Strategic Importance of Feasibility Studies in Senior Housing Development

3 Star Congregate Senior Housing

Introduction

Senior housing (including assisted living and other care levels) is a complex, capital-intensive, and highly regulated sector. Conducting a rigorous feasibility study before developing a new senior housing project is a cornerstone of risk management and prudent capital allocation. These studies typically cost less than 1% of the total project budget – a modest outlay considering that a well-conceived, thorough study can greatly aid in obtaining financing and vetting the project concept. In practice, a feasibility analysis provides outsized value: it helps secure capital, guides design and marketing decisions, and ultimately hedges risk like an insurance policy by identifying pitfalls before they become expensive problems. For professional stakeholders – lenders, developers, and investors – a best-in-class feasibility study offers clarity and confidence that a proposed project is viable, market-aligned, and financially sound. This comprehensive article explores the strategic utility of feasibility studies for each stakeholder group, highlights regional market trends (including where demand is growing across the U.S.), and details the key components and recent case studies that illustrate these studies’ effectiveness.

Lenders: Informed Credit Decisions & Underwriting Risk Mitigation

For lenders, a feasibility study is an essential tool to inform credit decisions, determine appropriate loan sizing, and set covenants that guard against default. A comprehensive study provides an objective, third-party assessment of the project’s viability that lenders can trust. In fact, experienced feasibility firms often design their analyses to meet stringent underwriting standards, incorporating feedback from lenders so that the final report complies with bank requirements. This alignment means the feasibility study effectively becomes a “bankable” document, giving lenders confidence to extend credit on terms that reflect the project’s real risk profile. Key lending metrics like the debt service coverage ratio (DSCR) and break-even occupancy are explicitly analyzed in the study, helping lenders size the loan and structure covenants (e.g. minimum DSCR or occupancy thresholds) appropriately.

Feasibility studies also help mitigate underwriting risk by spotlighting market conditions and financial projections that are grounded in reality. Lenders use these insights to avoid over-exposure on projects that don’t demonstrate adequate support in the study. As one senior housing lender noted, detailed market data are often “the only way we get comfortable lending money” to a new facility in a community we aren’t familiar with. The study’s market analysis will identify local demand (or lack thereof), competitive saturation, and regulatory hurdles, all of which factor into underwriting. By understanding the project’s context – for example, if the region has an oversupply of assisted living units or if the target market’s income levels are borderline – lenders can impose prudent loan conditions. These might include interest reserves, tighter DSCR requirements, or pre-leasing targets that must be met before full drawdown of funds. In short, the feasibility analysis allows lenders to align loan terms with the project’s risk profile, reducing the likelihood of unpleasant surprises post-loan. Especially in today’s environment of higher interest rates and cautious bank lending, a solid feasibility study is often a prerequisite for financing. (Many banks have become more conservative due to economic uncertainty and regulatory pressure, so a thorough study gives them the reassurance needed to proceed with a loan.) Ultimately, by providing an independent validation of a project’s viability, the feasibility study empowers lenders to make informed credit decisions and extend financing confidently, knowing that major risks have been assessed and addressed.

Developers: Validating Market Demand & Guiding Project Decisions

For developers, a feasibility study serves as an essential blueprint for decision-making, ensuring that a new senior housing development is grounded in market reality. First and foremost, the study rigorously validates market demand by analyzing demographics, income levels, and care needs in the target area. Rather than assuming that all “seniors” in a region translate to demand, the analysis focuses on the truly addressable market – typically people in their mid-80s who are most likely to relocate to senior living, and who have the financial means to afford the planned community. This evidence-based demand analysis examines the senior population by age cohort (e.g. 75+, 85+), their median incomes or assets, and even factors like the presence of adult children nearby (the 40–64 “caregiver” demographic) who often influence decisions. By estimating realistic penetration rates (the percentage of seniors likely to move into a facility) and absorption rates, the study determines whether sufficient demand exists for the proposed community and at what price points. A sound demand analysis avoids overly broad assumptions – for example, it doesn’t rely just on growth in the 65+ population, but zeroes in on the age at which seniors actually enter senior living (which in independent living is now often the early-to-mid 80s). If the study finds that the local 85+ population with adequate income is, say, 3,000 people and that only 2% of them would consider assisted living, that sets a ceiling on potential occupancy. This kind of rigor prevents developers from misjudging demand.

The feasibility study also guides site selection and project concept. It evaluates how location factors (population trends, neighborhood characteristics, land costs, accessibility) will influence success. By benchmarking the competitive supply, the report inventories existing and planned senior housing options in the area – independent living, assisted living, memory care, nursing homes, and even 55+ active adult communities. This competitive analysis reveals whether the developer is entering an over-saturated market or a market gap. For example, the study might show that within a 10-mile radius there are five assisted living facilities with occupancies averaging 90%, and only one has a memory care unit – indicating a possible opportunity to include memory care in the new project. Or it may uncover that several new senior projects are under construction nearby (information the developer must know before building). An effective feasibility study will “inventory the entire supply” of age-qualified housing in the area and analyze their occupancy, pricing, amenities, and quality levels. This ensures the developer understands the competitive landscape. Notably, it can save a developer from costly mistakes – such as building into a region that is already overbuilt. (The last decade has seen pockets of oversupply in senior housing; for instance, heavy development in the late 2010s pushed U.S. seniors housing occupancy down to ~87%, with assisted living hitting a record low ~85% in 2019. A good feasibility study in those markets would have flagged the danger of overbuilding.)

Equally important, a feasibility study informs the project design, unit mix, and pricing strategy. It provides data-driven recommendations on the optimal mix of units and care levels, as well as the amenities and services needed to be competitive locally. For example, based on market preferences, a study might recommend a project include 60% independent living apartments, 30% assisted living, and 10% memory care – or perhaps forego independent living if the area skews older and frailer. The analysis looks at competitors’ offerings and identifies gaps the new development can fill. It will also analyze prevailing rent levels and incomes to calibrate pricing. If comparable facilities charge $4,500 per month and have waiting lists, the developer might have room to set rates slightly higher for a premium product; if competitors are struggling at $3,800/month, the study may advise a more modest pricing plan or enhanced value proposition. The goal is to ensure the planned rents and fees are competitive yet achievable given local economics. This granular guidance helps developers avoid missteps like building the wrong unit mix or setting prices that the market won’t support. All these insights feed into the developer’s ultimate go/no-go decision. If the feasibility study shows strong demand, manageable competition, and solid financial projections, it gives the developer green-light confidence to proceed. If not, the developer can pivot (for example, adjust the project scope or choose a different location) or halt the project before sinking significant capital.

Real-world case studies underscore this value. For instance, Wexner Heritage Village in Ohio commissioned a feasibility and market study before developing a new independent living community. The analysis assured them the product was the “right size for the market,” leading Wexner to move forward with an 82-unit upscale senior apartment project. Thanks to the evidence-based planning, the community (Creekside at the Village) pre-sold 90% of its units before construction was even complete. In the words of Wexner’s CEO, the feasibility process confirmed that the project was indeed the right product for local demand – and the rapid lease-up proved it. On the flip side, feasibility studies can save developers from proceeding with non-viable ideas. It is far better to invest a small sum in upfront research than to open a facility that struggles due to misjudged demand or competition. In summary, feasibility studies ground the development process in market reality – validating that a project should be built (and how it should be built), and steering developers toward concepts with the highest chance of success.

Investors: Strengthening Pro Formas, Testing Scenarios & Planning Exits

For equity investors and capital partners, feasibility studies provide the analytical foundation to underwrite returns and protect against downside risk. An investor’s primary focus is the project’s cash flow and ROI – for example, the internal rate of return (IRR) they can achieve on their equity. Feasibility studies supply detailed, multi-year financial projections that feed directly into these calculations. Typically, a study will include a 10-year pro forma projecting revenues, expenses, and net operating income (NOI) through lease-up and stabilization. These projections are not mere guesses; they are grounded in industry data and local market specifics. Top feasibility firms incorporate metrics from comparable facilities and trusted datasets (such as NIC MAP industry benchmarks) to ensure the numbers are credible. For instance, operating expense ratios might be informed by actual financials of similar senior communities in that region, and rent growth assumptions might consider both local market rent trends and broader inflation forecasts. By producing a well-supported pro forma, the feasibility study enables investors to evaluate the deal with confidence that the base-case scenario is realistic.

From the pro forma, the study will calculate key investment performance metrics that investors scrutinize. This includes net present value (NPV) and discounted cash flow (DCF) analyses, as well as the internal rate of return for various holding periods. A best-in-class report might present IRRs for, say, a 5-year hold versus a 10-year hold, or even 3-, 7-, and 10-year scenarios. Presenting the IRR under different exit timelines helps investors evaluate their strategy – for example, is it more attractive to plan for an early sale after stabilization, or to hold the asset longer for potentially higher total returns? The feasibility study often goes a step further to estimate the stabilized value of the project (using cap rate assumptions) once occupancy and operations reach steady state. This gives investors a sense of the potential equity gain if the property is refinanced or sold at stabilization. All these elements feed into investors’ financial models, improving the accuracy of return projections.

Critically, a good feasibility study will also perform sensitivity analyses and scenario testing. Investors can see how the projected returns change if key variables fluctuate, which is essential for understanding risk. For example, the study might include a sensitivity table showing how the IRR adjusts if construction costs end up 10% higher than budget, or if the lease-up takes 6 months longer than expected, or if achieved rents come in 5% lower. It may run an upside scenario (faster fill-up, higher rents) and a downside scenario (slower absorption, higher expenses) alongside the base case. This stress-testing of assumptions provides a measure of downside protection: it illuminates how resilient the project’s economics are under less optimistic conditions. Often, a break-even analysis is included, indicating the minimum occupancy or revenue level needed to cover costs and debt service. For instance, the study might calculate that the community can cover operating expenses and mortgage payments at 60% occupancy – a valuable figure for investors to know when judging risk. If the break-even occupancy is well below the expected stabilized occupancy (say, 60% vs an expected 90%), that implies a strong cushion in the business plan. On the other hand, a project that needs 85% occupancy to break even might be viewed as higher risk.

These analyses help investors answer “what if?” questions and ensure the development has sufficient contingency built-in. In a sector prone to unexpected challenges (like pandemics, labor shortages, or shifts in senior preferences), investors value this transparency into risk. A feasibility study essentially translates a senior housing concept into a robust financial forecast with identified risk levers. By plugging the study’s outputs into their own investment committee models, investors can determine if the project’s risk-adjusted returns meet their targets. If a base-case IRR is, say, 15% but could drop to 10% under plausible downside conditions, is that acceptable given the investor’s hurdle rate? These are the kinds of conclusions investors draw from a feasibility report. Additionally, having a professional third-party study can bolster an investor’s ability to attract co-investors or financing, since it signals that the project has been vetted. As one example, a Dallas-based senior living provider (Forefront Living) engaged a consulting team to perform market and financial feasibility analysis for its expansion plans; the CFO noted that “if we didn’t have [the consultant’s] name on a feasibility study, I don’t think we would have as many investors interested in the project.” In Forefront’s case, using the feasibility study’s guidance, the organization expanded successfully – growing its net operating income from near-breakeven to $7.5 million and turning a 70% occupancy into a waitlist scenario. This illustrates how a solid feasibility study not only informs investors, but also attracts investment by instilling confidence in the project’s projections.

Regional Demand Trends and Site Selection Considerations

Beyond the numbers, where you build senior housing can be just as critical as how you build it. The U.S. senior population is growing rapidly, but not uniformly across all regions. Feasibility studies therefore include a strong geographic and demographic analysis to ensure a project is located in a high-opportunity area. In the last five years, clear regional trends have emerged in senior housing development:

• Sun Belt Growth: States in the South and West continue to see strong in-migration of retirees and aging Baby Boomers. Texas and Florida are the top two states for population growth, and together with California they account for a huge and growing share of older Americans. These states benefit from warmer climates, favorable tax environments, and established retiree communities. It’s no surprise many developers “look South and West” for new projects. Popular retirement markets like Florida and Arizona have large concentrations of seniors, which on the surface make them attractive for senior living development.

• High-Barriers Coastal Metros: On the coasts, many dense metropolitan areas have aging populations but limited new supply due to high barriers to entry. According to industry experts, high-barrier, high-density markets (for example, parts of the Northeast corridor or coastal California) are very favorable for senior living investment. These markets often have affluent aging residents and limited land or entitlement for new facilities, so any well-planned project can fill a genuine need. A feasibility study might find, for instance, that a suburb of New York or San Francisco has thousands of elderly residents but very few modern senior living options – a ripe opportunity if one can navigate the development challenges.

• Emerging Secondary Markets: Developers are also scouring mid-sized cities and “under the radar” markets that show strong demographic trends. Strong local economies and population growth are the draw. For example, Raleigh, NC was America’s third-fastest growing big city as of 2023 and by late 2024 it had over 1,300 senior housing units under construction (over 16% of its existing inventory). Other secondary markets like Boise, ID have seen a surge of senior living projects following significant influx of residents. These cities may not have been traditional retirement destinations, but their growth and affordability make them promising. A good feasibility study will evaluate not just the primary market area but also broader regional trends – sometimes suggesting a developer consider a fast-growing suburb or a neighboring county if the core market is saturated.

