demand assessment for senior housing in eyota, minnesota6a40ad6f-800f... · 2015. 2. 10. · arbor...

Demand Assessment for Senior Housing in Eyota, Minnesota Subject site Location: Eyota, Minnesota Prepared for: Eyota Economic Development Authority Prepared by: Viewpoint Consulting Group, Inc. Date: 9/10/2012

Viewpoint Consulting Group, Inc. / 9104 Barrington Terrace / Brooklyn Park, MN 55443 P. 763-273-4303 / www.viewpointconsult.com

Viewpoint Consulting Group, Inc. Page 1 September 7, 2012

September 10, 2012 To: Cathy Enerson Eyota Economic Development Authority From: Jay Thompson Viewpoint Consulting Group, Inc. RE: Demand Assessment for Independent, Assisted Living, and Memory Care

Housing in Eyota, Minnesota Introduction This memorandum provides an assessment of the demand for market rate senior housing in Eyota, Minnesota. The purpose of this assessment is to broadly assess the depth of demand for senior housing in the local area to determine if potential exists to support additional units at Arbor Gardens. Included in this assessment are demand calculations for independent, assisted living, enhanced assisted living, and memory care housing. Potential demand is calculated based on analysis of the income/asset-qualified target market for senior housing and the supply of senior housing units serving the primary market area. This assessment also provides recommendations on a proposed expansion of Arbor Gardens. The recommendations area based on the demand calculations, interviews with Arbor Gardens staff and residents, and an analysis of the site location.

Senior Housing Demand Assessment: Eyota, MN


Arbor Gardens Overview Arbor Gardens is a 34-unit senior housing property in Eyota built in 2003. It offers 12 units of independent housing and 22 units of assisted living housing. When built, six small suites in a secured area were marketed as memory care housing. However, they were switched to assisted living housing early on due to limited demand. Since then Arbor Gardens has generally maintained stabilized occupancy. Currently, there is a waiting list for independent units and two assisted living units are available (for an overall occupancy rate of 94%) because of two recent move-outs. The unit mix, unit sizes, and base monthly rents at Arbor Gardens are shown in Table 1. It should be noted that in addition to the 22 assisted living units, residents in the independent units can also purchase assisted living services. The base monthly fee for assisted living in the independent units is $2,701 for one-bedroom units and $2,926 for two-bedroom units. Currently, two residents in independent housing are receiving assisted living care. The base monthly rents for independent units at Arbor Gardens include utilities (except for electricity and phone), activities, 24 hour staff, and scheduled transportation. Meals and housekeeping are available for an extra fee. Garages are available for $40 per month and currently 11 garages are rented. Assisted living rents include all utilities (except phone), meals, housekeeping, laundry, emergency call pendant, and additional personal care services.

Table 1 Arbor Gardens Unit Mix, Sizes, and Pricing

August 2012

Pricing Notes

Independent*2 - 1BR

10 - 2BR

Assisted Living6 - Suites8 - Studio 476 - 5158 - 1BR

* Residents in independent units can purchase assisted living services.

Sources: Arbor Gardens; Viewpoint Consulting Group, Inc.

308

546

Unit Sizes Monthly Rent

Rents includes utilities (except electricity and phone), activitites, scheduled transportation, and 24 hour staff. Meals and housekeeping are optional.

Unit Mix

7091,032

Rent includes all utilities (except phone), 3 meals/day, weekly housekeeping and laundry, emergency call, activities, 24 hour staffing, and scheduled transportation.

$2,053$2,279$2,504

Base

$928$1,097



The base monthly rents in Table 1 are market rate rents paid by “private pay” residents. Approximately half of the residents at Arbor Gardens are private pay and the other half are lower-income seniors who utilize the Elderly Waiver program to pay for services. Overall, about half of the residents at Arbor Gardens are over age 90 and the average age is in the upper-80s. All of the units at Arbor Gardens are apartment style units with private bathrooms. The independent units have full kitchens while the assisted living units have kitchenettes with the exception of the six suites that were originally intended for memory care residents. The six suites are 308 square feet and feature a living/sleeping area and a private bathroom. The independent units are spacious in size, at 709 square feet for one-bedroom units and 1,032 square feet for two-bedroom units. In addition to full kitchens and private bathrooms, they feature in-unit washer/dryers and patios or balconies, which are a very appealing amenity. The two-bedroom units also feature either a second bathroom or a large kitchen pantry. Along with the 34 units, Arbor Gardens contains several commons spaces available to residents. These include the following:

