Conference Report: NCHMA White Papers

6 min read

The Landscape For Affordable Assisted Living and Rural Communities

The National Council of Housing Market Analysts (NCHMA) released two new white papers at its annual meeting last month, covering affordable assisted living and the challenges facing rural affordable projects. Panels that presented both papers said COVID and migration patterns make this a particularly challenging time to perform market studies, but also gave tips on how to do them right.

Affordable Assisted Living
The Robert Wood Johnson Foundation defines affordable assisted living as “licensed residential projects that provide apartment-style housing together with supportive services (e.g., help with personal care, meals, housekeeping and medication management) to older residents.” Medicaid provides the broadest available subsidy for this, stated the white paper, “Introduction to Affordable Assisted Living Market Studies,” which was authored by panel moderator Nathan Young from Vogt Strategic Insights.

Karin Zosel, director of the Illinois-based Affordable Assisted Living Coalition, said that there are 12,966 affordable assisted living units in that state. The state’s affordable assisted living program was established as an alternative to nursing home care for qualifying residents who can still live independently. Communities provide services, including personal care and transportation, and are regularly built with Low Income Housing Tax Credit financing while some services are covered by Medicaid.

As Rick Banas, vice president of development and positioning at Gardant Management Solutions, noted, not all residents of affordable assisted living programs are Medicaid recipients; others are trying to achieve Medicaid eligibility by reducing their assets, still others see a financial benefit over market-rate assisted living. (Usually, Medicaid-qualifying residents are about a quarter of a given population, according to the Robert Wood Johnson Foundation.)

The primary objective of affordable assisted living, Zosel says, is to give “residents an opportunity to live in a community setting in their own apartment,” while living “more autonomously, more independently” than they would in more involved care settings.

In some states, such facilities are spreading quickly. Jerri Bain, director of the Indiana Housing and Community Development Authority, says that while Indiana’s affordable assisted living program had a slow rollout, program usership grew with time.

One issue is overconcentration of project sites. Bain stated that at this time, the authority is only accepting applications for projects to be placed in counties without other affordable assisted living facilities. Similar measures exist in Illinois.

Indiana’s target for adult daycare construction was hard to achieve, says Bain, because of Medicaid rules against “double dipping” that prevented residents from paying for services with their subsidy.

Providers boast that they offer better service for value than some market-rate independent communities. For instance, while most independent living facilities have Meals on Wheels, Banas says his properties serve three daily meals. Consequently, individuals who can afford market-rate assisted living often move to affordable developments.

The panel discussed the state of demand for move-ins to these facilities. COVID has had an impact, particularly due to internal quarantine procedures. “Assisted living facilities took a real hit,” said Valerie Kretchmer, founder Valerie S. Kretchmer Associates Inc. “Some are down to 70 percent or even less than 70 percent since COVID.”

In terms of market analysis, Bain said that analysts must provide turnover data for facilities and observe the different tiers paid by Medicaid. In his white paper, Young wrote that primary market area (PMA) determinations are unique with affordable assisted living projects.

“The PMA for an affordable assisted living community will generally be both geographically and demographically larger than the market area under the alternative development assumptions of a traditional senior housing rental community.”

Rural Affordable Housing
Tyler Bowory, principal of Prior and Associates, authored the white paper, “Best Practices for Rural Rental Housing Market Studies,” and moderated this panel. He opened by stating that the market analysis process in rural areas faces challenges and important distinctions from urban projects.

Especially challenging is establishing PMAs. Jim Howell, a senior market analyst at Gibson Consulting, cited an example of an Arkansas agency that required grouping nine counties into one PMA. Brian Gault, an Alliant Capital Limited underwriter and former market analyst, says he’s run into examples of both “overstated and understated” PMAs. When a PMA has a small town as its center, but a larger population municipality is part of the PMA, “I’ll often question the validity.”

Eric Shorter, vice president with Churchill Stateside Group, said that it can be hard to determine achievable rents. Howell added that affordable projects in rural areas are often the first example of new housing that a given area has seen in a while; hotels and mobile homes have typically filled the role of affordable housing in these areas.

Howell also noted that service proximity needs are different. “It’s not unusual for someone to drive 20 miles to go to the doctor.” Nonetheless, if a project lacks amenities in sparse regions, “we’re going to see that as a red flag also,” Gault said.

Shorter discussed some of the major areas of concern for funding. He highlighted liquidity and a lack of skilled developers as some that he typically runs into, and advised developers to look for the best partners possible. Ultimately, a developer with realistic projections and a strong capital stack plan will have a better chance of securing funding.

For Gault to be comfortable underwriting a project, it needs either a ten percent spread or other evidence of good performance. High vacancy rates also raise alarm: “When we see a 32-unit with six percent vacancy…that gives us pause.”

Funding often requires compromises, Howell stressed. “We just had to get ourselves more comfortable with adjustments that are bigger than what you would see in other markets.” Rents on ground can be very different from the projections made by a firm like Novogradac. But if adjustments are too off, Gault cautioned, that would be problematic.

And developers must be ready to market their projects in areas that are disperse and not too digitally connected. Howell encountered a project in Louisiana where vacancies could not be filled, even though nearby competitor projects weren’t ideal.

In sum, rural projects face challenges from the economically declining or stagnant nature of these regions. But it’s possible to get around these complications by developing plans that are realistic and highlighting ways to guarantee that your project will receive a reasonable return on investment.

The NCHMA white papers are available at Recordings of the NCHMA meeting sessions can also be viewed there on the On-Demand Learning tab.