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2008-07-07 CC Packet Preliminary Demand Estimate for Senior Housinge'g! Research Inc. June 3, 2008 MEMORANDUM TO: FROM: RE: Mr. Dan Dixon Guardian Angels of Elk River Mr. Jay Thompson Mr. Ryan Bergman Maxfield Research Inc. Mr. Larry Kruse City of Albertville Preliminary Demand Estimate for Senior Housing in Albertville, Minnesota Introduction/Purpose and Scope of Research This memorandum contains a preliminary assessment of the market potential for a senior hous- ing development to be located in Albertville, Minnesota. Maxfield Research Inc. calculated the preliminary demand for senior housing, including demand for congregate, assisted living, and memory care units, based on the size of the income/asset-qualified target market and the supply of existing and planned senior housing product in the Market Area. The methodology used to calculate 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 additional senior hous- ing in the Market Area. A more thorough investigation of the unique characteristics of the Al- bertville Market Area, outlined in a Full Feasibility Study, would reveal more specific factors that would impact demand and appropriate market positioning. This memorandum delineates the primary draw area ("Market Area") for senior housing in Al- bertville and presents an overview of the demographic and economic characteristics of the Mar- ket Area. It then inventories existing and pending senior housing developments that would be competitive with the subject development. Demand for senior housing products, including con- gregate, assisted living, and memory care, is calculated based on the demographic, economic, and competitive factors that would impact demand for senior housing units in the Market Area. This memorandum concludes with a preliminary assessment of the demand that would be cap- turable by a development on an appropriate site in Albertville. 612-338-0012 (fax)612-904-7979 615 First Avenue NE, Suite 400, Minneapolis, MN 55413 www.maxfieldresearch.com Mr. Dan Dixon & Mr. Larry Kruse June 3, 2008 Guardian Angels of Elk River & City of Albertville Page 3 Older Adult (Age 55+) Population and Household Trends Table 1 shows the age distribution of people and households age 55 and older in the Albertville Market Area. Data presented for 2000 is obtained from the U.S. Census. Estimates for 2008 and projections through 2013 are based on data provided by Claritas, Inc., a nationally recognized demographic services firm, with adjustments calculated by Maxfield Research according to Met- ropolitan Council figures. As of 2000, the Albertville Market Area totaled 35,340 people and 11,530 households. The population and household bases increased by 60.1% and 67.7%, respectively, through 2008 and are projected to continue to grow through 2013. By 2013, the Market Area is projected to total an estimated 68,846 people and 24,179 households. TABLE 1 OLDER ADULT (55+) POPULATION & HOUSEHOLD AGE DISTRIBUTION ALBERTVILLE MARKET AREA 2000-2013 POPULA 55 to 64 2;248 4,924 7,149 2,676 119.0% 2,225 45.2% 65 to 69 638 1,383 2,208 745 11fr.$%a 825 5 .70/6 70 to 74 492 881 1,404 389 79.1% 523 59.4% 75 to 19, 319" 591 844 272 85. % 253 42 80% 80 to 84 216 382 509 166 76.9% 127 33.2% 95 J40t 272 1 4141 1 132 94JA/61,, 142 ' 5Z20/a Total55+ 4,053 8,433 12,528 4,380 108.1% 4,095 48.6% ToW, 65+ 1,805 3,509 5,379 1,704 94.4% 1,870 53.E%' Total75+ 675 11245 1,767 570 84.4% 522 41.9% Tot. Pop. 1 35,3401 1 56,5911 1 68,8461 1 21,251 60.1% 12,255 21.7% HOUSEHOLDS 55 to 64 1,315 2,856 4,174 1,541 117.2% 1,318 46.1% : 65 to69 2999 862 1,382 , 563 18 70 to 74 280 547 869 267 95.4% 322 58.9% 75 to 79 218': 384 555 166 ' 7 AO% 17144.5% 80 to 84 151 236 326 85 56.3% 90 38.1% 85 + 1(13' . t 1391, 1 2121 t 36 35.0°/ ; < 73 525% Tota155+ 2,366 5,024 7,518 2,658 112.3% 2,494 49.6% To1a165 1,051 ,169 ; 3,344 1J 17 ' I06.3% 1.,.176 54,2�to Total75+ 472 759 1,093 287 60.8% 334 44.0% Tot. HH 1 11,5301 1 19,3391 1 24,1791 1 7,809 67.7%1 r 4,840 25.0% Sources: U.S. Census Bureau; Claritas, Inc.; Maxfield Research Inc. • The Market Area's older adult and senior population and household bases experienced robust growth in all age segments between 2000 and 2008. Between 2000 and 2008, the Market MAXFIELD RESEARCH INC. Mr. Dan Dixon & Mr. Larry Kruse June 3, 2008 Guardian Angels of Elk River & City of Albertville Page 4 Area's older adult and