Assisted Living Feasibility Study

An assisted living feasibility study is an independent analysis commissioned for a lender's credit file. It defines the primary market area, counts the households aged 75 and over and 85 and over that can afford the proposed rate, inventories every licensed competitor and its census, models the lease-up month by month to a stabilized occupancy, builds the staffing plan and wage budget, and carries the full development or acquisition budget through debt service coverage year by year. Every MMCG assisted living feasibility study ends in one of three written determinations: feasible, feasible as resized, or not feasible as proposed. The fee and the conclusion are independent of each other.

The determination language matters because each lender program reads it differently. Under 13 CFR 120.160(b), SBA "may require" a feasibility study, and lenders ask for one on start-up operators, ground-up construction and any credit that rests on projections rather than operating history. USDA is explicit: under 7 CFR 5001.306(a)(3)(i), a Business and Industry guaranteed loan greater than $1,000,000 to a new business must include a feasibility study prepared by an independent qualified consultant acceptable to the Agency, and Community Facilities guaranteed projections for assisted living may assume no more than 90 percent occupancy under 7 CFR 5001.304. HUD Section 232 sizes its loan to 1.45x coverage on a lender-ordered appraisal. A study written to those standards, with a stated determination and a stressed coverage ratio, gives the credit memo evidence it can adopt.

Between January 1 and September 1, 2026, MMCG analyzed $2.3 billion in total construction cost and $1.7 billion in loan amount across client engagements. Senior care is one of the asset classes we underwrite most often, and the work draws on MMCG's own national data estate, the NIC MAP occupancy and construction series, state licensing rosters and the operators' own published rates.

Each MMCG assisted living feasibility study delivers:

Every figure in the report carries its source and year, and the report states which figures were verified directly with the operator or agency and which were carried from a published series.

The assisted living cycle has turned in the operator's favor. Across the 31 NIC MAP Primary Markets, assisted living occupancy reached 88.4 percent in the second quarter of 2026, the twentieth consecutive quarterly increase, and senior housing occupancy across the 99 Primary and Secondary Markets reached 90.1 percent. Fifteen of the 31 Primary Markets are at or above 90 percent. The weakest are still well below: Miami at 86.2 percent, Atlanta at 86.5 percent and San Antonio at 87.0 percent, each carrying the inventory of the last building cycle.

Supply is the reason. Assisted living inventory grew 0.3 percent over the year to the second quarter of 2026, against a historical average above 3 percent, and senior housing construction stands at 2.2 percent of inventory, with fewer than 16,000 units under construction in the Primary Markets and fewer than 24,000 across all 99, the lowest since 2012. Rates have followed: the CareScout 2025 national median for assisted living is $6,200 per month, up 5 percent, and NIC's in-place actual rate series was growing 5.3 percent year over year as of June 2026.

Demand is demographic and slow-moving. The Administration for Community Living projects the 85 and over population to more than double, from 6.5 million in 2022 to 13.7 million in 2040. NIC MAP's August 2026 outlook puts the senior housing unit shortfall at roughly 576,000 by 2030 and more than one million by 2035 at the current pace of development. None of that guarantees a given site. The study's job is to translate the national shortfall into the qualified households within a drive time, net of what is already licensed and what is in the pipeline, and that number is what the lender underwrites.

The demand model, the licensing path, the labor plan and the lender program all change with the format, so the format decision is tested, not assumed.

Purpose-built assisted living communities of 60 to 120 units, often with a secured memory care wing, are the standard institutional product and the usual subject of SBA 504, HUD 232 and conventional construction loans. Site size, parking and the state's physical plant rules set the unit count; the labor plan and the rate schedule set whether it stabilizes.

Memory care is licensed and staffed differently in most states and carries a rate premium of roughly 25 to 30 percent over assisted living. It is the segment where purpose-built supply is thinnest in many suburban markets, and a memory care weighting is frequently the difference between a feasible and a not feasible determination in a contested market. Secured units, dedicated staffing ratios and state endorsement or certification requirements are modeled as their own cost center.