• Midwest Opportunities and Cautions: The Midwest historically has slower growth, but certain pockets are now in focus. Some forward-looking investors are “not shying away from the Midwest” if specific markets show positive signs. For instance, Rockford, Illinois – a mid-sized city once struggling after industrial decline – was recently named the nation’s “hottest” housing market due to its affordability and rebounding economy, including growth in healthcare industries. A new 116-unit senior living project in the Rockford area (Loves Park, IL) secured financing and is expected to succeed precisely because the market fundamentals – affordable living, an aging population, and little competing supply – are favorable. Likewise, Lansing, Michigan’s steady economy has attracted new development with lenders on board. On the other hand, some Midwest and Rust Belt areas with declining populations or stagnant economies remain risky – feasibility studies have to flag if a county’s senior population is actually shrinking (some rural areas are experiencing out-migration of younger people and the elderly population plateauing or even decreasing).

• Overbuilt Areas: A crucial part of site selection is avoiding markets that, despite having many seniors, have too much existing or planned supply. Feasibility studies will map out all planned projects and recent openings. In the late 2010s, places like metro Dallas, Atlanta, and Phoenix saw a flood of new senior housing construction, which led to temporary oversupply. More recently, parts of the Southeast (e.g. some Florida communities) and Texas are noted to be overbuilt in senior housing. An analysis might find that a county in Florida has dozens of new assisted living facilities opened in the past few years, pushing occupancy down – a red flag for any new entrant. By quantifying the competitive pipeline, the feasibility report helps a developer steer clear of “stampede” markets where too many projects are chasing the same residents.

From a demographic profile standpoint, feasibility studies look closely at the aging trends in various locales. Nationwide, the growth of the senior population is accelerating: the number of Americans aged 75+ jumped over 30% from 2010 to 2023 and is projected to grow nearly 10% further just from 2023 to 2028. However, this growth is not evenly distributed. A recent analysis highlights that many counties in the Sun Belt and West will see the largest increases – in fact, 74 U.S. counties are expected to see their age 75+ population grow by more than 25% in the 5-year period of 2023–2028. These high-growth counties are often suburban areas attracting retirees or migrants (for example, counties in Texas, Florida, Arizona, Nevada, and the Carolinas show up on such lists). By contrast, some counties (particularly in parts of the Midwest and Northeast) may have minimal growth or even declines in seniors due to younger generations moving away. Feasibility studies use these data to pinpoint locales with unmet future demand.

They also factor in the income-qualified seniors. It’s not just where the seniors are, but where the affluent or middle-class seniors are. Certain areas (e.g. some coastal cities, or retirement enclaves) may have a high concentration of seniors with sufficient assets to afford private-pay senior living. Other areas might have many seniors but mostly low-income ones who rely on Medicaid – those markets might better support affordable senior housing or skilled nursing rather than private assisted living. An example insight: states like Maine and West Virginia have among the oldest populations by percentage, but relatively lower income levels; meanwhile, Florida has a high proportion of seniors and many affluent retirees, making it fertile ground for upscale communities (albeit competitive). Texas is interesting for its sheer growth – it has a lower percentage of seniors than Florida, but the absolute numbers are climbing fast with both retirees and aging locals. A feasibility study might conclude that a fast-growing suburban county in Texas with high 75+ growth and strong household incomes could absorb a new senior living development, whereas a rural county with an aging but poor population could not.

In practice, developers and investors use these insights to choose the right markets. “Hot” markets in 2025 include metros like Raleigh-Durham, Charlotte, Phoenix, Dallas-Fort Worth, and Tampa – all seeing high senior growth and, consequently, a lot of development activity. At the same time, there are smaller gems: the NIC (National Investment Center) recently identified markets like San Jose, CA (a high-barrier tech hub with aging boomers), Washington, D.C. (affluent seniors in the suburbs), and Boise, ID (fast-growing retiree destination) among the top 10 for new senior housing construction. A feasibility study done for a prospective project in any of these areas would carefully examine which submarkets have the greatest need. Even in a strong metro, location is everything – being on the right side of the city or in the right neighborhood matters.

Finally, regional analysis in feasibility isn’t only about chasing growth; it’s about aligning with the preferences of seniors and their families. Today’s seniors often prefer to retire near their adult children or grandchildren, not necessarily in traditional retirement towns. As one industry executive observed, a significant portion of residents relocate to be closer to family, often in areas with strong local economies and good quality of life. That means a metro area with jobs and good schools (for the seniors’ kids and grandkids) can be a draw. Feasibility studies increasingly consider these psychographic factors – for example, will the target demographic be people already living in the area, or people moving from elsewhere to be near family? This can affect marketing strategy and even design (incorporating features for intergenerational visits, etc.). All said, the regional and demographic component of a feasibility study ensures that a project’s location is set up for success, matching the right product to the right market.

Key Components of a Best-in-Class Feasibility Study

A quality feasibility study for senior housing is comprehensive, covering both market factors and financial projections in depth. The key components typically include:

• Market Demand Analysis: An in-depth examination of local demographics and demand drivers for senior living. This section analyzes the target area’s senior population by age cohorts (especially focusing on ages 75+ and 85+ who are most likely to need senior housing) and their financial profiles. It looks at current and projected population growth, income levels, homeownership rates (since many seniors use home equity to pay for senior living), and health prevalence (e.g. rates of dementia or disability that increase care needs). A sound demand analysis avoids overly broad metrics – for instance, rather than assuming a percentage of all 65+ adults will move in, it zeroes in on the likely penetration rate among the 80–85+ age group who can afford the community. It might calculate, for example, that there are 5,000 age- and income-qualified seniors in the primary market, and with a 10% penetration rate there would be 500 potential residents for an assisted living facility. The study also considers absorption rates, estimating how quickly those potential residents could fill the new development (e.g. 10 move-ins per month). By quantifying realistic demand, this analysis determines whether the market can support the new development and at what pricing. Importantly, it tests different scenarios (such as higher or lower penetration) to ensure there is a cushion. A best-in-class demand analysis will often include mapping of demographic data, showing concentrations of target-age seniors and any trends (for example, “the 85+ population within 5 miles is projected to grow 20% in the next 5 years” – a strong positive sign). Ultimately, this component answers: Is there enough market demand for this project, now and in the future?

• Competitive Benchmarking: A rigorous inventory and analysis of competing facilities in the area. This part of the study identifies all existing senior housing communities (independent living, assisted living, memory care, skilled nursing, and sometimes age-restricted active adult apartments) in the primary and secondary market area. It also accounts for known developments in the pipeline (planned or under construction). For each competitor, the study examines key metrics: number of units/beds, current occupancy rates, monthly rates or fees, services and amenities offered, care levels provided, and the community’s age/quality. A competitive matrix is often used to compare the proposed project against what’s already available. For example, the study might reveal that the competitors average 88% occupancy – indicating the market has some capacity for new supply if well-differentiated – or conversely, if all competitors have long waitlists, that suggests pent-up demand. The analysis will highlight any market gaps: perhaps no existing community offers high-end luxury amenities, or there’s a lack of memory care beds, or an oversupply of studios but shortage of two-bedroom senior apartments, etc. Competitive benchmarking is crucial to avoid entering an oversaturated market unknowingly. As noted earlier, it’s not just the quantity of competitors but also their quality and positioning. The study might find, for instance, that a new luxury assisted living is opening nearby next year (vital information for the developer to possibly adjust their own plans). A thorough feasibility report will “inventory the entire supply” and often include drive-by or site visit evaluations of key competitors to assess their curb appeal, staffing, and reputation. This component informs how the new project can differentiate itself and what occupancy it can reasonably capture given the competitive context.

• Demographic & Psychographic Profiling: A detailed profile of the target customer base, often including both the seniors themselves and their adult children/family influencers. Demographically, this dives deeper into characteristics like the age distribution of seniors (e.g. how many are 75-84 vs 85+), household composition (how many live alone vs with a spouse or with family), and geographic origins (do seniors tend to stay in the area or do they move from elsewhere to retire?). Psychographic factors cover the preferences, attitudes, and behaviors of the target market. For example, what are the cultural or ethnic considerations in the community that might affect senior housing choices? (In some areas, multi-generational living is the norm, leading to lower senior housing uptake – a feasibility study would note a low penetration rate in such communities.) Are prospective residents looking for a resort-like lifestyle with social activities, or are they more focused on healthcare and assistance? The profile may include typical health status and care needs – e.g., “X% of seniors 75+ in this county have mobility limitations, Y% have Alzheimer’s, etc.” – which helps determine the appropriate service mix (independent vs assisted vs memory care). The study also often considers the adult children demographic (often 45-64 years old) since they might be decision-makers or financial sponsors; their income levels and housing situation can be relevant (for instance, high home values among adult children could indicate an ability to help parents with entrance fees). Additionally, this section might mention trends like seniors’ desire to age in place or the popularity of home care, as factors that could influence how quickly they consider moving into a community. Overall, the demographic/psychographic profiling ensures the project’s concept aligns with the lifestyle and needs of its likely residents. For example, if profiling shows a very active, younger-old population, the developer might incorporate an “active adult” component or more wellness amenities; if the population is older and frailer, the design would emphasize healthcare, safety, and accessibility features.

• Optimal Unit Mix and Pricing Strategy: Recommendations on the mix of units, care levels, and pricing for the project, based on the market analysis. This component synthesizes demand and competitive findings to answer: What type of product will succeed here? For instance, should the project be entirely assisted living, or a blend of assisted living and memory care, or perhaps a full continuum (independent living through nursing care)? A best-in-class study will make a clear recommendation on product type and unit mix – e.g., “Project XYZ should include 80 assisted living units and 20 memory care units” or “a split of 60 independent living cottages and 40 assisted living apartments would align with the two key segments of demand.” It will also advise on unit sizes (perhaps noting that competitors offer mainly studios and one-bedrooms, so including some two-bedroom units could capture couples) and on amenities/services to include (for example, adult day programs, rehab therapy, luxury dining options, etc., depending on market expectations). Alongside the unit mix, the study lays out a pricing plan. This means recommending monthly rental rates or entry fees for each unit type, plus any care fees or levels of service pricing. These recommendations are grounded in the competitive benchmarking (what the market currently charges) and the target demographic’s ability to pay. If median incomes in the area are $50,000 for senior households, the study would ensure the pricing is affordable relative to that (or identify if the target is wealthier private-pay individuals who can afford top-tier rates). The pricing strategy also considers future escalation – e.g., assuming annual rent increases of a certain percent – and promotions or concessions needed during lease-up. By getting the unit mix and pricing right, the developer can achieve the desired absorption and occupancy. This component is vital because misjudging it can doom a project: too many high-care units in a market that is younger/independent will leave vacancies, or pricing units too high could suppress move-ins. The feasibility report acts as a guide to right-sizing the project for the market.

• Operating Expense and Capital Cost Projections: Comprehensive forecasts of the project’s costs, both for development (capital expenditures) and ongoing operations. On the CapEx side, the study will outline the expected total development budget: land cost, construction cost, soft costs (architectural, engineering, permits), furniture, fixtures & equipment (FF&E), pre-opening expenses, financing costs (interest during construction), and a contingency. These figures might be informed by recent construction cost trends – for example, noting that in 2022–2023, construction costs for senior living were rising ~4-6% annually due to inflation. If local construction cost data is available (cost per square foot or per unit from similar projects), the study will use it to ensure the budget is realistic. On the OpEx side, the feasibility study provides a detailed pro forma of operating expenses once the project opens. This includes staffing levels and labor costs (caregivers, nurses, administrative staff, culinary, housekeeping, etc.), which are typically the largest expense category. Labor costs have been a big focus in recent years – for instance, labor expenses in senior living rose over 11% in a two-year period due to wage inflation and worker shortages – and a good study will account for those rising costs in the projections. Other operating expenses modeled include utilities, food, marketing, maintenance, insurance, property taxes, management fees, and so on. The study will often present these in both dollars and as ratios (e.g. what percentage of revenue goes to staffing, how many dollars per occupied unit for food service, etc.) and compare them to industry benchmarks to validate them. The resulting operating pro forma shows net operating income (NOI) and cash flow by year, which feeds into the financial viability analysis. This component is essential for investors and lenders, because it sets the expectations for profitability and any need for operating subsidies during lease-up. It also identifies if the project’s cost structure is in line with its pricing – if not, either costs or pricing might need adjustment. Overall, thorough cost projections help avoid unpleasant surprises like budget overruns or operating losses and allow all stakeholders to plan accordingly (for example, ensuring adequate working capital if the study shows negative cash flow in the first year or two of lease-up).