senior population (55+) grew by about 4,380 people (108.1%) and 2,660 households (112.3%). • The 55+ population and household bases are expected to continue to experience strong growth through 2013, although this growth is projected to occur at a lesser rate. Between 2008 and 2013, the Market Area's older adult and senior population is projected to add ap- proximately 4,095 people (48.6%). • Growth in the older adult and senior population overall is predominately propelled by growth in the younger senior cohorts. The 55 to 64 age cohort is projected to have the highest nu- merical growth between 2008 and 2013 (2,225 people, or 45.2%), followed by the 65 to 69 age cohort (825 people, or 59.7%), and the 70 to 74 age cohort (523 people, or 59.4%). Growth by percentage is projected to be highest for the 65 to 69 age cohort. Additionally, the older senior age cohorts (75+) are projected to experience considerable growth through 2013, although the growth numerically and by percentage is less than younger age cohorts. Comparatively, less growth in this age range can be attributed to a pe- riod of low birth rates during the Great Depression, which impacts the numerical composi- tion of aging cohorts today. Between 2008 and 2013, the 75+ age cohort is projected to add 522 people, or 41.9%. Household growth trends are an important factor in assessing demand for housing products since households represent occupied housing units. Similar to population growth trends, household growth in the older adult and senior age cohorts is projected to continue to be strong. Between 2008 and 2013, the 55+ age cohorts are projected to add a total of 2,494 households (49.6%). Growth in younger and older senior households will drive demand for additional service - enhanced senior housing products. The target market for housing with services is typically households age 75 and older; through 2013, this segment is projected to grow with an addi- tion of about 335 households (44.0%). These households will be the primary market for the subject development. Older Adult and Senior Household Incomes Table 2 shows income levels for older adult and senior households in the Market Area in 2008 and 2013 based on information provided by Claritas, Inc. It is important to note that the data does not account for the asset base of senior households or supplemental income that a senior household could gain from the proceeds of a sale of a home or from contributions from family members. MAXFIELD RESEARCH INC. Mr. Dan Dixon & Mr. Larry Kruse June 3, 2008 Guardian Angels of Elk River & City of Albertville Page 5 TABLE 2 OLDER ADULT (55+) INCOME DISTRIBUTION ALBERTVILLE MARKET AREA 2008 & 2013 65-74 55-64 75+ Total 65+ No. Pet. ; NA, Oct No - PCL No. Pct.. 74 2.6 179 23.6 Under $15,000 127 9.0 306 14.1 1 S,000424,999 86 3.0 323 22.9 144 19.0 467 21.5 $25,000-$34,999 161 5.6 191 13.6 131 17.3 322 14.9 35,000449,994 262 9.2 263 18.7 135 17,$ 399 18. $50,000-$74,999 801 28.0 261 18.5 108 14.2 369 17.0 $75,000-899,999 563 193 135 9.6 20 2.6 155 7.1 $100,000 or more 909 31.8 109 7.7 42 5.5 151 7.0 2,856 100.0 759' 100.0 "Total 1,409 100.0 2,168 100. 35,000+ 2,535 98.8 768 54.5 ' 1 305, 40.2 1,073 49.5 55-64 65-74 75+ Total 65+ No. Pet. N6 Pct. No. Pet. Na. Pet. 93 2.2 177 7.9 218 19.9 Under $15,000 395 11.8 15,000-$24,999 94 2.3 ' 344 15.3 196> 17.9 540 16.1' $25,000-$34,999 178 4.3 321 14.3 175 16.0 496 14.8 35,000-$4%999 339 8.1 427 19.0 156 14.3 583 17. $50,000-$74,999 1,041 24.9 457 20.3 213 19.5 670 20.0 75,000-$99,999 ` 900 19.2 250 11.1 48, 4A 298 ' 89 $100,000 or more 1,630 39.1 275 12.2 87 8.0 362 10.8 4,174 1, -- 2,251 100.0 1,093= 10ti.0 otal 3,344 10040 ,01H1+ 3,697 88A 1,268 56.3 453 441.4 1,721 51,5 Change 2008-2013 55-64 65-74 75+ Total 65+ Pet. NIL Pct. No Pet. Na. ` Pct.. 19 25.7 50 39.4 39 21.8 89 29.1 Under $15,000 15,00i#- +24,999 8 9.3 ; ° 21 6.5 5,2 36.1 73 15b $25,000-$34,999 17 10.6 130 68.1 44 33.6 174 54.0 35,Q00-$49,999 76 29.Q 164 62.4 , 21 15.6 . 185 46.5 $50,000-$74,999 240 30.0 196 75.1 105 97.2 301 81.6 75,-59919" 237 42.1 its 85.2 28 146X 143 92.3 $100,000 or more 721 79.3 166 152.3 45 107.1 211 139.7 1,318 46.1 842 ; 59.8 334 44�0 1,176 54 �: € 35,QQQ+!