COMPLETE APPRAISAL OF
THE GOING CONCERN
Oak Terrace Retirement Apartments
1700 West Washington Street
Springfield, Sangamon County, Illinois
62702
IN A RESTRICTED
APPRAISAL REPORT
As of 4/16/04
Prepared For:
SPECS, Inc.
4200 Blue Ridge Boulevard, Suite'LH-06
Kansas City, Missouri 64133
Prepared By:
Cushman & Wakefield of Illinois, Inc.
Senior Housing/Healthcare Industry Group
Valuation Services, Advisory Group
455 North Cityfront Plaza, Suite 2800
Chicago, IL 60611
C&W File ID: 04-248-01
Cushman & Wakefield
Cushman & Wakefield of Illinois, Inc.
455 North Cityfront Plaza, Suite 2800
Chicago, IL 60611
312.470.1817 Tel
312.470.2317 Fax
randal_dawson@cushwake.com
April 30, 2004
Jim Hoyt
General Partner
SPECS, Inc.
4200 Blue Ridge Boulevard, Suite LH-06
Kansas City, Missouri 64133
Re: Complete Appraisal of Real Property
In a Restricted Report
Oak Terrace Retirement Apartments
1700 West Washington Street
Springfield, Sangamon County, Illinois 62702
C&W File ID: 04-248-01
Dear Mr. Hoyt:
In fulfillment of our agreement as outlined in the Letter of Engagement, we are
pleased to transmit our complete appraisal report on the property referenced
above.
The value opinion reported in this appraisal report is qualified by certain
assumptions, limiting conditions, certifications, and definitions, which are set
forth in the report. We particularly call your attention to the following
extraordinary assumptions and hypothetical conditions:
Extraordinary Assumptions: This appraisal employs no other extraordinary
assumptions.
Hypothetical Conditions: This appraisal employs no hypothetical conditions.
This report was prepared for SPECS, Inc. and is intended only for their
specified use. It may not be distributed to or relied upon by any other persons
or entities without the written permission of Cushman & Wakefield of Illinois,
Inc.
This appraisal report has been prepared in accordance with our interpretation of
your institutions guidelines, Title XI of the Financial Institutions Reform,
Recovery, and Enforcement Act of 1989 (FIRREA), and the Uniform Standards of
Professional Appraisal Practice (USPAP), including the Competency Provision.
Jim Hoyt
SPECS, Inc.
April 30, 2004
Page 2
The property consists of an existing 129 unit, independent living facility known
as Oak Terrace Retirement Apartments. The facility has an effective capacity of
137 units and/or residents. The facility contains 117,250:t square feet of gross
floor area and is situated on a 1.80 acre parcel of land. The facility occupancy
was 88 percent at the time of inspection.
The property has been appraised as a going concern and assumes a fair sale,
which includes the transfer of a valid operating license, adequate working
capital, an assembled workforce, and the transfer of all business assets
necessary for the operation of a licensed health care facility.
Randal D. Dawson, MAI inspected the property and prepared the report. This
appraisal employs only the Income Capitalization Approach. Based on our analysis
and knowledge of the subject property type and relevant investor profiles, it is
our opinion that this approach would be considered necessary and applicable for
market participants. The client has requested that we perform a restricted
appraisal report. Therefore, we have not employed the Cost Approach or the Sales
Comparison Approach to develop an opinion of market value.
Based on our Complete Appraisal as defined by the Uniform Standards of
Professional Appraisal Practice, we have developed an opinion that the market
value of the fee simple estate of the referenced property, subject to the
assumptions and limiting conditions, certifications, extraordinary and
hypothetical conditions, if any, and definitions, "as-is" on April 16, 2004 was:
TWELVE MILLION FIVE HUNDRED THOUSAND DOLLARS
$12,500,000
The above value estimate is inclusive of $310,000 in personal property and
$4,100,000 in business value as an integral part of the going-concern.
Based on recent market transactions, as well as discussions with market
participants, a sale of the subject property at our stated opinion of market
value would have required an exposure time of approximately twelve (12) months.
Furthermore, a marketing period of approximately twelve (12) months is currently
warranted for the subject property.
Based on our Complete Appraisal as defined by the Uniform Standards of
Professional Appraisal Practice, we have developed an opinion that the market
value based on the bond financing of the fee simple estate of the referenced
property, subject to the assumptions and limiting conditions, certifications,
extraordinary and hypothetical conditions, if any, and definitions, "as-is" on
April 16, 2004 was:
SIXTEEN MILLION ONE HUNRED THOUSAND DOLLARS
$16,100,000
Jim Hoyt
SPECS, Inc.
April 30, 2004
Page 3
This letter is invalid as an opinion of value if detached from the report, which
contains the text, exhibits, and Addenda.
Respectfully submitted,
CUSHMAN & WAKEFIELD OF ILLINOIS, INC.
/S/ RANDAL D. DAWSON
- --------------------------------
Randal D. Dawson, MAI
Associate Director
Senior Housing/Healthcare Industry Group
Illinois Certified General Appraiser
License No. 153-001098
randal-dawson@cushwake.com
312.4 70.1817 Office Direct
312.470.2317 Fax
SUMMARY OF SALIENT FACTS
Common Property Name: Oak Terrace Retirement Apartments
Location: 1700 West Washington Street
Springfield, Sangamon County, Illinois 62702
The subject is located at approximately
mid-block along the north side of West
Washington Street between Chatham Road and
Lincoln Avenue.
Property Description: The property consists of a 1-building, 6-
story independent living facility containing
129 units and 137 beds situated on a 1.80-
acre parcel of land.
Assessor's Parcel Number: 14-32-127-005, 14-32-127-006 and 14-32-127-
007
Interest Appraised: Fee Simple Estate
Date of Value: April 16, 2004
Date of Inspection: April 16, 2004
Ownership: Secured Investment Resources
Occupancy: Current physical occupancy is 88 percent
based on a stabilized effective capacity of
129 units.
Current Property Taxes
Total Assessment: $5,088,330
2004 Property Taxes: $129,210
Hiqhest and Best Use
If Vacant: Multi-family residential property developed
to the highest density possible
As Improved: As it is currently utilized as an
independent living facility:
Site & Improvements
Zoning: R-5b
Land Area: 1.80 acres or 78,408:t square feet
Number of Units: 129
Number of Beds: 137
Number of Stories: 6
Number of Buildings: 1
Year Built: 1987
Type of Construction: Brick
Gross Building Area: 117,250:t square feet
Parking: 161 spaces (1.25 Unit).
VALUE INDICATORS
Income Capitalization Approach
Direct Capitalization
Net Operating Income: $1,123,860
Capitalization Rate: 9.00%
Indicated Value: $12,500,000
Reconciled Value: $12,500,000
FINAL VALUE CONCLUSION
Market Value As-Is Fee Simple: $12,500,000
Exposure Time: Under 12 months
Marketing Time: Under 12 months
INSURABLE VALUE
Conclusion: $7,400,000
Market Value Based on Bond $16,000,000
Financing
Extraordinary Assumptions and Hypothetical Conditions
Extraordinary Assumptions
An extraordinary assumption is defined by the Uniform Standards of Professional
Appraisal Practice (2004 Edition, The Appraisal Foundation, page 2) as "an
assumption, directly related to a specific assignment, which, if found to be
false, could alter the appraiser's opinions or conclusions. Extraordinary
assumptions presume as fact otherwise uncertain information about physical,
legal or economic characteristics of the subject property; or about conditions
external to the property, such as market conditions or trends; or about the
integrity of data used in an analysis."
This appraisal employs no other extraordinary assumptions.
Hvpothetical Conditions
A hypothetical condition is defined by the Uniform Standards of Professional
Appraisal Practice (2004 Edition, The Appraisal Foundation, page 3) as "that
which is contrary to what exists but is supposed for the purpose of analysis.
Hypothetical conditions assume conditions contrary to known facts about
physical, legal, or economic characteristics of the subject property; or about
conditions external to the property, such as market conditions or trends; or
about the integrity of data used in an analysis."
This appraisal employs no hypothetical conditions.
SUBJECT PHOTOGRAPHS
[GRAPHIC OMITTED]
Exterior view of property
[GRAPHIC OMITTED]
Exterior view of property
[GRAPHIC OMITTED]
Interior view of property
[GRAPHIC OMITTED]
Interior view of property
[GRAPHIC OMITTED]
Street Scene along Washington Street Facing East
[GRAPHIC OMITTED]
Street Scene along Washington Street Facing West
TABLE OF CONTENTS
INTRODUCTION 1
REGIONAL ANALYSIS 5
LOCAL AREA ANALYSIS 12
SENIOR LIVING INDUSTRY OVERVIEW 16
COMPETITIVE MARKET ANALYSIS 21
SITE DESCRIPTION 32
IMPROVEMENTS DESCRIPTI0N 33
REAL PROPERTY TAXES AND ASSESSMENTS 37
ZONING 38
HIGHEST AND BEST USE 39
VALUATION PROCESS 41
INCOME CAPITALIZATION APPROACH 43
RECONCILIATION AND FINAL VALUE OPINION 57
INSURABLE VALUE 59
SUPPLEMENTAL VALUATION - SCENARIO II 60
ASSUMPTIONS AND LIMITING CONDITIONS 62
CERTIFICATION OF APPRAISAL 65
ADDENDA 66
INTRODUCTION
Identification of Property
Common Property Name: Oak Terrace Retirement Apartments
Location: 1700 West Washington Street
Springfield, Sangamon County, Illinois 62702
The subject is located at approximately
mid-block along the north side of West
Washington Street between Chatham Road and
Lincoln Avenue.
Property Description: The property consists of a
1-building, 6-story independent living
facility containing 129 units and an
effective capacity of 137 units situated on
a 1.80 acre site.
Assessor's Parcel Number: 14-32-127-005, 14-32-127-006 and
14-32-127-007
Property Ownership and Recent History
Current Ownership: Secured Investment Resources
Sale History: The property has not transferred within the
past three years to the best of our
knowledge.
Current Disposition: To the best of our knowledge, the property
is not under contract of sale nor is it
being marketed for sale.
Reginald
Intended Use and Users of the Appraisal
This appraisal is intended to provide an opinion of the market value of the fee
simple interest in the property for the exclusive use of SPECS, Inc. for
internal review. All other uses and users are unintended, unless specifically
stated in the letter of transmittal.
Dates of Inspection and Valuation
The value conclusion reported herein is as of April 16, 2004. The property was
inspected on April 16, 2004 by Randal D. Dawson, MAI
Property Rights Appraised
fee simple interest of the property as a going-concern.
Scope of the Appraisal
This is a complete appraisal presented in a Restricted report, intended to
comply with the reporting requirements set forth under the Uniform Standards of
Professional Appraisal Practice (USPAP) for a Restricted Appraisal Report. In
addition, the report was also prepared to conform to the requirements of the
Code of Professional Ethics of the Appraisal Institute and the Financial
Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA), Title XI
Regulations.
In preparation of this appraisal, we investigated a sampling of improved sales
from a local, regional or national basis. We also analyzed rental data, and
considered the input of buyers, sellers, brokers, property developers and public
officials. Additionally, we investigated the general regional economy as well as
the specifics of the local area.
The scope of this appraisal required collecting primary and secondary data
relative to the subject property. The depth of the analysis is intended to be
appropriate in relation to the significance of the appraisal issues as presented
herein. The data have been analyzed and confirmed with sources believed to be
reliable, whenever possible, leading to the value conclusions set forth in this
report. In the context of completing this report, we have made a physical
inspection of the subject property. The valuation process involved utilizing
generally accepted market-derived methods and procedures considered appropriate
to the assignment.
The scope of this research, and the analysis contained herein, is reflective of
"the amount and type of information researched and the analysis applied in an
assignment" (2004 US PAP, page 5). This appraisal employs only the Income
Capitalization Approach. Based on our analysis and knowledge of the subject
property type and relevant investor profiles, it is our opinion that this
approach would be considered necessary and applicable for market participants.
The client has requested that we perform a restricted appraisal report.
Therefore, we have not employed the Cost Approach or the Sales Comparison
Approach to develop an opinion of market value.
Definitions of Value, Interest Appraised and Other Terms
The following definitions of pertinent terms are taken from the Dictionary of
Real Estate Appraisal, Fourth Edition (2002), published by the Appraisal
Institute, as well as other sources.
Market Value
Market value is one of the central concepts of the appraisal practice.
Market value is differentiated from other types of value in that it is
created by the collective patterns of the market. A current economic
definition agreed upon by agencies that regulate federal financial
institutions in the United States of America follows, taken from the
glossary of the Uniform Standards of Professional Appraisal Practice of The
Appraisal Foundation:
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:
1. Buyer and seller are typically motivated;
2. Both parties are well informed or well advised, and acting in what they
consider their own best interests;
3. A reasonable time is allowed for exposure in the open market;
4. Payment is made in terms of cash in US dollars or in terms of financial
arrangements comparable thereto; and .
5. 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.
Fee Simple Estate
Absolute ownership unencumbered by any other interest or estate, subject to the
limitations imposed by the governmental powers of taxation, eminent domain,
police power, and escheat.
Leased Fee Estate
An ownership interest held by a landlord with the rights of use and occupancy
conveyed by lease to others. The rights of the lessor (the leased fee owner) and
the leased fee are specified by contract terms contained within the lease.
Leasehold Estate
The interest held by the lessee (the tenant or renter) through a lease conveying
the rights of use and occupancy for a stated term under certain conditions.
Goinq-Concern Value
The value created by a proven property operation; considered as a separate
entity to be valued with a specific business establishment. Common going-concern
appraisals are conducted for assisted living facilities, nursing homes, hotels
and motels, restaurants, bowling alleys, industrial enterprises, retail stores,
and similar property uses. For these property types, the physical real estate
assets are integral parts of an ongoing business such that the market values
from the land and building are difficult, if not impossible, to segregate from
the total value of the ongoing business.
Market Rent
The rental income that a property would most probably command on the open
market, indicated by the current rents paid and asked for comparable space as of
the date of appraisal.
Cash Equivalent
A price expressed in terms of cash, as distinguished from a price expressed
totally or partly in terms of the face amounts of notes or other securities that
cannot be sold at their face amounts.
Market Value As Is on Appraisal Date
The value of specific ownership rights to an identified parcel of real estate as
of the effective date of the appraisal; related to what physically exists and is
legally permissible and excludes all assumptions concerning hypothetical market
conditions or possible rezoning.
Prospective Value Upon Completion of Construction
The value of a property on the date that construction is completed based on
market conditions projected to exist as of that completion date. This value is
not the market value as of a specified future date, but rather is a projected
value based on assumptions that mayor may not occur.
Prospective Value Upon Reaching Stabilized Occupancy
The value of a property as of a point in time when all improvements have been
physically constructed and the property has been leased to its optimum level of
long term occupancy. At such point, all capital outlays for tenant improvements,
leasing commissions, marketing costs, and other carrying charges are assumed to
have been incurred.
Exposure Time and Marketing Time
Exposure Time
Under Paragraph 3 of the Definition of Market Value, the value opinion presumes
that "A reasonable time is allowed for exposure in the open market". Exposure
time is defined as the length of time the property interest being appraised
would have been offered on the market prior to the hypothetical consummation of
a sale at the market value on the effective date of the appraisal. Exposure time
is presumed to precede the effective date of the appraisal.
The reasonable exposure period is a function of price, time and use. It is not
an isolated opinion of time alone. Exposure time is different for various types
of real estate and under various market conditions. As noted above, exposure
time is always presumed to precede the effective date of appraisal. It is the
length of time the property would have been offered prior to a hypothetical
market value sale on the effective date of appraisal. It is a retrospective
opinion based on an analysis of recent past events, assuming a competitive and
open market. It assumes not only adequate, sufficient and reasonable time but
adequate, sufficient and a reasonable marketing effort. Exposure time and
conclusion of value are therefore interrelated.
Based on discussions with market participants and information gathered during
the sales verification process, a reasonable exposure time for the subject
property at the value concluded within this report would have been approximately
twelve (12) months. This assumes the current owner employed an active and
professional marketing plan.
Marketing Time
Marketing time is an opinion of the time that might be required to sell a real
property interest at the appraised value. Marketing time is presumed to start on
the effective date of the appraisal. (Marketing time is subsequent to the
effective date of the appraisal and exposure time is presumed to precede the
effective date of the appraisal). The opinion of marketing time uses some of the
same data analyzed in the process of estimating reasonable exposure time and it
is not intended to be a prediction of a date of sale.
We consider, based on the assumptions employed in our analysis, as well as our
selection of investment parameters for the subject, that our value conclusion
represents a price achievable within twelve (12) months.
Legal Description
The Sangamon County assessor identifies the subject site as Assessor's Parcel
Number 14-32-127-005, 14-32-127-006 and 14-32-127-007. A legal description is
located in the Addenda section of this report.
REGIONAL ANALYSIS
[GRAPHIC OMITTED]
REGIONAL MAP
Introduction
A variety of factors and forces that interact within a given region influence
the short- and long-term value of real estate. Regional analysis serves to
identify those forces that affect property value, and the role they play within
the region. The four primary forces that influence real property value include
environmental characteristics, governmental forces, social factors, and economic
trends. These forces determine the supply and demand for real property, which,
in turn, affect market value.
The subject property is located in Springfield, within the central portion of
Sangamon County, which is in the central portion of Illinois.