• Regulatory and Licensing Review: An analysis of the regulatory environment, licensing requirements, and reimbursement landscape that could affect the project. Senior housing developments (especially assisted living and memory care) must navigate state and local regulations for licensing, building codes, and sometimes certificate-of-need (CON) laws. A feasibility study will outline what licenses or certifications the facility will require (e.g., assisted living license from the state health department) and detail the process and timeline for obtaining them. It will also flag any state-specific rules that impact the project’s feasibility – for example, some states limit the number of assisted living beds that can be approved in a region (CON laws), or they may have requirements for staff-to-resident ratios, or physical building standards like sprinkler systems and doorway widths that could affect design and cost. If the project plans to accept Medicaid waivers or Veterans benefits, the study will review the reimbursement rates and criteria associated with those programs. This component essentially answers: Are there any regulatory hurdles or obligations that could pose a risk or extra cost to this project? For instance, if developing in Florida, the study might discuss hurricane preparedness requirements for senior communities (e.g., generators, evacuation plans) and ensure the project budget accounts for those. Or if in California, seismic building standards and unique licensing categories (like Residential Care for the Elderly – RCFE regulations) would be noted. Additionally, as healthcare and senior housing converge, the study might examine whether the operator needs special accreditation or if partnerships with healthcare providers are advisable. By including a regulatory review, the feasibility report alerts developers and investors early to compliance issues that could otherwise delay the opening or increase costs. It’s far better to know upfront if a Certificate of Need is required for memory care beds (which could add many months and uncertainty), rather than finding out after buying land. In summary, this section ensures that the project’s concept is not only market-feasible but also legally and operationally feasible under prevailing rules.

• Financial Projections & Scenario Analysis: The culmination of the feasibility study is a robust financial model that integrates all the above elements into projected financial statements and return metrics. This includes multi-year pro forma income statements, showing revenues (by service line, if applicable, such as rent vs care fees), operating expenses, and NOI for each year of lease-up and stabilization. It also projects cash flows after debt service, taking into account loan terms if known (interest, principal payments) to show whether cash flow covers debt (and by what margin, i.e. DSCR). The balance sheet impact may be considered as well, especially if the project requires a certain equity investment or if there are staged capital needs. From these projections, the study derives the key outcomes that stakeholders care about: the internal rate of return (IRR) on equity, the return on investment (ROI), the payback period, and the net present value (NPV) of the project’s cash flows. A high-quality study doesn’t present just a single outcome, but usually provides a Base Case scenario plus alternative scenarios. For example, there might be an “Optimistic Case” (faster fill-up, perhaps assuming 95% occupancy by Year 2 and slightly higher rents) and a “Conservative Case” (slower fill-up with more modest rent growth and perhaps higher expenses). It will explicitly show how metrics like DSCR, IRR, and break-even occupancy vary under these scenarios. This sensitivity analysis is often presented in tables or graphs for clarity. Additionally, certain ratios of interest to lenders are highlighted – for instance, the DSCR in each year, to identify any year where it dips below an acceptable level, or the operating margin at stabilization compared to industry norms. By modeling different scenarios, the study helps stakeholders see the range of possible outcomes and not just the best guess. For instance, if the base case IRR is 15% but the downside case IRR is 9%, an investor can decide if the risk-adjusted return still meets their threshold. Lenders will look at the downside DSCR to ensure even in a soft lease-up the loan can be serviced. The financial modeling section often includes a break-even analysis as well, calculating the exact occupancy or revenue point at which the project covers all costs. Knowing that, say, “break-even occupancy is 62% by Year 3” provides a concrete performance target for the operator and comfort to financiers. In sum, the financial and scenario analysis component distills the entire feasibility study into quantifiable projections and risk metrics. It is the section that translates all the market research into dollars-and-cents performance, thereby directly supporting the investment decision and financing structure.

Feasibility Studies as a Risk Mitigation Tool

In the senior housing arena, where projects are complex and stakes are high, a thorough feasibility study is as much a risk mitigation tool as it is a planning document. By investing time and resources upfront in analysis, stakeholders can prevent classic pitfalls that have historically plagued underperforming developments: misjudging demand (leading to empty units and slow lease-up), mispricing the product (leading to either financial shortfalls or leaving money on the table), underestimating costs (causing budget overruns or cash flow crises), or over-leveraging the project (leading to covenant breaches if income falls short). As industry experts cautioned in one forum, while a good feasibility study does not guarantee full occupancy, “a poor one may lead to years of very expensive, negative consequences.” This rings true when we look at real examples: many senior housing properties that struggled in the past decade (some with occupancy stuck in the 70% range or financial losses) can trace their issues back to unrealistic initial projections or lack of understanding of the local market. Perhaps the developer assumed a 15% penetration rate in a market that could only support 5%, or they built luxury units in a blue-collar town, or didn’t anticipate that three competitors would open at the same time. A rigorous feasibility process forces a project team to confront these hard market truths early, on paper, where adjustments can still be made relatively cheaply. It is far better to, say, downsize a project or add a memory care wing at the planning stage because the study indicated stronger demand for memory care than independent living, than to build the wrong product and face empty rooms later.

