HUD Section 232 Assisted Living Feasibility Study Case Study: New Construction Assisted Living and Memory Care in Overland Park, Kansas

A 90-unit purpose-built community, 66 assisted living units and a 24-unit secured memory care wing, on a 4.97-acre parcel on the 135th Street corridor of south Overland Park, in a NIC MAP Primary Market at a record 90.5 percent occupancy, financed with a HUD Section 232 new construction mortgage sized under the program's three tests. Total project cost of $39,102,000, a loan of $24,015,000 set by the 1.45x coverage test rather than by the 90 percent of cost or 75 percent of value tests, debt service coverage of 1.45x at stabilization in Year 3 and 1.71x in Year 5 including mortgage insurance, and a written determination of feasible, prepared as the sponsor's pre-application feasibility study before the lender orders the appraisal and market study.

Model study prepared by MMCG Invest | Michal Mohelsky, J.D., FMVA | October 1, 2026

MMCG concludes that the proposed 90-unit assisted living and memory care community on W 135th Street in Overland Park, Kansas is feasible under a HUD Section 232 new construction mortgage of $24,015,000, 61.4 percent of total project cost, with sponsor equity of $15,087,000 and a financial reserve of $3,800,000 to carry construction-period interest and the initial operating deficit through the second operating year. The loan is sized by the 1.45x debt service coverage test, which binds well before the 90 percent of eligible cost and 75 percent of stabilized value tests; at this cost basis the Section 232 program is a coverage-constrained program, not a leverage program, and a sponsor who expects 90 percent of cost will be surprised. The Project reaches 1.45x coverage at a stabilized occupancy of 90 percent in Year 3, including the 77 basis point annual mortgage insurance premium in debt service, and builds to 1.71x by Year 5. Kansas City's senior housing occupancy of 90.5 percent in the second quarter of 2026, slightly above its all-time high, and a Johnson County pipeline of small-house and campus-format projects rather than purpose-built competitors, support the stabilization assumption. The determination is conditioned on two items that public sources could not close: City of Overland Park zoning approval for an assisted living facility on the parcel, which on commercial ground in the city typically runs through a rezoning or special use permit, and confirmation from Johnson County planning records that no purpose-built assisted living or memory care community of 60 units or more has been approved in the 135th Street corridor since 2024. This study is the sponsor's pre-application feasibility study; the HUD market study will be prepared by the Certified General appraiser the lender engages, and MMCG's demand, rate and absorption work is built to reconcile to it.

This is an MMCG model study: a complete feasibility analysis performed on a real, publicly marketed parcel using public data, prepared to show sponsors and HUD Section 232 lenders how MMCG underwrites a new construction assisted living and memory care community before the lender's appraisal and market study are ordered. It is not a client engagement, MMCG has no relationship with the landowner or the listing broker, and the analysis does not represent an offer, an appraisal or a recommendation to buy the parcel. The parcel was confirmed from LoopNet search results only, and its zoning and current status must be confirmed with the broker and the City. The eleven competitors named below were identified from operator websites and directories; their licensed capacity from the Kansas Department for Aging and Disability Services adult care home directory, their assisted living and memory care split, year opened and published rates were not confirmed at the study date and are a disclosed limitation. Figures labeled MMCG assumption are underwriting inputs set by MMCG from industry benchmarks, and items that could not be verified from a primary source at the study date are listed in the Conditions and Limitations section rather than estimated silently.

The Project will operate as a licensed Kansas assisted living facility with a secured memory care wing on the 4.97-acre parcel on W 135th Street NW in Overland Park, Johnson County, Kansas, on the 135th Street corridor that runs from US-69 west toward Olathe through the city's highest-growth residential submarket. The physical program comprises a two-story, 82,000 SF wood-frame building over a slab with masonry and fiber cement cladding, holding 66 assisted living apartments (30 studios of 400 SF, 28 one-bedroom units of 560 SF and 8 two-bedroom units of 760 SF) and a 24-unit single-story secured memory care wing of 340 SF studios with its own dining and activity rooms, enclosed courtyard and staff station, together with a commercial kitchen, a main dining room seating 72, a bistro, a wellness clinic with two exam rooms, a salon, a theater, activity and craft rooms, a fitness room, a chapel, administrative offices, laundry and housekeeping, 90 surface parking spaces, a covered porte-cochere and a community bus and van. The community will operate 24 hours a day with a staff of 64 full-time equivalents, including an executive director, a registered nurse director of nursing, four licensed practical nurses, 30 resident care aides across three shifts with a dedicated memory care team, a memory care program director, dining, housekeeping, maintenance, activities, sales and business office staff. The sponsor is a for-profit single-asset entity that will own the real estate and hold the license, with an identity-of-interest operator under a HUD-approved management agreement; independent living units are excluded from the program because Section 232 caps them at 25 percent of units without a waiver and the submarket's active adult and independent living supply is already deep. The Project is positioned as the newest Class A assisted living and memory care community on the 135th Street corridor, at an assisted living base rent of $7,000 per month with care levels of $600 to $1,900 averaging $1,000 and an all-inclusive memory care rate of $9,500 at opening, against a CareScout 2025 Kansas median of $5,975 for an assisted living community and a submarket of national operators including Sunrise, Silverado, Brookdale and Pegasus.

Marketing and Sales Strategy

The pre-opening campaign opens a leasing office on 135th Street fifteen months before certificate of occupancy and builds a founders' list against refundable deposits, which the HUD lender will want to see at the initial operating deficit sizing. Referral development concentrates on the discharge planners and case managers at the hospitals serving southern Johnson County, the geriatric, neurology and memory clinics attached to them, the home health and hospice agencies serving Overland Park and Olathe, and the elder law and wealth management practices that advise the county's high-income households. Digital acquisition targets assisted living and memory care searches across Overland Park, Olathe, Leawood and Lenexa with a cost-per-move-in budget carried in the marketing line. The memory care wing is marketed to the adult children of residents aging in place at the corridor's independent living and active adult communities, including the 180-unit Legacy at Tomahawk Creek proposed at 135th and US-69, which are the most reliable source of memory care placements in a suburban market. Retention runs through the care-level ladder, which keeps residents in the building as acuity rises.

Amenities

The subject is a 4.97-acre parcel at W 135th Street NW, Overland Park, zip code 66213, marketed on LoopNet at $2,600,000, or about $523,000 per acre and $28,889 per unit, by Byram Real Estate, within the $16,000 to $36,600 per unit site cost range CBRE reports for 2026 senior housing development. The study underwrites the asking price. Alternates include a 6.50-acre parcel at 159th Street in The Shoppes at Mission 159 at $1,416,785 and a 4.0-acre residential parcel in zip code 66213 at $1,050,000. The corridor is the retail and medical spine of south Overland Park, with the city's newest subdivisions to the south and east and the Olathe city line to the west; the subject lies within a 10-minute drive of Sunrise of Overland Park at 12500 W 135th Street and Silverado Overland Park at 12701 Pflumm Road, which define the Class A competitive set. A two-story 82,000 SF building with a single-story secured wing, 90 parking spaces and a bus loop fits on 4.97 acres at a floor area ratio of 0.38.

The parcel is marketed as commercial land and its zoning district was not confirmed at the study date. Senior living on commercial ground in Overland Park typically requires a rezoning or a special use permit through the Planning Commission and City Council, and the schedule carries nine months from submittal to approval. Olathe's January 2026 approval of the 32-bed Solomon's Porch memory care project on long-idle office park land at Indian Creek Parkway and Mur-Len Road shows the county's cities approving care uses on commercial sites; the Overland Park path for this parcel is a condition of the determination.

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. For new construction with a for-profit sponsor the loan is sized at the lesser of 75 percent of stabilized value, 90 percent of eligible cost, or the amount whose debt service, including the mortgage insurance premium, is covered 1.45 times by stabilized net operating income, on a term of 40 years after the construction period, non-recourse with standard carve-outs. The mortgage insurance premium for new construction and substantial rehabilitation without low-income housing tax credits is 77 basis points upfront and 77 basis points annually, unchanged by the June 2025 notice that eliminated the green premium tier and excluded from the September 2025 multifamily premium reduction. HUD requires a working capital reserve of 4 percent of the loan and an initial operating deficit reserve sized to the lease-up, and the lender's financing fee, HUD's application and inspection fees and the upfront premium are capitalized in the project budget. Independent living units may make up no more than 25 percent of units without a waiver, and the facility must be licensed by the state. In fiscal 2025 HUD closed 337 Section 232 loans, 329 of them refinances under 223(f) and seven new construction, so a new construction file is the exception within the program and a sponsor's pre-application work determines whether a lender will carry it to firm commitment.