$40p 1,162 1 45.9, SQQ 65.1 148 48.4 648 60. Sources: Claritas, Inc.; Maxfield Research Inc. MAXFIELD RESEARCH INC. Mr. Dan Dixon & Mr. Larry Kruse June 3, 2008 Guardian Angels of Elk River & City of Albertville Page 6 The frailer the senior, the greater the proportion of their income they will typically spend on sen- ior housing alternatives. Studies have shown that seniors are willing to pay increasing propor- tions of their incomes on housing with services, beginning with an income allocation of 40% to 50% for market rate active adult housing with little or no services, increasing to 65% for inde- pendent/few-services care and to 80% to 90% for assisted living housing. The proceeds from the sale of their home, as well as financial assistance from their adult children, are often used as sup- plemental income in order to afford senior housing alternatives. The data provided in Table 2 is incorporated into our demand calculations, which are presented in a following section. The following are principle conclusions from Table 2. As of 2008, the median household income is an estimated $76,950 for households age 55 to 64, $38,620 for households age 65 to 74, and $29,310 for households 75 and older. The higher incomes for older adult (55 to 64) and younger senior (age 65 to 74) households com- pared to older senior households (age 75+) are primarily due to the fact that a higher propor- tion of younger seniors are married and are more likely to have two pensions, along with the fact that many younger seniors continue to have income -producing employment. • The income -qualified market for senior housing is defined as households earning annual in- comes above $30,000 ($35,000 in 2013 after adjusting for inflation). As of 2008, there are approximately 1,234 senior households (age 65+) in the Market Area with incomes of at least $30,000, accounting for 56.9% of all 65+ households. • Demand for market rate senior housing products will be supported by an increase in the num- ber of older adult and senior households that income -qualify for housing products. Through 2013, we estimate the number of age- and income -qualified households will reach 1,913 households, an increase of 55% from 2008. • Since service -enhanced housing is need driven, seniors with low incomes are still candidates for private pay assisted living and memory care, provided they have home equity or other savings that they can utilize to pay for the costs. Very low-income seniors who are Medi- care -qualified also could live in assisted living facilities that accept Elderly Waivers. 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 on the following page shows the homeownership rates among senior co- horts in 1990 and 2000, according to the U.S. Census Bureau. The following are key points from Table 3. MAXFIELD RESEARCH INC. Mr. Dan Dixon & Mr. Larry Kruse June 3, 2008 Guardian Angels of Elk River & City of Albertville Page 7 In 2000, homeownership rates were 95% for households age 55 to 64, decreasing to 87% for households age 65 to 74 and to 81 % for households age 75 and older. Decreasing home ownership rates are often correlated with increased household age since older seniors are more likely to select renter -occupied housing as their service needs increase. In this Market Area, a sharp decrease in homeownership for households age 75 and older indicates that sen- iors begin moving to renter -occupied housing in their mid-70's. • Homeownership rates between 1990 and 2000 increased slightly for older adult (55 to 64) and older senior (75+) households. Increasing homeownership rates among these households may be due to several factors, including an inadequate supply of renter -occupied senior hous- ing options, the introduction of owner -occupied senior housing options, or an increased pro- pensity toward homeownership in the years of later life. • 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 included in our demand calcula- tions, which are presented in a following section of this memorandum. TABLE 3 OLDER ADULT HOUSEHOLD TENURE ALBERTVILLE MARKET AREA 1999 & 2000 Age of Householder 55-64 65-74 75+ Total 65+ Own Rent Own Rent Own Rent Own Rent No. of Households 1,204 67 1 549 82 366 87 915 169 Homeownership Rate 95% 87% 81% 84% 1990 No. of Households 595 42 368 37 173 64 541 101 Homeownership Rate 93% 11 91% 73% 84% No.of Households Change 609 25 I 181 45 193 23 374 68 Pct. Change 51% 37% 11 33% 55% 53% 26% 41% 40% Sources: U.S. Census Bureau, Maxfield Research Inc. Home Resale Values Table 4 presents home resale data for single-family homes in the Albertville Market Area from 2004 to 2007 as well as actively marketing