• Two dining rooms • Community room/private dining room • Craft room (adjacent to the six suite units) • Beauty salon • Exercise room • Outdoor patio • Three lounges • Billiard room • Community Garden • 13 detached garage stalls • Library area • Decorated lobby



Photographs of Arbor Gardens

Arbor Gardens Entrance to Arbor Gardens

West side of Arbor Gardens Back side of Arbor Gardens

Back side of Arbor Gardens Garages at Arbor Gardens



Site Location Arbor Gardens is located at 535 Canyon Drive Northwest, or near the intersection of Highways 14 and 42 in the very northwestern corner of Eyota. Eyota is growing community of 1,977 people (2010 Census) located in Olmsted County in Southeastern Minnesota. Eyota’s growth is largely driven by its close proximity to Rochester, which is only about ten miles to the west. Rochester has a population of over 100,000 and is home to Mayo Clinic, which employs approximately 32,000 people. Access and Visibility Access and visibility to Arbor Gardens are excellent. Arbor Gardens is highly visible to people traveling into or past Eyota on either Highway 14 or 42. US Highway 14 is a major thoroughfare connecting Rochester to Winona and has an average annual traffic count of approximately 6,000 vehicles per day as it travels into Eyota from Rochester. Highway 42 connects Eyota to Interstate 90 to the south and Elgin to the north and has an average annual traffic count of approximately 4,250 vehicles per day as it passes Arbor Gardens.

Arbor Gardens Site Location

• Arbor Gardens

Kwik Trip

Eyota Market



Proximity to Shopping, Services, and Health Care Because of its close location to Rochester, Eyota is somewhat of a bedroom community to Rochester and therefore does not have a significant retail or service base. There are no medical clinics in Eyota, however Rochester and its abundance of medical care is only a 15 minute or less drive from Arbor Gardens. Eyota Market (grocery) is located approximately one mile south of Arbor Gardens on Highway 42. Kwik Trip is conveniently located across Sandstone Drive from Arbor Gardens and offers many convenience retail items. Most other shopping and services are located a short drive away in Rochester. Adjacent and Surrounding Land Uses Arbor Gardens is located in a subdivision that is zoned for commercial, although the surrounding parcels are currently undeveloped (vacant). Single-family homes are directly east of Arbor Gardens. Overall, the land uses surrounding Arbor Gardens are compatible with senior housing. Immediately surrounding the site are the following: South: Between Canyon Drive and Highway 42 are vacant commercial parcels.

Agricultural land, guided for future industrial/commercial in the Land Use Plan, is located south of Highway 42.

West: Immediately west of Arbor Gardens are vacant commercial lots; west of

Sandstone Drive is Kwik Trip. These vacant parcels are a potential location for an expanded Arbor Gardens.

East: Directly east of Arbor Gardens are single-family homes on Canyon Lane. One

home is directly east of Arbor Gardens, but other lots in the subdivision northeast of Arbor Gardens remain vacant. These lots could also be a potential location for an expanded Arbor Gardens.

North: Vacant commercial parcels are immediately north of Arbor Gardens (on the

south side of Sandstone Drive). These parcels are potential locations for an expanded Arbor Gardens or other light commercials uses. On the north side of Sandstone Drive, north of Arbor Gardens, are three existing business – a liquor store, Treefrog Treasures, and Prestige Auto Care.

The setting for Arbor Gardens is appropriate for senior housing, as evidenced by the fact that Arbor Gardens has been well received by residents and their families since its opening approximately ten years ago. As mentioned, Highways 14 and 42 provide Arbor Gardens with excellent access and visibility to seniors in Eyota and the surrounding area. In addition, the surrounding land uses are also compatible with senior housing.