Feasibility studies also promote alignment among all parties and create a roadmap for operational success. By defining the market-driven unit mix, service offerings, and pricing, the study essentially sets the business plan that the operations team will execute. This means that when the community opens, it is offering what residents want at a price they are willing to pay, and it has a staffing model and expense structure suited to those services. The study’s inclusion of regulatory considerations ensures that compliance issues (like required staffing ratios or safety features) are baked into the plan, preventing costly retrofits or regulatory delays. Moreover, lenders and investors often continue to use the feasibility study as a benchmark once the project is underway. It is common for lenders to track the borrower’s actual lease-up velocity and financial performance against the feasibility study’s pro forma, watching for any deviations that might signal trouble in meeting loan covenants. In this way, the study’s projections become a shared set of expectations that, if not met, prompt early course correction. For example, if occupancy is lagging behind the study’s forecast, the developer and operator can investigate why – maybe ramp up marketing or adjust pricing – before losses mount. The study essentially establishes performance targets (occupancy, NOI, DSCR at certain milestones) that all stakeholders monitor.

In the current climate (early-to-mid 2020s), the risk-mitigation role of feasibility studies is even more critical. The senior housing industry is emerging from the pandemic with surging demand on the horizon – by 2030, all Baby Boomers will be 65+, and by 2040 the 85+ population will double – but at the same time, new supply has been constrained by high construction costs, labor shortages, and financing challenges. This dynamic can create opportunities for those who develop now, but also heightens the risk of getting it wrong because every project that does move forward will be scrutinized. Construction starts in 2023 fell to a 13-year low in senior housing due to economic headwinds, meaning fewer projects are coming online – a well-researched project can capture pent-up demand if executed properly. Conversely, with higher interest rates and inflation, the margin for error is thinner. A feasibility study accounts for these factors (e.g., by stress-testing interest rate impacts on debt service, or incorporating a buffer for cost escalations) so that the project is resilient. Think of a feasibility study as doing all the “what if” homework upfront: What if occupancy takes 2 years instead of 1 to stabilize? What if labor costs keep rising 5% a year? What if a competitor opens 6 months before we do? By analyzing these, the study helps stakeholders devise contingency plans or decide not to proceed if the risks outweigh the returns.

In summary, investing the time and capital in a rigorous feasibility study is a strategic imperative when planning a new senior housing development. It underpins disciplined risk management and wise capital allocation for all involved: giving lenders data-driven assurance to underwrite the loan, giving developers a validated plan tailored to real market needs, and giving investors confidence that the projected returns are achievable with a clear view of risks and rewards. A well-executed feasibility study functions much like an insurance policy – hedging risk by identifying and addressing potential pitfalls before they can threaten the project’s success. In a sector where demographic opportunity is immense but balanced by regulatory complexity and market nuances, feasibility analysis is ultimately what separates sustainable, successful projects from those that miss the mark. By leveraging this critical due-diligence tool, senior housing lenders, developers, and investors can move forward with clarity, precision, and a strategic foundation for decision-making that will drive long-term value.

October 07, 2025, by a collective authors of MMCG Invest, LLC, (retail/hospitality/multi family/sba) feasibility study consultants.

Sources:

1. Fox Group – “Assisted Living Feasibility Study – Part Three” (Craig Fukushima)

2. NIC MAP Vision – Construction Starts Falling Behind Needed Demand (2024)

3. NIC MAP Vision – Senior Housing’s Supply-Demand Question (Multi-Housing News, Dec 2024)

4. Seniors Housing Business – “Population Growth Fuels Hot Markets” (Feb 2025)

5. Seniors Housing Business – Rockford IL Development Example (LTC Properties case in “Hot Markets”)

6. Plante Moran – Case Study: Creekside Senior Apartments (Wexner Heritage Village)

7. CLA (CliftonLarsonAllen) – Case Study: Forefront Living Expansion

8. NIC MAP Vision – Lender Use of Data (Flagstar Bank Quote)

9. IRR – 2023–2028 Seniors Housing Growth and Demand Reporti

10. NIC MAP Vision – Senior Living Costs and Inflation Trends

11. Wealth Management (NREI) – Oversupply Easing Article (Dec 2019)