single-family homes. This data offers insight on rela- tive ease of selling single-family homes and amount of equity seniors may be able to derive from the sale of their homes, should area seniors choose to relocate to senior housing alternatives. MAXFIELD RESEARCH INC. Mr. Dan Dixon & Mr. Larry Kruse June 3, 2008 Guardian Angels of Elk River & City of Albertville Page 8 The following points are a summary of key findings • The average single-family home resale price in the Albertville Market Area peaked in 2006 at $285,419. Last year the Market Area experienced a decline in average resale price of - 8.4%. The number of home sales has declined in the Market Area starting in 2006. Multi- family home resale prices peaked in 2005 at $171,729. The average resale price has declined since 2005 through 2007 when it reached $163,772, a decline of -4.6% over the two year pe- riod. TABLE 4 ACTIVELY MARKETING SINGLE-FAMILY AND MULTIFAMILY HOMES ALBERTVILLE MARKET AREA May 2008 No. of Average Pet. Median Pct. Avg. Year Sales Price Change Price Change DOM 2004 555 $262,117 -- $239,900 -- 45 2005 585 $271,426 3.6% $255,500 6.5% 64 2006 456 $285,419 5.2% $264,550 3.5% 71 2007 402 $261,389 -8.4% $244,500 -7.6% 75 Active - May 2008 498 $329,718 -- $269,950 -- 90 No. of Average Pet. Median Pct. Avg. Year Sales Price Change Price Change DOM 2004 180 $t63,506 -- $160,275 -- 46 2005 162 $171,729 5.0% $169,900 6.0% 78 2006 148 $169,791 -1.1% $166,450 -2.0% 75 2007 104 $163,772 -3.5% $154,950 -6.9% 84 Active - May 2008 105 $173,552 -- $164,900 -- 80 Sources: Alliance Realty LLC; Maxfield Research Inc. • Median resale prices are often a better indicator of home resale prices, since median figures are not skewed by uncommonly low or high priced homes. Median single-family resale fig- ures in the Albertville Market Area appreciated annually until 2007, at which point the me- dian resale price decreased by nearly -8%. Median multifamily resale prices peaked in 2005 at $169,900. The resale price for multifamily homes decrease in both 2006 and 2007 when it was $154,950, a decrease of -8.8% over the two year period. • The average number of days on market has lengthened substantially since 2004, although the 2006 and 2007 figures are partially skewed by a recent MLS reporting change. This figure increased from 45 days in 2004 to 75 days in 2007, indicating that it takes approximately MAXFIELD RESEARCH INC. Mr. Dan Dixon & Mr. Larry Kruse June 3, 2008 Guardian Angels of Elk River & City of Albertville Page 9 twice as long to sell a home in today's market. The slowdown in the real estate market will have some impact on the ability of seniors to sell their homes within a relatively short period of time. Thus, until the housing market im- proves, absorption for new senior housing, particularly adult housing that is not need driven, may be slower than demand would indicate. Currently, there are nearly 500 single-family homes and 100 multifamily homes actively listed for sale in the Market Area. Based on 2007 single-family and multifamily resales transactions, there is roughly a one year supply of pre- viously owned homes on the market in the Albertville Market Area Based on the 2007 median resale price in the Albertville Market Area ($244,500), a senior household could generate approximately $10,200 of additional income annually (about $850 per month), if they invested in an income -producing account (4.5% interest rate) after ac- counting for marketing costs and/or real estate commissions (7% of home sale price). Should a senior utilize the home proceeds on a dollar -for -dollar basis to support living in senior housing with services, the proceeds of this home would last roughly 113 months (over nine years) based on an average monthly rent of $2,000. Senior Housing Defined Senior housing is a concept that generally refers to the integrated delivery of housing and ser- vices to seniors. However, as the figure below shows, senior housing embodies a wide variety of product types across the service -delivery spectrum; 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 for people with dementia -related illnesses (termed "mem- ory care") on the other end of the spectrum. In general, independent senior housing attracts peo- ple age 65 and over while assisted living typically attracts people age 80 and older who need as- sistance with activities of daily living (ADLs). CONTINUUM OF HOUSING AND SERVICES FOR SENIORS Single -Family Townhome or �' , fit ���� �° , Nursing Home Apartment ` Facilities Fully Independent Fully or Highly Lifestyle Dependent on Care `Senior Housing Products Source: Maxfield Research Inc. MAXFIELD RESEARCH INC. Mr. Dan Dixon & Mr. Larry Kruse June 3, 2008 Guardian Angels of Elk River & City of Albertville Page 10 The least service -intensive projects, also termed "active adult" or "adult" projects, are similar to general occupancy housing projects; they offer virtually no support services or health care but restricting tenancy to those ages 55 and over. Congregate/optional-services projects, the next level to the right on the service -delivery spectrum, offer support services such as meals and housekeeping, but often through tiered package pricing or on an a -la -carte basis so that services can be customized for the resident's individual needs. A third type of senior housing is congre- gate/service-intensive; these projects include some basic support services in the rent and typi- cally 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 level of services short of a nursing home. Typical 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 -carte). 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 Albertville Market Area Table 5 on the following page shows an inventory of senior housing developments in the Albert- ville Market Area. These developments currently satisfy some demand for senior housing prod- ucts in the Market Area and are including in our demand calculations. The following points are a summary of key findings. • In total, the Albertville Market Area is supplied with 453 senior housing units, including adult rental, adult ownership, congregate, assisted living, and memory care housing. Two of the Market Area communities are located in the City of Albertville (Cottages of Albertville and Cottage Homes of Albertville). • The existing senior housing stock is relatively new within the Albertville Market Area. Ini- tial occupancy dates range between 1994 and 2005. Overall, the median year of initial occu- pancy is 1999. • We identify three adult rental projects with a total of 167 units, one adult ownership devel- opment with 56 units, no congregate developments, one assisted living facility with 66 units, and one memory care facility with 164 units. • The Wellstead of Rogers community is specialized and has a very large geographic draw area. As a result, we only consider 50% of the assisted living units and 25% of the memory care units located in the Wellstead of Rogers to be competitive with the subject development. MAXFIELD RESEARCH INC. Mr. Dan Dixon & Mr. Larry Kruse June 3, 2008 Guardian Angels of Elk River & City of Albertville Page 11 • The Cottage of Albertville and Cottage Homes of Albertville are the only two senior housing facilities in the City of Albertville. Currently, there are no service intensive senior housing facilities located in the City of Albertville. TABLE 5 MARKET RATE SENIOR HOUSING DEVELOPMENTS ALBERTVILLE MARKET AREA May 2008 Year Units/ Project Location Built Beds The Heritage Rogers 2005 75 Countryside Cottages St. Michael 1994 48 Cottages of Albertville Alberville 1997/98 44 Subtotal 167 Cottage Homes of Albertville Albertville 1998/99 56 Subtotal 56 None Wellstead of Rogers Rogers 1999/02 66 Subtotal 66 Wellstead of Rogers Rogers 1999/02 164 Subtotal 164 Source: Maxfield Research Inc. • In total, the Market Area is supplied with over 450 senior housing units, of which 167 are adult rental, 56 are adult ownership, 66 are assisted living, and 164 are memory care housing units. Pending Senior Housing in the Albertville Market Area Maxfield Research interviewed local officials in each community of the Market Area to learn of any proposed or planned senior housing developments. As of May 2008, we did not identified any approved development or any other development in the preliminary stages. We did, how- ever, discover that the City of St. Michael is actively searching for a developer to construct sen- ior housing in their downtown. The city has designated sites that they would like to see devel- oped as senior housing. MAXFIELD RESEARCH INC. Mr. Dan Dixon & Mr. Larry Kruse June 3, 2008 Guardian Angels of Elk River & City of Albertville Page 12 Preliminary Demand Estimates for Senior Housing Demand for Congregate Senior Housing Table 6 presents our demand calculations for congregate