Arial of Arbor Gardens

Arbor Gardens

Kwik Trip



Photographs of Surrounding Land Uses

Kwik Trip northwest of Arbor Gardens East side of Arbor Gardens

Looking south from Arbor Gardens Homes east of Arbor Gardens

Looking north from Arbor Gardens Prestige Auto, north of Arbor Gardens



Interviews with Staff and Residents at Arbor Gardens Staff and residents at Arbor Gardens were interviewed in August 2012. Staff questions generally pertained to performance history, existing and potential residents, and utilization of common spaces. Resident questions were focused around what they liked most about Arbor Gardens, if there were things they would like to see added, how they use common areas, and specifically if they liked their apartment units. The key points from the interviews are summarized below. Staff Interviews Arbor Gardens has generally been fully occupied for the past seven years. Only a couple of

times have there been more than a month stretch with multiple vacancies. Currently, two assisted living units are open, because of move-outs. Three-quarters of the move-outs from Arbor Gardens are residents moving to nursing homes. The other one-quarter of move-outs are residents moving to hospice or a facility with specialized memory care housing.

There is a seven name waiting list for independent units. The two-bedroom independent

units are the most desired among prospective residents. Residents in independent units can receive assisted living services; currently two residents are taking advantage of this option. The cost for assisted living is higher in the independent units; for this reason most assisted living residents choose the designated assisted living units.

Arbor Gardens excels at capturing potential residents who tour the facility. Most local

seniors who need or want senior housing and tour Arbor Gardens eventually move in. Rarely does Arbor Gardens loose a potential resident to another facility. Turnover is low, however, so there are usually only a few openings each year.

The centerpiece of Arbor Gardens’ marketing efforts is to get seniors and other local

residents of Eyota into the facility so they can see it first-hand. Arbor Gardens hosts the Senior Dining program, which allows seniors from the community to come for a meal. Seniors in the Independent Living also participate in the Senior Dining program. A noon meal was added on Saturday and Sunday and is considered part of the marketing push to bring more people in the building. In addition to meals, Arbor Gardens hosts other activities and clubs to bring seniors throughout the community into the building. School outings, girl scouts, and church choirs also visit Arbor Gardens, bringing in younger people who hopefully will remember Arbor Gardens with fondness when their parents may need senior housing. This helps promote awareness of Arbor Gardens and establishes it as a key piece in the community.

Arbor Gardens has typically operated at capacity indicating that there is potential to add

more units. There appears to be demand for more independent units plus specialized memory care or enhanced care that would help retain residents as their care needs increase beyond what Arbor Gardens currently provides. Enhanced care would include two-person transfers and nursing services beyond administration of oral and topical medications.



The primary changes/additions to Arbor Gardens that would make it more functional are a

larger kitchen, larger dining room, larger community room, larger laundry room with space for folding clothes, and storage for building maintenance. Storage space is almost non-existent in the current building. The kitchen is small with little storage and the dining room and community rooms are not large enough to accommodate all of the residents at the same time. Other changes/additions include a staff room, therapy room, walking trails, a sidewalk to Kwik Trip, and a community van with grab bars and a wheel chair lift.

Staffing is not an issue at Arbor Gardens, and more full- and/or part-time staff can be added

if Arbor Gardens expands. There would need to be a staff to resident ratio of 1:6 in a specialized memory care wing, however. Therefore there would need to be at least six memory care residents to make this specialized wing viable. If Arbor Gardens expands and the staff grows, then additional staff offices and a staff room would be needed.

If a second phase was added to Arbor Gardens in a separate unconnected building,

residents of either building would be unlikely to walk outside to visit the other building, whether to attend activities, eat meals, or to just visit other residents. A second phase should be attached for the new residents to fully engage in Arbor Gardens activities. The staff also stressed that any new addition(s) should be connected so they don’t lose the “home simplicity” that draws many of their residents. The staff has worked for the last ten years to get the community to not see Arbor Gardens as a nursing home; rather, as a gathering place for the community and a microcosm of the “down-home county living” that is a way of life for so many of the residents.

Resident Interviews Residents were asked why they chose Arbor Gardens. Responses included because they had

lived in Eyota; came here after their spouse died; had friends here and had heard good things about the building.

Residents were asked if they looked at other buildings when deciding where to live.

Responses included that Arbor Gardens was the choice; someone looked at Plainview; another looked at St. Charles but the flood in 2007 impacted their decision; one resident commented that the property in St. Charles was “cheap” and “it floods” so they chose Arbor Gardens; another commented that they had many more activities than Plainview. Food was also a common answer and this was echoed by the building staff which stated that a key element in giving tours was the food –the quality of food, the availability of meals and the space in which to eat are all important components in making a housing decision.