Economic & Demographic Profile
The following profile of the Springfield MSA was provided by Economy.com, a
leading provider of economic, financial, and industry information.
Economy.com's core assets of proprietary editorial and research content as well
as economic and financial databases are a source of information on national and
regional economies, industries, financial markets, and demographics. The company
staffs economists, data specialists, programmers, and online producers who
create a proprietary database.
Economy.com's approach to the analysis of the U.S. economy consists of building
a large-scale, simultaneous-equation econometric model, which they simulate and
adjust with local market information, creating a model of the U.S. macro economy
that is both top-down and bottom-up. As a result, those variables that are
national in nature are modeled nationally while those that are regional in
nature are modeled regionally. Thus, interest rates, prices, and business
investment are modeled as national variables; key sectors such as labor markets
(employment, labor force), demographics (population, households, and migration),
and construction activity (housing starts and sales) are modeled regionally and
then aggregated to national totals. This approach allows local information to
influence the macroeconomic outlook. Therefore, changes in fiscal policy at the
national level (changes in tax rates, for example) translate into their
corresponding effects on state economies. At the same time, the growth patterns
of large states, such as California, New York, and Texas, playa major role in
shaping the national' outlook.
In addition, on a regional basis, the modeling system is explicitly linked to
other states through migration flows and unemployment rates. Economy.com's model
structure also takes into account migration between states.
Springfield, IL
Employemnt Growth Rank
Best=1 Worst=325
2002-04: 309: 5th quintile
2002-07: 266: 5th quintile
MSA LIFE CYCLE PHASE:Growth/Mature
Vitality (Best-1 Worst=325): 71(2nd quintile)
Cost of Doing Business (US=100%):98%
Cost of Living (US=100%):85%
Relative Employment Performance
[Graphic Omitted-Line Graph (1990-2007)]
1996 1997 1998 1999 2000 2001 2002 Indicators
6.6 6.7 6.8 6.9 7.1 7.1 7.1 Gross Metro Product, C$B
3.7 2.4 1.5 1.2 2.4 -0.3 0.7 % Change
112.0 112.1 114.1 113.6 115.3 115.5 115.3 Total Employment (000)
1.0 0.1 1.8 -0.4 1.5 0.2 -0.2 % Change
4.5 4.3 3.9 3.6 3.5 3.9 4.6 Unemployment Rate
6.1 3.8 5.7 2.3 6.5 4.1 2.1 Personal Income Growth
202.1 201.9 201.7 201.3 201.6 202.3 203.2 Population (000)
922 812 848 843 759 806 674 Single-Family Permits
209 121 105 303 170 113 256 Multifamily Permits
81.9 83.2 85.9 86.1 84.5 86.9 90.5 Existing Home Price($Ths)
575 695 1,273 782 589 1,525 1,900 Mortgage Originations($Mil)
- -0.2 -1.0 -0.9 -1.1 -0.6 0.0 0.2 Net Migration (000)
799 1,139 1,126 1,022 955 1,258 1,490 Personal Bankruptcies
Indicators
2003 2004 2005 2006 2007
Gross Metro Product, C$B 7.2 7.4 7.6 7.8 8.0
% Change 0.6 2.7 3.0 3.1 2.8
Total Employment (000) 111.9 113.0 115.3 117.7 119.3
% Change -2.9 0.9 2.1 2.0 1.4
Unemployment Rate 5.2 5.3 5.2 5.0 4.8
Personal Income Growth 2.7 3.4 3.8 4.0 4.0
Population (000) 204.1 205.2 206.5 207.8 208.9
Single-Family Permits 734 892 783 764 748
Multifamily Permits 423 125 116 137 153
Existing Home Price($Ths) 93.6 94.7 100.0 101.4 105.6
Mortgage Originations($Mil) 2,455 1,053 627 649 684
Net Migration (000) 0.2 0.3 0.5 0.5 0.3
Personal Bankruptcies 1,625 1,576 1,454 1,436 1 ,450
- -------------------------------------------
STRENGTHS AND WEAKNESSES
STRENGTHS
.. Below average business and living costs.
.. High level of housing affordability.
.. Low exposure to downsizing manufacturing
industries.
.. Concentration of stable employers in
healthcare and education.
WEAKNESSES
.. Lack of a significant economic
driver.
.. Disproportionate impact from state fiscal crisis.
.. Middling population
- ----------------------------------------
[GRAPHIC OMITTED-Bar Graph]
Current Employment Trends
December 2003 Employmnet Growth
% Change Year Ago
Total -2.6
Construction 3.7
Manufacturing -7.5
Trade 0.7
Trans/Utilities 4.9
Information -5.5
Financial Activities -3.6
Prof & Business Svcs 0.8
Edu & Heatlth Svcs -1.52
Leisure & Hospitality -1.0
Other Services -6.8
- ------------------------------------------
FORECAST RISKS
Short Term [Down Arrow]
Long Term [Up Arrow]
Risk-adjusted Return, '02-07: -0.16%
UPSIDE
.. The tourism industry recovers and expands more quickly than
anticipated.
.. Plans to increase state revenue come to fruition, solving budget
crisis.
DOWNSIDE
.. Further restructuring in healthcare industry
would have a large effect on SPR.
.. Slow recovery of slate economy will necessitate further government cutbacks.
- ------------------------------------
ANALYSIS
Recent Performance. The Springfield economy has yet to show signs of significant
growth. Weakness in government payrolls has been largely responsible for the
plight of the local economy, which depends on the government sector for growth.
However, the private sector, which also depends on the public sector in a number
of ways, is not performing much better, and has continued to suffer from severe
losses. As a result, the unemployment rate, while lower than state and national
aver-ages, is historically high for the area, at 5.4%. The general malaise
settling in on the SPR la-bor market has hurt consumer credit conditions, with
the bankruptcy filing rate climbing to well above state and national averages.
New budget. Governor Rod Blagojevich recently submitted a $43.5 billion
operations budget \\ith the hope of reducing the estimated $1.7 billion deficit
looming over the state of Illinois. The budget's solution will involve cutting
costs by $840 million and generating $945 million in new revenue on top of $280
million in estimated base revenue growth, without raising the sales or income
taxes.
While the absence of any increases in sales or income taxes will limit the
direct effects of the new budget on consumer spending, other parts of the
proposal will have significant ramifications for the SPR economy if approved.
Several state agencies will face budget cuts, and as most are located in SPR,
the state capital, pay-roll cuts from these agencies will mean more job losses
in SPR. Furthermore, because the budget plan does not address the escalating
costs of the State Employees Retirement Fund, government employees who have
retired in the SPR area may find themselves \\ith reduced pensions from the
state government.
Government weight. Because of the high proportion of government employees in
SPR, losses in that sector will have a more severe effect on the SPR economy
than similar losses would have on a metro area more dependent on other
industries. A decline in government payrolls means a drop in overall consumer
demand, which means that retail and other service sectors will suffer. Moreover,
if the State Employees Retirement Fund remains underfunded, retired government
employees may be unable to pay for healthcare, lowering demand and muting the
growth of the healthcare industry in the area.
National Guard. The SPR economy is sup-ported a great deal by the presence of
the Illinois National Guard. Aside from being one of the largest employers in
the area with 2,700 employees, the Guard is able to attract federal and state
funding for projects that help encourage growth in the SPR area. One recent
example is a new joint-use armory and field house that should be completed in
August 2004. The project received $2.9 million in federal funding and $2 million
in state funding, and will provide a home to Company C, 1st Battalion, 178th
Infantry, and the East High School Naval Junior Reserve Officer Training Corps
program. While the new facility will have a minimal impact on employment growth,
it should attract larger numbers of trainees, which "ill support further growth
in retail services through greater demand.
Net job loss should end in the Springfield economy this year. Concerns over the
state budget, however, continue to threaten this outlook. Budget troubles could
result in more public sector job cuts and reduced retirement benefits, which
would undoubtedly hamper any economic recovery. Longer term, the SPR metro area
lacks significant growth drivers to propel itself forward. Furthermore, weak
demographic trends and population growth will restrict housing development,
labor force growth, and demand for local goods and services. SPR will therefore
be a below average performer.
Collin Peng-Sue
February 2004
- ------------------------------------------
TOP EMPLOYERS
Memorial Health System 3,400
St. John's Hospital 2,839
Illinois National Guard 1,700
Roman Catholic Diocese 1,600
Horace Mann Insurance Company 1,280
Blue Cross and Blue Shield Association 1,200
SIU School of Medicine 1,200
SBC Communications, Inc. 900
Springfield Clinic, LLP 900
Cingular Wireless 706
University of Illinois 655
Express Personnel Services 650
McGraw Enterprises, Inc. 650
American General Financial Group 600
Hardees of Springfield 600
Levi Ray & Shoup, Inc. 500
Meijer, Inc. 500
Freeman United Coal Company 470
Lincoln Land Community College 405
Cub Foods of Springfield 400
Source: Springfield Chamber of Commerce, May 2003
Public
Federal 2,201
State 19,957
Local 10,627
2002
- -------------------------------------------
COMPARATIVE EMPLOYMENT AND INCOME
% of Total Employment Average Annual Earnings
Sector SPR IL US SPR IL US
Construction 4.8% 4.7% 5.2% $35.292 $48,420 $39,845
Manufacturing 3.4% 12.8% 12.0% $38.464 $49.710 $48.756
Durable 65.9% 60.7% 62.0% nd $50,119 $50,404
Nondurable 34.1% 39.3% 38.0% nd $49,043 $45,969
Transport
Utilities 1.8% 4.4% 3.6% nd $45.020 $44,972
Wholesale Trade 3.1% 5.2% 4.4% $45.106 $58,203 $51,842
Retail Trade 10.4% 10.7% 11.7% $19.221 $22,743 $22,635
Information 3.0% 2.5% 2.6% $38.980 $63.325 $69,569
Financial
Activities 7.2% 6.8% 6.0% $30.502 $45,883 $41,740
Prof. and Bus.
Services 8.9% 13.4% 12.4% $33,149 $51,215 $43,053
Educ.and Health
Services 14.5% 12.1% 12.5% $39,281 $34,012 $34.032
Leisure and Hosp.
Services 8.9% 8.4% 9.0% $12,721 $19,091 $19,135
Other Services 5.6% 4.3% 3.9% $22,620 $22,568 $19.842
Government 28.4% 14.6% 16.2% $48,121 $44,927 $42,939
<FN>
Source: Percent of total employment - Economy.com & BLS, 2002; Average annual
earnings - BEA, 2001
</FN>
- ---------------------------------------
HOUSE PRICES
[Graphic Omitted-Line Graph 1987-2003]
CREDIT QUALITY
Fitch: N/A
Moody's: N/A
LEADING INDUSTRIES
NAICS Industry Employees (000)
GVSL Sale & Local Government 30.6
6221 General Medical and Surgical Hospitals 5.3
5241 Insurance Carriers 3.7
5617 Services to Buildings and Dwellings 3.1
6211 Offices 01 Physicians 2.6
4521 Department Stores 2.0
8139 Bus. Prof. Labor. Political. & Similar Org. 1.8
2360 Construction of Buildings 1.7
6231 Nursing Care Facilities 1.6
5413 Architectural, Engineering, & Related Services 1.4
5412 Accting., Tax Prep., Bookkeeping & Payroll 1.3
8134 Civic and Social Organizations 1.2
4529 Other General Merchandise Stores 1.1
6111 Elementary and Secondary Schools 1.1
3344 Semi. & Other Electronic Component Manuf. 0.9
High-tech employment 4.3
As % of total employment 3.7
<FN>
Source: BLS, Economy com, 2002
</FN>
- ----------------------------------
INSUSTRIAL DIVERSITY
SPR=0.52 (1.00= Most Diverse (U.S.), 0.00= Least Diverse)
EMPLOYEE VOLATILITY
Due to U.S. Fluctuations:
60% Not due to U.S.
40% Due to U.S.
Relative to U.S.
US = 100
SPR = 74
MIGRATION FLOWS
Into Springfield Number Median
of Migrants Income
Chicago 570 23,773
St. Louis 376 22,336
Decatur 301 20,237
Champaign 183 21,874
Peoria 170 22,106
Bloomington 137 27,499
San Diego 46 21,874
Phoenix 43 16,249
Rockford 35 19,499
Indianapolis 34 20,832
Total Inmigration 6,816 20,832
From Springfield
Chicago 517 26,739
St. Louis 491 25,328
Decatur 204 22,499
Peoria 177 25,858
Bloomington 161 23,181
Champaign 157 19,999
Phoenix 92 20,555
Indianapolis 46 21,666
Tampa 42 14,622
Houston 36 54,999
Total Outmigration 6,626 21,562
Net Migration 190 -731
- ------------------------------------
Net Migration, SPR
[GRAPHIC OMITTED-Bar Graph]
Domestic Foreign Total
1998 -1,198 263 .935
1999 -1,428 325 .1.103
2000 .769 210 .559
2001 -159 131 .28
2002 86 129 215
<FN>
Source: IRS (top), 2002; Census Bureau & Economy. com, 2002
</FN>
- ----------------------------------------------
PER CAPITA INCOME
[GRAPHIC OMITTED]
SPR
31,037
IL
32,990
US
30,413
Source: Bureau of Economic Analysis, 2001
- -----------------------------------------------
Springfield, IL
[GRAPHIC OMITTED-Line Graph]
Low Cost Housing in Springfield
One of the reasons behind SPR's low cost of living is the abundance of
affordable homes in the area. According to Economy.com's housing affordability
index, homes in SPR have been consistently much more affordable than in the u.s.
as a whole. This is due in large part to the inability of the SPR economy to
create a significant number of jobs. The lack of job growth has depressed demand
for housing, limiting the rate of price appreciation.
[GRAPHIC OMITTED-Line Graph]
Government Protects Springfield During Recessions.
While significant job growth has been lacking in the SPR metro area of late, the
area has still managed to outperform the nation. One of the main reasons behind
the area's apparent immunity to national recessions is its status as the
Illinois state capital, which ensures an above average number of government jobs
in proportion to total employment in the area. This helped the area keep
payrolls relatively steady as lllinois lost jobs more quickly than the nation as
a whole.
[GRAPHIC OMITTED-Line Graph]
But Leaves It Vulnerable to Budget Shortfalls
The problem with above average dependence on anyone sector, of course, is that
dependence can hurt an economy further down the road. Indeed, even as the
national economy pulled itself out of recession, the Illinois state government
found itself awash in debt, and was forced to cut payrolls. Thus, the large
government presence in SPR has become a hurdle in the way of recovery. With the
government facing a budget shortfall of $1.5 to $2 billion for. the fiscal year
2005, it is unlikely that government payroll growth will accelerate any time
soon. .
[GRAPHIC OMITTED-Line Graph]
Migration Turnaround
One positive facet of the SPR economy is its positive migration outlook. While
it experienced persistent out-migration over the latter part of the 1990s, the
negative trends have subsided, and migration is positive once more. Further
improvement in SPR's migration trends would help to bolster labor force growth,
and thereby help attract new businesses into the area. In addition, stemming the
flow of out-migrants will provide support for SPR's housing market, which has
faced weak demand in recent years.
Critical Observations
The following bullet points summarize some of our general observations relating
to the subject's region.
Social Influences
.. Springfield's current population is 205,200 people.
.. The population increased 1.94 percent from 1999-2004. Forecasts indicate
1.80 percent total population growth between 2004 and 2007.
.. Migration trends have been poor throughout the latter part of the 1990's,
although recent trends indicate steady in-migration that could potentially
lead to a favorable population growth rate. Those leaving Springfield are
going to Chicago, St. Louis and Decatur.
.. As of 2003, the average per capita income in the Springfield MSA was
$31,037, which is slightly above the National average of $30,413, but lower
than the State average of $32,990. Personal income growth is expected to
increase by 3.4 percent in 2004.
Economic Influences
.. The largest employment sectors are Services (32.3%), Government (28.4%) and
Retail Trade (10.4%).
.. The top three employers are Memorial Health Insurance, St. John's Hospital
and Illinois National Guard.
.. Springfield's housing affordability has been consistently below the
national average for years. Depressed labor force conditions can partially
account for the low demand in housing, thus limiting the rate of
appreciation.
.. As of February 2004, the unemployment rate for Springfield was 5.9 percent,
which is above the national average of 5.6 percent, but below the state
average of 6.8 percent.
.. The only industries experiencing growth between December 2002 and December
2003 were Construction (3.7%) and Trans/Utilities (4.9%). Manufacturing
experienced the largest decline in employment of 7.5%.
.. Out of a total of 325 metropolitan statistical areas in the United States,
Springfield ranks 266th in terms of expected employment growth between
2002-2007.
Government Influences
.. The government is supportive of business and is considered pro-growth.
Government incentives for growth include an enterprise zone; tax increment
financing and business incentives are available for qualifying commercial
interests.
.. The present economic weakness in the economy has had a negative effect on
State and local treasuries, resulting in cuts in services and an increased
risk of higher taxes. However, it is noted that this circumstance is common
among most MSA's.
Environmental Influences
.. The Springfield MSA is located in Sangamon County in central Illinois. The
region is served by several interstates including I-55 and 1-72, which
provide access to several major markets including St. Louis, Chicago and
Indianapolis. 35 Intrastate and 74 Interstate trucking companies serve the
region, while the community supports 41 truck terminals. Capital airport
provides daily commercial flights and five railroads serve Sangamon County.