senior housing in the Albertville Mar- ket Area in 2008 and 2013. The potential age and income -qualified base for congregate senior housing includes all senior (65+) households with incomes of $30,000 as well as homeowner households with incomes be- tween $20,000 and $29,999 who would qualify with the proceeds from the sale of their homes. The proportion of eligible homeowners is based on the homeownership rates of areas seniors, as identified in Table 3. The number of age, income, and asset -qualified households in the Albert- ville Market Area is an estimated 1,569 households as of 2008. TABLE 6 MARKET RATE CONGREGATE RENTAL SENIOR HOUSING DEMAND ALBERTVILLE MARKET AREA 2008 & 2013 Age of Age of Householder Householder 65-74 75+ 65-74 75+ # of Households w/ Incomes of>$30,000' 864 371 1,409 504 (plus) + + # of Households w/ Incomes of $20,000 - $30,0002 257 138 321 175 (times) Homeownership Rate x 87% 81% x 87% 81% (equals) Potential Market = 224 111 = 279 141 (equals) Total Potential Market Base = 1,087 482 = 1,688 645 (times) Potential Capture Rate x 2.5% 10.0% x 2.5% 10.0% (equals) Potential Demand = 27 + 48 = 42 + 65 Total Local Demand Potential = 75 = 107 (plus) Demand from Outside Market Area (35%) + 41 + 57 (equals) Total Demand Potential = 116 = 164 (minus) Existing Competitive Units - 0 - 0 (equals) Total Congregate Demand Potential = 116 = 164 (times) Percent of demand capturable at a Site in Albertville x 40% x 40% ,7775 1 2013 income -qualified figures adjusted for inflation ($35K or more + homeowners w/ inc. of $25K - 35K) 2 Competitive existing and pending units include congregate rental at 95% occupancy (market Source: Maxfield Research Inc. Adjusting to include appropriate capture rates for each age cohort (2.5% of households age 65 to 74 and 10.0% of households age 75 and older) results in a local demand potential for an MAXFIELD RESEARCH INC. Mr. Dan Dixon & Mr. Larry Kruse June 3, 2008 Guardian Angels of Elk River & City of Albertville Page 13 estimated 75 congregate units in 2008. We estimate that seniors currently residing outside the Market Area will generate 35% of the demand for congregate senior housing — increasing total demand by about 41 congregate units. This demand will consist 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. Together, demand from Market Area seniors and demand from seniors who are willing to locate to the Market Area totals an estimated 116 units of congregate senior housing as of 2008. Currently, there are no congregate facilities in the market and as such, no units will be subtracted from the total. No single Site can capture all of the demand in the Market Area. We have estimated that an ap- propriate Site can capture 40% of the excess demand potential in the Albertville Market Area. Applying this potential capture rate results in excess demand that would be capturable on an appropriate Site for an estimated 46 congregate units in 2008. Adjusting for inflation, we have estimated that households with incomes of $35,000 or more and senior homeowners with incomes between $25,000 and $34,999 would qualify for congregate housing in 2013. Following the same methodology, we project that demand for congregate housing on an appropriate Site in the Albertville Market Area will increase to about 66 units through 2013. Demand for Assisted Living Senior Housing Table 7 presents our demand calculations for assisted living senior housing in the Albertville Market Area in 2008 and 2013. The availability of more 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 of assisted living housing, most daily essentials are included in monthly rental fees which allows seniors to spend a higher proportion of their incomes on as- sisted living 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/income-qualified market based on a senior's ability to pay the monthly 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 pro- jects. Thus, all households with incomes above $35,000 would be able to afford the monthly fee at an assisted living facility, based on monthly fees of $2,600. In addition to seniors who are qualified based on their incomes alone, there is a substantial 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 MAXFIELD RESEARCH INC. Mr. Dan Dixon & Mr. Larry Kruse June 3, 2008 Guardian Angels of Elk River & City of Albertville Page 14 by living in housing alternatives with services. 