Residents were asked if they have friends or know of anyone who would like to move to

Arbor Gardens. No clear answers were discerned despite posing the question several different times and in different ways.



Residents were asked what they liked about living at Arbor Gardens. Residents spoke about liking the activities and the community feel. They like getting together with other residents and getting to know everyone. They specifically commented about how everyone comes for bingo, ice cream sundaes, and monthly birthday celebrations. The residents like to congregate most in the dining room to share a meal, have coffee, and play cards and bingo. Also mentioned was that residents enjoying looking out the window and watching the highway and being able to walk over to Kwik Trip (they preferred this much more over an in-house convenience store because they liked that it “gets them out.”). Staff mentioned that a sidewalk connecting Arbor Gardens to Kwik Trip is crucial to maintaining residents’ safety. Residents also mentioned that they like to sit out under the roof on the front patio.

Residents were asked what kind of things would they like to see added at Arbor Gardens.

Responses included having a bigger exercise room; a whirlpool (although this response was split with some wanting and some not interested at all); consensus was for walking trails and that they like to walk. The addition of more trees was also mentioned. Some agreed that a therapist coming to the building would be nice. Residents acknowledged that the staff offices are small and that a staff room or staff break room would be nice.

The largest need repeated by both staff and residents was that in any addition there needs

to be a bigger kitchen and dining room. Not only is a bigger space needed to accommodate all residents at one time but the current space is very tight for walkers and scooters. Residents would like to have an area that could be used for multiple functions: dining, craft area, quilting area, exercise, family gatherings, all-resident gatherings, and community uses. Staff indicated that if there was a larger banquet room it could be used for a variety of activities (e.g. family gatherings, 100th birthday celebrations) as well as rented out for community use. Staff mentioned how a key element in giving tours was meals and a larger kitchen and dining area could be a huge draw.

While most of the residents we interviewed were content with the current transportation

the staff indicated, “transportation is the biggest reason people don’t move in.” A few residents did acknowledge that the van is “hard to get into.” The current van is not big enough for walkers and scooters and doesn’t have a wheelchair lift. If residents aren’t able-bodied enough to get in the van it greatly limits their access to transportation off site. Staff also indicated they would like to see the city find public transportation for seniors in Eyota.

Residents were asked specifically about their apartment units, their size and features.

Overall consensus was that they liked their apartments and it is a “nice and friendly place to live.” The option of a second bedroom was well liked both for visiting children and to use as an office. Staff mentioned that as we move forward with the next generation that a second bedroom as office space becomes more important in order to have a space for a computer.



Primary Market Area Definition Eyota is growing community located in Olmsted County in Southeastern Minnesota. Eyota’s growth is largely driven by its close proximity to Rochester, which has a population of over 100,000. Based on the existing resident draw pattern of Arbor Gardens and Eyota’s proximity to surrounding communities with senior housing, we define the draw area (Primary Market Area, or “PMA”) for senior housing in Eyota as the following cities and townships:

Dover Eyota Township Dover Township Quincy Township Eyota Viola Township

We estimate that senior housing in Eyota would attract approximately 75% of its residents from the PMA, which is approximately twelve miles square surrounding Eyota. The remaining demand (25%) would come from outside the PMA, particularly parents of adult children living in the PMA and seniors currently living just outside the PMA. A map of the PMA is below.

Primary Market Area



Demographic Analysis Tables 2 through 6 on Pages 16 through 18 show key economic and demographic variables related to the demand for senior housing in the PMA (age distribution of the senior population and household base, senior household income, senior homeownership rates, and single-family home resale trends). This demographic data is from ESRI, a national demographics firm, and is adjusted based on the 2010 Census. Home resale data is from the Southeast Minnesota Board of Realtors. The key demographic and economic findings are summarized on the following pages. Senior Population and Household Trends The total population in the PMA was 4,493 in 2010. This was up 15.7% from 2000,

exceeding the States growth of 7.8%. The population is projected to continue growing through 2015, but at a slower rate than last decade, much like most of the remainder of the nation due to the overall slowdown in the economy and housing markets.

The senior population (age 65+) in the PMA grew by 22.9% last decade, faster than the

overall population growth rate.