.. Springfield is approximately 98 miles from St. Louis, 204 miles from
Chicago, 207 miles from Indianapolis, 337 miles from Kansas City, 457 miles
from Detroit and 635 miles from Atlanta.
Conclusion
In light of the social and economic attributes of the greater Springfield area,
it is clear that the region benefits by the following:
.. Below average business and living costs
.. High level of housing affordability
.. Low exposure to downsizing manufacturing industries
.. Concentration of stable employers in healthcare and education
Concurrently, there are inherent risks to the economic health of the
metropolitan area, including the following:
.. Lack of significant economic driver
.. Disproportionate impact from state fiscal crisis.
.. Middling population trends
The Precis report indicates that the Springfield economy is stagnant. The
state's fiscal budget crisis is having a disproportionate effect on Springfield
due to the large amount of government jobs associated with the state capital.
The Governor of Illinois recently submitted a $43.5 billion operations budget
with the hope of decreasing the estimated $1.7 billion state deficit. One of the
solutions in this plan is to cut spending by $840 million that will undoubtedly
cut jobs in Springfield. Since government jobs account for nearly 28 percent of
the workforce, the repercussions of a mass layoff would affect numerous
industries in Springfield. The presence of the National Guard in Springfield
bodes well for the area not only because it is one of the largest employers, but
also because projects developed through state and federal funding attracts
trainees to the area that support retail services. However, The Base Realignment
and Closure (BRAG) Commission is coordinating the Defense Department's effort to
assess current military facilities and make recommendations for base closings
for 2005. Springfield houses one of three Air National Guard Bases in Illinois
that BRAC is assessing with the expectation that at least one will be closed.
The economic impact of the Springfield base closing would be highly detrimental
to the local economy. Overall, the Springfield region lacks favorable population
trends and significant growth drivers that would enable possible long-term
growth. The additional threat of severe government cutbacks and the possible
closure of the National Guard base dampen an optimistic outlook over the
forecast horizon.
[GRAPHIC OMITTED-Map]
LOCAL AREA ANALYSIS
Location
.. The property is located in Sangamon County, within the greater Springfield
area, which is in central Sangamon County. Springfield is the county seat
of Sangamon County and the State Capital of Illinois. Eleventh Street
borders the neighborhood to the east, Walnut Street to the west, Carpenter
Street to the north, and South Grand Avenue to the south.
.. The subject is located in the central portion of Sangamon County. This area
is a middle income urban area of average desirability.
Access
.. The area is accessed by Interstate 55, which runs north and south along the
east side of the city. And Interstate 72, which runs east and west
intersecting with I-55 south of town cascading around the city on the
southeast side of the city. The subject is located at the along West Adams
Street between Pasfield Street and College Street, both secondary
north/south transportation artery which provides access to the area, and
Jefferson and Washington Streets, which are primary east/west
thoroughfares.
.. The subject property has good exposure from West Adams Street, Pasfield
Street, and College Street. Driveways on Pasfield Street and College Street
provide vehicle access to the subject site. The subject property also has
good access to the area's freeway network with an interchange approximately
two miles east of the subject, at Clearlake Avenue and I-55.
Neighborhood Characteristics
.. A mix of single- and multi-tenant office buildings characterizes the
immediate area of the subject property. In general, the properties in the
subject's district are generally compatible in nature and were constructed
from the early 1960's to late-1980's. The majority of the commercial
properties near the subject are average-to-good facilities typical of a
secondary street in an urban area. Development in this area includes a mix
of commercial and very limited residential uses. The immediate area of the
subject property generally compromises commercial land uses.
.. Properties adjacent to, or in the immediate vicinity of, the subject
includes a few single family homes followed of office development to the
south along West Adams Street; office development to the north; to the east
is a office development; and to the west is a commercial parking lot.
.. Several arterial roads intersect West Adams Street. The roads all lead to
well established residential neighborhoods. The subject's immediate area
can be described as being in the mature stage of its life cycle.
Demographics
.. At demographic chart is located at the end of this section.
Special Hazards or Adverse Influences
.. No special hazards or adverse influences within the subject's immediate
neighborhood were noted.
Conclusion
.. The subject's neighborhood is considered to be a desirable and viable area
suitable for office development over the long run, due to its location,
relative ease of access and its proximity to a significant population base.
It appears that the market in the Springfield area is very strong, due
primarily to the recent economic improvement and limited amount of
speculative development.
.. The trends for the local area appear stable but healthy. The local
population is growing slowly because the area is nearly fully developed.
Employment is steady with a short-term slowdown in 2003. Housing values are
predicted to grow over the next five years.
.. The near-term health of the local area is good with stable real estate
values. The senior housing developments in the local area should experience
a positive influence.
DEMOGRAPHIC PROFILE
1700 WEST WASHINGTON
SPRINGFIELD, ILLINOIS
3.0 MILES 6.0 MILES 6.0 MILES
Population
2000 Population 76,159 126,730 126,730
2003 Population 75,190 126,060 126,060
2006 Population 73,771 127,237 127,237
% Change 2000 to 2003 -0.43% -0.17% -0.17%
% Change 2003 to 2006 -0.36% -0.13% -0.13%
Per Capita Personal Income
2000 Per Capita Personal Income $24,162 $22,699 $22,699
2003 Per Capita Personal Income $26,632 $25,773 $25,773
2006 Per Capita Personal Income $31,392 $30,424 $30,424
% Change 2000 to 2003 3.53% 4.02% 4.02%
% Change 2003 to 2006 3.19% 3.37% 3.37%
Households
2000 No. Households 34,666 56,236 56,236
2003 No. Households 34,521 56,503 56,503
2006 No, Households 34,366 57,069 57,069
% Change 2000 to 2003 -0.14% 0.16% 0.16%
% Change 2003 to 2006 -0.09% 0.20% 0.20%
Persons Per Household
2000 Persons Per Household 2.14 2.24 2.24
2003 Persons Per Household 2.12 2.22 2.22
2006 Persons Per Household 2.09 2.16 2.16
% Change 2000 to 2003 -0.30% -0.33% -0.33%
% Change 2003 to 2006 -0.30% -0.34% -0.34%
Average Household Income
2000 Avg Household Income $52,516 $51,642 $51,642
2003 Avg Household Income $56,030 $56,042 $56,042
2006 Avg Household Income $66,975 $67,454 $67,454
% Change 2000 to 2003 3.36% 3.64% 3.64%
% Change 2003 to 2006 2.91% 3.05% 3.05%
Income Ranges
Median Income $42,066 $43,753 $43,753
$150,000 or more 4.95% 4.42% 4.42%
$100,000 to $149,000 6.52% 6.55% 6.55%
$75,000 to $99,999 9.70% 10.39% 10.39%
$50,000 to $74,999 17.43% 19.13% 19.13%
$35,000 to $49,999 17.63% 16.01% 16.01%
$25,000 to $34,999 13.56% 12.69% 12.69%
$15,00010 $24,999 13.43% 13.14% 13.14%
Under $15,000 14.57% 13.47% 13.47%
2000 Median Income $37,575 $39,196 $39,196
2006 Median Income $47,707 $49,677 $49,677
Occupancy
2000 Occupied Housing Units 36,556 61,660 61,660
Owner Occupied 52.36% 56.71% 56.71%
Renter Occupied 37.52% 32.20% 32.20%
Education 2000 Population
25+ by Education level 52,013 67,172 67,172
Bachelors Degree
Only 19.47% 17.63% 17.63%
Graduate Degree 13.36% 10.90% 10.90%
Retail Trade Potential 2002
Total Retail
Sales $1,224,020,156 $2,004,250,630 $2,004,250,630
Apparel Accessory $27,132,676 $44,535,079 $44,535,079
Automotive Dealers $259,029,463 $424,529,691 $424,529,691
Automotive & Home
Supply Stores $7,674,591 $12,655,772 $12,655,772
Drug & Proprietary Stores $57,093,699 $93,612,066 $93,612,066
Eating & Drinking Places $127,062,757 $206,240,790 $206,240,790
Food Stores $134,167,644 $219,662,610 $219,662,610
Furniture Home
Furnishing Stores $26,753,419 $43,940,645 $43,940,645
Home Appliance, Radio,
& TV. Stores $35,117,464 $57,516,274 $57,516,274
Gasoline Service Stations $66,242,115 $111,591,977 $111,591,977
General Merchandise $123,566,714 $201,907,916 $201,907,916
Department Store $104,536,339 $170,612,604 $170,612,604
Hardware, lumber &
Garden Stores $54,632.204 $69,362,645 $69,362,645
SPRINGFIELD SANGAMON
COUNTY, IL
Population
2000 Population 111,454 166,951
2003 Population 111,230 169,922
2006 Population 111,003 191,921
% Change 2000 to 2003 -0.07% 0.17%
% Change 2003 to 2006 -0.04% 0.21%
Per Capita Personal Income
2000 Per Capita Personal Income $23,460 $23,173
2003 Per Capita Personal Income $26,453 $26,359
2006 Per Capita Personal Income $31,373 $31,097
% Change 2000 to 2003 4.05% 4.39%
% Change 2003 to 2006 3.47% 3.36%
Households
2000 No. Households 46,621 76,722
2003 No. Households 46,999 79,900
2006 No, Households 49,717 62,061
% Change 2000 to 2003 0.26% 0.50%
% Change 2003 to 2006 0.29% 0.54%
Persons Per Household
2000 Persons Per Household 2.24 2.36
2003 Persons Per Household 2.22 2.34
2006 Persons Per Household 2.16 2.3
% Change 2000 to 2003 -0.33% -0.32%
% Change 2003 to 2006 -0.33% -0.33%
Average Household Income
2000 Avg Household Income $53,223 $55,094
2003 Avg Household Income $59,641 $62,295
2006 Avg Household Income $69,643 $72,361
% Change 2000 to 2003 3.67% 4.16%
% Change 2003 to 2006 3.15% 3.04%
Income Ranges Median Income $44,443 $46,413
$150,000 or more 4.62% 4.77%
$100,000 to $149,000 9.11% 10.23%
$75,000 to $99,999 10.62% 12.34%
$50,000 to $74,999 16.65% 20.62%
$35,000 to $49,999 17.60% 17.40%
$25,000 to $34,999 12.70% 11.60%
$15,00010 $24,999 12.55% 11.36%
Under $15,000 13.55% 11.26%
2000 Median Income $39,676 $43,606
2006 Median Income $51,030 $56,465
Occupancy
2000 Occupied Housing Units 53,733 65,459
Owner Occupied 56.61% 64.45%
Renter Occupied 33.66% 27.66%
Education
2000 Population 25+
by Education level 75,366 126,620
Bachelors Degree Only 16.96% 16.26%
Graduate Degree 11.62% 10.30%
Retail Trade Potential 2002
Total Retail
Sales $1,741,970,762 $2,653,331,173
Apparel Accessory $36,604,961 $63,954,523
Automotive Dealers $366,766,624 $604,704,020
Automotive & Home Supply Stores $11,150,360 $16,059,665
Drug & Proprietary Stores $61,469,964 $134,075,764
Eating & Drinking Places $161,199,363 $297,049,674
Food Stores $190,756,663 $311,729,775
Furniture Home Furnishing Stores $36,233,051 $63,044,691
Home Appliance, Radio, & TV.
Stores $50,054,607 $62,117 ,324
Gasoline Service Stations $96,666,454 $157,704,662
General Merchandise $175,392,663 $285,647,075
Department Store $146,361,256 $241,655,601
Hardware, lumber & Garden Stores $77 ,600,571 $126,676,002
SENIOR LIVING INDUSTRY OVERVIEW
Independent Living
Congregate care or independent living units are designed for seniors who pay for
some congregate services (Le. housekeeping, transportation, meals, etc.) as part
of the monthly fee or rental rate, and who require little, if any, assistance
with activities of daily living. Residents of congregate/independent living
units may also receive some health care services provided by in-house staff or
an outside agency. Congregate units may be part of an "age in place" residence,
a property that provides assisted living services, or a continuing care
retirement community.
The retirement housing industry has matured considerably over the past two
decades as the elderly population increased and more senior housing alternatives
are sought. Retirement housing expanded beyond the early dominance of life care
and continuing care retirement communities (CCRCs). These communities, which
typically included independent living and nursing care on a single campus,
typically charge residents a high entrance fee and a moderate monthly service
fee. Rental retirement communities represented a major area of growth in the
1980s, fueled in part by the Department of Housing and Urban Development's 221
(d)(4) Retirement Service Center mortgage insurance program. Although the
program no longer exists, the rental model is still a popular option for newly
developed retirement communities. In addition, a small but distinct increase in
the number of cooperatives and condominiums occurred, particularly in
communities targeting a more affluent segment of the elderly population.
Today's retirement community is generally a smaller complex consisting of 100 to
200 independent living units as compared to the 200 to 300 independent living
units that characterized the early CCRCs. In some cases, communities are
developed in stages to avoid some of the up front risk associated with initial
lease-up, and to allow the facility to be more responsive to market needs and
preferences.
The rental retirement communities of the early 1980s typically offered no
nursing care or assistance with daily living. Rather, these facilities were
designed to provide hospitality services such as meals, housekeeping,
transportation, and recreational activities. These facilities met with slow
lease-up rates and exceedingly high turnover due to their inability to meet
changing needs of residents.
Independent living communities, particularly rental communities, are the least
heavily monitored and the least governed by state regulations of all senior
housing communities. In some states, this has resulted in a fair degree of
flexibility in providing additional services.
Over the past ten years, retirement communities have been attracting an older
and somewhat frail population than originally anticipated. The average age of
entrance into an independent living facility is between the late 70's and early
80's, rather than the late 60's and early 70's as originally anticipated. As a
result of the change in resident profile, as well as the experience gained in
the 1980s, it is clear that some form of health care or supportive services for
the frail elderly is a necessary component of a retirement community.
Assisted Living
The emergence of assisted living in the 1990s as an option in the long-term care
continuum for elders represented the convergence of social, political, economic
and treatment trends. Prior to this time, most dependent seniors had only two
long-term care options: be cared for by a family member or enter an
institutionalized nursing home. Today, these limited options are inadequate to
serve the diverse needs of the elderly population. For many elderly, individual
nursing homes are overly intensive, expensive and institutional. In response,
assisted living is a favored form of long-term care for those seniors with
moderate to intermediate care needs.
The Assisted Living Facilities Association of America (ALFAA) defines assisted
living as a special combination of housing, personalized supportive services and
health care designed to respond to the individual needs of those who require
help in activities of daily living, but do not need the skilled medical care
provided in a nursing home. Assisted living care promotes the maximum
independence of dignity for each resident and encourages the involvement of a
resident's family, neighbors and friends.
Although the general characteristics and philosophy behind assisted living are
consistent throughout the country, there is no consensus on a legal definition
of this term. Some states enacted laws using the term assisted living; however,
in most jurisdictions, licensure statutes contain a variety of programs and
services. In referring to residential housing and services, most state licensing
laws use terms such as: rest homes, homes for the aged, supportive living
facilities, residential care facilities, board and care homes, elderly group
homes, congregate care housing and senior housing.
Assisted living programs are located in a variety of environments. They may be
housed in newly constructed freestanding facilities, retrofitted buildings such
as former hotels, units attached to nursing homes, senior apartments with
services, units within CCRC developments and congregate care units. Whatever the
environment, facilities must provide private units, or at a minimum, companion
suite residential living space.
Typically, a resident will have a compact studio or efficiency apartment with a
private bathroom. The living space mayor may not include a kitchenette (sink and
small refrigerator), a living room or storage space. Economics generally dictate
the size of the private living space, which can range from a small one-room
efficiency of less than 300 square feet to a large two-bedroom apartment of
750:t square feet or larger.
Assisted living residences also provide for a considerable amount of common
space for the residents. Newer assisted living facilities generally allocate
from 30 percent to 40 percent of the total gross square footage of the building
to common areas. Such space includes dining rooms, libraries, lounges, activity
centers, kitchens and laundry rooms. The size of an assisted living facility
depends on many variables, including market forces and site constraints. Most
new freestanding facilities typically provide 40 to 100+ units.
The level of service in assisted living facilities varies substantially.
However, there are certain basic services generally offered including:
.. 24-hour a day on-site supervision or access to an emergency call system; .
Two or three meals and regular snacks are available;
.. Light housekeeping and laundry services are available;
.. Some level of daily personal care from the facility staff;
.. A personalized health care plan delineating how a resident's health care
needs may be addressed; and
.. Recreational activities, social services and transportation resources.
An objective of assisted living is to enable residents to age in-place. Thus,
the level of personal care, congregate services or health care services may be
adjusted upwards as needed. However, this may prove difficult if residents
increasing amounts of nursing care since state law may limit or prohibit skilled
nursing care in assisted living facilities. Despite this issue, there is a
growing trend by states to extend the scope of assisted living services far into
the long-term care continuum.
The typical resident of assisted living is 83 years old, a woman and single or
widowed. Today's assisted living residents have care needs and characteristics
previously associated with patients in intermediate care nursing homes in the
1970s and 1980s. Senior care needs are gauged by the extent to which an
individual requires regular assistance with ongoing activities of daily living
(ADLs) such as bathing, eating, walking, toileting and dressing. In order to
determine that there is an ADL dependency, a clinician must determine that an
individual cannot safely or routinely perform a specific activity without
assistance and that individual. Unless such help is provided, the individual is
at risk of not meeting an essential daily need.
