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MP09-01-HOUSING STUDY0 xfield ,� _ � � Rcticurc•h inc. � July 17, 2008 MEMORANDUM TO: Mr. John Arkell Select Companies FROM: Mr. Jay Thompson Ms. Kristi L Johnson Maxfield Research Inc. RE: Preliminary Demand Estimate for Senior Housing in Fridley, MN Introduction/Purpose and Scope of Research This memorandum provides a preliminary assessment of the market potential for a senior hous- ing development to be located in Fridley, Minnesota. As we understand, Select Companies would develop a site located on old Central Avenue and Mississippi Street. The proposed con- cept is a seniar complex that combines congregate, assisted tiving and memory care housing. The methodology used to caiculate demand in this memorandum is proprietary to Maxfield Re- search but is consistent with methodologies used by analysts throughout the senior housing in- dustry. It is important to note that demand estimates and conclusions contained herein are pre- liminary and are intended only to broadly assess the depth of demand for senior housing prod- ucts in Fridley and to determine whether additional senior housing products could be supported. A more thorough investigation of the uniyue characteristics of the Fridley Market Area, outlined in a Full Feasibility Study, would reveal more specific factors that would impact demand and appropriate market positioning. Based on the results of fieldwork associated with a Full Feasi- biliry Study, the Market Area used in this preliminary analysis may require refinement. This memorandum delineates the primary draw area ("Market Area") for senior housing in Frid- ley and presents an overview of the demographic and economic characteristics of the Market Area: It then inventories existing and pending senior housing deveiopments that wouid be com- petitive with the subject development. Demand for congregate (i.e. independent living with ser- vices), assisted living and memory care senior housing is calculated based on demographic, eco- nomic and competitive factors that wouid impact demand for senior housing units in the Market Area. Our preliminary assessment concludes with an estimation of the total Market Area de- mand that would be captured by a development on a suitable site. 612-338-0012 (fax)612-904-7979 615 First Avenue NE, Suite 400, Minneapolis, MN 55413 . www.maxfieldresearch.com 0 Mr. John Arkell July 17, 2008 Select Companies Page 2 Market Area Definition Maxfield Research Inc. determined the draw area for the proposed project based on community orientation and traffic patterns, geographic barriers and our experience in senior housing feasibil- ity. The draw area, herein referred to as the "Market Area," includes the communities of Fridley, Columbia Heights, and Spring Lake Park and Hilltop, located in Anoka County. A map of the Market Area is shown below. Fridley Market Area MAXFIELD RESEARCH INC. 0 Mr. John Arkell July ] 7, 2008 Select Companies Page 3 This draw area is considered to be the geographical expanse from which the majority, we esti- mate 80%, of the demand for senior housing would be derived. The remaining portion of demand would likely come from seniors who live just outside the Market Area boundaries, for- mer residents who desire to return and parents of adult children living in Fridtey. Older Adult and Senior (55+) Population and Household Trends Table 1 shows the age distribution of people and households age 55 and older in the Fridley Market Area. Data presented for 2000 is obtained from the U.S. Census. Estimates for 2008 and projections through 2013 are calculated by Maxfield Research Inc. based on information pro- vided by Claritas, Inc., a nationalty recognized demographic services firm, with adjustments based on local demographic data provided by the Metropolitan Council and the Minnesota State Demographic Center. TABLE 1 ' S5+ POPULATiON & HOUSEHOLD AGE DISTRIBUTION FRIDLEY MARKET AREA Sources: U.S. Census Bureau; Claritas, Inc.; Metro olitan Council; Maxfield Research Inc. MAXFIELD RESEARCH INC. Mr. John Arkell July 17, 2008 Select Companies Page 4 The following points are key trends noted in the distribution of the Market Area's older adult and senior population and household base: • As of 2000, the Fridley Market Area totaled an estimated 53,507 people and 22,489 house- holds. The Market Area grew slowly between 2000 and 2008 adding 568 people and 646 households. Overall, the Market Area appears stable. Population and households are ex- pected to continue their modest growth from 2008 to 2013, adding 575 people and 465 households, respectively. • In 2008, the Market Area's senior population (65+) comprised approximately 1'4°fo`of the to- tal population, and senior households accounted for an estimated 23°10 of the total household base. Through 2013, growth in the senior age cohorts will increase these percentages to 17.4% and 26%0 of the total population and household bases, respectively. • The Market Area's oider adult population {age 55 to 64) is forecast to experience the'strong- est numerical growth over the next five years. By 2013, this age cahort is projected to total approximately 