There were 483 seniors in the PMA in 2010, or 10.7% of the total population. This is a lower percentage than the State (12.8% over age 65), and is largely a reflection of Eyota’s draw of younger families working in Rochester.

Eyota had a population of 1,977 in 2010, or 44% of the total PMA population. Eyota also

accounted for 44% of the population over age 65 within the PMA. The Minnesota State Demographer estimates that Eyota’s population rose to 1,995 in 2011

and its household base increased to 769, up from 758 in 2010. Eyota is projected to experience sustained growth through 2025. Population projections from the 2009 City of Eyota Comprehensive Plan are as follows:

2010 2015 2020 2025 2030 2035

Population 1,977 2,066 2,176 2,269 2,347 2,415 Between 2010 and 2015, all senior age groups in the PMA will experience growth. The

population ages 65 to 74 will grow at the greatest pace as the first baby boomers began turning 65 in 2011. Older seniors were born during the depression era, a period of lower birth rates, and thus will see slower growth. Despite the slower growth of older seniors, the PMA’s 75+ population is still projected to grow by 6.9% over the next five years.



Senior Household Incomes The target market for senior housing with support services is generally senior households

age 70 and older with incomes of at least $30,000 (plus senior homeowners with incomes of at least $20,000). In 2010, an estimated 125 households age 70 and older had incomes of at least $30,000. By 2015, about 157 households age 70 and older will have incomes of at least $35,000 (increased from $30,000 to adjust for inflation). It should be noted that senior housing with personal care services will primarily serve seniors age 80+. Also, since assisted living and memory care housing are predominately need driven, seniors with low incomes are still candidates for private pay housing if they have home equity or other savings that they can utilize to pay for the costs.

Senior Household Tenure Seniors who own their homes have an additional source of income through the sale of their

home that can be utilized for alternative housing. Upon the sale of their home, the proceeds can be invested and the income used dollar for dollar as supplementary income for housing and services. As Table 5 illustrates, as of 2010, a high percentage of seniors up to age 84 in the PMA are homeowners. The sharp drop in the homeownership rate among the age 85+ population highlights how rental housing becomes much more predominant as seniors’ care needs rise and/or they no longer desire to maintain a single-family home.

Home Value Trends Seniors can use the proceeds from the sale of their home to off-set the cost of senior

housing. Like much of the rest of the nation, home values in the PMA declined from their peak during the middle of last decade. However, through August 2012 the median and average sale prices have been their highest since 2006.

The median sale price of single-family homes in the PMA in YTD 2012 is $129,000. A senior

selling their home for $129,000 could receive an investment return of approximately $300 monthly from the sale (sale price minus 7% sales agent fees, and a 3% annual return on their investment). If a senior uses the full home sale proceeds towards the cost of alternative housing, the home sale proceeds would cover the costs at an assisted living facility ($3,000 per month) for over three years. At a memory care facility ($4,500 per month), the same amount of home sale proceeds would last approximately two years. These lengths of times are typical for the length of stays in assisted living and memory care housing.



Table 2 Senior Population Growth Trends and Projections

Primary Market Area 2000 to 2015

Table 3 Senior Household Growth Trends and Projections


Age 2000 2010 2015 No. Pct.55 to 59 174 310 325 15 4.7%60 to 64 137 204 252 48 23.3%65 to 69 111 156 205 49 31.4%70 to 74 105 109 135 26 23.9%75 to 79 81 88 94 6 6.8%80 to 84 53 63 64 1 1.6%85+ 43 67 75 8 11.9%

Total 65+ 393 483 573 90 18.6%Total 75+ 177 218 233 15 6.9%

Total Population 3,881 4,493 4,602 109 2.4%

Sources: ESRI; 2010 Census; Viewpoint Consulting Group, Inc.

Change, 2010 to 2015

Age 2000 2010 2015 No. Pct.55 to 64 167 304 351 47 15.5%65 to 74 140 155 200 45 29.0%75 to 84 92 109 114 5 4.6%85+ 35 56 63 7 12.5%

Total 65+ 267 320 377 57 17.8%Total 75+ 127 165 177 12 7.3%

Total Households 1,405 1,672 1,732 60 3.6%


Change, 2010 to 2015



Table 4 Household Incomes by Age of Householder

Primary Market Area 2010 and 2015

Income 55 - 64 65-74 75-84 85+<$15,000 15 16 31 18$15,000 to $24,999 13 31 18 9$25,000 to $34,999 23 15 19 10$35,000 to $49,999 78 25 8 4$50,000 to $74,999 82 43 11 5$75,000 to $99,999 46 7 5 3$100,000 to $149,999 40 16 15 8$150,000+ 8 3 1 0Total 304 155 109 56

Median HH Income $54,904 $42,926 $27,092 $25,890Average HH Income $66,659 $51,427 $51,276 $43,986

Income 55 - 64 65-74 75-84 85+<$15,000 7 13 31 16$15,000 to $24,999 12 31 13 8$25,000 to $34,999 22 15 13 9$35,000 to $49,999 62 22 3 4$50,000 to $74,999 96 61 11 7$75,000 to $99,999 60 13 6 7$100,000 to $149,999 78 35 29 13$150,000+ 14 9 7 0Total 351 200 112 63

Median HH Income $66,612 $54,804 $33,823 $33,164Average HH Income $81,021 $64,640 $69,752 $51,427


2010 Households by Age

2015 Households by Age



Table 5 Tenure by Age of Householder

Primary Market Area 2010

Table 6 Single-Family Home Sale Trends

Eyota and Dover 2005 through August 2012

Households No. Pct. No. Pct.

Age 55 to 64 278 91.4% 26 8.6%Age 65 to 74 140 90.3% 15 9.7%Age 75 to 84 87 79.8% 22 20.2%Age 85+ 32 57.1% 24 42.9%Total 537 86.1% 87 13.9%

Total Age 65+ 259 80.9% 61 19.1%Total Age 75+ 119 72.1% 46 27.9%

Sources: 2010 Census; Viewpoint Consulting Group Inc.

Owners Renters

No. of Median AverageYear Sales Sale Price Sale Price

2005 49 $134,000 $130,6502006 40 $132,300 $127,2242007 46 $120,000 $118,3482008 34 $127,075 $120,3642009 20 $104,450 $97,8232010 31 $119,000 $102,1912011 27 $102,000 $96,057

YTD 2012* 22 $129,000 $126,983

Sources: Olmsted County Assessor; Viewpoint Consulting Group, Inc.

* Through August 24th



Senior Housing Supply Senior Housing Defined Senior housing encompasses a wide variety of product types. The properties that include the lowest level of services are adult properties, which offer virtually no support services or health care, but restrict tenancy to those age 55 and over. Adult properties can be rental or owner-occupied (attached or detached townhomes, condominiums and cooperatives). Congregate properties, better known as independent living, offer support services such as meals and housekeeping. These services are either included in the rent or offered a-la-carte so that residents can choose whether or not to pay for them. Independent living projects attract an older and frailer senior population than adult projects (generally seniors age 75 and over). The most service-intensive housing types are assisted living, memory care, and enhanced care suites as they offer the highest level of services short of a nursing home. Some of the typical services they provide are meals, housekeeping, linen changes, personal laundry, 24-hour emergency response and a wide range of personal-care and therapeutic services. The meals and services are built into the monthly fee, charged through a tiered service package or offered a-la-carte. Currently, Arbor Gardens provides independent and assisted living housing. This report inventories the competitive market for independent, assisted living, and memory care housing. Calculations of skilled nursing demand are also provided. PMA Supply of Senior Housing Properties The only senior housing property in the PMA is Arbor Gardens. Other options for seniors living in the PMA are properties in neighboring communities. These neighboring properties are not highly competitive since seniors generally prefer to live in their hometown if possible (unless they move near their adult children living elsewhere). Table 7 shows the inventory of senior housing properties that offer support services in and near the PMA; categorized by service level. Some properties contain multiple service levels. For each property, Table 7 provides information on location, year built, distance from Eyota, and total number of units. The following are key highlights about the competitive supply. In addition to Arbor Gardens, which is the only property in the PMA, seven comparable

properties near the PMA were surveyed. These include properties in Chatfield, Plainview, Rochester, St. Charles, and Stewartville. These properties combined for a total of 616 independent units, 201 assisted living units, and 249 memory care units.

Arbor Gardens supplies the PMA with 12 independent units and 22 assisted living units.

There are no memory care units in the PMA. It is also noteworthy that there are no skilled nursing beds in the PMA. Senior properties in Plainview, Chatfield, and Stewartville are attached to skilled care centers.



Table 7 Supply of Senior Housing with Services

Primary Market Area, June 2012

MilesYear In the from Number

Property Name Location Built PMA Eyota of Units

Independent LivingArbor Gardens Eyota 2003 Yes -- 12Subtotal 12

Shorewood* Rochester 1999 No 15 157The Homestead* Rochester 2005 No 18 77Chosen Valley Chatfield 1990 No 11 15Green Prairie Place Plainview 1993 No 16 26Root River Estates Stewartville 1998 No 19 29

Assisted LivingArbor Gardens Eyota 2003 Yes -- 22Subtotal 22

Shorewood Commons* Rochester 1999 No 15 61The Homestead* Rochester 2005 No 18 45Chosen Valley Chatfield 2005 No 11 19Green Prairie Place Plainview 1993 No 16 12St. Charles Assisted Living St. Charles 2002 No 9 42

Memory CareNone -- -- -- -- 0Subtotal 0

Shorewood Commons* Rochester 1998 No 15 13The Homestead* Rochester 2005 No 18 16Sunrise* Rochester 1999- No 20 220

Source: Viewpoint Consulting Group, Inc.

* Rochester has several senior housing properties. Shorewood, The Homstead, and Sunrise were selected as comparables that represent the types of offerings in Rochester. These properties are not highly competitive with Arbor Gardens, however.



The three properties surveyed in Rochester are a sample of what is available in Rochester.

In total, Rochester contains nine market rate senior housing properties that combine for 694 independent units, 263 assisted living units, and 281 memory care units. Rochester has a large supply of memory care units because of the presence of Sunrise of Rochester, which has 220 memory care units in nine buildings.

Rochester is a much larger market and the nine properties there have an average size of

137 units. Arbor Gardens is much more comparable to properties in other smaller communities. The average size of the properties in Chatfield, Eyota, Plainview, St. Charles, and Stewartville is 35 units. The service-level mix at these smaller properties is approximately half independent and half assisted living. None of the properties contain memory care housing. However, Chosen Valley, Green Prairie Place, and Root River Estates are all attached to skilled nursing facilities.

The newest property and arguably the market leader in Rochester is The Homestead, which

opened in 2005 and contains 138 units (77 independent, 45 assisted living, and 16 memory care). Shorewood was built in 1999 and contains 231 units (157 independent, 61 assisted living, and 13 memory care units). Shorewood is 15 miles from Eyota, The Homestead is 18 miles away, and Sunrise is 20 miles away.

Summary of Occupancy and Pricing Table 8 provides occupancy and pricing information on the comparable senior housing properties listed in Table 7. While they are not directly competitive with Arbor Gardens, they are the properties that would most likely be the second or third choices of PMA seniors. Information was collected in August 2012 and includes occupancy, monthly rents, unit types and unit sizes. The following points summarize our key findings. The senior housing market in the Eyota area is performing very well as our survey revealed

few available units in any of the service levels. The Rochester market is particularly strong – both The Homestead and Shorewood are fully occupied with waiting lists. The Homestead has a waiting list of 18 to 34 months for independent units, six months for assisted living units, and three months for memory care units. Sunrise has an occupancy rate above 95%, which is above stabilized occupancy rate for memory care housing which typically has higher turnover of residents.

Base monthly rents vary greatly at the comparable properties, and often depend on the

number of meals and other services included in the rent. At Arbor Gardens, base monthly rents for independent units are $928 for one-bedroom units and $1,097 for two-bedroom units. This monthly rent does not include meals (optional) or housekeeping. Chosen Valley in Chatfield has lower monthly rents even though they include daily noon meals. However, the base monthly fees at Green Prairie Place and Root River Estates are higher for units that are smaller in size.



The Homestead is the newest comparable property in Rochester and is very desirable because of its appearance and abundance of amenities. Base monthly rents for independent units range from $1,395 to $1,660 for one-bedroom units to $1,690 to $2,615 for two-bedroom units. Residents can pay a 100% refundable entrance fee to lower the monthly rents. After The Homestead, Shorewood Place is the newest independent property in Rochester. Monthly rents at Shorewood Place range from $1,400 to $1,735 for one-bed room units and $1,822 to $1,914 for two-bedroom units. Like Arbor Gardens, the monthly rent does not include meals or housekeeping (residents are required to purchase eight meals per month for $88).