While the number of ADLs with which a person needs assistance is used clinically
as a measure of dependency, such dependency does not necessarily mean that
medical care is required. In assisted living facilities, residents generally
have at least one ADL dependency, and it is not uncommon that they have as many
as three or four.
Assisted living fees typically include a fixed monthly amount that covers both
housing and services. The monthly amount generally includes a base level of
personal care with additional personal care charged separately. There also may
be entrance fees, typically equivalent to the first and last month's rent.
Assisted living facilities do not require the large endowment type entrance fees
demanded in some CCRCs.
Occupancy Patterns
Occupancy data compiled by the American Seniors Housing Association (ASHA) for
the various senior housing community types (congregate, assisted and CCRCs) has
been summarized in the following table.
Median Occupancy Rates (National)
For Profit Senior Housing Facilities
Property Type 1996 1997 1998 1999 2000 2001 2002 2003
Independent 98.0% 96.0% 98.0% 95.0% 95.0% 94.5% 93.1% 91.5%
Assisted Living 95.0% 95.0% 92.0% 94.0% 90.0% 93.8% 94.2% 91.0%
CCRCs 95.0% 94.0% 95.0% 93.2% 93.2% 93.1% 92.4% 92.0%
All Communities 96.0% 95.0% 95.0% 93.7% 93.7% 94.0% 93.5% 92.0%
<FN>
Source: American Seniors Housing Association
</FN>
Independent living facilities in 2003 exhibited one of the lowest occupancy rate
of any of the facility types. This represented a moderate decline over the
average rate in 2002. Overall, all of the facility types saw average occupancies
decline over that reported in 2002.
The average length of stay in a senior housing facility also varies with the
facility type. Following is a table that sets forth the average length of stay,
based on data compiled by ASHA.
Average Resident Length of Stay
(Stated In Months)
Property Type 1999 2000 2001 2002 2003
Independent 43.4 38.1 43.1 33.4 37.8
Assisted Living 18.5 20.5 28.0 17.7 20.7
All CCRCs
Independent 45.4 59.8 37.3 37.0 48.5
Assisted Living 18.2 16.8 12.8 12.0 18.8
Nursing 23.2 18.6 9.0 9.0 15.5
<FN>
Source: American Seniors Housing Association
</FN>
The average length of stay in an independent living facility nationally in 2003
was 37.8 months, reflecting an increase over the average length of stay for
2002. In 2003, all facility types showed an upward trend in occupancy in
contrast to the rather significant decline for independent and assisted living
facilities in 2002, the decline of which was the result of increased lateral
movement of residents between existing facilities caused by such factors as
facility operational problems (e.g., management, staffing), as well as
foreclosures and closings of poorly operated facilities.
Absorption Trends
Net absorption data compiled by ASHA for senior housing facilities is summarized
in the following table. We note that this is the most recent information that
has been published.
2001 National Average Net Absorption Rates
Senior Housing Facilities
1st Months Months 2nd 3rd
Property Type Month 2-6 7 -12 Year Year
Independent 25.5 6.7 3.7 2.8 2.9
Assisted Living 11.7 5.2 2.9 2.2 5.3
CCRCs 37.4 18.9 9.0 5.5 4.1
All Communities 28.4 10.3 5.2 3.5 4.1
<FN>
Figures based on number of residents
Source: American Seniors Housing Association
</FN>
As seen, initial absorption of new residents for all facility types is strong in
the first month, but then tapers off during the following months.
COMPETITIVE MARKET ANALYSIS
Primary Market Area
The first step in analyzing the competitive market for the subject is
delineating its primary market area (PMA). The PMA is typically described as
either a defined radius around the subject, zip codes, or it can be the county
or township in which the property is located.
In order to delineate the subject's PMA, our analysis evaluated industry trends,
an interview with the subject's General Manager as well as representatives at
the competitive properties we used in our analysis.
Industry Trends
National surveys conducted by two senior housing associations regarding
relocation trends for senior housing is presented below. These figures denote
the percentage and distances involved of residents who have relocated to a
senior housing project.
Relocation Trends - Senior Living Facilities
AAHSA ALFA
Independent Assisted Independent Assisted
Living Living Living Living
Under 5 Miles 25% 55% 22% 29%
5 -10 Miles 21% 15% 18% 24%
10 - 15 Miles 11% 8% 16% 17%
15 - 25 Miles 10% 8% 20% 14%
Over 25 Miles 35% 14% 24% 16%
<FN>
Sources: AAHSA - American Association of Homes and Services for the Aging (1998)
ALFA - Assisted Living Federation of America (2000)
</FN>
Both studies show a relatively similar percentage of relocation trends for
independent living residents, however, the percentages for assisted living
differed greatly on the percentages of residents relocating from under five
miles.
Local Trends
Our discussion with the marketing directors at the subject and the competing
facilities indicated that approximately 75 percent of the subject's residents
come from Sangamon County. This encompasses a radius of approximately 6 miles.
The remaining percentage emanate from the greater Springfield MSA. Residents
relocate to Springfield to either retire or be near their adult children that
work in the area.
Based on the data, we have determined the PMA of the subject to encompass an
area of approximately 6 miles with 75 percent of the residents emanating from
the PMA. Although a property like the subject may also attract residents from
outside of the area, the geographic market area within a radius of 6 miles of
the subject is considered to represent the primary draw for the subject. As
indicated on the chart, the subject's PMA of 6 miles is similar to the
comparables.
Most of the marketing directors we interviewed also indicated that adult
children in this local market are the driving forces in the decision making
process for their parents.
Supply/New Construction
No new projects are currently under construction; therefore, the market is not
expected to have any additional supply
Existing Facilities
Because of the subject's levels of personal care services, and type of
amenities, the personal care homes in the market with less than 20 beds do not
generally compete directly with the subject. However, the following charts
detail the number of independent living units in the subject's market area that
pose direct and indirect competition to the subject. We note that the table
includes facilities located in both the subject's primary and secondary market
area in Springfield.
MARKET AREA SUPPLY
Name Total Units PMA/SMA*
Brenden Gardens 112 PMA
Montvale Estates 121 PMA
SUBJECT 129
-----
Totals 362
<FN>
. PMA - Primary Market Area; SMA - Secondary Market Area
</FN>
Proposed Units
Regarding planned or pending projects in the subject's PMA, discussions with
local providers and municipal planning departments indicated that there are no
facilities planned at this time. However, because of the large retirement draw
of the market area, it would be reasonable to assume that the PMA could possibly
see some new development through the mid-term.
Occupancy Patterns
Industry Statistics
Independent living facilities generally exhibit the highest occupancy patterns
of any of the senior housing community types (congregate, assisted and CCRCs).
As was noted earlier, independent living facilities had an average occupancy
rate of 91.5 percent in 2003 (which represented a decline from 93.1 percent in
2002), and was only slightly higher than assisted living facilities at 91.0
percent.
Competitive Market Area
The senior living facilities we surveyed for our analysis totaled approximately
233 units and the current reported occupancy of those properties, which were not
in lease-up ranged from 84 to 99 percent. Oak Terrace Retirement Apartments was
at 88 percent occupancy at the time of inspection. The subject appears to have a
good reputation in the market. The following table summarizes the competitive
properties and their reported occupancy levels. Please note that not all of
these properties may fall within the defined market area of the subject;
however, in the Senior Demographics section we defined the total competitive
supply in the subject's primary market area.
DEFINED COMPETITIVE FACILITIES
Name Total Units Occupancy Level
Brenden Gardens * 112 84%
Montvale Estates * 121 90%
SUBJECT 129 88%
<FN>
* Denotes facilities located in subject's primary market area.
</FN>
Rental Rates
Current rental rates for independent living units in the Springfield area begin
at approximately $1,200 per month for a studio unit and increase to
approximately $2,500 per month for a two-bedroom unit. In general, independent
living facilities provide one two three meals per day, weekly to bi-weekly
housekeeping, weekly laundry, all utilities except telephone and cable TV,
recreation activities and scheduled transportation.
Rent Increases
Most independent living facilities in the Springfield market area instigated
annual rent increases over the last several years. Although no specific data was
available, discussions with several providers indicated that they routinely
increase rents between three and five percent per year. Discussions with the
subject's Executive Director indicated that the facility also increased rents
annually over the last several years.
Concessions
Rent concessions, or incentives, provide a good indication of the condition, or
strength of current local market conditions. Rent concessions are generally
found in markets exhibiting high vacancy and diminished absorption levels, as
well as being used by new projects as a part of their overall marketing program.
At the time of our investigation of the Springfield market area, specific
concessions were noted, generally $300 off the 2nd months rent. Similar to the
market, Oak Terrace Retirement Apartments reported that they are offering
concessions for leasing vacant units. Concessions will likely be part of the
market. The use of concessions typically stimulates occupancy in response to
unforeseen vacancies. They should, however, not be of any major significance to
a property like the subject.
Absorption Trends
An independent living facility generally exhibits a moderate initial absorption
pattern during the first operating year of any of the senior housing community
types (independent, assisted and CCRCs). Occupancy data compiled by ASHA was
summarized previously. The industry data indicated that initial absorption of
new residents for all facility types is strong in the first month, then it
tapers off dramatically during the following months. Specifically, net monthly
absorption averaged 25.5 residents for the Month 1, 6.7 residents for Months 2 -
6, 3.7 residents for Months 7 - 12, and 2.8 residents during Year 2.
Oak Terrace Retirement Apartments opened in 1987 and has shown good success from
an occupancy basis. The facility was 88.00 percent occupied at the time of our
inspection. Management reported that the facility has been operating at positive
occupancy levels for several years.
Senior Demographics
We evaluated the current and future market potential by analyzing demographic
trends and the supply of senior housing in the facility's market area. Most
market areas for assisted living comprise up to five miles for the PMA and up to
10 to 20 miles for the SMA. As discussed earlier, the PMA for the subject
encompasses an area of approximately [XXX] miles and a SMA of approximately
[XXX] miles. This assumption was based on our review of the demographics of the
area, trends on where most of the competition is being constructed, as well as
from discussions with other similar and competing facilities in the area.
Claritas, Inc. compiled the demographic data used in our analysis. The data
includes figures for the most recent census year in 2000, 2003 estimates and
projections for the year 2008. For purposes of this analysis, we relied upon the
2003 estimates for current demographic information. Additional state and
national information was obtained from A Profile of Older Americans: 2001,
prepared by the American Association of Retired Persons, the Administration on
Aging based on data from the U.S. Bureau of the Census.
Through a review of senior demographics, industry surveys and local market
characteristics; we utilized the following criteria to determine the subject's
market area characteristics.
MARKET CLASSIFICATIONS
Market Wide Market Penetration Rent
Type of Market Occupancy Rate Concessions
Good 90%+ Up to 3.9% None
Equilibrium 80 - 89% 4.0% - 6.9% Nominal
Saturation 70 - 79% 7.0% - 9.9% Moderate
Saturated (Over Built) 69% and Below 10% and Above Substantial
Nationally, it is generally anticipated that 60 to 70 percent of residents will
come from the PMA and an additional 15 to 20 percent will be from the secondary
market area. The remainder of the residents will generally be from other areas
and have relocated to be closer to family members. Primary market residents lost
to other market areas generally offset residents coming from the secondary
market.
The demand for elderly housing is determined by analyzing the relationship
between the supply of senior housing units and the number of qualified residents
with adequate income to afford the units. In general, a higher ratio of
qualified residents, coupled with a high overall occupancy in the area indicates
a strong demand for senior housing. At the same time, a low ratio of units to
available households coupled with a high occupancy also indicates a high demand.
A low occupancy for the area always indicates a low demand. In other words, the
ratio of qualified residents is only one component.
We calculated the market wide occupancy as of the date of inspection for the
subject's PMA. The primary competing facilities in the PMA, including the
subject, are shown in the following table. We acknowledge that the following
summary of properties may not represent all of the facilities in the market
area, but are what we believe to be the most competitive with the subject.
MARKET OCCUPANCY CHARACTERISTICS
Primary Market Area
Name No. Units Occupancy Occupied Units
Brenden Gardens 112 84% 94
Montvale Estates 121 90% 109
SUBJECT 129 88% 114
Totals 362 87% 317
These, along with the previous factors shown will be used in our age and income
qualified penetration analysis that follows.
Age and Income Qualified Penetration Analysis
In our analysis we assumed that 75 percent of the residents will come from the
PMA. The population in the area is adequate in size, the general population is
increasing and the elderly population is on the rise. This suggests that the
subject facility will not have to place greater weight on attracting residents
to relocate in order to be closer to family members. Areas where the younger
population is expanding would be more apt to attract residents from outside the
community to move to be closer to their children.
Based on the market classification, penetration rates of up to 3.9 percent were
classified for good markets, 4.0 to 6.9 percent signifies the market is at
equilibrium, 7.0 to 9.9 percent indicates a market is nearing saturation and
rates above 10 percent signify the market is saturated.
The subject's indicated penetration rate for 2003 signifies that there is
adequate demand in the PMA. Even assuming a 25 percent increase in supply over
the next five years indicates good demand in the PMA.
Although the average age of an assisted living resident is above 75 years, this
analysis is based on a 65+ income qualified population. This was due to
maintaining consistency with the penetration study and resultant indices that
were based on a 65+ population study.
Nonetheless, if only to the 75+ income qualified households are evaluated and
the same criteria as shown in the previous table is used, this indicates the
following penetration figures:
Conclusion
Overall, these findings suggest that there appears to be adequate demand for the
subject facility in the PMA from both the general population base and the
project specific targeting. Based on the current inventory, the subject's PMA is
not close to reaching a saturation point. Further, current statistics appear to
be leaning towards a greater spend down of assets by the elderly and that
traditional income levels may be conservative. With this in mind, there appears
to be a adequate marketplace for the subject facility.
Market Rate Comparisons
On the following pages are data sheets of the facilities we compared with the
subject. A map showing their location follows these pages. All of the facilities
are noted as being located in the subject's PMA.
Senior Housing Rent No. SUBJECT
Oak Terrace Retirement Apartments
1700 West Washington Street
Springfield Illinois
Property Type: ILF
Verification: Administrator
217-793-0431
30-Apr-04
No. Units Unit Types Occupancy
129 Independent Living Unit 88%
0 Assisted Living Units 0%
129 Total Units/Beds 88%
Rent Schedule
Unit Independent Living Unit Size Assisted Living Unit
Description Monthly Rent Range Range Monthly Rent Range Range
Unit
Semi-Private -- to -- -- to -- -- to -- -- to --
Studio $1,218 to $1,486 380 to 414 -- to -- -- to --
Studio Alcove -- to -- -- to -- -- to -- -- to --
One-Bedroom $1,914 to $2,447 483 to 810 -- to -- -- to --
Two-Bedroom $2,466 to $2,466 810 to 810 -- to -- -- to --
Cottage/Vila -- to -- -- to -- -- to -- -- to --
2nd Occupant Rent -- to -- -- to -- -- to -- -- to --
Additional
Personal Care -- to -- -- to -- -- to -- -- to --
Community Fee -- to -- -- to -- -- to -- -- to --
Basic Service Care Package: Additional Care:
Meals: 123 Care Hours Included In Base Rate:
Utilities: Water Additional Personal Care Charges
[Points] [Ala Carte] [Levels]
/Sewer X
Electricity X
Cable TV X
Telephone Incontinence Care:
Housekeeping: Weekly Dressing Assistance:
Activities: Daily Bathing Assistance
Transportallon: Bus Van limo Medication Assistance:
Security (Hrs): 24 Alzheimer Dementia Area:
Nursing Staff:
Improvement Description
- --------------------------------------------------------------------------------
Year Opened 1987 Common
Construction Areas: Lobby X Dining Room X
Type Masonry Wood Frame Activity X Salon X
Floors 123 Library X Laundry X
Site
Suitability Good Unit Amenities:
Construction Call System X Fire Detectors X
Quality Good Pvt Bath X Shared Bath
Exterior Kitchenettes Yes
Siding Masonry
Roofing Shingles HVAC System: Through-Wall Units
Building Area Covered Parking Yes
(Sq.Ft.) 117.250
Condition Average
Effective
Age (Yrs): 15
Site Area
(AC) 1.80
Remarks:
Senior Housing Rent No. 1
Brenden Gardens
90 Southwind Drive
Springfield, IL
Property Type: ILF
Verification: Administrator
217-529-4586
30-Apr-04
No. Units Unit Types Occupancy
112 Independent Living Unit 84%
0 Assisted Living Units 0%
112 Total Units/Beds 84%
Rent Schedule
Unit Independent Living Unit Size Assisted Living Unit
Description Monthly Rent Range Range Monthly Rent Range Range
Unit
Semi-Private -- to -- -- to -- -- to -- -- to --
Studio -- to -- -- to -- -- to -- -- to --
Studio Alcove -- to -- -- to -- -- to -- -- to --
One-Bedroom $1,350 to $1,475 525 to 525 -- to -- -- to --
Two-Bedroom $1,650 to $1,700 775 to 775 -- to -- -- to --
Cottage/Vila -- to -- -- to -- -- to -- -- to --
2nd Occupant Rent $300 to $300 -- to --
Additional
Personal Care -- to -- -- to --
Community Fee -- to -- -- to --
Basic Service Care Package: Additional Care:
Meals: 123 Care Hours Included In Base Rate:
Utilities: Water Additional Personal Care Charges
/Sewer X
Electricity X
Cable TV X
Telephone Incontinence Care:No
Housekeeping: Weekly Dressing Assistance:No
Activities: Daily Bathing Assistance:No
Transportallon: Van Medication Assistance:No
Security (Hrs): No Alzheimer Dementia Area:No
Nursing Staff:
Improvement Description
- --------------------------------------------------------------------------------
Year Opened 1994 Common
Construction Areas: Lobby X Dining Room
Type Masonry Wood Frame Activity X Salon
Floors Library X Laundry
Site
Suitability Average Unit Amenities:
Construction Call System X Fire Detectors X
Quality Average Pvt Bath X Shared Bath
Exterior Kitchenettes Yes No
Siding Wood Masonry
Roofing Rubber HVAC System: Central
Building Area Covered Parking Yes
(Sq.Ft.)
Condition Average
Effective
Age (Yrs): 10
Remarks: This property is located 10 miles away from the subject.
Senior Housing Rent No. 2
Montvale Estates
2601 Montvale Drive
Springfield, IL
Property Type: ILF
Verification: Administrator
217-546-5577
30-Apr-04
No. Units Unit Types Occupancy
121 Independent Living Unit 90%
0 Assisted Living Units 0%
121 Total Units/Beds 90%
Rent Schedule
Unit Independent Living Unit Size Assisted Living Unit
Description Monthly Rent Range Range Monthly Rent Range Range
Unit
Semi-Private -- to -- -- to -- -- to -- -- to --
Studio -- to -- -- to -- -- to -- -- to --
Studio Alcove -- to -- -- to -- -- to -- -- to --
One-Bedroom $1,650 to $1,925 525 to 530 -- to -- -- to --
Two-Bedroom $2,275 to $2,450 775 to 775 -- to -- -- to --
Cottage/Vila -- to -- -- to -- -- to -- -- to --
2nd Occupant Rent $350 to $350 -- to --
Additional
Personal Care -- to -- -- to --
Community Fee -- to -- -- to --
Basic Service Care Package: Additional Care:
Meals: 123 Care Hours Included In Base Rate:
Utilities: Water Additional Personal Care Charges
/Sewer X
Electricity X
Cable TV X
Telephone Incontinence Care:No
Housekeeping: Weekly Dressing Assistance:No
Activities: Daily Bathing Assistance:No
Transportallon: Van Medication Assistance:No
Security (Hrs): 24 Alzheimer Dementia Area:No
Nursing Staff:
Improvement Description
- --------------------------------------------------------------------------------
Year Opened 1192 Common
Construction Areas: Lobby X Dining Room
Type Masonry Wood Frame Activity X Salon
Floors Library X Laundry
Site
Suitability Average Unit Amenities:
Construction Call System Fire Detectors X
Quality Average Pvt Bath X Shared Bath
Exterior Kitchenettes Yes
Siding Masonry
Roofing Rubber HVAC System: Central
Building Area Covered Parking No
(Sq.Ft.)
Condition Average
Effective
Age (Yrs): 12
Remarks: This property is located 2 miles away from the subject.
[GRAPHIC OMITTED]
RENTAL MAP
Direct Comparisons
As a basis for comparing the subject's asking rental rates to the comparables
shown in the previous summary, we classified each comparable in relation to the
subject as either similar, inferior, or superior. The overall classification was
based on the five primary factors (aside from pricing) used by potential
residents in choosing an assisted living facility. We based these factors on our
discussions with hundreds of marketing directors and administrators across the
nation. The five main factors in order of importance are as follows: reputation
for quality care or social status of the facility; age and condition of the
building; unit sizes; amenities and planned activities; and location.
Rental Rate Analysis
The independent living rates at Oak Terrace Retirement Apartments include three
meals per day, weekly housekeeping/laundry, utilities (except for telephone and
cable TV), activities and scheduled transportation.
A summary of the asking or street rents for the subject, as well as the rates
for the competitive properties are shown in the following discussions.
Companion (Shared) Units -Independent Livinq
The following chart indicates the asking rates for independent living companion
or shared units at the subject, as well as the comparables:
Studio Units -Independent Living
The following chart indicates the asking rates for independent living studio
units at the subject, as well as the comparables:
Studio Units - IL
Facility Name Unit Size (SF) Rental Range
Brenden Gardens -- - -- -- - --
Montvale Estates -- - -- -- - --
SUBJECT 380 - 414 $1,218 - $1,486
Range (Excluding Subject) 0 - 0 $0 - $0
Median (Excluding Subject) #NUM! - #NUM! #NUM! - #NUM!
One-Bedroom Units - Independent Living
The following chart indicates the asking rates for independent living
one-bedroom units at the subject, as well as the com parables:
One-Bedroom Units - IL
Facility Name Unit Size (SF) Rental Range
Brenden Gardens 525 - 525 $1,350 - $1,475
Montvale Estates 525 - 530 $1,650 - $1,925
SUBJECT 483 - 810 $1,914 - $2,447
Range (Excluding Subject) 525 - 530 $1,350 - $1,925
Median (Excluding Subject) 525 - 528 $1,500 - $1,700
Two-Bedroom Units - Independent Living
The following chart indicates the asking rates for independent living
two-bedroom units at the subject, as well as the comparables:
Two-Bedroom Units - IL
Facility Name Unit Size (SF) Rental Range
Brenden Gardens 775 - 775 $1,650 - $1,700
Montvale Estates 825 - 825 $2,275 - $2,450
SUBJECT 810 - 810 $2,466 - $2,466
Range (Excluding Subject) 775 - 825 $1,650 - $2,450
Median (Excluding Subject) 800 - 800 $1,963 - $2,075
Summary/Conclusion
The subject is one of several competing facilities in the marketplace and offers
independent living units. The subject maintained favorable occupancy levels over
the last several years. The subject rates are generally at the middle end of the
competition and appear to be reflective of market rates. Concessions are not
prevalent in the marketplace. The subject's ability to continue to attract, as
well as retain residents suggests that there is a good marketplace for this type
of facility, which should continue into the foreseeable future.
SITE DESCRIPTION
Location: 1700 West Washington Street
Springfield, Sangamon County, Illinois 62702
The subject is located at approximately
mid-block along the north side of West
Washington Street between Chatham Road and
Lincoln Avenue.
Shape: Rectangular
Topography: Level
Land Area: 1.8000 gross acres (1.8000 net acres)
78,408 gross square feet (78,408 net square
feet)
Frontage, Access, Visibility: The site has adequate frontage, access and
visibility.
Soil Conditions: We did not receive nor review a soil report.
However, we assume that the soil's load-
bearing capacity is sufficient to support
existing and/or proposed structure(s). We
did not observe any evidence to the contrary
during our physical inspection of the
property. Drainage appears to be adequate.
Utilities All public utilities are available to the
site
Site Improvements: The site improvements include asphalt paved
parking areas, curbing, signage,
landscaping, yard lighting and drainage.
Land Use Restrictions: We were not given a title
report to review. We do not know of any
easements, encroachments, or restrictions
that would adversely affect the site's use.
However, we recommend a title search to
determine whether any adverse conditions
exist.
Flood Map: National Flood Insurance Rate Map Community
Panel.
Number 170912-0140-C (January 6,1983)
Flood Zone: FEMA Zone C: Areas outside of a 100-year
flood hazard.
Wetlands: We were not given a Wetlands survey. If
subsequent engineering data reveal the
presence of regulated wetlands, it could
materially affect property value. We did not
note the presence of wetlands during our
inspection We recommend a wetlands survey by
a competent engineering firm.
Hazardous Substances: We observed no evidence of toxic or
hazardous substances during our inspection
of the site. However, we are not trained to
perform technical environmental inspections
and recommend the services of a professional
engineer for this purpose.
Overall Functionality: The subject site is functional for the
current intended use.
IMPROVEMENTS DESCRIPTION
The following description of improvements is based upon our physical inspection
of the improvements along with our discussions with the Administrator. Please
refer to the development plan and floor plans in the Addenda.
The facility was constructed in 17 and contains 117,250:t square feet of gross
building area within 1, 6-story building. The facility has 129 units and an
effective capacity of 137 beds and/or residents. The unit mix for the
development is as follows.
Oak Terrace Retirement Apartments
No. No. Unit Total
Description Units Beds Sq.Ft. Sq.Ft.
Independent Living
Small Studio 5 5 410 2,050
Square Studio 5 5 380 1,900
West Studio 15 15 414 6,210
Regular Studio 10 10 414 4,140
1BR West-Patios 10 10 483 4,830
1 BR -Patios 62 62 483 29,946
1 BR Intermediate-Patio 5 5 782 3,910
1 BR Deluxe - Patio 9 9 810 7,290
2BR - Patio 8 10 810 6,480
Subtotals 129 137 66,756
Totals 129 137 66,756
General Description
Year Built: 17
Number of Buildings: 1
Number of Stories: 6
Gross Building Area: 117,25O + square feet
Number of Units: 129
Number of Beds: 137
Design and Functionality: The building is an independent
living property of brick
construction. The improvements have
good appeal to prospective
independent living residents.
Construction Detail
Basic Construction: Brick
Foundation: Poured concrete slab
Framing: Steel.
Floors: Reinforced concrete poured over
gravel. Each upper floor is bridged
by wood stud floor beams.
Exterior Walls: The exterior facade of the building
consists of brick veneer.
Roof Cover: Flat roofing system consisting of
built-up assemblies with a sealed
membrane cover.
Roof Cover: Wood truss roofing system covered
with a composition shingle cover.
Windows: Units have thermal windows in
aluminum frames. The windows are
double paned with sliders.
Mechanical Detail
Heating: The heating system is assumed to be
adequate for existing use and in
compliance with local law and
building codes.
Cooling: The cooling system is assumed to be
adequate for existing use and in
compliance with local law and
building codes.
Plumbing: The plumbing system is assumed to be
adequate for existing use and in
compliance with local law and
building codes.
Electrical Service: The electrical service system is
assumed to be adequate for existing
use and in compliance with local law
and building codes.
Elevator Service: The building contains elevators.
Fire Protection: The building is fire sprinklered.
Each apartment has electric smoke
detectors in compliance with local
code.
Interior Detail
Layout: The building is designed in a "L"
shape.
The resident living units have small
kitchenettes with microwaves, a sink
and refrigerators. All units have
baths with a sink, toilet and
prefabricated shower stall.
Floor Covering: Carpet in the living, dining and
bedroom areas with sheet vinyl tile
in the entry, kitchenettes and
bathrooms.
Walls: Painted and textured gypsum board.
Ceilings: Painted and textured gypsum board.
Bathrooms: Depending on unit type, each
resident unit is equipped with a
shared or full bathroom. All
bathrooms consist of a walk-in
shower with wall-mounted showerhead,
toilet and sink and sheet vinyl
floor covering, and a combination
wall papered gypsum board walls.
Kitchen Facilities: All meals for the residents are
prepared in a central kitchen.
Equipment includes a gas/ range,
steel hood with fire suppression
system, dishwashers, stainless steel
preparation tables, walk-in coolers
and walk-in freezers.
Site Improvements
Parking: 161 spaces (1.25:Unit). Parking is
adequate
Onsite Landscaping: A variety of trees, shrubbery and
grass.
Other: Other site improvements include
signage, trash enclosures, paved
asphalt drives, concrete sidewalks
and walking paths, as well as
fencing.
Summary
Condition: The improvements are in average
condition given its competitive
position in the marketplace. The
improvements have been well
maintained and provide a good
appearance relative to competing
buildings within its market.
We did not inspect the roof of the
building or make a detailed
inspection of the mechanical
systems. The appraisers, however,
are not qualified to render an
opinion as to the adequacy or
condition of these components. The
client is urged to retain an expert
in this field if detailed
information is needed about the
adequacy and condition of mechanical
systems.
Quality: The overall quality of the
improvements is rated as average and
is consistent with the competition
in the market area.
Layout & Functional Plan: Average. The facility is considered
to be functional for its intended
use. There are adequate common areas
and units are considered to be
comparable to most competing
projects within the area. The
furnishings and fixtures appear to
be of good quality.
Capital Improvements: Other than normal routine property
maintenance, there are no major
capital improvement expenditures
planned in the immediate future.
Year Built: 17
Effective Age: 15 years
Expected Economic Life: 50 years
Remaining Economic Life: 35 years
Americans With Disabilities Act
The Americans With Disabilities Act (ADA) became effective January 26, 1992. We
have not made, nor are we qualified by training to make, a specific compliance
survey and analysis of this property to determine whether or not it is in
conformity with the various detailed requirements of the ADA. It is possible
that a compliance survey and a detailed analysis of the requirements of the ADA
could reveal that the property is not in compliance with one or more of the
requirements of the Act. If so, this fact could have a negative effect upon the
value of the property. Since we were not provided with the results of a
compliance survey, we did not analyze the results of possible non-compliance.
Hazardous Substances
We are not aware of any potentially hazardous materials (such as formaldehyde
foam insulation, asbestos insulation, radon gas emitting materials, or other
potentially hazardous materials), which may have been used in the construction
of the improvements. However, we are not qualified to detect such materials and
urge the client to employ an expert in the field to determine if such hazardous
materials are thought to exist.
REAL PROPERTY TAXES AND ASSESSMENTS
Taxes are levied against all real property in this locale for the purpose of
providing funding for the various municipalities. The amount of ad valorem taxes
is determined by the current assessed value for the property in conjunction with
the total combined tax rate for the municipalities. The property is subject to
the taxing jurisdiction of Sangamon County. The assessors' parcel identification
number is 14-32-127-005, 14-32-127-006 and 14-32-127-007.
The 2004 calendar fiscal tax year is the most recent year for both assessed
value and tax information for the subject. This data is shown in the following
chart.
PROPERTY ASSESSMENT/TAX DATA
2004
Assessor's Market Value:
Assessor's Market Value: $5,088,330
Equalization/Assessment Ratio 32.15%
Assessed Value $1,635,898
Tax Rate ($/$1,000 AV) 78.9839
Total Property Taxes $129,209.65
Building Area 117,250
Property Taxes per Square Foot $1.10
No. of Units 129 Property Taxes per Unit $1,001.63
Total taxes for the property are $129,209.65, or $1,001.63 per unit.
We did not do a direct comparison with other senior housing facilities in the
market area. Assessed values are usually poor indicators of market value and in
the case of the subject and its higher level of quality, any direct comparison
to the existing product in the Springfield market area would not provide any
substantial of support towards an assessment estimate.
The definition of market value used in this report assumes a sale of the
property. If the property were sold, it would be' reassessed according to the
county assessor's opinion of its market value, which is typically the sale
price. The current assessment of the property of $1,635,898 is considered
reasonable based on our market value estimates determined herein.
For the purposes of our Year 1 proforma, we have increased the current taxes for
the property. A forecast tax liability $150,000. The increased taxes will be
reflected in our proforma model in the Income Capitalization Approach.
Based on property tax comparisons, it is our opinion that the subject's real
estate taxes are reasonable.
ZONING
The property is zoned R-5b by the City of Springfield [or Sangamon County].
Permitted uses within this district include commercial and multifamily
development. Industrial development is prohibited in this zoning district.
Zoning regulations imposed within this district are as follows:
We are not experts in the interpretation of complex zoning ordinances but the
property appears to be a conforming use based on our review of public
information. The determination of compliance is beyond the scope of a real
estate appraisal.
We know of no deed restrictions, private or public, that further limit the
subject property's use. The research required to determine whether or not such
restrictions exist, however, is beyond the scope of this appraisal assignment.
Deed restrictions are a legal matter and only a title examination by an attorney
or title company can usually uncover such restrictive covenants. Thus, we
recommend a title search to determine if any such restrictions do exist.
HIGHEST AND BEST USE
Definition Of Highest And Best Use
According to The Dictionary of Real Estate Appraisal, Fourth Edition (2002), a
publication of the Appraisal Institute, the highest and best use is defined as:
"The reasonably probable and legal use of vacant land or an improved property,
which is physically possible, appropriately supported, financially feasible, and
that results in the highest value. The four criteria the highest and best use
must meet are legal permissibility, physical possibility, financial feasibility,
and maximum profitability."
Highest And Best Use Criteria
We evaluated the site's highest and best use both as currently improved and as
if vacant. In both cases, the property's highest and best use must meet four
criteria described above.
Legally Permissible
The first test concerns permitted uses. According to our understanding of the
zoning ordinance, noted earlier in this report, the site may legally be improved
with structures that accommodate commercial and residential uses. Aside from the
site's zoning and regulations, we are not aware of any legal restrictions that
limit the potential uses of the subject.
Physically Possible
The second test is what is physically possible. As discussed in the "Property
Description," the site's size, soil, topography, etc. do not physically limit
its use. The subject site is of adequate shape and size to accommodate almost
all urban land uses.
Financial Feasibility and Maximal Productivity
The third and fourth tests are, respectively, what is feasible and what will
produce the highest net return. After analyzing the physically possible and
legally permissible uses of the property, .the highest and best use must be
considered in light of financial feasibility and maximum productivity. For a
potential use to be seriously considered, it must have the potential to provide
a sufficient return to attract investment capital over alternative forms of
investment. A positive net income or acceptable rate of return would indicate
that a use is financially feasible.
As stated in the Competitive Market Analysis section, population, income and age
statistics would indicate that demand for senior living options in the subject
area is considered moderate This relates to the economic feasibility of
developing a property similar to the subject. The stabilized facilities in the
subject's market area are exhibiting occupancies above 85 percent. As such,
market conditions for senior living in the subject's primary market area are
considered adequate.
Highest and Best Use of Site As Though Vacant
Considering the subject site's size, configuration and topography, location
among other independent living properties and state of the local independent
living market, it is our opinion that the Highest and Best Use of the subject
site as though vacant is multi-family residential property developed to the
highest density possible.
Highest and Best Use of Property As Improved
According to the Dictionary of Real Estate Appraisal, highest and best use of
the property as improved is defined as:
"The use that should be made of a property as it exists. An existing property
should be renovated or retained as is so long as it continues to contribute to
the total market value of the property, or until the return from a new
improvement would more than offset the cost of demolishing the existing building
and constructing a new one."
As discussed, an independent living facility exists on the site. The design,
layout, as well as average unit size of the facility are good and there is no
functional obsolescence in the improvements. As will be demonstrated in the
Sales Comparison Approach and the Income Capitalization Approach, the operating
characteristics of an assisted living facility represent a viable facility from
a revenue-producing standpoint.
Alternative uses for the existing improvements, however, would be limited due to
the overall design (smaller rooms and limited individual cooking facilities). As
a result, any conversion to an alternative use would be costly.
It is our opinion that the existing complex adds value to the site as if vacant,
and rent levels of existing leases encumbering the subject property would
dictate a continuation of the current use. Therefore, it is our opinion that the
Highest and Best Use of the subject property as improved is as it is currently
utilized as an independent living facility.
VALUATION PROCESS
Methodology
There are three generally accepted approaches available in developing an opinion
of value: the Cost, Sales Comparison and Income Capitalization approaches. We
considered and analyzed each in this appraisal to develop an opinion of the
market value of the subject. In appraisal practice, an approach to value is
included or eliminated based on its applicability to the property type being
valued and the quality of information available. Each approach is discussed
below, and applicability to the subject property is briefly addressed in the
following summary.
Land Value
Developing an opinion of land value is typically accomplished via the Sales
Comparison Approach by analyzing sites of comparable utility adjusted for
differences, to indicate a value for the subject parcel. Valuation is typically
accomplished using a unit of comparison such as price per square foot or acre.
Adjustments are applied to the units of comparison from an analysis of
comparable sales, and the adjusted unit of comparison is then used to derive a
total value.
The reliability of this approach is dependent upon (a) the availability of
comparable sales data; (b) the verification of the sales data; (c) the degree of
comparability; (d) the absence of non-typical conditions affecting the sales
price.
Cost Approach
The Cost Approach is based upon the premise that an informed purchaser would pay
no more for the subject than the cost to produce a substitute property with
equivalent utility. This approach is particularly applicable when the property
being appraised involves relatively new improvements, which represent the
highest and best use of the land; or when relatively unique or specialized
improvements are located on the site, for which there exist few sales or leases
of comparable properties.
In the Cost Approach, the appraiser forms an opinion of the cost of all
improvements, depreciating them to reflect value loss from physical, functional
and external causes. Land value, entrepreneurial profit .qnd depreciated
improvement costs are then added for a total value.
Sales Comparison Approach
The Sales Comparison Approach utilizes sales of comparable properties, adjusted
for differences, to indicate a value for the subject property. Valuation is
typically accomplished using a unit of comparison such as price per square foot,
effective gross income multiplier or net income multiplier. Adjustments are
applied to the units of comparison from an analysis of comparable sales, and the
adjusted unit of comparison is then used to derive a total value.
The reliability of this approach is dependent upon (a) the availability of
comparable sales data; (b) the verification of the sales data; (c) the degree of
comparability; (d) the absence of non-typical conditions affecting the sales
price.
Income Capitalization Approach
This approach first determines the income-producing capacity of a property by
utilizing contract rents on leases in place and by estimating market rent from
rental activity at competing properties. Deductions are made for vacancy and
collection loss and operating expenses. The resulting net operating income is
capitalized at an overall capitalization rate to derive an opinion of value. The
capitalization rate represents the relationship between net operating income and
value.
Related to the Direct Capitalization Method is the Discounted Cash Flow Method.
In the Discounted Cash Flow Method, anticipated future cash flows and a
reversionary value are discounted to an opinion of net present value at a
selected yield rate (internal rate of return.)
The reliability of the Income Capitalization Approach depends upon whether
investors actively purchase the subject property type for income potential, as
well as the quality and quantity of available income and expense data from
comparable investments.
Summary
This appraisal employs only the Income Capitalization Approach. Based on our
analysis and knowledge of the subject property type and relevant investor
profiles, it is our opinion that this approach would be considered necessary and
applicable for market participants. The client has requested that we perform a
restricted appraisal report. Therefore, we have not employed the Cost Approach
or the Sales Comparison Approach to develop an opinion of market value.
We conclude the valuation process by analyzing each approach to value used in
the appraisal. When more than one approach is used, each approach is judged
based on its applicability, reliability, and the quantity and quality of its
data. A final value opinion is chosen that either corresponds to one of the
approaches to value, or is a correlation of all the approaches used in the
appraisal.
INCOME CAPITALIZATION APPROACH
Methodology
The Income Capitalization Approach is a method of converting the anticipated
economic benefits of owning property into a value through the capitalization
process. The principle of "anticipation" underlies this approach in that
investors recognize the relationship between an asset's income and its value. In
order to value the anticipated economic benefits of a particular property,
potential income and expenses must be projected, and the most appropriate
capitalization method must be selected.
The two most common methods of converting net income into value are Direct
Capitalization and Discounted Cash Flow. In direct capitalization, net operating
income is divided by an overall capitalization rate to indicate an opinion of
market value. In the discounted cash flow method, anticipated future cash flows
and a reversionary value are discounted to an opinion of net present value at a
chosen yield rate (internal rate of return).
In our opinion, the direct capitalization analysis method is most appropriate to
value the subject property.
Historical Financial Performance of the Subject Property
The subject is an existing independent living facility. Management provided
financial statements for 2001 2002 2003 and a budget projection. The financial
statements are summarized on the following chart.
Potential Gross Income
There is only one type of payment source at the subject for independent living
services; private pay residents. This type of payor is generally considered the
most desirable since private pay rates allow for greater profitability than any
fixed government rate plans. The subject generates revenue from monthly rentals
of the living units, as well as from other sources such as second person (double
occupancy) fees, move-in or processing fees, as well as other miscellaneous
revenue.
OAK TERRACE RETIREMENT APARTMENTS
INCOME AND OPERATING EXPENSE SUMMARY
- --------------------------------------------------------------------------------
2001 2002
(January-December) (January-December)
Amount $/Unit % of EGI Total $/Unit % of EGI
REVENUES
Rental Income $2,549,404 $19,763 95.48% $2,636,197 $20,436 95.91%
Other Income $ 120,704 $ 936 4.52% $ 112,407 871 4.09%
GROSS POTENTIAL REV. $2,670,108 $ 20,699 100.00% $2,748,604 21,307 100.00%
Vacancy/
Collection Loss Inc. Above Inc. Above
TOTAL NET REVENUE $2,670,108 $20,699 100.00% $2,748,604 $21,307 100.00%
OPERATING EXPENSES
Departmental
Repair/Maint/
Supply $38,997 $302 1.46% $ 44,418 $ 344 1.62%
Services $ 561,679 $4,354 21.04% $ 589,826 $ 4,572 21.46%
Administrative $ 26,732 $ 207 1.00% $ 27,365 $ 212 1.00%
Advertising $ 43,224 $ 335 1.62% $ 41,109 $ 319 1.50%
Payroll $ 455,227 $3,529 17.05% $ 483,937 $ 3,781 17.61%
Utilities $ 85,031 $ 659 3.18% $ 77,136 $ 600 2.82%
Non-Departmental
Real Estate Taxes $ 116,745 $ 905 4.37% $ 149,555 $ 1,159 5.44%
Insurance $ 40,946 $ 317 15.53% $ 65,546 $ 508 2.38%
Management Fees
(5% of EGI) $ 133,505 $1,035 5.00% $ 137,430 $ 1,065 5.00%
Replacement
Reserves $ 38,700 $ 300 1.45% $ 38,700 $ 300 1.41%
TOTAL ALL EXPENSES $ 1,540,786 $11,944 57.71% $1,655,322 $12,832 60.22%
EXPENSE RATIO 57.7% 60.2%
NET OPERATING
INCOME $ 1,129,322 $ 8,754 42.29% $1,093,282 $ 8,475 39.78%
OCCUPANCY 94.2% 94.2%
2003 2004
(January-December) (January-December)
Amount $/Unit % of EGI Total $/Unit % of EGI
REVENUES
Rental Income $2,569,806 $20,130 96.63% $2,723,203 $21,110 96.13%
Other Income $ 90,525 $ 702 3.37% $ 109,680 850 3.87%
GROSS POTENTIAL REV. $2,687,331 $20,832 100.00% $2,832,883 21,960 100.00%
Vacancy/
Collection Loss Inc. Above Inc. Above
TOTAL NET REVENUE $2,687,331 $20,832 100.00% $2,832,883 $21,960 100.00%
OPERATING EXPENSES
Departmental
Repair/Maint/
Supply $30,025 $233 1.12% $ 35,035 $ 272 1.24%
Services $ 609,090 $4,722 22.67% $ 657,574 $ 4,722 22.67%
Administrative $ 49,914 $ 387 1.86% $ 28,426 $ 220 1.00%
Advertising $ 35,624 $ 276 1.33% $ 34,810 $ 270 1.23%
Payroll $ 460,270 $3,568 17.13% $ 457,075 $ 3,543 16.13%
Utilities $ 86,146 $ 668 3.21% $ 86,940 $ 674 3.07%
Non-Departmental
Real Estate Taxes $ 141,384 $1,096 5.26% $ 145,620 $ 1,129 5.14%
Insurance $ 49,598 $ 384 1.85% $ 86,298 $ 669 3.05%
Management Fees
(5% of EGI) $ 134,367 $1,042 5.00% $ 141,644 $ 1,098 5.00%
Replacement
Reserves $ 38,700 $ 300 1.44% $ 38,700 $ 300 1.37%
TOTAL ALL EXPENSES $ 1,635,118 $12,675 60.85% $1,712,122 $13,272 60.44%
EXPENSE RATIO 60.8% 60.4%
NET OPERATING
INCOME $ 1,052,213 $ 8,157 39.15% $1,120,761 $ 8,688 39.56%
OCCUPANCY 94.2% 94.2%
C&W Forecast
Stabilized Year
Amount $/Unit % of EGI
REVENUES
Rental Income $3,171,984 $23,153
Other Income $ 110,000 $ 803
GROSS POTENTIAL REV. $3,281,984 $23,956
Vacancy/
Collection Loss ($426,658)
TOTAL NET REVENUE $2,855,626 $22,134
OPERATING EXPENSES
Departmental
Repair/Maint/
Supply $ 335,000 $ 271 1.23%
Services $ 660,000 $ 5,116 23.11%
Administrative $ 30,000 $ 233 1.05%
Advertising $ 35,000 $ 271 1.23%
Payroll $ 460,000 $ 3,566 16.11%
Utilities $ 90,000 $ 698 3.15%
Non-Departmental
Real Estate Taxes $ 150,000 $ 1,163 5.25%
Insurance $ 90,000 $ 698 3.15%
Management Fees
(5% of EGI) $ 142,766 $ 1,107 5.00%
Replacement
Reserves $ 38,700 $ 300 1.36%
TOTAL ALL EXPENSES $1,731,466 $13,422 60.64%
EXPENSE RATIO 60.6%
NET OPERATING
INCOME $1,123,860 $ 8,712 39.36%
OCCUPANCY 94.2%
Independent Living Rate Analysis
The subject has an effective capacity of 137 residents and/or beds. The facility
is of average quality construction with a modern layout and design. The
following is a description of the types of accommodations that are available at
the subject.
Independent living residents at the subject have the choice of studio,
one-bedroom, and two-bedroom apartment units. All units reflect good
design/layout and feature private bathrooms, kitchenettes and adequate closet
space. All residents are provided with three daily meals, weekly housekeeping,
activities, and scheduled transportation included in their monthly rent.
The subject's actual rental rates (rent roll) were tested for reasonableness
against similar facilities in the subject's market area. In the Competitive
Market Analysis section, we identified several existing facilities considered to
provide competition for the subject. Data sheets were provided in the
Competitive Market Analysis section presented previously. The complexes we
surveyed are all considered comparable given that they all provide independent
living units. We note that the facilities are all adequately maintained and they
all have a similar amenity package. All of the competing facilities were
discussed in detail in the Competitive Market Analysis section of the report.
The following table summarizes the subject's unit types and the actual and
asking monthly rents.
Oak Terrace Retirement Apartments
In House Rents Asking Rents
No. Occ. Monthly $/Unit Monthly $/Unit
Unit Units Units Revenue Per Mo. Revenue Per Mo.
Independent Living
Small Studio 5 5 $ 5,985 $ 1,197 $ 6,090 $1,218
Square Studio 5 5 $ 6,562 $ 1,312 $ 6,640 $1,328
West Studio 15 13 $18,374 $ 1,413 $21,540 $1,436
Regular Studio 10 9 $13,202 $ 1,467 $14,860 $1,486
Total- Studio 35 32 $44,123 $ 1,379 $49,130 $1,404
1BR West-Patios 10 10 $18,636 $ 1,864 $19,140 $1,914
1BR -Patios 62 50 $97,072 $ 1,941 $123,318 $1,989
1 BR Intermediate
-Patio 5 5 $11,067 $ 2,213 $ 11,265 $2,253
1 BR Deluxe
- Patio 9 8 $19,002 $2,375 $ 22,023 $2,447
Total - One-
Bedroom 86 73 $145,777 $1,997 $175,746 $2,044
2BR - Patio 8 8 $ 19,152 $2,394 $ 19,728 $2,466
Total- 2 BR 8 8 $ 19,152 $2,394 $ 19,728 $2,466
Independent
Totals 129 113 $209,052 $1,850 $ 244,604 $1,896
Totals 129 113 $209,052 $1,850 $ 244,604 $1,896
The subject's current in-house average rates generally fall similar most of the
asking rates at the subject. This is reportedly due to recent rent increases.
Overall, the average monthly rate is $1,850 per month, which is 2.49 percent
below the average asking rate of $1,896. We consider an increase for the
in-house rates of approximately 2.00 percent to be reasonable, noting that an
additional rate increase will be instigated in the first part of 2004. This
increase will not adversely affect the stabilized occupancy level at the
subject.
Base Rental Rates
The following chart details our reconciled base rental rates for all unit types
at the subject.
These rates were concluded to in the Competitive Market Analysis section of the
report.
Oak Terrace Retirement Apartments
Reconciled Market Rental Rates
Resident No. No. Market
Unit Type Type Units Beds Rent
Small Studio IL 5 5 $1,218
Square Studio IL 5 5 $1,328
West Studio IL 15 15 $1,436
Regular Studio IL 10 10 $1 ,486
1BR West-Patios IL 10 10 $1,914
1 BR -Patios IL 62 62 $1,989
1 BR Intermediate-Patio IL 5 5 $2,253
1 BR Deluxe - Patio IL 9 9 $2,447
2BR - Patio IL 8 16 $2,466
Totals 129 137
Other Revenues
In addition to room revenue, the subject receives additional income from
additional personal care, new resident fees (entrance fees), second person fees,
as well as miscellaneous revenue from such items as barber/beauty income,
laundry services, cable TV revenue, meal and guest fees, food catering, health
supplies, parking, etc.
Other Income
This category includes revenue received from the subject's barber/beauty income,
laundry services, cable TV revenue, meal and guest fees, food catering, health
supplies, parking, etc. The historic revenue for this category are shown in the
following table.
Year Total $/Unit
2001 $120,704 $936
2002 $112,407 $871
2003 $90,525 $702
BUDGET 2004 $109,680 $850
C&W Forecast $110,000 $803
Based on the data, we forecast Year 1 revenue from this source at $110,000.
Vacancy and Collection Loss
Both the investor and the appraiser are primarily interested in the annual
revenue an income property is likely to produce over a specified period of time,
rather than the income it could produce if it were always 100 percent occupied
and all tenants were paying their rent in full and on time. A normally prudent
practice is to expect some income loss as tenants vacate, fail to pay rent, or
pay their rent late. Model units or other rent loss, if necessary, is addressed
separately.
The subject, as of the most current rent roll provided, was 88.00 percent
occupied. This is about equal to current average occupancy levels for the market
area overall. In consideration of the above, we forecast a stabilized vacancy
and collection loss of 13.00 percent for the subject.
Effective Gross Income
The following table summarizes the projected estimate of stabilized income based
on the above findings. The stabilized revenues are based on current market rents
and trends and reflect what we consider a typical purchaser would anticipate.