7,298 people and 4,096 households, a growth of 11.7%o and 11%, respectively, over the five-year period. • By percentage, the'85±age cohort is projected to have the strongest growth over the next five years, at 23.2.1 % and 22.5% for population and households, respectively. . The group behind those 85+, (75 to 84), are forecast to experience much slower growth. Lackluster growth in this age range can be attri6uted to a period oflow birth rates during'the Great Depression. . . Senior housing complexes are age-restricted to older adults and seniors age 55 or 62 and old- er. While some older adult and younger senior households choose independent housing products, seniors �re typically age 75 or older before moving into senior housing with servic- es, although some seniors may choose to reside in congregate housing at a younger age. For the subject development, the majority of demand would be generated`by growth in the 75+ age cohort, which is forecast to experience growth of 11.2%, or 453 people over the next five years. � As previously discussed; the majority of growth in the 55+ population is being generated by younger age cohorts. As these individuals age and need additional services, demand for ser- vice-enhanced housing products will increase over the long-term. Older Adult and Senior Household Incomes The estimated distribution of older adult and senior households by age and income in the Fridley Market Area is displayed inTable 2. Information detaited in the Table is supptiedby Claritas, Inc. with local adjustment according to the Metropolitan CounciL 1t is important to note that the ` MAXFIELD RESEARCH INC. 1 Mr. John Arkell July 17, 2008 Select Companies Page 5 data does not account for the asset base of senior households or supplemental income that a se- nior household could gain from the proceeds from a sale of a home or from contributions from family members. The data in Table 2 helps determine demand for senior housing based on the size of the market at specific income levels. This data is incorporated into our demand calcula- tions, which are presented in a following section. The frailer the senior, the greater the proportion of their income they typically spend on senior housing alternatives. Studies have shown that seniors are willing to pay increasingproportions of their incomes on housing with services, beginning with an income allocation of 40% to 50%0 for market rate active adult housing with little or no services, increasing to 65% for indepen- dent/limited-services care and to 80% to 90% for assisted living housing. The proceeds from the sale of their homes, as well as financial assistance from their adult children, are often used as supplemental income in order to afford senior housing alternatives. The following are key points from Table 2. � • Empty-nester households (ages 55 to 64) tend to have substantially higher incomes than se- nior households, since there are many more households with two or more people and a sig- nificantly higher percentage of this age group continues to work.: Typically, the older the age cohort the lower the median income, as older age cohorts have a much larger portion of one- person households and typically only one income source. • In 2008, the median income of Market Area households is $57,266 for households ages 55 to 64, $39,711 for households ages 65 to 74 and $24,204 for households ages 75 and oider. Eor senior households (65+) overall, the median income is about $30,930. • The income-yualified market for senior housing is defined as households earning annual in- comes of$30,000 or more ($35,000 in 2013 after adjusting for inflation). As of 2008, there are about 2,845 senior households (age 65+) in the Market Area with incomes of at least $30,000, accounting for more than 50% of a1165+ households. • The income-qualified market is forecast to grow by over 1,000 households in the next five years. With fiousehold growth across the income spectrum, the percentage of income- qualified households is forecast to remain over half of all 65+ households. • Lower income households comprise a second portion of demand for housing products that are available at lower rent rates or subsidized through various Waiver or government-funded programs. Due to limited availability of housing with rent discounts, demand for senior housing products from lower income households is often substantiaL MAXFIELD RESEARCH INC. Mr. John Arkell July 17, 2008 Select Companies Page 6 TABLE 2 OLDER ADULT (55+) AND SENIOR INCOME DISTRIBUTION FRIDLEY MARKET AREA 2008 & 2013 55-64 65-74 75+ Tota165+ No. Pc� No. Pc� No. Pct No. Pc� Under $15,000 248 6.7 326 I 1.7 597 219 923 16J $15,000-$24,999 279 7.5 475 ]7.0 834 30.5 1,309 23.7 $25,000-$34>999 372 10.1 415 14.9 " 479 17.6 895 16.2 $35,0�0-$49,999 688 18.6 578 20.7 4l6 }5.3 994 18A $50,000-$74,999 892 24.2 507 18.I 195 7.2 702 12.7 $75,000-$I9,999 ' 630 ' 17.1 217 "` 7.8 81 ' 3A 298 5.4 $9 00,000 or more 583 15:8 278 - 9.9 126 4.6 404 7.3 Total ? 3,691 100A 2,796 100A 2,730 ' 100.0 5,526 ` 100.0 . $35,000+ ' 2,793 75.7 1,579 _ SG.5 ` 820 ' 30.0 2,399 43.4 Mediaa Iacome $57,266 $39,711 $24,204 $30,930 55-64 65-74 75+ Tota165+ ' No,' Pct. No. Pct. No: Pct No. Pct Under $I5,000 277 6.8 338 10.8 578 19.2 916 149 � � $35,000-$29;999 . "` 273;: ��6.7 �� 490 ; �� 13:6 �, ��_ 824 �, 27:3 �i,314 �� 21,4 � � $25,000-$34,999 363 8.9 435 13.9 636 21.1 1,072 17.4 $35,000-$49,999 735, 17.9 ' 713 ; 22.7 447 ' 14,8 I,1b0 ' 18,9 $50,000-$74,999 971 23.7 551 17.6 288 9.6 839 13J , .. , ,. $75,000-$99,49'9 ; , ' 691 `< ] 6:9 2b4 ;' ' 8.4 ., � 88 , 2.9 � 352 ` 5:9 $ I 00,000 or more 787 19.2 344 11 A 152 5.1 496 8.1 Total 4,096 100A 3,136 1OOA 3,014 100.0 6,150 100.0 $40,000+ 2,941 71.8 1,633 52.2 828 27.5 :2,465 `° 40.1 Median Income $60,325 <$41,409 $26,645 532,8$1 55-64 65-74 75+ Total 65+ No. ' Pct. ` Na Pct. ' No. Pc� : No. ' Pc� Under $15,000 29 11.7 12 3.7 -19 -3.2 -7 -0.8 $15.000��24,g99 -6` -2.2 15 ; 3.2 ` -10 -1:2 5 0.4 $25,000-$34,999 -9 -2S 20 4.8 157 32.8 177 19.8 S35,OQ0-�49,999 47 6.8 ' 135; 23.4 30 `7.3 165 ` 16.b $50,000-574,999 80 89 44 8.8 93 47.5 137 19.5 .,... � , ..,._ � � � � $75,000-$i9,9�9 � .' 61 9.7 � � ` 47 `� � 21.$ . � � ,, �. 8:4 � � ` �54 � �"' ` � 18.2 � $100,00b or more 204 34.9 66 239 26 20.5 92 22.8 Totat ' 404 l 1.0 340 12.2 2�4 : 1U;4 b24 ;, 11:3 � � � $35,0OO+1g4U,b0�±;, 149• ��.3 58 �; � 3 7 $ . 1;p ,, 6�G �. - 2.8 � ]1�'edianIncome $3;059; �`"�a.3 � '��5�1,69� ��.� ��2,441� � _ 1d;3 ��,951 �� 6.� � � Sources: Claritas, Inc.; Maxfield Itesearch Ina MAXFIELD RESEARCH INC. ' Mr. John Arkell July 17, 2008 Select Companies Page 7 Senior Household Tenure In addition to their existing income sources, many senior households would be able to derive supplemental income to use toward housing alternatives by investing the proceeds from the sales of their homes. Table 3 shows the homeownership rates among senior cohorts in 1990 and 2000, . according to the U.S. Census Bureau. The following are key points from Tab1e 3. • Typically, homeownership rates dectine with household age. In 2000, homeownership was 86% for households age 55 to 64, 86% for households age 65 to 74 and 65% for households age 75 and oider. • Seniors in the Fridley Market Area begin moving to senior housing (or other renter-occupied units) after the age of 75, as observed in the decrease in homeownership between the 65 to 74 age cohort (86%) and the 75+ age cohort (65%). TABLE 3 OLDER ADULT AND SENIOR HOUSEHOLD TENURE FRinT.F.V MARKRT ARF.A Pct. Chan e -1Z% 2Z% 21% 11% 46% Sb% S 1% Gts /o Sources: U.S. Census Bureau; Maxfield Research Inc. • Between 1990 and 2000, the homeownership rates among seniors age 65+ increased slightly, from 76% to 77%. � • With homeownership rates of 77% for all households over the age of 65, a sizeable propor- tion of residents would be able to use proceeds from the sales of their homes toward senior housing a(ternatives. The resale of single-family homes would allow additional senior households to qualify for market rate housing products, since equity from the home sale could be used as supplemental income for alternative housing. These considerations are fac- MAXFIELD RESEARCH INC. Mr. John Arkell July 17, 2008 - Select Companies Page 8 tored into our demand calculations, which are presented in a following section of this memo- randum. Home Resale Values Tabte 4, located on the following page, presents a review of home sales as reported by the Mul- tiple Listing Service (MLS) for 2003 through the first half of 2008 for the Fridley Market Area. The fol•lowing points are a summary of key findings: • For the Market Area overall, the average sale price was $202,368 in 2007, down from a high of $211,300 the year before. So far in 2008, the average home price was $166,877, down again from the previous year, in this case by 17.4%. It should be noted that fewer homes are on the market and independent seniors can be expected to avoid se(ling their homes until the _ market improves. • Resale activity reached a peak of 674 homes sold in 2005 and has been decreasing annually since that point. Approximately 412 residential real estate transactions occurred in 2007, a drop of 39% from 2005. • Based on the 2008 median sale price of $1b6,887 in the Fridley Market Area, a senior house- hold could generate approximately $6,208 of additional income annually (about $517 per month), if they invested in an income-producing account (4% interest rate) after accounting for marketing costs andlor real estate commissions (7% of home sale price). This income coutd be used to cover the cost of living in senior housing alternatives, which allows an addi- tional portion of seniors to yualify for housing alternatives who would otherwise not have qualified based on incomes alone. Additionally, this income could be used dollar-for-dollar " toward the cost of living in senior housing alternatives. These proceeds would support living in congregate housing (estimated monthly rent of $1,600) for about eight years. At a typical assisted living monthly rent of $3,000, proceeds from the home sale would last about four years. • The slowdown in the real estate marlcet will have some impact on the ability of seniors to sell their homes within a reasonable period of time. Untit the market improves, demand for se- nior housing products, particularly housing products that are not need-based, may be less ` than calculated demand indicates. MAXFIELD RESEARCH INC. � Mr. John Arkel] July 17, 2008 Select Companies Page 9 Year 2005 2006 2007 2008' TABLE 4 SINGLE-FAMILY HOMES FRIDLEY MARKET AREA 2004 to July 20(18 No. of Average Avg. Sales Price DOM �_ 703 $201,725 36 674 $212,510 58 490 $211,300 93 412 $202,368 ' 68 213 $166,887 84 �% Change 2004-2008 20.9% ' includes ail resale activity up to July 10, 2008. Sources: Multiple Listing Service; Maxfield Research Inc. Senior Housing Defined Senior housing is a concept that generally refers to the integrated delivery of housing and servic- es to seniors. However, as the figure below shows, senior housing embodies a wide variety of � product types across the service-delivery spectrurr►; products range from independent apartments and/or townhomes with virtually no services on one end, to highly specialized, service-intensive,. assisted living units or housing geared far people with dementia-related illnesses (termed "mem- ory care") on the other end of the spectrum. In general, independent senior housing attracts people age 65 and over while assisted living typically attracts people age 80 and older who need assistance with activities of daily ,living (ADLs). , CONTINUUM OF HOUSING AND S�RVICES FOR SENIORS . I Fu[!y lndependent Lifestyle Fu!!y or Highly Dependent on Care �Senior Housing Products The least service-intensive projects, also termed "active adulY' or "adult" projects, are similar to general occupancy housing projects; they offer virtually no support services or health care but MAXFIELD RESEARCH INC. Mr. John Arkell July 17, 2008 Select Companies Page l 0 restrict tenancy to those ages 55 and over. Congxegate/optional-services projects, the next level to the right on the service-delivery spectrum, offer support services such as meals and house- keeping, but often through tiered package pricing or a-la-carte so that services can be customized _ for the resident's individual needs. A third type of senior housing is congregate/service- intensive; these projects inclwde some basic support services in the rent and typically attract a frailer senior population than adult or optional-services projects. The most service-intensive product types, assisted living and memory care, offer the highest le- veis of services short of a nursing home. Typicat services covered in the fee for both of these product types include all meals, housekeeping, linen changes, personal laundry, 24-hour emer- gency response and a wide range of personal care and therapeutic services (either built into the fee or a-la-cartej. Sponsorship by a nursing home, hospital or other health care organization is - - common for assisted living and memory care projects as well as for many congregate projects: Supply of Senior Housing in the Fridley Market Area Maxfield Research Inc. identified 77 units of congregate, 105 units of assisted living and 9 units of inernory care in the Fridley Market Area. We also found two developments for those 55+, which offer no services or assistance. Tab}e 5 displays an inventory of these developments, as well as existing service-enhanced senior housing developments located near the Fridley Market Area. Those include congregate, assisted living and memory care senior housing. The following are key points regarding the existing senior housing supply. • The vast majority of senior fiousing in the Fridley Market Are� is adult, no-services ' apartments. These include Banfill Crossing in Fridley, the area's newest 55+ develop- ment, a four-story building completed in 2000, with 110 one-and two-bedroom apart- ments. Oak Crest, and the Cottages of Spring Lake Park were both constructed in the 1990s, and together provide 153 units of older adult living. None of these developments would be considered competitive with a senior development with services: • There are a total of 191market rate service-enhanced senior housing units outside, but near the Market Area, of which 77 are congregate units, 105 are assisted living units and • nine are memory care units. ' • BoulevardApartments, the only congregate facility in the Fridley Market Area, was built in 1984 and is owned by Crest View Senior Communities. Crest View also owns and manages Crest View on 42"d and Royce Place, both assisted living facilities with 41 and 64 units, respectively. Crest View on 42"d also contains nine units of inemory care. - MAXFIELD RESEARCH INC. Mr. John Arkell July 17, 2008 Select Companies Page i l � JUDiOiAI . � . . . . . � � . . . . Source: Maxfield Research Ina • Located one miles east of the proposed site, and managed by Silvercrest, are Brigh- tondale Assisted Living in New Brighton and Meadowood Shores. Brightondale was built in 1988 and has 64 units of assisted living and 11 units of inemory care. It cur- rently has five vacancies. Meadowood Shores, built in 2000, has l06 congregate units and three vacancies. • Senior developments just outside of the Fridley Market Area were largely built in the 1980s and 1990s. On the newer end, Creekside Cottages of Coon Rapids has a 2006 occupation date, while Comforts ofHorrae in Blaine opened its doors in 2004. ' • Assisted living and memory care in particular have undergone a design sea change over the past decade, as the hospital concept of care for the frailer elderly has given way to more functional universal design, and developments have become more hotel- like in their offerings of amenities and choices. Older developments may now be less attractive to seniors and their adult children. MAXFIELD RESEARCH INC. Mr. John Arkell July 17, 2008 Select Companies Page 12 TABLE SA EXISTING MARKET RATE SENIOR HOUSING DEVELOPMENTS OUTSIDE THE FRIDLEY MARKET AREA JULY 2008 Year No. of Project Location Built Units � � �g - � i � i �r� �.. '�� �..'�ll �'� ��@'' ; �. �a Meadowood Shores New Brighton 2000 106 Scandia Shores ' Shoreview 1996 55 Margaret Place Coon Rapids 1987 72 Sutton Place Arden Hills 1980 19 Subtotal 262 � � ;;;A�sa�tet� i���i�� `' Creekside Cottages Coon Rapids 2006 12 Comforts of Home - Blaine Blaine 2004 16 Epiphany Coon Rapids 2001 50 Homestead at Coon Rapids Coon Rapids 1998 32 Sterling House of Blaine Blaine 1997 19 Eagle Street Catered Living Coon Rapids 1997 12 Demar Catered Living Coon Rapids ' 1995 20 Brightondale New Brighton 1988 75 Lakeview Residence Arden Hills 1955 136 Subtotal 372 ��L<�., *� „t, � `;'1�I,�C� `C:B� Comforts of Home - Blaine Blaine 2004 13 Epiphany Coon Rapids 2001 T4 Homestead at Coon Rap�ds Coon Rapids 1998 26 Brightondale New Brighton 1988 11 Lakeview Residence Arden Hills 1955 33 Subtotal 97 Source: Maxfield Research Inc. Pending Senior Housing in the Fridley Market Area Maxfield Research interviewed local officials in Market Area communities to learn of any pro-' posed or planned senior housing developments that are currently in the City approvals process. Fridley planners report that all senior developments are currently stalled or canceled, and that they expect nothing to be moving forward for some time. Spring Valley, a for-sale senior condo project on Old Central has stalled. Another 54 unit senior building in the Town Center devel- opment is in bankruptcy court, and a purchase proposal for a senior development on the Colum- MAXFIELD RESEARCH INC. Mr. John Arkell July 17, 2008 Select Companies Page 13 bia Arena site was recently rejected by the land owner. In Columbia Heights, the Comforts ofHome project planned for construction on the old Apache Plaza site has "died" according to the City's planning department, after that company built an underground parking garage and foundation. In its place, construction should be moving for- ward on a 75-unit assisted living and memory care facility spearheaded by New Perspectives. New Perspectives is planning to have a mix of 42 assisted living units and 35 memory care units. Because this development is on the far corner of the Fridley Market Area, we are halving the number of units that we will consider competitive to 21 and 16 units of assisted living and mem- ory care respectively. In additron, the City has approved a HUD 202 project for 50 units on Hu- set Parkway that will contain an attached 28 unit adult 55+ building, which will be market rate, and is not included in our demand analysis. Spring Lake Park reports no new projects in the pipeline, and Hilltop would be unable to shoe- horn in any senior housing development: We identified four pending projects outside Fridley Market Area, which we are not including in our demand analysis. United Properties is constructing an Apple Pointe senior cooperative in Roseville, with 94 units of independent, congregate and assisted living. In Shoreview, Cascade Partners is proposing a 65-unit senior cooperative near the intersection of Highway 96 and Hod- geson Road, but at this time Shoreview Planning reports the Cascade Partners development is on hold. In Blaine, Afilius Senior Living Center has City approval but has yet to begin construction on a 150-unit continuum of care campus that will be managed by Augustana Care Corp, based in Minneapolis. Also in Blaine, Crest View Senior Communities has been approved but has not begun construction on a 170-unit senior living campus facility. In addition, White Pines Senior Living has app(ied to the City of Blaine to build a 65-unit building for adults 55+ in the Lakes Development. The company has also indicated an interest in adding an assisted living facility in the future.. Prel�minary Demand Estimates for Senior Housing Demand for Congre�ate Senior Housing Table 6 presents our demand calculations for market rate congregate senior housing (i.e., inde- pendent senior housing with services) in the Market Area in 2008 and 2013. The market for congregate senior housing is comprised of households age 65 and older in the Fridley Market Area. In order to arrive at the potential age, income and asset-qualified base for congregate housing, we include all senior households with incomes of $30,000 or more plus homeowner households with incomes between $20,000 and $29,999 who would qualify with the proceeds from a home sale. The nurnber of qualifying homeowner households is estimated by MAXFIELD RESEARCH INC. C � Mr. John Arkell July 17, 2008 ' Select Companies Page 14 applying the appropriate homeownership rate, as identified in Table 3, to each age cohort. 