (Opened
Walnut Creek (shared bath) 7/95)
$2,650-
$2,950
(private bath)
3. Montego Heights Lodge +$150- +$150- 8% 87%
1400 Montego $1,000 $1,000
Walnut Creek
4. Kensington Place +$300- N/A 0% 100%
1580 Geary Blvd. $1,000
Walnut Creek
5. Chateau Pleasant Hill +$300-$500 N/A 0% 99%
2770 Pleasant Hill Road
Pleasant Hill
6. Family Affair Ret. $2,000- $1,800 0% WND
1081 Mohr Lane $2,200
Concord
7. Moraga Royale $1,600- $ 850 0% 98%
1600 Canyon Road $2,200
Moraga
496
VALLEY VIEW LODGE
CENSUS OF MARKET AREA ACLF/AL FACILITIES
(CONTINUED)
Congregate
(ACLF) Units
Age/ --------------------
Miles Total Monthly
From Units/ Unit Size- Rental - Rental/
No. Name/Location Subject AL Beds Type S.F. Private S.F.
- --- ------------- ------- ------- ---- ---- ------- -------
8. Diablo Lodge 1990/ 118/128 Studio 360 (avg.) $1,795- $4.99-
950 Diablo Road 5.5 $2,095 $5.82
Danville 1BR 490 $2,195- $4.48-
$2,495 $5.09
2BR 658 (avg.) $2,695- $4.10-
$2,895 $4.40
9. Concord Royale 1979/ 120/196 Studio 250 (est.) Not Available
4230 Clayton Road 6.5
Concord
10. San Ramon Lodge 1991/ 40/60 Studio 219-365 Not Available
18888 Bollinger Canyon Road 8.6
San Ramon
11. Villa San Ramon 1992/ 120/120 Studio 400 $1,650- $4.13-
9199 Fircrest Lane 8.5 $1,795 $4.49
San Ramon 1BR 500-552 $1,825- $2.85-
$1,995 $3.65
Lg. 1BR 700 $2,000- $2.86-
$2,300 $3.29
2BR 850-870 $2,595- $3.05-
$2,795 $3.21
S. Valley View Lodge 1976/- 125/96 Studio 390 $1,375 $3.53
1228 Rossmoor Parkway Alcove 533 $1,750 $3.28
Walnut Creek 1BR 571 $1,950 $3.42
SP $1,175
Assisted Living (AL) Units
-----------------------------------------------
Monthly
Rental - Semi- Reported
No. Name/Location Private Private % SSI Occupancy
- --- ------------- ------- ------- ----- ---------
8. Diablo Lodge +$300- N/A 0% 100%
950 Diablo Road $1,000
Danville
9. Concord Royale $1,200- $850- 25% 98%
4230 Clayton Road $1,800 $950
Concord
10. San Ramon Lodge $2,000- $1,500- 0% 86%
18888 Bollinger Canyon Road $2,500 $1,800
San Ramon
11. Villa San Ramon $2,750 N/A 99%
9199 Fircrest Lane
San Ramon $2,850 N/A
$3,600 $1,600
S. Valley View Lodge +$150- +$150- 0% 96%
1228 Rossmoor Parkway $1,000 $1,000
Walnut Creek
497
VALLEY VIEW LODGE
VACANT LAND SALES
Sale Price Proposed
Sale Size-SF Proposed ------------------ Density -
No. Location/APN Date Sale Price (Acres) Development SF Unit Zoning Units/Acre
- --- ------------ ---- ---------- ------- ----------- -- ---- ------ ----------
1. 1836 San Miguel Drive Listing $ 430,000 33,106 6 Townhomes $12.99 $71,667 C-O 7.9
Walnut Creek (0.76)
180-010-029
2. 123 Brodia Way 3/95 $ 720,000 49,658 Low Density $14.50 N/A R-4 N/A
Walnut Creek (1.14) Residential
140-170-006-5
3. Tice Creek Drive, 12/94 $1,781,500 185,130 2 Duplexes & $ 9.62 $71,260 PD-1829 5.9
NW of Golden Rain Road (4.25) 7 Triplexes
Walnut Creek
189-130-017-8
4. Tice Valley Boulevard, 12/94 $1,781,500 217,800 Nursing Home $ 8.18 N/A PD N/A
SW of Rossmoor Parkway (5.00)
Walnut Creek
189-130-019-4 (Portion)
S. 1228 Rossmoor Parkway - - 198,198 125 Senior - - PD 35.2
Walnut Creek (4.55) Housing Units
189-040-045 gross;
154,638
(3.55)
net
498
VALLEY VIEW LODGE
COMPARABLE IMPROVED SALES
Indicated
Age/No. Sale Price/ Sale Occupancy Overall
No. Name/Location of Units Date Sale Price Unit Price/SF @ Sale Rate
- --- ------------- -------- ---- ---------- ----- -------- ---------- -------
1. Oak Tree Villa 1988/ 6/95 $11,900,000 $58,911 $69.19 72% 12.3% (1)
100 Lockwood Lane 202
Scotts Valley, CA
2. El Camino Gardens 1984/ 5/95 $10,000,000 $34,965 $62.19 82% 11.2% (1)
2426 Garfield 286
Carmichael, CA
3. Casa Sandoval 1989/ 2/95 $15,000,000 $63,025 $69.23 81% 9.0% (1)
1200 Russell Way 238
Hayward, CA
4. Lomita Lodge 1970's/ 12/94 $1,350,000 $51,923 $135.00 81% 12.2% (1)
225 N. Lomita 26
Ojai, CA
5. Carson Oaks 1989/ 7/94 $4,200,000 $55,263 $66.95 95% 12.4%