Oak Terrace Retirement Apartments
STABILIZED OPERATING INCOME
RESIDENT NO. NO. MONTHLY PER
UNIT TYPE TYPE UNITS BEDS RATE INCOME RESIDENT
Small Studio IL 5 5 $ 1,218 $ 73,080
Square Studio IL 5 5 $ 1,328 $ 79,680
West Studio IL 15 15 $ 1,436 $258,480
Regular Studio IL 10 10 $ 1 ,486 $178,320
1BR West-Patios IL 10 10 $ 1,914 $229,680
1 BR -Patios IL 62 62 $ 1,989 $1,479,816
1 BR
Intermediate-
Patio IL 5 5 $ 2,253 $135,180
1 BR Deluxe -
Patio IL 9 9 $ 2,447 $264,276
2BR - Patio IL 8 16 $ 2,466 $473,472
Total 129 137 $3,171,984 $ 23,153
Other $ 110,000 $ 803
TOTAL POTENTIAL GROSS INCOME $3,281,984 $ 23,956
LESS: VACANCY @ 13.0% $ (426,658)
EFFECTIVE GROSS INCOME $ 2,855,326 $ 23,956
Opinion of Expenses
We developed an opinion of the property's annual operating expenses after
reviewing its historical performance and reviewing the operating statements of
similar senior living properties. Management provided operating statements for
2001 2002 2003 and a budget projection. This information was summarized
previously.
Furthermore, we supported our estimate of projected expenses with other senior
living facilities in the region, as well as from overall industry statistics. We
also note that the reader is cautioned when reviewing the comparable expenses
for individual facilities, in that the reporting of expenses varies by property
and that different congregate living facilities offer different services. All
comparisons will be made on an actual resident basis.
Expense Comparables
The expense comparables are summarized in the following chart.
SUMMARY OF COMPARABLE OPERATING EXPENSES
INDEPENDENT LIVING FACILITIES
Facility Confidential Confidential Confidential
Reporting Period 2003 2003 2002
Year Bum 2001 2001 1990
No. of IL Units 42 60 176
No. of AL Unils 72 84 11
No. of AL2 Units 0 0 0
Total Unils 114 144 187
Occupancy 93% 92% 98%
Resident Days 38,822 48,198 66,890
Per %of Per %of Per %of
Resident EGI Resident EGI Resident EGI
TOTAL NET REVENUES $26,055 $23,495 $34,768
EXPENSES
General & Administrative $1,518 5.83% $968 4.12% $3,052 8.78%
Payroll Taxes & Benefits $1,446 5.55% $895 3.81% $3,882 11.17%
Resident Care $3,168 12.16% $2,587 11.01% $1,133 3.26%
Food Services $2,264 8.69% $2,107 8.97% $4,949 14.23%
Activities $455 1.75% $269 1.15% $461 1.33%
Housekeeping $482 1.85% $370 1.57% $1,291 3.71%
Plant Operations $745 2.86% $657 2.80% $2,046 5.89%
Utities $1,087 4.17% $1,274 5.42% $1,805 5.19%
Marketing/Promotions $536 2.06% $290 1.23% $546 1.57%
Real Estate Taxes $904 3.47% $839 3.57% $1,257 3.62%
Insurance $585 2.24% $882 3.76% $1,154 3.32%
ADJUSTED OPERATING
EXPENSES $13,188 50.62% $11,138 47.41% $21,576 62.06%
Management Fee $1,303 5.00% $1,175 5.00% $1,738 5.00%
Expense Ratio Before
Reserves 56% 52% 67%
Reserves - - - - - -
ASHA ASHA ASHA
Lower Upper
Facility Quartile Median Quartile
Reporting Period 2003 2003 2003
Year Bum N/A N/A N/A
No. of IL Units N/A N/A N/A
No. of AL Unils N/A N/A N/A
No. of AL2 Units N/A N/A N/A
Total Unils N/A N/A N/A
Occupancy N/A N/A N/A
Resident Days
TOTAL NET REVENUES $19,389 $26,972 $32,078
EXPENSES
General & Administrative $885 $1,703 $2,372
Payroll Taxes & Benefits $847 $1,665 $2,143
Resident Care $532 $1,961 $2,924
Food Services $2,717 $3,875 $4,531
Activities N/A N/A N/A
Housekeeping $491 $789 $1,085
Plant Operations $511 $1,138 $1,593
Utities $875 $1,352 $1,753
Marketing/Promotions $522 $1,045 $1,431
Real Estate Taxes $489 $1,064 $1,533
Insurance $289 $647 $1,178
ADJUSTED OPERATING
EXPENSES $12,424 $18,300 $22,613
Management Fee $673 $1,411 $1,748
Expense Ratio Before
Reserves 68% 73% 76%
Reserves $193 $580 $977
<FN>
Source: The State of Seniors Housing, 2003. ASHA. (Data is for Independent
Living Facilities)
Note: Each line expense for ASHA derived from seperately sorted data columns and
may not add up under totals.
* All comparable categories based on Actual Unit (Per Resident)
</FN>
Repair/ Maintenance/ Supply
The historical costs, as well as our forecast for this category are shown in the
following chart.
Year Total $/Unit % of EGI
2001 $38,997 $302 1.46%
2002 $44,418 $344 1.62%
2003 $30,025 $233 1.12%
BUDGET 2004 $35,035 $272 1.24%
C&W Forecast $35,000 $271 1.23%
The subject's actual expenses are supported by the comparable properties. We
forecast Year 1 costs at $35,000 or $ 271 per unit.
Services
The historical costs, as well as our forecast for this category are shown in the
following chart.
Year Total $/Unit % of EGI
2001 $561,679 $4,354 21.04%
2002 $589,826 $4,572 21.46%
2003 $609,090 $4,722 22.67%
BUDGET 2004 $657,574 $5,097 23.21 %
C&W Forecast $660,000 $5,116 23.11 %
The subject's actual expenses are supported by the comparable properties. We
forecast Year 1 costs at $660,000 or $5,116 per unit.
Administrative
The historical costs, as well as our forecast for this category are shown in the
following chart.
Year Total $/Unit % of EGI
2001 $26,732 $207 1.00%
2002 $27,365 $212 1.00%
2003 $49,914 $387 1.86%
BUDGET 2004 $28,426 $220 1.00%
C&W Forecast $30,000 $233 1.05%
The subject's actual expenses are supported by the comparable properties. We
forecast Year 1 costs at $30,000 or $ 233 per unit.
Advertising
The historical costs, as well as our forecast for this category are shown in the
following chart.
Year Total $/Unit % of EGI
2001 $43,224 $335 1.62%
2002 $41,109 $319 1.50%
2003 $35,624 $276 1.33%
BUDGET 2004 $34,810 $270 1.23%
C&W Forecast $35,000 $271 1.23%
The subject's actual expenses are supported by the comparable properties. We
forecast Year 1 costs at $35,000 or $ 271 per unit.
Payroll
The historical costs, as well as our forecast for this category are shown in the
following chart.
Year Total $/Unit % of EGI
2001 $455,227 $3,529 17.05%
2002 $483,937 $3,751 17.61%
2003 $460,270 $668 3.21%
BUDGET 2004 $457,075 $3,543 16.13%
C&W Forecast $460,000 $3,566 16.11 %
The subject's actual expenses are supported by the comparable properties. We
forecast Year 1 activities costs at $460,000 or $3,566 per unit.
Utilities
The historical costs, as well as our forecast for this category are shown in the
following chart.
Year Total $/Unit % of EGI
2001 $85,031 $659 3.18%
2002 $77,436 $600 2.82%
2003 $86,146 $668 3.21%
BUDGET 2004 $86,940 $674 3.07%
C&W Forecast $90,000 $698 3.15%
The subject's actual expenses are supported by the comparable properties. We
forecast Year 1 costs at $90,000 or $ 698 per unit.
Real Estate Taxes
This cost is for the annual real and personal property tax liability for the
subject. The historical costs, as well as our forecast for this category are
shown in the following chart.
Year Total $/Unit % of EGI
2001 $116,745 $905 4.37%
2002 $149,555 $1,159 5.44%
2003 $141,384 $1,096 5.26%
BUDGET 2004 $145,620 $1,129 5.14%
C&W Forecast $150,000 $1,163 5.25%
Please refer to the Real Estate Taxes and Assessments section of the report for
a discussion on how the Year 1 taxes were estimated. We forecast the Year 1 real
estate tax expense at $150,000 or $1,163 per unit.
Insurance
This cost is for the annual liability insurance for the property. The historical
costs, as well as our forecast for this category are shown in the following
chart.
Year Total $/Unit % of EGI
2001 $40,946 $317 1.53%
2002 $65,546 $508 2.38%
2003 $49,598 $384 1.85%
BUDGET 2004 $86,298 $669 3.05%
C&W Forecast $90,000 $698 3.15%
The expense comparables showed expenses for this category from $ 585 to $1,154
per resident (average of $ 874 per resident), while the industry data showed a
range from $ 289 to $1,178 per resident (median of $ 647 per resident):
Insurance costs for senior living properties increased strongly over the last
one to two years. The subject's actual expenses are supported by the comparable
properties. We forecast Year 1 insurance costs at $90,000 or $ 698 per unit.
Management Fee
The subject is managed by an operating entity of the ownership at a rate equal
to 5.0 percent of effective gross income. According to data by The 2003 State of
Senior Housing Report, the median management fee for independent living
facilities is 5.1 percent, with a general range from 4.9 to 6.3 percent. We
concluded to a 5.0 percent management fee, which equates to a Year 1 expense of
$142,766 or $1,107 per resident.
Replacement Reserves
Replacement reserves are necessary for replacement of roof covering, mechanical
systems, furnishings, appliances, etc. For a facility such as the subject, it is
reasonable to deduct one to two percent of net resident revenues for replacement
reserves. The ASHA industry data shows a range of reserve unit allowances from $
193 to $ 977 per unit with a median of $ 580 per unit. In the case of the
subject and its date of construction, we deducted an amount equal to $300 per
unit which equates to a total cost of $38,700 or $ 300 per resident, which is
well supported by the industry data.
Expense Summary
Overall, we project the first year expenses for the subject (including
management fees and reserves) at $1,731,466 ($13,422 per resident) and 60.64
percent of effective gross income. Additionally, the subject operated
historically at expense ratios ranging from 58 to 61 percent.
According to The Senior Care Acquisition Report 2004, the average expense ratio
for independent living facilities was 79.0 percent in 2003, which represented a
4.2 percent increase from 75.8 percent in 2002. The survey noted; however, that
many of the properties used in the transaction samplings were either troubled or
no stabilized, which resulted in a higher reported operating expense basis.
Furthermore, operating margins for independent living facilities were reported
at 28.3 percent for the median, 18.8 percent for the lower quartile and 34.3
percent for the upper quartile according to the State of Senior Housing Report
2003.
Our net operating income estimate is similar than the historical amounts and
equates to $8,712 per resident, which is abovethe most recent operating year of
$8,688 per resident. The expenses and resultant net operating income estimate
are considered reasonable in light of the historical data. A summary of our Year
1 proforma is presented as follows:
Oak Terrace Retirement Apartments
STABILIZED OPERATING STATEMENT
Total PR % of EGI
EFFECTIVE GROSS INCOME $ 2,855,326 $23,956
EXPENSES
Repair/Main/Supply $ 35,000 $ 271 1.23%
Services $ 660,000 $ 5,116 23.11%
Administrative $ 30,000 $ 233 1.05%
Advertising $ 35,000 $ 271 1.23%
Payroll $ 460,000 $ 3,566 16.11%
Utilities $ 90,000 $ 698 3.15%
Real Estate Taxes $ 150,000 $ 1,163 5.25%
Insurance $ 90,000 $ 698 3.15%
TOTAL OPERATING EXPENSES 54.3% $ 1,550,000 $ 12,016 54.28%
Management Fees 5.0% $ 142,766 $ 1,107 5.00%
Replacement Reserves $ 300 $ 38,700 $ 300 1.36%
TOTAL EXPENSES $ 1,731,466 $ 13,422 60.64%
NET OPERATING INCOME $ 1,123,860 $ 8,712 39.36%
<FN>
(*) Per Actual Resident
</FN>
Direct Capitalization Rate Analysis
In determining an appropriate capitalization rate, we utilized several different
methods: market extraction from the sales comparables; findings reported in The
Senior Care Acquisition Report, 2004, published by Irving Levin Associates,
Inc.; and findings from the Senior Care Participants Survey completed by Cushman
& Wakefield, Inc.; and from the Band-of-Investment Analysis.
We analyzed investment rates of return acceptable to buyers in order to
determine the capitalization rate. The overall rate on an investment is
determined by analyzing several aspects of that investment and then assigning a
risk associated with those aspects. Elements usually considered are:
.. Reliability of the gross income prediction. How certain is it that the
income will be forthcoming? Income is more dependable when the property is
leased on a long-term basis to financially responsible tenants than when
rented on a month-to-month basis to less reliable tenants.
.. Reliability of the expense prediction. Is there great danger of having
expenses increase materially, or is there a fair chance that they will
remain about the same or even decrease?
.. Expense ratio. If the expenses are low in relation to gross income, the
quality of the net income may be better, because a moderate reduction in
gross income or a moderate increase in expenses does not affect the net
income substantially.
.. Burden of management. Even when real estate management is employed, a
property that requires constant attention, because of either maintenance or
rent collection problems, is less desirable than one that needs minimal
management. A long-term lease that requires a tenant to take care of all
repairs and to pay taxes and insurance presents a situation that is
relatively free from this burden of management.
.. Marketability of the property. An investment that has marketability and
liquidity appeals to a wider group of investors than one lacking those
attributes.
.. Stability of value. The value or market price of a piece of real property
tends to remain within a narrower range for longer periods of time than do
most other commodities.
As described previously, the gross income projected for the property is subject
to such uncertainties as competition from other facilities and fluctuations in
demand for the subject's services. Moreover, the subject property has limited
marketability and liquidity because a purchaser must have the appropriate
operating license from the applicable state regulatory agencies, which limits
the number of potential investors and would, in any potential sale of the
property, create impediments and delays.
Going-In Capitalization Rate Industry Findings
To further test the capitalization rates, we consulted data on independent
living acquisition trends in The Senior Care Acquisition Report, Eighth Edition,
2004. The report indicated that after seeing two years of declining
capitalization rates for independent living properties between 2000 and 2001,
2002 saw an increase in rates to a reported average of 12.20 percent. For 2003,
however, the average capitalization rate declined to 11.1 percent. This
information is summarized in the graph below.
Independent Living Facility Capitalization Rates
[GRAPHIC OMITTED]
1995: 10.3%
1996: 10.2%
1997: 9.2%
1998: 10.3%
1999: 10.9%
2000: 10.5%
2001: 9.9%
2002: 10.8%
2003: 9.9%
In addition, Cushman & Wakefield, Inc. surveyed senior care participants
regarding their investment parameters for senior housing properties. This recent
information is summarized in the following table.
2003 Participants Survey
Change From Change From
Survey 2002 2001
Property Type Survey Range Average Basis % Basis %
Point Point
Capitalization Rates
55+ Senior Apartments 7.00% - 10.25% 8.15% -7 0.9% -68 -7.6%
Independent Living 9.00% - 10.50% 9.55% -5 0.5% -30 -3.0%
Assisted Living 10.00% - 12.25% 10.85% -17 1.6% -8 -7.2%
Skilled Nursing 11.50% - 18.00% 14.15% 16 -1.1% -61 -4.2%
Continuing Care
Retirement Community 9.00% - 11.50% 10.40% -35 3.4% -15 -1.4%
Internal Rates of Return
55+ Senior Apartments 9.50% - 15.00% 10.60% -15 1.4% -20 -1.8%
Independent Living 10.00% - 15.00% 11.90% -25 2.1% -65 -5.7%
Assisted Living 12.00% - 17.00% 15.30% 42 -2.7% -22 -1.5%
Skilled Nursing 13.00% - 20.00% 16.30% -25 1.5% -165 -9.1%
Continuing Care
Retirement Community 9.00% - 17.00% 13.00% -25 1.9% -135 -9.2%
<FN>
Source: Senior Care Participants Survey, 2003 by Cushman & Wakefield, Inc.
</FN>
In reviewing the 2003 survey, capitalization rates for independent living
facilities ranged from 9.00 to 10.50 percent with an average indication of 9.55
percent. This data is only 25 basis points below that reported previously in The
Senior Care Acquisition Report, Eighth Edition, 2004. The 2003 C&W survey also
shows that capitalization rates declined slightly over those reported in 2002
and 2001.
In choosing the appropriate capitalization rate for the subject, we considered
its location, occupancy, as well as the overall condition and utility of the
property. The subject is a mid-sized independent living facility located in a
favorable demographic area in Illinois. The market area is considered to be at a
equilibrium basis with no under- or over- supply at this time. Based on the data
and characteristics of the subject and marketplace, we consider a capitalization
rate of between 8.75 to 9.25 percent to be appropriate for the property.
Band of Investment
The Band of Investment technique accounts for the combination of equity and
prevailing financing which are banded together to finance this type of real
estate. The rate developed is a weighted average, the weights being percentages
of the total value, allocated to the mortgage and equity positions.
After surveying several commercial mortgage lenders and consulting the most
recent Senior Care Participants Survey, published by Cushman & Wakefield, Inc.
and the Senior Care Acquisition Report, published by Irving Levin Associates, it
is our opinion that a typical creditworthy owner could obtain financing from a
lending source in an amount equal to 75 percent of value at an annual interest
rate of 6.0 percent. A typical loan period for this type of real estate ranges
from 20 to 30 years. Utilizing a 25-year amortization period at a 6.0 percent
interest rate (payable monthly) yields a mortgage constant of 0.0773162.
For a review of investor rates of return, we reference the previous table, which
showed investment parameters for independent living properties.
As shown in the table, internal rates of return or equity dividend rates for
senior housing properties ranged from 9.50 to 20.00 percent. Independent living
facilities fall within the lower to middle portion of the range from 10.00 to
15.0 percent with an average indicated rate of 11.90 percent. Assisted living
facilities fall within the middle portion at 12.00 to 17.0 percent with an
average indicated rate of 15.30 percent.
Based on the data, we consider a prudent investor in a senior housing property
like the subject would accept an initial annual return of between 10 percent and
15 percent of an equity investment in anticipation of a stable income flow and
property appreciation over time. From this, and based on the subject's physical,
locational and competitive structure, a rate from within the middle portion of
the latter range, or 13.0 percent would be reasonable.
It should be emphasized that the equity dividend rate is not necessarily the
same as an equity yield rate or true rate of return on equity capital. The
equity dividend rate is an equity capitalization that reflects all benefits that
can be recognized by the equity investor as of the date of purchase. The overall
capitalization rate is developed as follows:
Band of Investment Technique
75.0% MORTGAGE X 0.0773162 Mortgage Constant = 0.0579
25.0% Equity X 0.1300 Equity Dividend = 0.0325
100.0% Total 0.9.04
OAR = 9.00%
Direct Capitalization Method Conclusion
We estimated a capitalization rate ranging between 8.75 to 9.25 percent through
our direct comparison analysis, while the band-of-investment technique
correlated to 9.00 percent. Utilizing both methods to develop a capitalization
rate, tempered with investor criteria and the specific attributes of the
subject, we consider a rate of 9.00 percent warranted for the property. We note
that this rate is applied after reserves. Our conclusion via the Direct
Capitalization Method is as follows:
DIRECT CAPITALIZATION METHOD
Net 0perating Income $1,123,860
Sensitivity Analysis (0.25% OAR Spread) Value $/Unit
Based on Low-Range of 8.75% $12,844,112 $99,567
Based on Most Probable Range of 9.00% $12,487,331 $96,801
Based on High-Range of 9.25% $12,149,835 $94,185
Reconciled Value $12,487,331 $96,801
Rounded to nearest $100,000 $12,500,000 $96,899
Value Conclusion: $12,500,000
RECONCILIATION AND FINAL VALUE OPINION
Valuation Methodology Review and Reconciliation
This appraisal employs only the Income Capitalization Approach. Based on our
analysis and knowledge of the subject property type and relevant investor
profiles, it is our opinion that this approach would be considered necessary and
applicable for market participants. The client has requested that we perform a
restricted appraisal report. Therefore, we have not employed the Cost Approach
or the Sales Comparison Approach to develop an opinion of market value.
The approaches indicated the following values:
Income Capitalization Approach: $12,500,000
Due to the fact that the subject is an income producing property, investors are
primarily concerned with their return on equity. Therefore, we placed most
weight on the Income Capitalization Approach in our final value conclusion.
Given that investors typically purchase these types of properties based on their
income producing capabilities, this approach was useful in providing support for
our findings in the Income Capitalization Approach.
The Income Capitalization Approach is typically considered the most appropriate
approach to utilize when valuing going-concerns such as nursing homes,
independent living and independent living facilities. This approach considers
the income potential of the property. In our Income Capitalization Approach to
value, the anticipated monetary benefits of ownership were converted into a
value estimate. Within the Income Capitalization Approach, direct capitalization
was used, as it is the most common method used by investors and purchasers in
acquiring existing and stabilized properties of this nature.
Based on our Complete Appraisal as defined by the Uniform Standards of
Professional Appraisal Practice, we developed an opinion that the "as-is" market
value of the fee simple estate of the referenced property, subject to the
assumptions, limiting conditions, certifications, and definitions, on April 16,
2004 was:
TWELVE MILLION FIVE HUNDRED THOUSAND DOLLARS
$12,500,000
Personal Property Allocation
Included in the above estimate of market value is the contributing value of the
personal property at the subject property, or the furnishings, fixtures and
equipment (FF&E). FF&E is generally considered to be part of the independent
living facility and is typically sold with the building. It is therefore
considered to be a part of the property's total value. FF&E includes the
individual unit and public area furnishings, kitchen equipment,
service/maintenance equipment and other machinery. Based on previous analysis of
the subject, we estimated the value of the FF&E as new to be $519,225, including
a 15 percent factor for entrepreneurial profit.
Physical deterioration (depreciation) must be deducted for the FF&E. The subject
opened in 1987. Based on our physical inspection of the property, we are of the
opinion that the property is currently in average physical condition. We
estimated that the subject's FF&E has a useful life of 10 years and we estimated
the current effective age at 4 years. This equates to a 40 . percent
depreciation factor, as summarized in the following table. .
Furniture, Fixtures and Equipment
Total Value of FF&E As New $519,225
Physical Life (Yrs) 10
Effective Age (Yrs) 4
Percent Depreciated (%) 40
Percent Value Remaining (%) 60
Depreciated Value $311,535
Rounded $310,000
The contributing value of the FF&E is considered to be the cost of the FF&E less
its accrued depreciation. This equates to a value of $310,000 rounded.
INSURABLE VALUE
Insurable Value is directly related to the portion of the real estate which is
covered under the asset's insurance policy. We based this opinion on the
building's replacement cost new (RCN), which has no direct correlation with its
actual market value.
The replacement cost new is the total construction cost of a new building built
using modern technology, materials, standards and design, but built to the same
specifications and with the same utility as the building being appraised. For
insurance purposes, replacement cost new includes all direct costs necessary to
construct the building improvements. Items which are not considered include land
value, site improvements, indirect costs, accrued depreciation and
entrepreneurial profit. To develop an opinion of insurable value, exclusions for
below-grade foundations and architectural fees must be deducted from replacement
cost new.
We developed an opinion of replacement cost new by using the Calculator Cost
Method developed by Marshall Valuation Service, a nationally recognized cost
estimating company which estimates construction costs for all types of
improvements. Marshall Valuation Service revises its cost factors monthly and
adjusts them to reflect regional and local cost variations.
Oak Terrace Retirement Apartments
INSURABLE VALUE
Gross Building Area Square Footage (GBA) 117,250
Total Replacement Cost New Of Improvements $7,805,448
Less-Insurance Exclusions Per S.F. Percent
Foundations Below Grade $1.66 2.50% $195,136
Piping Below Grade (Negligible) $0.00 0.00% $0
Architect Fees $1.66 2.50% $195,136
Total Insurance Exclusions $390,272
INSURABLE VALUE SUMMARY
Total Replacement Cost New $7,805,448
Less: Total Insurance Exclusions ($390,272)
Insurable Value $7,415,176
Rounded to nearest $50,000 $7,400,000
<FN>
Source: Marshall Valuation Service
See Cost Approach for calculator details
</FN>
Therefore, the insurable value for the improvements is estimated to be
$7,400,000.
SUPPLEMENTAL VALUATION - SCENARIO II
VALUATION BY THE DIRECT CAPITALIZATION METHOD AS ENCUMBERED
In the previous section, the subject property's Market Value unencumbered, or
"free and clear" was estimated. However, as previously stated the purpose of
this report is to estimate the Market Value of the subject property, as
encumbered with long-term bond financing. The terms of the bond and Letter of
Credit are summarized as follows.
TERMS OF BOND FINANCING
Long-term bond financing issued by the City of Springfield, Illinois encumbers
the subject property. The Community Improvement Adjustable Demand Revenue Bonds
(Oak Tree Joint Venture, LP) Series 1999. A synopsis of the bond terms is
included in the addenda section of this report.
Derivation Of Overall Capitalization Rate: Capitalization rates express
relationships between net income and total value. The rate employed must be
consistent with and reflective of those rates currently employed by investors
active in the market place. Therefore, in order to determine the affect
favorable bond financing has on the capitalization rates we interviewed a number
of active investors and participants so that we may get an understanding as to
the methodology applied in the purchasing of such properties.
In conducting our research, we interviewed representative from such institutions
as Lend Lease, Heitman Capital, and Equity Residential Group. Each of those
interviewed were relatively consistent in that their respective companies
discounted "unleveraged market-rate overall rates" between 50 and 150 basis
points to reflect the benefits of the leverage and favorable financing.
Therefore, for properties such as the subject, a "leveraged" capitalization rate
of between 6.5 percent and 7.5 percent (8.0 percent less 50 to 200 basis points)
is implied. For the purposes of our analysis, we have concluded to 7.0 percent,
which is applied to the estimated NOI and results in a value as follows:
SUPPLEMENTAL VALUATION - SCENARIO II
$1,123,860 + 7.0% = $16,055,143 or $16,100,000 (as rounded)
SIXTEEN MILLION ONE HUNDRED THOUSAND DOLLARS
($16,100,000)
This value considers the effect of positive leverage and terms attributable to
bond financing that encumbers the subject property. The difference between the
unencumbered and the estimated Market Value, as encumbered, is $3,600,000, is
the implied benefit of the long-term bond financing. This value represents a
28.8 percent increase from our market value conclusion under Scenario I
ASSUMPTIONS AND LIMITING CONDITIONS
"Report" means the appraisal or consulting report and conclusions stated
therein, or a letter opinion, to which these Assumptions and Limiting Conditions
are annexed.
"Property" means the subject of the Report
"C&W" means Cushman & Wakefield, Inc. or its subsidiary that issued the Report.
"Appraiser(s)" means the employee(s) of C&W who prepared and signed the Report.
The Report has been made subject to the following assumptions and limiting
conditions:
1. No opinion is intended to be expressed and no responsibility is assumed for
the legaldescription or for any matters that are legal in nature or require
legal expertise or specialized knowledge beyond that of a real estate
appraiser. Title to the Property is assumed to be good and marketable and
the Property is assumed to be free and clear of all liens unless otherwise
stated. No survey of the Property was undertaken.
2. The information contained in the Report or upon which the Report is based
has been gathered from sources the Appraiser assumes to be reliable and
accurate. The owner of the Property may have provided some of such
information. Neither the Appraiser nor C&W shall be responsible for the
accuracy or completeness of such information, including the correctness of
estimates, opinions, dimensions, sketches, exhibits and factual matters.
Any authorized user of the Report is obligated to bring to the attention of
C&W any inaccuracies or errors that it believes are contained in the
Report.
3. The opinions are only as of the date stated in the Report. Changes since
that date in external and market factors or in the Property itself can
significantly affect the conclusions.
4. The Report is to be used in whole and not in part. No part of the Report
shall be used in conjunction with any other analyses. Publication of the
Report or any portion thereof without the prior written consent of C&W is
prohibited. Reference to the Appraisal Institute or to the MAI designation
is prohibited. Except as may be otherwise stated in the letter of
engagement, the Report may not be used by any person other than the party
to whom it is addressed or for purposes other than that for which it was
prepared. No part of the Report shall be conveyed to the public through
advertising, or used in any sales or promotional or offering or SEC
material without C&W's prior written consent.
Any authorized user of this Report who provides a copy to, or permits reliance
thereon by, any person or entity not authorized by C&W in writing to use or
rely thereon, hereby agrees to indemnify and hold C&W, its affiliates and
their respective shareholders, directors, officers and employees, harmless
from and against all damages, expenses, claims and costs, including
attorneys' fees, incurred in investigating and defending any claim arising
from or in any way connected to the use of, or reliance upon, the Report by
any such unauthorized person or entity.
5. Except as may be otherwise stated in the letter of engagement, the
Appraiser shall not be required to give testimony in any court or
administrative proceeding relating to the Property or the Appraisal.
6. The Report assumes (a) responsible ownership and competent management of
the Property; (b) there are no hidden or unapparent conditions of the
Property, subsoil or structures that render the Property more or less
valuable (no responsibility is assumed for such conditions or for arranging
for engineering studies that may be required to discover them); (c) full
compliance with all applicable federal, state and local zoning and
environmental regulations and laws, unless noncompliance is stated, defined
and considered in the Report; and (d) all required licenses, certificates
of occupancy and other governmental consents have been or can be obtained
and renewed for any use on which the value estimate contained in the Report
is based.
7. The physical condition of the improvements considered by the Report is
based on visual inspection by the Appraiser or other person identified in
the Report. C&W assumes no responsibility for the soundness of structural
members nor for the condition of mechanical equipment, plumbing or
electrical components.
8. The forecasted potential gross income referred to in the Report may be
based on lease summaries provided by the owner or third parties. The Report
assumes no responsibility for the authenticity or completeness of lease
information provided by others. C&W recommends that legal advice be
obtained regarding the interpretation of lease provisions and the
contractual rights of parties.
9. The forecasts of income and expenses are not predictions of the future.
Rather, they are the Appraiser's best estimates of current market thinking
on future income and expenses. The Appraiser and C&W make no warranty or
representation that these forecasts will materialize. The real estate
market is constantly fluctuating and changing. It is not the Appraiser's
task to predict or in any way warrant the conditions of a future real
estate market; the Appraiser can only reflect what the investment
community, as of the date of the Report, envisages for the future in terms
of rental rates, expenses, and supply and demand.
10. Unless otherwise stated in the Report, the existence of potentially
hazardous or toxic materials that may have been used in the construction or
maintenance of the improvements or may be located at or about the Property
was not considered in arriving at the opinion of value. These materials
(such as formaldehyde foam insulation, asbestos insulation and other
potentially hazardous materials) may adversely affect the value of the
Property. The Appraisers are not qualified to detect such substances. C&W
recommends that an environmental expert be employed to determine the impact
of these matters on the opinion of value.
11. Unless otherwise stated in the Report, compliance with the requirements of
the Americans with Disabilities Act of 1990 (ADA) has not been considered
in arriving at the opinion of value. Failure to comply with the
requirements of the ADA may adversely affect the value of the Property. C&W
recommends that an expert in this field be employed.
12. If the Report is submitted to a lender or investor with the prior approval
of C&W, such party should consider this Report as only one factor together
with its independent investment considerations and underwriting criteria,
in its overall investment decision. Such lender or investor is specifically
cautioned to understand all Extraordinary Assumptions and Hypothetical
Conditions and the Assumptions and Limiting Conditions incorporated in this
Report.
13. In the event of a claim against C&W or its affiliates or their respective
officers or employees or the Appraisers in connection with or in any way
relating to this Report or this engagement, the maximum damages recoverable
shall be the amount of the monies actually collected by C&W or its
affiliates for this Report and under no circumstances shall any claim for
consequential damages be made.
14. If the Report is referred to or included in any offering material or
prospectus, the Report shall be deemed referred to or included for
informational purposes only and C&W, its employees and the Appraiser have
no liability to such recipients. C&W disclaims any and all liability to any
party other than the party which retained C&W to prepare the Report.
15. By use of this Report each party that uses this Report agrees to be bound
by all of the Assumptions and Limiting Conditions stated herein.
Extraordinary Assumptions
An extraordinary assumption is defined as "an assumption, directly related to a
specific assignment, which, if found to be false, could alter the appraiser's
opinions or conclusions. Extraordinary assumptions presume as fact otherwise
uncertain information about physical, legal or economic characteristics of the
subject property or about conditions external to the property, such as market
conditions or trends, or the integrity of data used in an analysis." (USPAP 2001
Edition, ASS of The Appraisal Foundation, 1/1/2001, page 2).
This appraisal employs no other extraordinary assumptions.
Hypothetical Conditions
An extraordinary assumption is defined as "an assumption, directly related to a
specific assignment, which, if found to be false, could alter the appraiser's
opinions or conclusions. Extraordinary assumptions presume as fact otherwise
uncertain information about physical, legal or economic characteristics of the
subject property or about conditions external to the property, such as market
conditions or trends, or the integrity of data used in an analysis." (USPAP 2004
Edition, ASS of The Appraisal Foundation, 1/1/2004, page 3). This appraisal
employs no hypothetical conditions.
CERTIFICATION OF APPRAISAL
We certify that, to the best of our knowledge and belief:
1. The statements of fact contained in this report are true and correct.
2. The reported analyses, opinions, and conclusions are limited only by the
reported 3. assumptions and limiting conditions, and is our personal,
impartial, and unbiased professional analyses, opinions, and conclusions.
3. We have no present or prospective interest in the property that is the
subject of this report, and no personal interest with respect to the
parties involved.
4. We have no bias with respect to the property that is the subject of this
report or to the parties involved with this assignment.
5. Our engagement in this assignment was not contingent upon developing or
reporting predetermined results.
6. Our compensation for completing this assignment is not contingent upon the
development or reporting of a predetermined value or direction in value
that favors the cause of the client, the amount of the value opinion, the
attainment of a stipulated result, or the occurrence of a subsequent event
directly related to the intended use of this appraisal.
7. Our analyses, opinions, and conclusions were developed, and this report has
been prepared, in conformity with the Uniform Standards of Professional
Appraisal Practice of the Appraisal Foundation and the Code of Professional
Ethics and the Standards of Professional Appraisal Practice of the
Appraisal Institute.
8. Randal D. Dawson, MAI made a personal inspection of the property that is
the subject of this report.
9. No one provided significant real property appraisal assistance to the
persons signing this report.
10. The use of this report is subject to the requirements of the Appraisal
Institute relating to review by its duly authorized representatives.
11. As of the date of this report, Appraisal Institute continuing education for
Randal D. Dawson, MAI is current.
/S/ RANDAL D. DAWSON
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Randal D. Dawson, MAI
Associate Director
Senior Housing/Healthcare Industry Group
Illinois Certified General Appraiser
License No. 153-001098