Small residential care homes of 6 to 16 beds, licensed as assisted living homes, adult family homes or residential care facilities depending on the state, are the typical subject of SBA 7(a) acquisition loans. Their economics turn on the license, the operator's own labor, the spacing and zoning rules for group homes, and whether the state license transfers to a buyer at all. In Arizona it does not; a new license is required and there is no grace period.

Personal care homes and board and care occupy a separate license category in states such as Pennsylvania and Georgia, with lighter physical plant and staffing standards and lower rates. A feasibility study on a new assisted living residence in such a state has to price the regulatory gap between the comparables and the subject, not just the rate gap.

Independent living and continuing care campuses mix unlicensed units with licensed care. Independent living without care services is a passive real estate investment under SBA rules and is ineligible; HUD Section 232 admits independent living only up to 25 percent of units without a waiver. The study separates the licensed and unlicensed components and underwrites each to its own program rules.

The primary market area for a suburban community is usually a 10 to 15 minute drive time; for a rural county seat it is the county and its adjacent trade area. Within it, the study counts the households headed by someone 75 and over with income or assets sufficient to pay the proposed rate for a typical length of stay, and applies an adult-child draw for residents who relocate to be near family. Demand by payor source is forecast five years out, which is the horizon HUD requires and the one that matters for a project delivering in 2028.

Penetration is tested in both directions. The share of qualified households the existing supply already captures tells the study whether the market is underserved or saturated; the share the subject would need tells the lender how much absorption risk the loan carries. Published penetration rates run from single digits to above 30 percent across markets, so no national figure is applied. The study calibrates to the observed census of the competitors, taken from the state roster and confirmed with each operator, because a market at 88 percent occupancy and a market at 95 percent occupancy with identical demographics are different credits.

The competitive census is built from the state licensing roster first, because that is the only complete list, then confirmed against each community's own website for the unit count, the care levels, the year opened and the published rate. Aggregator sites are used only to locate a community, never as the source of a figure. Pipeline is taken from city planning commission agendas and local press, and any approved but unbuilt project is carried as supply, because an entitlement that lapses and an entitlement that builds change the capture math in opposite directions.

A new assisted living community does not open full. MMCG's base case carries roughly 65 percent occupancy at month 12, 89 percent at month 24 and a stabilized 90 percent from about month 29, which is consistent with observed absorption at purpose-built communities and with the 90 percent cap USDA places on Community Facilities projections. Under that ramp, debt service coverage is below 1.0x for most of the first two years, and the study sizes the interest reserve or working capital the capital stack must carry to bridge it. A lender that funds without that reserve is funding the shortfall from the borrower's liquidity.

Rates are set from the competitive census, not from a state median. Base rent, care-level charges and ancillary revenue are modeled separately because they grow at different rates and because the care-level ladder is where margin is made or lost. Rate escalation is carried at 4.5 to 5.0 percent against the recent series, and a sensitivity case holds rate growth below expense growth, which is the scenario that caught operators in the last cycle.

Break-even occupancy is computed for the site's own budget. At the current national cost basis, a purpose-built community typically covers its operating costs in the mid-70 percent range and its debt service in the mid-80s; the distance between the two is the central credit fact of the asset class, and it is why the ramp matters as much as the stabilized year.

Labor is the largest expense in assisted living and the one most likely to move. At the largest public operator, labor runs close to half of revenue, and a stabilized community earns an operating margin of roughly 28 to 30 percent before management fees and reserves. The industry's 2025 turnover was 34.5 percent overall, 40.6 percent for certified nursing assistants and 43.3 percent for resident assistants and personal care aides, so agency staffing and overtime are modeled as a line item, not a contingency.

The study builds the staffing plan shift by shift against the state's standard, then prices it to the BLS Occupational Employment and Wage file for the metropolitan or nonmetropolitan area, by occupation: home health and personal care aides, nursing assistants, licensed practical nurses and registered nurses. The state minimum wage is rarely the binding constraint. A Kansas community recruits against a $15.00 floor across the state line in Missouri and a $19.21 healthcare support mean for the metro, not against the state's $7.25; a Nebraska community pays $15.00 by statute and a metro-level aide wage in practice. Memory care staffing ratios, 24-hour licensed nursing where the program or the lender requires it, and the state's dementia training hours are all carried as cost.