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 the 2007 average home resale value of about $244,500 in Albert- ville, there would be a significant number of seniors who would be able to derive a substantial amount of additional income from the sale of their single-family homes. 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 household type to derive the potential age/income- qualified market. As of 2008, there are an estimated 423 age/income-qualified older seniors in the Market Area. Demand for assisted living housing is need -driven, which reduces the age/income-qualified mar- ket to only the portion of seniors who need assistance. Studies by government agencies indicate that about 30% of all seniors age 75 and over need assistance with at least three activities of daily living. Applying this proportion to the age/income-qualified household base yields a po- tential assisted living market of an estimated 127 seniors in the Market Area in 2008. We estimate that roughly 55% of the age/income-qualified market needing significant assistance with ADLs will be able to remain in their homes with the assistance of a family member or home health care. The remaining 45% will need assisted living housing. Applying this market pene- tration rate results in demand for 57 assisted living units in 2008. A portion of demand for assisted living units in the Market Area, we estimate 35%, 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 who desire supportive housing near their adult children, and increasingly frail retirees returning from retirement com- munities. Applying this figure results in total age/income-qualified demand for approximately 88 assisted living units in 2008. We reduce the demand potential by the existing competitive assisted living units in the Albert- ville Market Area. As of May 2008, we calculate 31 assisted living units that would be competi- tive with an assisted living facility in the Market Area after accounting for a 7% vacancy rate. After deducting these units from the demand potential, we find excess demand for 23 assisted living units in the Market Area in 2008. The same calculations are applied to the age/income-qualified base in 2013. Due to continued strong growth in the senior population, total potential demand for assisted living housing is expected to increase to about 38 units through 2013. MAXFIELD RESEARCH INC. Mr. Dan Dixon & Mr. Larry Kruse June 3, 2008 Guardian Angels of Elk River & City of Albertville Page 15 TABLE 7 MARKET RATE ASSISTED LIVING DEMAND ALBERTVILLE MARKET AREA 2008 & 2013 HHs 75+ Capture Potential Non -single Capture Potential HHs 75+ Capture Potential Non -single Capture Potential Lv . Alone Rate HHs HH's 75+ Rate HHs Lv . Alone Rate HHs HH's 75+ Rate HHs Less then S20.000 209 25% 52 42 15% 6 Less then S25,000 313 25 % 78 62 15% 9 S20-S34,999 92 75% 69 ill 40% 44 S25-S39.999 121 75% 90 145 40% 58 S35,000+ 88 100% 88 217 75% 163 S40.000+ 130 100% 130 322 75% 242 Total 389 209 370 214 Total 563 299 530 309 Total potential market 423 608 (times) Percent needing assistance w/ 3-6 ADLs x 30% x 30% (equals) Age/income qualified market needing assistance = 127 = 182 (times) Market penetration rate x 45% x 45% (equals) Short-term demand = 57 = 82 (plus) Proportion from outside the market area (35%) + 30 + 44 (equals) Total potential assisted living demand = 88 = 126 (minus) Existing market -rate assisted living units 31 31 (equals) Total excess market rate assisted living demand in the MA = 57 = 96 (times) Percent capturable by a project at a Site x 40% x 40% Source: Maxfield Research Inc. MAXFIELD RESEARCH INC. Mr. Dan Dixon & Mr. Larry Kruse June 3, 2008 Guardian Angels of Elk River & City of Albertville Page 16 Demand for Memory Care Senior Housing Table 8 presents our demand calculations for memory care senior housing in the Albertville Mar- ket Area in 2008 and 2013. Demand is calculated by starting with the estimated Market Area senior (65+) population in 2008 and multiplying by the 10% incidence rate of Alzheimer's/dementia among this population. This yields a potential market of about 351 seniors in the Albertville Market Area. According to data from the National Institute for Aging, about 25% of all persons with memory care impair- ments 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 of dementia will require intensive 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 an estimated 88 sen- iors in the Albertville