1n 2008, we estimate there are 3,654 age, income and asset-qualified households that would support demand for congregate senior housing in the Fridley Market Area. Adjusting to include appropriate capture rates for each age cohort (1.5% of households age 65 to 74 and 8.5% of households age 75 and older) results in a demand potential for an estimated 158 congregate senior housing units in 2008. TABLE 6 MARKET RATE CONGREGATE DEMAND ' FRIDLEY MARKET AREA 2008 & 2013 A e of Householder A e of Householder 65-74 75+ 65-74 75+ # of Households w/ Incomes of>$30,000' 1,787 1,057 1,872 975 # of Households w/ Incomes of $20,000 to $29,999' + 445 657 + 435 636 (times)Nomeownership Rate x 86% 65% x 86% 65%0 (equals) Total Potential MarketBase - = 2,170 1,484 2,246 ],388 (times) Potential Capture Rate x I.5% 8.5% x 1.5%0 8.5% (equals) Demand Potential 32 126. 33 118 Total Market Rate Demand Potential = 158 151 (ptus) Demand From Outside Market Area (20%) + 40 + 38 (equals) Total Demand Potential 198 189 (minus) Existing and Pending Congregate Units - 73 73 � (equals) Excess Market Area Demand Potential = 125 = I 16 (times) Est. Pct. Capturable on a Site in Fridley z 55% x 55% (equals) Demand Capturable on a Site in Fridley 69 = 64 ' 2013 calculations define income-qualified households as all households with incomes greater than $35,000 plus homeowner households with incomes between 525,000 and 534,999. Source: Maxfield Research Ina In addition to the demand generated from within the Market Area, a second portion of demand would come from outside the Market Area. We estimate that seniors currently residing outside the Market Area wiii generate 20% of the demand for congregate senior housing - increasing to- tal demand to about 200 congregate units. This demand consists primarily of parents of adult children living in the Market Area, individuals who live just outside the Market Area and have an orientation to the area and former residents who desire to return upon retirement. MAXFIELD RESEARCH INC. 0 0 Mr. John Arkell July 17, 2008 Select Companies Page 15 We have identified 73 existing units of independent housing with services for seniors in the Frid- ley Market Area, but find none pending at this time. Subtracting 73 units gives an excess market demand potential for 125 units. No single site can capture all of the excess demand in a Market Area. We have estimated that an appropriate site in Fridley can capture 55% of the congregate demand .potential. Based on the calculations in Table 6, we find excess demand capturable on a site in Fridley for 69 congre- gate units in 2008. Adjusting for inflation, we project that all households with, incomes of $35,000 or more and homeowners with incomes of befween $30,000 and $34,999 would be candidates for congregate housing in 20l 3. Following the same methodology, we project that deinand for congregate housing on the subject Site will decrease slightly to 64 congregate units in 2013. Demand for Assisted Living Senior Housing . . Table 7 presents our demand calculations for assisted living senior housing in the Fridley Market Area in 2008 and 2013. The availability of r�ore intensive support services such as meals, housekeeping and personal care at assisted living facilities usually attracts older, frailer seniors. Hence, the age-qualified market for assisted living housing is defined as seniors ages 75 and over. Due to the supportive nature ofassisted living housing, most daily essentials are included in monthly rent, which allaws seniors to spend a higher proportion of their incomes on assisted liv- ing housing with basic services. Therefore, the first step in determining the potential demand for assisted living housing in the Market Area is to identify the age and income-qualified market based on a senior's ability to pay the monthiy fees. An income of approximately $35,000 and a 90% allocation of that income for housing translates to an affordable monthly fee of roughly $2,600, which would be an approximate base monthly fee at many assisted living projects. Thus, all households with incomes above $35,000 would be able to afford the monthly fee at an as- sisted living facility, based on monthly fees of $2,600. In addition to seniors who are qualified based on their incomes alone, there is a substantiai base of senior households with lower incomes who own their homes. These seniors have an untapped source of equity that can be�used as supplemental income to defray the additional costs incurred by living in senior housing alternatives. There are a significant number of seniors who will spend down their assets or will receive financial assistance from family members in order to avoid institutional care. With a year-to-date average home resale value of $167,000 in the Frid- h h' ld b bl to derive ad- ley Market Area and relatrvely high rates of omeowners �p, sen�ors wou e a e ditional income from the sale of their single-family homes. MAXFIELD RESEARCH [NC. ., n Mr. John Arkell July 17, 2008 ' Select Companies Page 16 Because the vast majority (90% according to the latest ALFA survey) of assisted living residents are