Assisted living is a private-pay business with a Medicaid edge. About 17 percent of residents nationally have Medicaid as a payer, through home and community-based services waivers that pay for care but never for room and board. The waiver rate and the room-and-board allowance vary by state and by tier, and in some markets a majority of the licensed competitors are waiver-certified, which caps the effective rate for a large share of the market. The study states the waiver rate, the room-and-board rule and the share of competitor beds that accept it, and models the subject's payer mix accordingly.

Licensure is the other state variable. The license category determines the physical plant standard, the staffing standard, the training hours, the memory care endorsement rules and the rate the market will bear. Pennsylvania licenses 63 assisted living residences and 992 personal care homes under separate chapters, and their statewide occupancy was 69 and 65 percent respectively at the end of 2025. Arizona requires a new license on any change of ownership and sets spacing rules between group homes. Nebraska and Kansas require no certificate of need for assisted living, while nursing beds in Nebraska are capped. Where a certificate of need or a moratorium applies, the study maps the path and the timeline, because a lender cannot fund a community that cannot be licensed.

The 2026 cost basis is high and recent. CBRE's July 2026 development cost survey puts total development cost for senior housing at about $388,830 per unit, or $364 per square foot, up 23.6 percent since 2023, with site costs of $16,000 to $36,600 per unit. Construction cost alone runs roughly $281 to $358 per square foot for a mid-level assisted living building and $365 to $454 per square foot for high-level assisted living and memory care, before land, soft costs, financing and working capital. The study builds the budget on MMCG's cost template, line by line, with a contingency sized to the design stage and the tariff exposure of the mechanical and electrical packages.

The capital stack is stated explicitly so the lender can re-run coverage on its own terms. SBA 504 for a special purpose property requires at least 15 percent from the borrower, or 20 percent for a business operating two years or less. HUD Section 232 new construction is sized at the lesser of 75 percent of value for a for-profit sponsor, 90 percent of eligible cost, or 1.45x coverage, and the coverage test usually binds. Agency permanent debt on a stabilized community sizes to 1.40x at 70 to 75 percent loan-to-value for assisted living and 1.45x to 1.60x at 60 to 65 percent for memory care, and both agencies require 90 percent occupancy sustained for 90 days before funding. Core Class A assisted living traded at a 6.5 percent cap rate in the first half of 2026.

SBA finances assisted living only where the business is licensed as a nursing home or assisted living facility and provides healthcare or medical services; an unlicensed residential facility is a passive business and is ineligible. Nursing homes, including assisted living facilities, sit on SBA's list of special purpose properties, which raises the 504 borrower contribution to 15 percent, or 20 percent when the business is also new, and requires a going concern appraisal by an appraiser experienced with the property type. SOP 50 10 8.1, which applies to loans receiving an SBA loan number on or after October 1, 2026, changes acquisitions in particular: 1.25x coverage on historical cash flow, a lender-commissioned quality of earnings review at a business purchase price of $3 million or more, and a 10-year amortization on the business portion unless special use real estate is at least 85 percent of value, an exception written with senior care facilities in view. The full treatment, including the eligibility test, the occupancy rules, licensure at closing, the job standard and 7(a) paired with 504, is on the dedicated SBA assisted living feasibility study page, with the program-wide rules on the SBA feasibility study hub and the regulatory text on the SBA underwriting regulatory spine.

USDA is the lender of record for rural senior care, and it comes in two forms. Community Facilities direct and guaranteed loans finance assisted living and nursing facilities for public bodies, nonprofit corporations and federally recognized tribes in rural areas of 20,000 or fewer, with direct loan rates of 4.500 to 4.750 percent for the period that ended September 30, 2026 and terms to 40 years; projections for assisted living under a Community Facilities guarantee may assume no more than 90 percent occupancy. Business and Industry guarantees finance for-profit operators in rural areas outside cities of more than 50,000, with an 85 percent guarantee below $5 million and 80 percent from $5 million to $25 million under the FY2026 notice, on the condition that the facility provides constant medical care available onsite to residents. The full treatment is on the dedicated USDA assisted living feasibility study page, with the program framework on the USDA feasibility study hub and the USDA regulatory spine; check a site on the USDA eligibility map.