6725 Inglewood Avenue 76
Stockton, CA
6. Park Ridge 1991/ 7/94 $5,785,000 $62,204 $68.10 55% 11.3% (1)
2261 Tuolumne 93
Vallejo, CA
(1) Estimated at 92% occupancy
499
VALLEY VIEW LODGE
COMPARATIVE RENT ANALYSIS
ACLF - CONGREGATE RENTS
Private - 1BR Private - Studio
---------------------------------- ----------------------------------
Comp. No. Monthly Rent Comp. No. Monthly Rent
--------- ------------ --------- ------------
1 $1,850-$2,500 1 $1,575
2 $2,195-$2,495 3* $1,100-$1,400
3* $1,750 5* $1,295-$1,700
4 $1,885 8 $1,795-$2,095
5* $1,650-$2,000 11 $1,650-$1,795
8 $2,195-$2,495
11 $1,825-$2,300
Range $1,650-$2,500 $1,100-$2,095
Average $2,063 $1,598
AL - ASSISTED LIVING RENTS
Private - 1BR Private (Studio) Semi-Private
------------------------------ ------------------------------ -----------------------------
Comp. No. Monthly Rent Comp. No. Monthly Rent Comp. No. Monthly Rent
--------- ------------ --------- ------------ --------- ------------
1 $3,300 1 $2,850 1 $2,150-$2,850
3 $2,200-$2,300 2 $2,450-$2,950 2 $1,650-$1,950
4 $2,185-$2,885 3* $1,550-$1,850 3* $1,275-$1,563
5* $1,950-$2,500 5* $1,595-$2,200 5* $2,495-$3,495
6 $2,000-$2,200 7 $1,600-$2,200 6 $1,800
8 $2,495-$3,495 8 $2,095-$3,195 7 $850
11 $2,850 9* $1,200-$1,800 9* $850-$950
10 $2,000-$2,500 10 $1,500-$1,800
11 $2,750 11 $1,600
Range $1,950-$3,495 $1,200-$3,195 $850-$3,495
Average $2,607 $2,243 $1,724
Private - 1BR Private - Studio Semi-Private
------------- ---------------- ------------
Subject Rented Beds -
Subject Range $1,925-$1,950 $1,375-$1,750 $1,062-$1,175
Subject Average $1,942/$2,517** $1,673/$2,248** $1,142/$1,717**
(9 Units) (108 Units) (6 Beds)
Subject Vacant Beds -
Subject Range $1,950 $1,750 -
Subject Average $1,950/$2,575** $1,750/$2,325** -
(1 Unit) (4 Units)
*Comparable Nos. 3 - Montego Heights Lodge; 5 - Chateau Pleasant Hill; and 7 -
Concord Royale are most similar to the subject.
**Includes average assisted living surcharge of $575 per month.
500
VALLEY VIEW LODGE
COMPARABLE IMPROVED SALES ADJUSTMENTS
No. 1 No. 2 No. 3 No. 4 No. 5 No. 6
----- ----- ----- ----- ----- -----
Sale Price Per Unit $58,911 $34,965 $ 63,025 $51,923 $55,263 $62,204
Before Adjustment
Occupancy Adjustment +10% +5% +5% +5% - +15%
Net Income Per Unit +34% +147% +72% +54% +42% +38%
Adjustment (Subject (1) $(9,703/ $(9,703/ $ (9,703/ $(9,703/ $(9,703/ $(9,703/
NOI/Unit/Comp/NOI/Unit $ 7,246) $ 3,923) $ 5,653) $ 6,314) $ 6,851) $ 7,020)
------- ------- -------- ------- ------- -------
Sale Price Per Unit
After Adjustment $86,835 $90,684 $113,823 $83,959 $78,473 $98,718
======= ======= ======== ======= ======= =======
Range (Less Outlying Sale No. 3): $ 78,473 - $ 98,718
x 125 Units x 125 Units
----------- -----------------
Indicated Value Range: $9,809,125 - $12,339,750
========== ===========
Called: $9,800,000 to $12,350,000
(1) Subject stabilized NOI/Unit - $1,212,831/125 Units
501
VALLEY VIEW LODGE
SUMMARY OF SUBJECT RENT CENSUS AT 6/21/95
Private-1BR Private-Studio Semi-Private
(Units) (Units) (Beds) Total
----------- -------------- ------------ -----
Number Units/Beds - Rented 9 108 6 123(96.1%)
Rent Range $1,925-$1,950 $1,375-$1,750 $1,062-$1,175 $1,062-$1,950
Rent Average $1,942 $1,673 $1,142 $1,667
Potential Total Rent-Rented $209,700 $2,168,700 $82,200 $2,460,600
Number Units/Beds - Vacant (1) 1 4 - 5(3.9%)
Rent Range $1,950 $1,750 - $1,750-$1,950
Rent Average $1,950 $1,750 - $1,790
Total Potential Rent-Vacant $23,400 $84,000 - $107,400
Total Units/Beds 10 112 6 128(100%)
Gross Potential Rent-Total $233,100 $2,252,700 $82,200 $2,568,000
Per Unit/Bed $1,943 $1,676 $1,142 $1,672
NOTES:
(1) Vacant units include:
Private 1BR - Unit 125 (1 Unit);
Private Studio - Units 123, 133, 143, 150 (4 Units)
(2) Subject has no SSI residents.