The HUD market study is part of the appraisal. For new construction a complete market study must be included in the appraisal report, authored by the same Certified General appraiser, ordered and paid for by the lender, covering a primary market area that typically supplies 60 to 80 percent of residents, the competitive inventory with payor census, the pipeline confirmed with the local planning department, licensing and certificate of need, and demand forecast five years out by payor source with an absorption schedule. MMCG does not prepare that document. This study is the sponsor's pre-application feasibility study, built so that its primary market area, competitive set, rate schedule, absorption and stabilized net operating income reconcile to what the appraiser will find, and so that the sponsor knows before paying for the appraisal whether the project survives the 1.45x test. No Section 232 new construction or substantial rehabilitation loan for assisted living in Kansas or Missouri since 2020 was identified in lender announcements or trade press at the study date; that absence is unverified against HUD's insured portfolio data and is presented as a lender-education point rather than a finding.

Kansas licenses assisted living facilities as adult care homes through the Department for Aging and Disability Services, with the assisted living facility category for six or more residents in individual living units and the Home Plus category for twelve or fewer residents; the state does not license or certify dementia care units, so the memory care wing operates under the assisted living license with the sponsor's own secured-unit program. No certificate of need applies to assisted living in Kansas. The KanCare Frail Elderly waiver pays for care services in assisted living but not room and board, its current assisted living per diem was not retrieved at the study date, and the Project is modeled at 100 percent private pay, which is the payer profile of the corridor's Class A operators.

The Kansas minimum wage is $7.25 and is not the labor constraint. Kansas City, Missouri raised its minimum wage to $15.00 on January 1, 2026, the May 2025 Kansas City metropolitan wage release places the healthcare support occupational group at a mean of $19.21 per hour and healthcare practitioners at $46.52, with registered nurses at a mean of $42.18, and the sector's 2025 turnover for care aides exceeded 40 percent. The model pays resident care aides $19.00 per hour in assisted living and $20.00 in memory care, licensed practical nurses $30.00 and the registered nurse director of nursing $95,000, with a 24 percent burden and overtime and agency coverage at 3 percent of wages.

The primary market area is south Overland Park, Olathe, Leawood and Lenexa within a 15-minute drive of the subject, which is the Johnson County core.

Source: U.S. Census Bureau, QuickFacts, Vintage 2025 estimates and ACS 2020 to 2024; Data USA for the county home value.

Johnson County combines a 65 and over population of about 107,600, a median household income of $109,208 and a median home value near $391,200, and the City of Olathe reports that its older adult population grows by about 2,000 people a year. The county's population aged 75 to 84 and 85 and over from ACS table B01001 and the Kansas five-year projection were not pulled at the study date; MMCG estimates the county's 75 and over population at roughly 40,000 and its 85 and over population at roughly 11,000 from the age structure of comparable suburban counties (MMCG estimate), to be replaced before the lender relies on the demand model.

The income qualification is set at 60 percent, above MMCG's standard 50 percent, reflecting the county's income and home equity profile. The subject's required share of qualified demand is 1.7 to 2.3 percent before the adult-child draw from the wider metro that the corridor's access supports, and the appraiser's market study will refine the primary market area from the 60 to 80 percent capture standard HUD applies. The market's existing licensed supply and current penetration require the KDADS directory pull listed in the Conditions and Limitations section.

MMCG identified eleven assisted living and memory care communities within roughly five miles of 135th Street and Pflumm Road. The operator and care levels marketed are from the operators' own websites where available; licensed capacity from the KDADS directory, the unit split, year opened and published rates were not confirmed at the study date.

Competitor Number 1 Sunrise of Overland Park This community is located at 12500 W 135th Street, Overland Park, KS 66221 and is operated by Sunrise Senior Living, which markets assisted living, memory care and respite care at the property. Licensed capacity and rates were not confirmed.

Competitor Number 2 Silverado Overland Park This memory care community is located at 12701 Pflumm Road, Overland Park, KS 66213 and is operated by Silverado, a dedicated memory care operator. Licensed capacity and rates were not confirmed.

Competitor Number 3 The Heritage of Overland Park This memory care community is located at 10101 W 127th Street, Overland Park, KS 66213. Operator, licensed capacity and rates were not confirmed.

Competitor Number 4 Village Shalom This nonprofit continuing care campus is located at 5500 W 123rd Street, Overland Park, KS 66209 and markets independent living, assisted living, memory care and skilled nursing. Licensed capacity and rates were not confirmed.

Competitor Number 5 Brookdale Overland Park This continuing care community is located in Overland Park, KS and is operated by Brookdale Senior Living, which markets assisted living, memory care and skilled nursing at the property. Address, licensed capacity and rates were not confirmed.

Competitor Number 6 Pegasus Landing of Overland Park This community is located in Overland Park, KS and is operated by Pegasus Senior Living, which markets assisted living and memory care. Address, licensed capacity and rates were not confirmed.

Competitor Number 7 Homestead of Overland Park This community is located in Overland Park, KS and is operated by Midwest Health, which markets assisted living and memory care. Address, licensed capacity and rates were not confirmed.

Competitor Number 8 The Gables at Overland Park This community is located at 11701 Nieman Road, Overland Park, KS 66210 and markets assisted living and memory care. Operator, licensed capacity and rates were not confirmed.

Competitor Number 9 Chapters Living of Town Center This community is located in Overland Park, KS and is operated by Chapters Living, which markets assisted living and memory care. Address, licensed capacity and rates were not confirmed.

Competitor Number 10 The Village at Olathe This community is located in Olathe, KS and markets independent living, assisted living and memory care. Operator, licensed capacity and rates were not confirmed.

Competitor Number 11 SeniorCare Homes, Nantucket House and affiliates This small-house memory care operator is located at 15100 England Street, Overland Park, KS and affiliated addresses, with 10 beds at Nantucket House. Rates were not confirmed.

The pipeline in Johnson County since 2024 is small-format and campus-based rather than purpose-built competition. Olathe approved Solomon's Porch, two 16-bedroom memory care buildings on about three acres at Indian Creek Parkway and Mur-Len Road, on January 20, 2026 with construction targeted for spring 2026. Evergreen Senior Living opened its 119-unit, $34.5 million replacement campus at Ridgeview Road and College Boulevard in Olathe with 35 independent living, 20 assisted living, 20 memory care and 44 skilled nursing units, scaled back from a 183-unit plan. Destiny Senior Living, a 12-bed Home Plus south of Lake Olathe, was approved in July 2024. Legacy at Tomahawk Creek, 180 age 55-plus apartments at 135th Street and US-69, was recommended by the Overland Park Planning Commission in May 2026 and is unlicensed senior housing rather than care. The combined licensed care addition is 32 memory care beds, 20 assisted living and 20 memory care units and 12 Home Plus beds, and no purpose-built assisted living and memory care community of 60 units or more was identified.

The subject prices as the newest Class A community in a submarket of national operators. The opening schedule is a base rent of $6,400 for a studio, $7,100 for a one-bedroom and $7,950 for a two-bedroom, averaging $7,000 across the mix, with care levels of $600 to $1,900 averaging $1,000 for a blended assisted living revenue of $8,000 per occupied unit, and an all-inclusive memory care rate of $9,500, a premium of 19 percent over the blended assisted living figure. The blended assisted living figure sits 34 percent above the CareScout 2025 Kansas median of $5,975 for an assisted living community, which is the premium a new Class A building commands in the county's highest-income submarket; the CareScout Kansas City metro median and the published rates at Sunrise, Silverado and Brookdale from their own websites were not retrieved and are the first items a client engagement would close. Rates escalate 4.5 percent per year to Year 3 blended rates of $8,736 and $10,374.

Other income of $150,000 in Year 1 rising to $300,000 in Year 5 comprises community fees, second-occupant fees, guest meals and ancillary charges. The lease-up stabilizes at 90 percent in the first quarter of Year 3, about month 27, in a market whose senior housing occupancy stands at 90.5 percent; the appraiser's absorption schedule will govern the initial operating deficit sizing.

Location: W 135th Street NW, Overland Park, KS 66213 Size in SF (Gross): 82,000

Source: Marshall & Swift CoreLogic, MMCG

Total project cost of $434,467 per unit sits above CBRE's July 2026 national benchmark of $388,830 per unit because the HUD financial cost package, the 4 percent working capital reserve, the upfront premium, the lender's financing fee and HUD's application and inspection fees, together with a full initial operating deficit reserve, add about $6.1 million that a bank-financed project would carry partly outside the budget. Hard cost of $336 per square foot falls inside the $281 to $358 range for mid-level assisted living. The HUD fee line of $1,180,000 carries the 0.30 percent application fee, the 0.50 percent inspection fee, a 2.0 percent lender financing fee, the 0.77 percent upfront mortgage insurance premium and legal and third-party report costs on the $24,015,000 loan. The working capital reserve of $960,600 is 4 percent of the loan, and the financial reserve of $3,800,000 covers construction-period interest of about $1,063,000 over an 18-month build and the Year 1 initial operating deficit of $2,617,163, a total requirement of $3,680,000.