single, our demand methodology separates the number of senior households who live alone from those who live with a spouse or other relative. We have further broken down the number of senior households by household type and income. From these figures, we apply acceptable cap- ture rates for each income cohort and houset�old type to derive the potential age and income- qualified market. As of 2008, there are an estimated 422 age and income-qualified seniors in the Market Area that comprise the potential market for assisted living senior housing. Demand for assisted living housing is need-driven, which reduces the age and income-qualified market to only the portion of seniors who need assistance. Studies by government agencies indi- cate that about 30% of all seniors age 75 and over need assistance with at least three activities of ' daily living (ADL). Applyingthis proportion to the age/income-qualified household base yields a potential assisted living market of an estimated 122 seniors in the Market Area in 2008. We estimate that roughly 70% of the age and income-qualified market needing significant assis- tance with ADLs will be a6le to remain in their homes with the assistance ofa family member or home health care. The remaining 30% will need assisted living housing. Applying this market penetration rate results in demand for an estimated 422 assisted living units in 2008. A portion of demand for assisted living units in the Market Area, we estimate 20%, will come from outside the Market Area. This secondary demand will include households currently living just outside the Market Area, former residents, parents of adult children that desire supportive � housing near their aduft children and increasingly frail retirees returning from retirement com- munities. Applying this figure results in total potential market for approximately 210 assisted living units in 2008. After subtracting 96 units of assisted living in two Columbia Heights buildings, we that Market Area excess demand exists far an estimated 113 assisted living units. No single site can capture all of the potential demand in a Market Area. We have estimated that an appropriate site in Fridley can capture appraximately 55% of the demand potential in the Marlcet Area. Applying this capture rate results in a total potential demand for 62units of as- sisted living in 2008. The same calculations are applied to the age and income-qualified base in 2013, with the addi- tion of 21 units of pending assisted living slated for the New Perspectives development in Ca lumbia Heights (half of the total 42 units). Following the same methodology, total potential demand for assisted living housing is expected to decrease slightly to 53 assisted living units through 2013. MAXFIELD RESEARCH INC. Mr. John Arkell June 16, 2008 ' Select Companies Page 17 TABLE7 MARKET RATE ASSISTED L[VWG DEMAND FRIDLEY MARKET AREA 2008 & 2013 HHs 75+ Capture Potential Non-single Capture Potential HHs 75+ Capture Potenhal Non-single Capture Pote�itial Lv . Alone Rate HHs HH's 75+ Rate HH� Lvg. Alone Rate HH� HH's 75+ Rate HHs Less then $20,000 846 25% 211 l68 15% 25 Less then $25,000 1,169 25% 292 233 15°/a 3� $20-$34,999 407 75% 306 491 45% 221 $25.000-$39,999 356 75%0 267 429 45% l93 S35,000+ 235 100% 235 583 70% 408 $40,000+ 238 100% 2�8 589 70% 412 Total t,489 752 1,241 654 Total 1.764 797 1.250 640 \ / � Total Potentiaf Market . 1,406 1.438 (times) Percent Needing Assistance w/ 3-6 ADLs x 30% x 30°io (equals) Age/Income Qualified Market Needing Assistance = 422 `�3 � (times) Market Penetration Rate x 400�o x 40%a (equals) Local Demand = 169 = 173 (plus}Propoction From Outside the Market Area (20°!0) _ + 42 + 43 (equals) Total Potential Assisted Living Demand = z � 1 - Z �6 (minus) Existing Assisted Living Units _ qg - 119 (equals) Total Excess Assisted Living Demand in the Market Area = 1 13 - 97 times) Estimated Percent Ca turable on a Site in Fridle x »% a 5���° e uals Cxcess Demand Ca turable on a Site in Fridl = 62 = 53 Source: Maxfield Research Ina MAXFIELD RESEARCH [NC. � Mr. John Arkell July 17, 2008 Select Companies Page 18 Demand for Memorv Care Senior Housin� Table 8 presents our demand calculations for memory care senior housing in the Fridley Market Area in 2008 and 2013. Demand is calculated by starting with the estimated Market Area senior (65+) population in 2008 and multiplying by the 8% incidence rate of Alzheimer'sldementia among this population. This yields a potential market of an estimated 682 seniors in the Fridley Market Area. Accord- ing to data from theNational Institute for Aging, about 25% of all persons with memory care impairments would be potential candidates for memory care housing units. This figure considers that seniors in the early stages of dementia will still be able to live independently with the care of a spouse or other family member, while those in the later stages ofdementia will require inten- sive medical care that would only be available in skilled care facilities. Applying this figure to the estimated population with memory impairments yields a potential market of approximately. 170 seniors in the Fridley Market Area in 2008. Because of the staff-intensive nature of dementia care, monthly fees for this type of housing typ- ically start at about $4,000. Residents of designated memory care housing often contribute 90% or more of their incomes for monthly fees. Thus, the income-qualified market is defined as indi- viduals with incomes of $50,000 or more, or incomes of $40,000 and non-income producing as- sets of $200,000 or more that could be converted to monthly income (i.e. senior homeowners earning $40,000 or more). As with all senior housing with services, a portion of this demand will also come from seniors who are willing to spend down assets and%or receive financial assis- tance from family members. Based on our review of senior household incomes in the Market Area, homeownership rates, and home resale data, we estimate that 30% of all age-qualified seniors in the Market Area would have incomes andlor assets to sufficiently cover the costs for memory care housing. This figure takes into account two-person households where one spouse may have memory care needs and allows for sufficient income for the other spouse to live independently. Multiplying the potential markeC by 30% results in a total of 51 seniors who would be age, income and asset-qualified in 2008. We estimate that 20% of the overall demand for memory care housing in the Fridley Market Area would come from outside the Market Area. This secondary demand includes households currently living just outside the Market Area, former residents, parents of adult children who de- sire supportive housing near their adult children and increasingly frail retirees returning from re- tirement communities. Together, demand from within and outside the Market Area totals about 64 memory care housing units in 2008. We estimate that an appropriate site in Fridley would capture approximately 55% of the total memory care demand in the Fridley Market Area. Excess demand is calculated for 30 memory care units that would be capturable on an appropriate Site in 2008. MAXFIELD RESEARCH INC ,. . , Mr. John Arkell July 17, 2008 Select Companies Page 19 The same calculations were applied to the projected age, income and asset-qualified base in 2013 to determine demand for memory care housing over the next five years. In addition, we add 16 pending memory care units from New Perspective Senior Living (half of the total 32 units). This results in a projected demand for 21 memory care units in 2013.. TABLE 8 MEMORY CARE DEMAND FRIDLEY MARKET AREA 2008 & 2013 � � 65+ Population 8,524 9,553 (times) 8% Dementia lncidence Rate x 8% x 8%0 (equals) Estimated Senior Pop. with Dementia = 682 = 764 (times) Percent Needing Specialized Memory Care Assistance x 25% 25% (equals) Total Need for Dementia Care = 170 = l91 (times) Percent [ncome/Asset-Qualified x 30% x 30% (equals) Total Income-Qualified Market Base = 51 = 57 (plus) Demand from Outside Market Area (20%) + 13 + 14 Total Demand for Memory Care Units 64 72 (minus} Existing and Pending Memory Care Units - 9 - 34 (equals) Excess Market Area Demand Potential = 55 = 38 (times) Estimated Percent Ca turable on a Site in Fridle x 55% x 55% e uals Demand Ca turable on a Site in Fridle = 30 = 21 Preliminary Conclusions ' Our preliminary assessment of the factors impacting demand for senior housing, including de- mographic, economic and competitive variables, shows clear support for additional senior hous- ing in the Fridley Market Area. A summary of the demand potential on an appropriate Site 'tn Fridley is provided on the following page. Demand for 2013 calculated after the addition of ' pending units of senior housing that are currently in the pipeline. MAXFIELD RESEARCH INC. � , . Mr. John Arkell July 17, 2008 Select Companies Page 20 TABLE 9 DEMAND SUMMARY FRIDLEY MARKET AREA 2008 & 2013 Demand Capturab[e on a Service Level S'ite in Fridley Congregate 69 64 Assisted Living b2 53 Memory Care : 30 21 Total Units 200 179 Source: Maxfield Research Ina Based on our preliminary findings, we find market support for approximately 200 senior housing units that could be supported on an appropriate site. Approximately 65 congregate units, 50 as- sisted living units and 20 memory care units could comprise a senior housing development. Over the next five years, demand for senior housing is forecast to decrease slightly for all three service levels due to competitive developments in the area that are now in some stage of plan- ning and construction. In addition to demand calculated for market rate senior housing, the subject develapment may be able to accommodate additional units by allocating a portion of units to be funded by Elderly Waivers, for the higher service levels, assisted living and memory care. It should be noted that our conclusions are preliminary and do not co�sider the quality of a par- ticular site for a senior housing development, historical performance of other senior housing de- velopments in the Market Area, price and positioning of the subject project, or other important factors (i.e. architectural, marketing and management issues) that would likely impact the market feasibility of the subject development. MAXFIELD RESEARCH INC.