HUD Section 232 insures mortgages on licensed assisted living, memory care and nursing facilities through the Office of Residential Care Facilities under the LEAN Section 232 Handbook 4232.1. New construction and substantial rehabilitation loans are sized at the lesser of 75 percent of value for a for-profit sponsor (80 percent nonprofit), 90 percent of eligible cost, or 1.45x debt service coverage, non-recourse, on a 40-year term after construction, with mortgage insurance of 77 basis points upfront and 77 annually. Refinances under 232/223(f) run to 80 percent loan-to-value for a for-profit (85 percent nonprofit) at 1.45x on up to 35 years, and require three years of operating history. Section 232 was not included in the October 2025 multifamily premium reduction.

The HUD market study is a distinct document from a lender feasibility study. For new construction it is part of the appraisal, authored by the same Certified General appraiser, ordered and paid for by the lender, and it forecasts demand by payor source five years out from a primary market area that typically supplies 60 to 80 percent of residents. MMCG does not produce the appraiser's market study. MMCG's role on a 232 file is the sponsor's pre-application feasibility study: the full operating model, the capital stack under the three sizing tests, coverage by year and the stated determination, prepared before the lender orders the appraisal so the sponsor knows whether the project survives the 1.45x test. In FY2025 HUD closed 337 Section 232 loans, 329 of them refinances under 223(f) and seven new construction, which is why the pre-application study matters: new construction is the exception and the file has to earn it.

Bank construction loans on assisted living typically run 12 to 36 months at 65 to 75 percent of cost with an interest reserve through lease-up, taken out by agency or HUD permanent debt once the community sustains 90 percent occupancy for 90 days. The agency sizing tests above are the exit, and the feasibility study's stabilized year is underwritten to them so the construction lender can see its take-out. To compare program structures side by side, use the SBA and USDA loan comparison calculator.

The three documents answer different questions, and senior care lenders frequently need all three. A market study asks whether demand exists in the primary market area; for HUD it is the appraiser's product, and for other lenders it is an input, not a credit conclusion. An appraisal asks what the property is worth; for an operating community that is a going concern value that must allocate real estate, furniture and equipment, and intangible business value separately, prepared by an appraiser experienced with the property type. A feasibility study asks whether this project repays this loan: it carries the operating model, the lease-up, the capital stack and coverage by year, and it ends in a determination. MMCG also prepares standalone market studies and highest and best use studies where the engagement calls for them.

MMCG's conclusions are not for sale. The fee is fixed before work begins, it is set from the format, the unit count, the market's saturation and the lender program, and it does not depend on the outcome. Feasible as resized and not feasible as proposed are regular outcomes of our practice: of the six assisted living model studies in the program below, one is not feasible as proposed and one is feasible only as resized. Lenders commission us precisely because those outcomes are possible.

Studies are prepared under the direction of Michal Mohelsky, J.D., FMVA, Practicing Affiliate of the Appraisal Institute, and every figure in the report carries its source and year.

Working with an assisted living feasibility study consultant should be predictable. MMCG engagements start at $4,900 with fixed-fee scoping; the quote is issued before work begins and does not change with the conclusion. Standard delivery is 9 to 16 business days, with rush delivery available from 5 business days. Payment terms are 50 percent at engagement and 50 percent on delivery of the final report. Every study carries MMCG's written acceptance guarantee: revisions required by the lender or agency are made at no additional cost. The study is addressed to the lender and the applicant and is prepared for SBA, USDA, HUD or conventional credit files as the program requires.

MMCG's assisted living model studies apply the methodology end to end on real markets, each with the full cost build-up, the lease-up schedule, coverage by year, sensitivity cases and the stated determination: