The age verification file on a 168 unit 55-plus stops in 2021

Deal on my desk is a 2016-built active adult community, 168 units, one and two bedrooms averaging 940 square feet. In-place average rent $2,190, occupancy 95.7 percent, T12 expense ratio 41 percent. Ask is $34.4M, which prices to a 5.6 going in on trailing.

What I actually spend my time on is the file room, and the file room is where this one gets interesting. Three things.

One. The community holds itself out as 55-plus and relies on the housing for older persons exemption from the familial status rule. That exemption depends on continuing to document that at least 80 percent of occupied units have a resident 55 or over, and on the community publishing its intent to operate as older housing. The last full verification survey in the file is dated 2021. Since then there are 31 leases with no age documentation attached at all. How that exemption is applied and enforced varies, and I have an attorney on it, but I have to price it before I get her answer.

Two. The service package. Optional weekly housekeeping, a scheduled shuttle, dinner five nights in a small dining room, and a wellness coordinator on staff. That is independent living lite, and the line between that and a licensed use is a state question. Payroll on those four items is $412K a year.

Three. The management agreement runs 4.5 percent of gross with an incentive fee I cannot make tie to the historical statements.

The decision in front of me is whether to require a fresh full verification survey as a closing condition, which the seller says will take 90 days and blow the rate lock, or take a holdback and do it myself in the first quarter of ownership. I keep going back and forth on the size of that holdback.

6 replies

1renee_dubois Get yours

Do the survey yourself post close and size the holdback off what the 31 undocumented leases would cost you to unwind, not off some percentage of price. On my small buildings the thing that always bites is that the seller's files and the seller's software don't agree. Ask what system they use and whether the age field is even required at lease signing. If it's an optional field somebody skipped, you'll find more than 31.

1diane_kowalskiPassivePRO9

Different question. What's around it? Supply growth in senior housing is running about 1 percent nationally, a two decade low, but that's a national number and it means nothing on your specific submarket. If somebody has 20 entitled acres a mile away with a site plan already through, your 5.6 in year one is a very different asset in year five. I'd pull the planning commission agendas for the last 18 months before I'd worry about the holdback size.

3karen_whitfieldPG4APRO7

arbor is asking the right thing and it takes years to matter, which is the part people skip. New senior product from a standing start is a long build. You're likely fine through 2027 and the question is 2030. I'd hold this one on the assumption the demographic bid stays and price the exit wider than 5.6 anyway. Also, does the ground come with it or is any of that parking under an easement?

4paulgrant17PassivePRO5

Naive question from the screening side. If you have to keep 80 percent of units with someone 55 or over, does that mean you're checking applicants' ages as part of screening, and how does that square with everything I've been reading about not asking age? I genuinely don't understand where the line is here.

1ehernandez74PO2BPRO5

wren, the exemption exists precisely so an age-restricted community can do that, and the community has to document it rather than avoid it. The rules around what you can ask and how you record it differ in detail by state and by how the community's own recorded restrictions are written, so it's an attorney question for fathom's specific property.

fathom, my slower worry is the dining program. Five nights of dinner service for 168 units on $412K of total service payroll seems thin to me. Is food cost sitting somewhere else in the statements, and is there a third party contract behind it? If a resident survey says dinner is the reason they stay, that line is not discretionary and you can't cut it to make the model work.

1megan_doyle15 Get yours

What does the 80/20 actually stand for, in plain terms? Just trying to follow along.

The age verification file on a 168 unit 55-plus stops in 2021

6 replies