502
VALLEY VIEW LODGE
SATURATION ANALYSIS
Saturation Rate (1)
------------------------------------ Subject
w/o Subject w/Subject Only
# H.H. (2) (1,843 Beds)(3) (1,971 Beds) (128 Beds)
---------- --------------- ------------ ----------
1995 Estimate
- -------------
75+, $15,000 Income 6,183 29.8% 31.9% 2.1%
2000 Projection
- ---------------
75+, $15,000 Income 6,828 27.0% 28.9% 1.9%
NOTES:
(1) Market saturation rates represent the percentage of total market demand
which is necessary to absorb a) existing or proposed units not including
the subject, and b) existing or proposed units including the subject.
(2) Number of income and age qualifying senior households within 5-mile radius
of site per Urban Decision Systems.
(3) Number of competitive units estimated at 100% of Comparable Nos. 1 to 7,
50% of Comparable Nos. 8 to 11, and 300 units at The Waterford (senior
congregate condominiums).
(4) Evaluation of saturation rates:
Saturation Evaluation of
Rate Market Environment
---------- ------------------
0% - 10% Lightly Competitive
10% - 20% Moderately Competitive
20% - 30% Heavily Competitive
30%+ Extremely Competitive
503
VALLEY VIEW LODGE
VALUATION OF FAVORABLE FINANCING
Present value of financing at market rate (9.5%): $2,822,704
Present value of financing at below market rate (8.25%):
Present value of $23,468 (1) monthly payment
for 21.3 remaining years at 9.5% market rate $2,555,366
----------
Difference in present value of financing $ 267,338
Less: $6,000/year annual HUD audit charges (through 2016)
discounted to 7/95 @ 9.5% $ (53,766)
Plus: Present value of replacement reserve balance @ 7/95
($88,817) discounted to 7/95 @ 6.0% (9.5% market interest
rate less 3.5% estimated interest earned on escrow funds) $ 55,261
----------
Net Difference in present value of financing $ 268,833
==========
Called $ 275,000
(1) Monthly payment for $3,286,200, 40 years, 8.25% interest rate plus
reserve obligations.
504
VALLEY VIEW LODGE
HISTORICAL INCOME AND EXPENSE
Historical
------------------------------------------------------------- Operator
4 Months Goal
Year Ending Year Ending Ending 1995 Budget
Revenues 12/93 12/94 4/30/95 Annualized 1995
- -------- ----------- ------------ -------- ---------- ------
Rental Income $2,337,333 $2,456,025 $831,496 $2,494,488 $2,507,813
Assisted Living Income 231,250 321,567 123,447 370,341 457,500
Non-Operating Revenue $ 32,024 $ 35,709 $ 9,071 $ 27,213 $ 38,338
---------- ---------- -------- ---------- ----------
Total Revenues $2,600,607 $2,813,301 $964,014 $2,892,042 $3,003,651
Expenses (1)
Real Estate Taxes $ 75,876 $ 82,430 (2) (2) $ 83,092
Insurance 16,912 22,500 (2) (2) 25,276
G&A 45,320 57,592 (2) (2) 55,990
Utilities 159,499 166,783 (2) (2) 162,390
Payroll/Benefits 717,863 798,708 (2) (2) 850,728
Maintenance 69,041 68,679 (2) (2) 71,520
Activities 13,826 11,965 (2) (2) 12,750
Marketing 19,051 16,848 (2) (2) 20,936
Laundry & Linen 12,571 10,195 (2) (2) 14,925
Dietary 178,270 183,906 (2) (2) 183,819
Supplies 42,555 36,469 (2) (2) 34,800
---------- ---------- -------- ---------- ----------
Total Operating Expense $1,350,784 $1,456,075 $496,506 $1,489,518 $1,516,226
(51.9%) (51.8%) (51.5%) (51.5%) (50.5%)
Net Operating Income $1,249,823 $1,357,226 $467,508 $1,402,524 $1,487,425
========== ========== ======== ========== ==========
NOTES:
(1) Does not include management fee or replacement reserves.
(2) Detail not available.