Loan Assumptions

The loan is sized by the coverage test. At 1.45x on Year 3 cash flow of $2,538,165 and a debt service constant of 7.29 percent including the premium, the supportable loan is $24,014,726. The 90 percent of eligible cost test permits $35,191,800 and the 75 percent of value test, on a stabilized value of $38,168,258 at a 6.75 percent capitalization rate (MMCG assumption, 25 basis points above the 6.5 percent core Class A assisted living rate CBRE reported for the first half of 2026), permits $28,626,194. The sponsor's equity of 38.6 percent is therefore set by the market, not by HUD's leverage limits, and a 60 basis point rise in the note rate before rate lock would reduce Year 3 coverage to 1.36x and the supportable loan by about $1.6 million.

The Year 3 operating budget at 90 percent occupancy is built from the staffing plan of 64 full-time equivalents priced to the May 2025 Kansas City metropolitan wage release.

Labor is 40.9 percent of revenue and the stabilized margin of 28.0 percent sits inside the 28 to 30 percent range the public operators report. Property tax is the second-largest line. Kansas assesses commercial property at 25 percent of appraised value, and on a real estate appraisal near $32 million the assessed value is $8 million; the consolidated Overland Park levy for the parcel was not pulled and the budget applies 118 mills as an allowance (MMCG assumption), for $950,000, or $10,556 per unit, which is high by national standards and is a structural feature of Johnson County senior housing. The HUD-approved management agreement caps the fee at 5 percent, and the replacement reserve is carried at $400 per unit per year.

The Year 1 initial operating deficit of $2,617,163 is funded from the financial reserve. The Project covers its debt from Year 2 and meets the 1.45x test at stabilization in Year 3, building to 1.71x by Year 5 as rents escalate at 4.5 percent against expenses at 3.5 percent. The annual mortgage insurance premium of $184,916 declines slowly with the balance over the 40-year term.

At Year 3 rates, the community's fixed operating cost is $5,895,000 and its variable cost is dietary raw food and the management fee.

Because the loan is sized to 1.45x at 90 percent, the 1.45x threshold sits exactly at the forecast by construction; the lender's cushion is the distance from 90 percent to the 1.0x threshold at 81.6 percent, which is 8.4 points of occupancy or about seven units, and Year 4 and Year 5 coverage.

The Project holds coverage above 1.0x in every single-factor case except a new competitor that holds it to 80 percent occupancy, which reduces Year 3 coverage to 0.93x, and the combined case of lower rates and slower lease-up reduces coverage to 0.96x. Both recover above 1.0x in Year 4 on the rate escalation. The single-factor cases cluster at 1.19x to 1.24x, which is the operating cushion HUD's 1.45x sizing builds in: a 5 percent rate miss, a 10 percent labor overrun or five points of occupancy each leave the loan covered with room. A 60 basis point rise in the note rate before rate lock costs nine points of coverage and about $1.6 million of loan proceeds, which is the reason the sponsor's equity commitment should carry a rate contingency.

The determination of feasible is subject to the following conditions precedent:

The following items could not be verified from a primary source at the study date and are disclosed: the parcel's current listing status and zoning district; the KDADS licensed capacity, assisted living and memory care split, year opened and operator-published rates for the eleven competitors; any Section 232 new construction or substantial rehabilitation assisted living endorsement in Kansas or Missouri since 2020 from HUD's insured portfolio data; the May 2025 Kansas City wages for home health and personal care aides, nursing assistants and licensed practical nurses from the BLS data tool, and confirmation of the registered nurse figure; the current KanCare Frail Elderly waiver assisted living per diem; the Johnson County population aged 75 to 84 and 85 and over from ACS table B01001; the consolidated mill levy for the parcel and a primary-source citation for the 25 percent Kansas commercial assessment ratio; the CareScout 2025 Kansas City metro assisted living median; and the current Section 232 new construction note rate at the time of rate lock.

This model study applies the methodology described on MMCG's assisted living feasibility study page, including its HUD Section 232 section. MMCG prepares assisted living feasibility studies for HUD Section 232 sponsors, SBA 7(a) and 504, USDA and conventional lenders nationwide, with engagements from $4,900 and delivery in 9 to 16 business days.