Market Area in 2008. Because of the staff -intensive nature of dementia care, monthly fees for this type of housing typi- cally 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 45% of all seniors in the Market Area would have incomes and/or assets to sufficiently cover the costs for memory care housing. This figure takes into ac- count 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 market by 45% results in a total of 39 seniors who would be age/income/asset-qualified in 2008. We estimate that 35% of the overall demand for memory care housing in Albertville would 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 who desire supportive housing near their adult children, and increasingly frail retirees returning from retirement com- munities. Together, demand from within and outside the Market Area totals about 61 memory care housing units in 2008. MAXFIELD RESEARCH INC. Mr. Dan Dixon & Mr. Larry Kruse June 3, 2008 Guardian Angels of Elk River & City of Albertville Page 17 TABLE 8 MEMORY CARE DEMAND ALBERTVILLE MARKET AREA 2008 & 2013 2008 2 113 65 + Population 3,509 5,379 (times) 10% Dementia incidence rate x 10% x 10% (equals) Estimated senior pop. with dementia = 351 = 538 (times) Percent needing specialized memory care assistance x 25% 25% (equals) Total need for dementia care = 88 = 134 (times) Percent income/asset-qualified x 45% x 45% (equals) Total income -qualified market base = 39 = 61 (plus) Demand from outside Market Area (35%) + 21 + 33 Total Demand for memory care units 61 93 (minus) Existing memory care units - 38 - 38 (equals) Excess memory care demand in Market Area = 23 = 55 (times) Percent capturable at a Site x 40% x 40% 1 Competitive existing and pending memory care units at 95% occupancy (market equilibrium). Source: Maxfield Research Inc. Some of the demand for memory care housing will be satisfied by the existing supply of memory care housing in the Market Area. Due to the specialized nature and broad geographic draw of the memory care units at the Wellstead of Rogers, we only account for 25% of these units. After subtracting the existing competitive units less a 7% vacancy rate, we calculate total excess de- mand potential for memory care housing to an estimated 23 memory care units in 2008. We have estimated that an appropriate Site in Albertville would capture approximately 40% of the total memory care demand in the Albertville Market Area. Excess demand is calculated for nine memory care units that would be capturable on an appropriate Site in 2008. The same calculations were applied to the projected age/income/asset-qualified base in 2013 to determine demand for memory care housing over the next five years. Through 2013, we project demand for memory care units will increase to an estimated 22 units. MAXFIELD RESEARCH INC. Mr. Dan Dixon & Mr. Larry Kruse June 3, 2008 Guardian Angels of Elk River & City of Albertville Page 18 Preliminary Conclusions Our preliminary assessment of the factors impacting demand for senior housing, including demo- graphic, economic, and competitive variables, shows support for additional senior housing in the Albertville Market Area. A summary of the demand potential on an appropriate Site in Albert- ville is provided below. TABLE 9 SENIOR HOUSING DEMAND ALBERTVILLE 2008 and 2013 2008 2013 Congregate 46 66 Assisted Living 23 38 Memory Care 9 22 Source: Maxfield Research, Inc. Our calculations do not include any additional senior housing units beyond the existing supply as our research did not discover any proposed or planned developments that are currently in the pipeline. Should additional product come on-line in the Market Area, demand that could be cap- tured by the subject development would be reduced somewhat. Currently, we calculate adequate demand for a congregate senior housing complex. However, if project development is delayed two to three years the market will be strong enough to support the number of units generally re- quired to financially support a service intensive development. Also, designing a project that will allow units to be phased in over time as the market strengthens will contribute to the success of a project. It should be noted that our conclusions are preliminary and do not consider appropriateness of a particular site for a senior housing development, historical performance of other senior housing developments 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.