505
VALLEY VIEW LODGE
PRO FORMA INCOME/EXPENSE & CAPITALIZATION
Projected
Stabilized
(7/95-6/96)
-----------
Average Occupancy (All Beds) 95.0% (121.6 Beds)
Average Net Rental (All Beds) $1,705
Potential Gross Rent Income -
1BR Private - 10 Units @ $1,982/Mo. Avg. $ 237,823
Studio Private - 112 Units @ $1,710/Mo. Avg. 2,297,595
Semiprivate - 6 Beds @ $1,165/Mo. Avg. $ 83,868
-----------
Potential Gross Rent Income $ 2,619,286
Plus: Assisted Living Surcharges (70 Beds @ $575/mo.) $ 483,000
Plus: Miscellaneous Income (1% of PGRI) $ 26,193
-----------
Potential Gross Income $ 3,128,479
Less: Stabilized Vacancy & Collection Losses - 5% $ (156,424)
-----------
Effective Gross Income $ 2,972,055
Expenses - % of EGI
--------
Real Estate Taxes - $ 120,966
Insurance 1.0% 29,721
Management 5.0% 148,603
G&A 10.0% 297,206
Utilities 5.5% 163,467
Maintenance 3.0% 89,162
Activity & Trans. 2.0% 59,441
Marketing 2.0% 59,441
Housekeeping 4.5% 129,318
Dietary $8.50/PRD 377,264
Personal Care 8.0% 237,764
Replacement Reserves - $ 46,875
-----------
Total Expenses $ 1,759,224
(59.2%)
Stabilized Net Operating Income $ 1,212,831
Capitalization Rate .12
-----------
Capitalized Value $10,106,925
===========
Called $10,100,000
Per Unit $ 80,800
506
VALLEY VIEW LODGE
COST APPROACH CALCULATION (CALCULATOR METHOD)
Total Land Value (154,638 Net SF at $12.50/SF) $ 1,932,975
Direct Building Costs
- ---------------------
Building Cost $6,826,190
Furniture & Equipment
(125 Units @ $2,500/each) 312,500
----------
Total Direct Building Costs $ 7,138,690
-----------
Total Direct Building and Land Costs $ 9,071,665
Indirect Costs - 7% $ 635,017
-----------
Total Construction and Land Costs $ 9,706,682
Plus Entrepreneurial Profit @ 15% $ 1,456,002
-----------
Total Cost New (Including Land) $11,162,684
Less Depreciation
- -----------------
Physical Curable 0
Physical Incurable $(2,544,162)
Functional Curable 0
Functional Incurable 0
External Obsolescence 0
-----------
Total Depreciation $(2,544,162)
-----------
Indicated Value, Cost Approach, As Is $ 8,618,522
===========
Rounded to $ 8,625,000
507
SUBJECT PHOTOGRAPHS
Subject from Main Parking Area,
View East
Main Entrance of Subject
508
SUBJECT PHOTOGRAPHS
Reception Area
Main Dining Room
509
SUBJECT PHOTOGRAPHS
Typical Interior Courtyard/Walkways
Typical Interior Corridor
510
SUBJECT PHOTOGRAPHS
Main Access Driveway Entry to Subject,
View East
Parking Lot, View North
511
SUBJECT PHOTOGRAPHS
Typical Lounge Area
Auditorium
512
SUBJECT PHOTOGRAPHS
Typical Unit Interiors
513
SUBJECT PHOTOGRAPHS
Main Entry Lobby, Open to Second Floor
514
NEIGHBORHOOD PHOTOGRAPHS
Open Space/Homes Surrounding Subject
515
NEIGHBORHOOD PHOTOGRAPHS
Guardian Nursing Home Immediately West of Subject
View West toward Exit Driveway, Guardian Nursing Home to Left,
Manor Care Nursing Home to Right
516
COMPARABLE MARKET AREA SENIOR HOUSING FACILITIES
No. 1 - Byron Park
1700 Tice Valley Boulevard
Walnut Creek
No. 2 - Eden Villa
2015 Mt. Diablo Boulevard
517
Walnut Creek
COMPARABLE MARKET AREA SENIOR HOUSING FACILITIES
No. 3 - Montego Heights Lodge
1400 Montego
Walnut Creek
No. 4 - Kensington Place
518
1580 Geary Boulevard
Walnut Creek
COMPARABLE MARKET AREA SENIOR HOUSING FACILITIES
No. 5 - Chateau Pleasant Hill
2770 Pleasant Hill Road
Pleasant Hill
519
No. 6 - Family Affair
1081 Mohr Lane
Concord
COMPARABLE MARKET AREA SENIOR HOUSING FACILITIES
No. 7 - Moraga Royale
1600 Canyon Road
Moraga
520
No. 8 - Diablo Lodge
950 Diablo Road
Danville
COMPARABLE MARKET AREA SENIOR HOUSING FACILITIES
No. 9 - Concord Royale
4230 Clayton Road
Concord
521
No. 10 - San Ramon Lodge
18888 Bollinger Canyon Road
San Ramon
COMPARABLE MARKET AREA SENIOR HOUSING FACILITIES
No. 11 - Villa San Ramon
9199 Fircrest Lane
San Ramon
522
IMPROVED SALE COMPARABLE PHOTOGRAPHS
No. 1 - Canyon Hills Club
525 S. Anaheim Hills Road
Anaheim
No. 2 - Brea Residential Manor
285 W. Central
523
Brea
IMPROVED SALE COMPARABLE PHOTOGRAPHS
No. 3 - Whittier Retirement Villa
8101 S. Painter
Whittier
No. 4 - Gold Star Manor
524
411 E. Commonwealth
Fullerton
IMPROVED SALE COMPARABLE PHOTOGRAPHS
No. 5 - Villa San Marcos
1550 Security Place
San Marcos
525
No. 6 - Chula Vista Inn
171 4th Avenue
Chula Vista
526
VACANT LAND SALE COMPARABLE NO. 1
Location: 1836 San Miguel Drive
Walnut Creek, CA
Assessor's Parcel No.: 180-010-029 (Contra Costa County)
Sale Date: Listing
Document No.: N/A
Listing Price: $430,000
Size: 33,106 Square Feet (0.76 Acres)
Listing Price/SF: $12.99
Topography: Level
Shape: Rectangular
Proposed Use/Density: 6 Townhomes; 7.9 Units/Acre
Sale Price Per Unit: $71,667
Zoning: C-O
Grantor: Kenneth Nazari & Sahrab Firoozeh Nazari
Grantee: N/A
Terms: N/A
Comments: Located across San Miguel Drive from
professional offices; in overall
residential area; property has been
listed for over one year, according to
the broker with no offers; listing price
includes approved townhome plans.
VACANT LAND SALE COMPARABLE NO. 3
527
Location: Tice Creek Drive, Northwest of Golden Rain Road
Walnut Creek, CA
Assessor's Parcel No.: 189-130-019-4 (Contra Costa County)
Sale Date: 12/2/94
Document No.: 287278
Sale Price: $1,781,500
Size: 185,130 Square Feet (4.25 Acres)
Sale Price/SF: $9.62
Topography: Flat to Slightly Sloping
Shape: Irregular
Proposed Use/Density: 2 Duplexes and 7 Triplexes; 5.88 Units/Acre
Sale Price Per Unit: $71,260 @ 25 units
Zoning: PD-1829
Grantor: Manor Healthcare Corp.
Grantee: UDC Homes, Inc.
Terms: All Cash to Seller
Comments: Site located inside the gated Rossmoor
Retirement Community; this transaction
was a direct exchange with Land Sale No.
4; development of condominiums underway;
parcel is located across Golden Rain Road
from The Waterford (congregate senior
condos).
VACANT LAND SALE COMPARABLE NO. 2
528
Location: 123 Brodia Way
Walnut Creek, CA
Assessor's Parcel No.: 140-170-006-5 (Contra Costa County)
Sale Date: 3/3/95
Document No.: 35433
Sale Price: $720,000
Size: 49,658 Square Feet (1.14 Acres)
Sale Price/SF: $14.50
Topography: Level
Shape: Rectangular
Proposed Use/Density: Unknown
Zoning: R-4
Grantor: Edward Sonnenberg
Grantee: M/M Richard and Lynne Chapman
Terms: N/A
Comments: In rolling hill, high end residential area; owner holding for future development.
529
VACANT LAND SALE COMPARABLE NO. 4
Location: Tice Valley Boulevard, Southwest of Rossmoor Parkway
Walnut Creek, CA
Assessor's Parcel No.: 189-130-019-4 (Contra Costa County)
Sale Date: 12/2/94
Document No.: 287282
Sale Price: $1,781,500
Size: 217,800 Square Feet (5.0 Acres)
Sale Price/SF: $8.18
Topography: Sloping
Shape: Irregular
Proposed Use/Density: 120 Bed Nursing Home; 13 Rooms/Acre (estimated)
Zoning: PD
Grantor: UDC Homes, Inc.
Grantee: Manor Health Care Corp.
Terms: All Cash to Seller
Comments: Site located outside the gated Rossmoor Retirement Community; sale was a direct
exchange with Land Sale No. 3; parcel has 451 feet of frontage along Rossmoor
Parkway and 406 feet of frontage along Tice Valley Boulevard.
530
IMPROVED SALE COMPARABLE NO. 1
Name: Oak Tree Villa
Location: 100 Lockwood Lane, Scotts Valley, CA
Assessor's Parcel No.: 021-052-01 (Santa Cruz County)
Sale Date: 6/6/95
Sale Price: $11,900,000
No. of Units: 202 Units (includes 40 assisted living units)
Age: 1988
% Private Pay: 100% (includes 20% low income residents)
Size (GBA): 172,000 Square Feet
Average Unit Size (GBA/Unit): 851 Square Feet
Sale Price/Unit: $58,911
Sale Price/SF: $69.19
Occupancy Rate: 72%
Gross Operating Income: $3,390,984 (estimated at 90% occupancy)
Expenses: $1,925,343
Net Operating Income: $1,465,641 (estimated at 90% occupancy)
% Expenses: 56.8%
G.I.M.: 3.51
O.A.R.: 12.3 (estimated at 90% occupancy)
N.O.I./Unit: $7,256
Grantor: Oak Tree Villa Partnership
Grantee: Birtcher Senior Properties
Terms: $4,955,000 cash (39%); $7,745,000 assumption of existing debt, 30 year
amortization, due in 15 years, 10.25% rate.
Comments: 20% of units must be allocated to low income (HUD) residents; unit mix:
102 alcove units (450 SF) and 100 one bedroom units (600 SF); located in
lightly populated area.
Confirmation: Keith Louie (415) 391-9220
531
IMPROVED SALE COMPARABLE NO. 2
Name: El Camino Gardens
Location: 2426 Garfield Avenue, Carmichael, CA
Assessor's Parcel No.: 283-0030-14 (Sacramento County)
Sale Date: 5/31/95 (Document No. 8309302142)
Sale Price: $10,000,000 (includes $650,000 in deferred maintenance)
No. of Units: 286 Units (174 ACLF/112 ALF)
Age: 1984
Size (GBA): 160,810 Square Feet
Average Unit Size (GBA/Unit): 562 Square Feet
Sale Price/Unit: $34,965
Sale Price/SF: $62.19
Occupancy Rate: 82%
Gross Operating Income: $2,814,240 (estimated at 93% occupancy)
Expenses: $1,692,240
Net Operating Income: $1,122,000 (estimated at 93% occupancy)
% Expenses: 60.1%
G.I.M.: 3.55
O.A.R.: 11.2% (estimated at 93% occupancy)
N.O.I./Unit: $3,923
Grantor: Joseph Benvenuti
Grantee: Nationwide Health Properties (REIT)
Terms: All Cash to Seller
Comments: Project had approximately $650,000 in deferred maintenance at time of sale;
purchased by REIT and leased to ARV Housing Group; licensed to include
up to 224 assisted living beds.
Confirmation: Eric Davidson (714) 751-7400
532
IMPROVED SALE COMPARABLE NO. 3
Name: Casa Sandoval
Location: 1200 Russell Way, Hayward, CA
Assessor's Parcel No.: 415-240-007, 008 (Alameda County)
Sale Date: 2/27/95
Sale Price: $15,000,000
No. of Units: 238 Units
Age: 1989
Size (GBA): 216,639 Square Feet
Average Unit Size (GBA/Unit): 920 Square Feet
Sale Price/Unit: $63,025
Sale Price/SF: $69.23
Occupancy Rate: 81%
Gross Operating Income: $3,844,396 (estimated at 92% occupancy)
Expenses: $2,498,857
Net Operating Income: $1,345,539
% Expenses: 65% (estimated at 92% occupancy)
G.I.M.: 3.90
O.A.R.: 9.0%
N.O.I./Unit: $5,653
Grantor: Casa Sandoval Investors, L.P.
Grantee: Weh Chang
Terms: All Cash to Seller
Comments: Average quality project in middle
income suburban area; sold at auction
on 2/9/95; property underperforming at
date of sale; buyer plans significant
licensing/conversion of many units to
assisted living.
Confirmation: John Rosenfeld (310) 473-8900 ext. 119
533
IMPROVED SALE COMPARABLE NO. 4
Name: Lomita Lodge
Location: 225 N. Lomita Avenue, Ojai, CA
Assessor's Parcel No.: 017-083-200 (Ventura County)
Sale Date: 12/30/94 (Doc. No. 206073)
Sale Price: $1,350,000
No. of Units: 26 Units/36 Beds (Licensed AL)
Age: 1940's/1970's
Size (GBA): 10,000 Square Feet
Average Unit Size (GBA/Unit): 385 Square Feet
Sale Price/Unit: $51,923
Sale Price/SF: $135.00
Occupancy Rate: 81%
Gross Operating Income: $656,640 (estimated at 95% occupancy)
Expenses: $492,480
Net Operating Income: $164,160 (estimated at 95% occupancy)
% Expenses: 75.0%
G.I.M.: 2.06
O.A.R.: 12.2% (estimated at 95% occupancy)
N.O.I./Unit: $6,314
Grantor: Raymond & Judy Berard
Grantee: Ojai Retirement Inn #1, Ltd.
Terms: $270,000 Cash; $1,080,000 variable rate loan at 8.5%, 20 year
amortization.
Comments: Property underperformed at date of sale; currently 95% occupied; rents
range from $1,500 to $2,350 per month per bed; property includes about
25% SSI.
Confirmation: Gerry Meglin (805) 646-5533
534
IMPROVED SALE COMPARABLE NO. 5
Name: Carson Oaks (now called Merrill Gardens at Carson Oaks)
Location: 6725 Inglewood Avenue, Stockton, CA
Assessor's Parcel No.: 081-260-053 (San Joaquin County)
Sale Date: 7/27/94 (Doc. No. 87023)
Sale Price: $4,200,000
No. of Units: 76 Units
Age: 1989
% Private Pay: 100%
Size (GBA): 62,733 Square Feet
Average Unit Size (GBA/Unit): 612 Square Feet (average unit)
Sale Price/Unit: $55,263
Sale Price/SF: $66.95
Occupancy Rate: 95%
Gross Operating Income: $1,301,712
Expenses: $781,027
Net Operating Income: $520,685
% Expenses: 60%
G.I.M.: 3.23
O.A.R.: 12.4%
N.O.I./Unit: $6,851
Grantor: Tuolumne Commons, Limited Partner
Grantee: Merrill Associates, Limited Partner
Terms: All Cash to Seller
Comments: Newer facility with large number of one bedroom with full kitchens in an
affluent neighborhood; not licensed for assisted living.
Confirmation: Lee Haris (415) 391-9220
535
IMPROVED SALE COMPARABLE NO. 6
Name: Park Ridge (now called Merrill Gardens)
Location: 2261 Tuolumne Street, Vallejo, CA
Assessor's Parcel No.: 0052-330-008 (Solano County)
Sale Date: 7/27/94 (Doc. No. 69837)
Sale Price: $5,785,000
No. of Units: 93 ACLF; 14 Beds (Licensed AL)
Age: 1991
% Private Pay: 100%
Size (GBA): 84,989 Square Feet
Average Unit Size (GBA/Unit): 654 Square Feet
Sale Price/Unit: $62,204
Sale Price/SF: $68.10
Occupancy Rate: Project stabilized at 90%; at sale date 55%
Gross Operating Income: $1,632,150
Expenses: $979,290
Net Operating Income: $652,860
% Expenses: 60%
G.I.M.: 3.54
O.A.R.: 11.3%
N.O.I./Unit: $7,020
Grantor: Tuolumne Commons, Limited Partner
Grantee: Merrill Associates, Limited Partner
Terms: All Cash to Seller
Comments: Modern congregate/assisted living with 15 studios, 59 - 1 bedrooms and 19
- 2 bedrooms; located in residential area and bounded by Sutter Solano
Medical Center and Crestwood Convalescent Hospital.
Confirmation: Lee Haris (415) 391-9220
536
WESTERN US ACLF/AL SENIOR HOUSING SALES SUMMARY
LAST 24 MONTHS
Gross Expense Sale
Inc. Ratio Price
No. Facility Name Location Age Units $/Unit/Mo (%) Date (000)
- --- ---------------------- ----------------- ----- ----- --------- ------- ---- -------
1. The Highlander Seattle, WA 1979 121 $1,066 55.0% 6/93 $ 5,200
2. Almond Avenue Orangevale, CA 1987 39 $1,598 65.2% 7/93 $ 2,100
3. Summerfield Tigard, OR 1980 155 $1,100 60.0% 8/93 $ 6,550
4. Renton Villa Renton, WA 1983 78 $1,366 66.7% 8/93 $ 3,000
5. Sherwood Villa Tacoma, WA 1981 98 $1,328 69.0% 8/93 $ 2,800
6. Celeste Villa Modesto, CA 1975 81 $1,080 72.5% 10/93 $ 1,900
7. Springs of Napa Napa, CA 1986 102 $1,332 55.0% 11/93 $ 6,300
8. Summerhill Puyallup, WA 1987 96 $1,241 59.4% 2/94 $ 5,500
9. Chula Vista Inn Chula Vista, CA 1975 112 $1,034 75.0% 6/94 $ 2,675
10. Villa San Marcos San Marcos, CA 1986 100 $1,191 65.0% 6/94 $ 3,951
11. Camlu Phoenix, AZ 1979 88 $1,153 65.0% 6/94 $ 3,800
12. Gold Star Manor Fullerton, CA 1985 80 $1,146 70.0% 6/94 $ 2,880
13. Hacienda de Monterey Palm Desert, CA 1989 180 $1,813 65.8% 7/94 $ 7,250
14. Park Ridge Vallejo, CA 1991 93 $1,632 60.0% 7/94 $ 5,785
15. Carson Oaks Stockton, CA 1989 76 $1,462 60.0% 7/94 $ 4,200
16. Villa Ocotillo Scottsdale, AZ 1973 102 $1,242 60.0% 9/94 $ 3,500
17. Lomita Lodge Ojai, CA 1970 26 $1,999 75.0% 12/94 $ 1,350
18. Brea Residential Brea, CA 1990 98 $1,377 67.0% 1/95 $ 4,800
19. Whittier Retirement Whittier, CA 1973 72 $1,187 67.0% 1/95 $ 2,875
20. Canyon Hills Club Anaheim, CA 1989 212 $1,661 67.1% 2/95 $13,450
21. Casa Sandoval Hayward, CA 1989 238 $1,346 65.0% 2/95 $15,000
22. Valley Crest Apple Valley, CA 1985 37 $1,600 65.0% 2/95 $ 2,200
23. Amaryllis Court Anaheim, CA 1969 33 $1,391 75.0% 3/95 $ 1,150
24. Fulton Villa Stockton, CA 1973 76 $ 763 72.1% 3/95 $ 1,450
25. Oak Tree Villa Scotts Valley, CA 1988 202 $1,399 56.8% 6/95 $11,900
Low 1969 26 $ 763 55.0% $ 1,150
High 1991 238 $1,999 75.0% $15,000
Low (minus 2 lowest) 1973 37 $1,066 56.8% $ 1,450
High (minus 2 highest) 1982 104 $1,340 65.3% $11,900
Average: 1983 110 $1,330 64.9% $ 4,863
No. Facility Name $/Unit OAR $/SF GIM
- --- ---------------------- -------- --------- -------- ---
1. The Highlander $41,322 13.4% $52.73 3.36
2. Almond Avenue $53,864 12.4% $57.00 2.81
3. Summerfield $42,532 13.2% $80.84 3.20
4. Renton Villa $38,462 14.2% $46.51 2.35
5. Sherwood Villa $28,571 17.3% $45.67 1.79
6. Celeste Villa $23,457 13.7% $32.75 1.81
7. Springs of Napa $61,765 11.7% $69.23 3.86
8. Summerhill $57,292 10.5% $62.74 4.40
9. Chula Vista Inn $23,884 13.0% $41.10 1.92
10. Villa San Marcos $39,510 12.7% $73.17 2.76
11. Camlu $43,182 11.2% $83.66 3.12
12. Gold Star Manor $36,000 11.5% $128.34 2.62
13. Hacienda de Monterey $40,278 18.5% $41.36 1.85
14. Park Ridge $62,204 11.3% $68.10 3.54
15. Carson Oaks $55,263 12.4% $66.95 3.23
16. Villa Ocotillo $34,314 14.9% $43.34 2.30
17. Lomita Lodge $51,923 12.2% $135.00 2.06
18. Brea Residential $48,980 11.1% $84.24 2.96
19. Whittier Retirement $39,937 11.8% $75.16 2.80
20. Canyon Hills Club $63,443 10.3% $65.92 3.18
21. Casa Sandoval $63,025 9.0% $69.23 3.90
22. Valley Crest $59,459 11.3% $118.71 3.10
23. Amaryllis Court $34,848 11.0% $71.72 2.09
24. Fulton Villa $19,079 11.5% $25.29 2.08
25. Oak Tree Villa $58,911 12.3% $69.18 3.51
Low $19,079 9.0% $32.75 1.79
High $63,443 18.5% $135.00 4.40
Low (minus 2 lowest) $23,884 10.5% $41.36 1.85
High (minus 2 highest) $62,204 14.9% $118.71 3.86
Average: $44,860 12.5% $68.72 2.82
537
MONTEGO HEIGHTS LODGE
SATURATION ANALYSIS
Saturation Rate (1)
----------------------------------- Subject
w/o Subject w/Subject Only
# H.H. (2) (1,779 Beds)(3) (1,971 Beds) (192 Beds)
---------- --------------- ------------ ----------
1995 ESTIMATE
75+, $15,000 Income 7,045 25.3% 28.0% 2.7%
2000 PROJECTION
75+, $15,000 Income 7,986 22.3% 24.7% 2.4%
NOTES:
(1) Market saturation rates represent the percentage of total market demand
which is necessary to absorb a) existing or proposed units not including
the subject, and b) existing or proposed units including the subject.
(2) Number of income and age qualifying senior households within 5-mile radius
of site per Urban Decision Systems.
(3) Number of competitive units estimated at 100% of Comparable Nos. 1 to 7,
50% of Comparable Nos. 8 to 11 and 300 units at The Waterford (senior
congregate condominiums).
(4) Evaluation of saturation rates:
Saturation Evaluation of
Rate Market Environment
---------- ------------------
0% - 10% Lightly Competitive
10% - 20% Moderately Competitive
20% - 30% Heavily Competitive
30%+ Extremely Competitive
538
ARVP II VALUATION SUMMARY
Previous Draft
Reported Values Revised Values (1)
--------------- ------------------
Montego Heights $ 8,675,000 $ 8,825,000
Valley View $ 9,850,000 $10,375,000
Retirement Inn - Fullerton $ 2,350,000 $ 2,350,000
Retirement Inn - Daly City $ 2,875,000 $ 3,025,000
----------- -----------
Total $23,750,000 $24,575,000
=========== ===========
(1) Based on discussions with Stanger and additional information.
539
VACANT LAND SALE COMPARABLE NO. 1
Location: San Miguel and Newell Road
Walnut Creek, CA
Assessor's Parcel No.: 180-010-029 (Contra Costa County)
Sale Date: Listing
Document No.: N/A
Sale Price: $430,000
Size: 33,106 Square Feet (0.76 Acres)
Sale Price/SF: $12.99
Topography: Level
Shape: Rectangular
Proposed Use/Density: 6 townhomes
Sale Price Per Unit: $71,667
Zoning:
Grantor:
Grantee:
Terms: N/A
Comments:
540
VACANT LAND SALE COMPARABLE NO. 5
Location: Tice Valley Boulevard, Northwest of
Rossmoor Parkway Walnut Creek, CA
Assessor's Parcel No.: 189-130-019-4 (Contra Costa County)
Sale Date: 12/2/94
Document No.: 287278
Sale Price: $1,781,500
Size: 185,130 Square Feet (4.25 Acres)
List Price/SF: $9.62
Topography: Flat to Slightly Sloping
Shape: Irregular
Proposed Use/Density: 2 duplexes and 7 triplexes
List Price Per Unit: $71,260 @ 25 units
Zoning: PD-1829
Grantor: Manor Healthcare Corp.
Grantee: UDC Homes, Inc.
Terms: All Cash to Seller
Comments: This transaction was a direct exchange.
541
VACANT LAND SALE COMPARABLE NO. 6
Location: Tice Valley Boulevard, Southwest of
Rossmoor Parkway Walnut Creek, CA
Assessor's Parcel No.: 189-130-019-4 (Contra Costa County)
Sale Date: 12/2/94
Document No.: 287282
Sale Price: $1,781,500
Size: 217,800 Square Feet (5.0 Acres)
Sale Price/SF: $8.18
Topography: Sloping
Shape: Irregular
Proposed Use/Density: 120 bed nursing home
Zoning: PD
Grantor: UDC Homes, Inc.
Grantee: Manor Health Care Corp.
Terms: All Cash to Seller
Comments: Site has 451 feet of frontage along
Rossmoor Parkway and 406 feet of frontage
along Tice Valley Boulevard.
542
Proposed
Density -
No. Location/APN Zoning Units/Acre
--- ------------ ------ ----------
1. 1836 San Miguel Drive C-O 7.9
Walnut Creek
180-010-029
2. 123 Brodia Way R-4 N/A
Walnut Creek
140-170-006-5
3. Tice Creek Drive, PD-1829 5.9
NW of Golden Rain Road
Walnut Creek
189-130-017-8
4. Tice Valley Boulevard, PD N/A
SW of Rossmoor Parkway
Walnut Creek
189-130-019-4 (Portion)
S. 1228 Rossmoor Parkway PD 35.2
Walnut Creek
189-040-045
543
SUBJECT PHOTOGRAPHS
Main Entry Lobby, Open to Second Floor