The range in the beginning base monthly fees at the comparable assisted living properties is

even wider than for independent living. The Homestead and Shorewood Commons offer comparable units and the base monthly fee at these two properties averages $2,840 for one-bedroom units and $3,720 for two-bedroom units. The actual fee paid by residents would be higher, depending on their level of care. Green Prairie Place has base monthly rents that are even higher – at $4,053 for studio units and $4,514 for one-bedroom units. These rents are for “Class I” residents, the lowest level of care needed by residents. Arbor Gardens, Chosen Valley, and St. Charles Assisted Living have rents that are more similar to each other, with base rents for studio units that average approximately $2,115.

None of the comparable properties in smaller towns feature memory care housing; seniors

with a memory impairment seeking specialized housing must find it in Rochester or elsewhere. Of the three properties surveyed in Rochester, only The Homestead and Shorewood Commons have one-bedroom memory care units; Sunrise only contains efficiencies and suites. The base monthly fee at The Homestead begins at $5,130 for efficiency units and $5,600 for one-bedroom units. Shorewood Commons did not offer information on the cost of services, but the cost of services combined with the base rent would likely be similar to The Homestead. Based on the review of pricing, most residents would pay approximately $5,500 or more to live in memory care housing in Rochester. Sunrise is by far the largest property (220 units) and its base monthly fees for private suites ranges from $5,776 for 340 square foot suites to $7,020 for 540 square foot suites.



Table 8 Unit Mix, Sizes and Rents

Eyota Comparable Senior Housing Properties August 2012

(Continued on next page)

Occup.Property Name Rate Type Pricing Notes

Arbor Gardens 100% 2 - 1BR 709 - 709 $928 - $92810 - 2BR 1,032 - 1,032 $1,097 - $1,097

The Homestead 100% 17 - 1BR 828 - 870 $1,395 - $1,6607 - 1BR/D 830 - 901 $1,355 - $1,470

32 - 2BR 1,075 - 1,625 $1,690 - $2,61521 - 2BR/D 1,180 - 2,052 $2,225 - $3,875

Shorewood Place 100% 54 - 1BR 662 - 760 $1,400 - $1,73541 - 1BR/D 848 - 989 $1,594 - $1,80859 - 2BR 1,021 - 1,074 $1,822 - $1,914

3 - 3BR 1,434 - 1,434 $2,430 - $2,430

Chosen Valley 100% 13 - 1BR 650 - 650 $840 - $8402 - 2BR 850 - 850 $960 - $960

Green Prairie 92% 7 - 1BR 520 - 520 $1,399 - $1,399 Place 11 - 1BR Del. 620 - 620 $1,644 - $1,644

8 - 2BR 850 - 850 $1,784 - $1,784

Root River Estates 97% 23 - 1BR 500 - 500 $1,108 - $1,1086 - 2BR 736 - 736 $1,417 - $1,417

Includes all utilities except phone, cable, and air conditioning, continental breakfast, noon meal, weekly light housekeeping, scheduled transportation, emergency call, and activities. Home health care and rehabilitative services are available for an extra fee.

---- Unit Mix & Sizes ---- BaseSizes Monthly Fee

Congregate Independent

Includes all utilities, continental breakfast, emergency call, scheduled transportation, activities, and wellness programs. Meals and housekeeping are available for a fee. Residents can pay 100% refundable entrance fees of $31,300 to $88,400 to reduce the monthly rent by approximately 15%.

Includes all utilities except electricity and phone, activities, and scheduled transportation. Noon meal is optional. Residents can receive assisted living services in their units.

Monthly fee includes activities, scheduled transportation, health/wellness programs, and emergency call system. Residents must purchase eight meals/month for $88.

Includes all utilities except phone and cable, emergency response, I'm Okay checks, and blood pressure/weight screenings. Assisted living packages are available ($2,404 - $4,092/month depending on care needs).

Includes daily noon meal, emergency pull cord, and all utilities except electricity, phone and cable. Activities available at attached care center. Residents are given first priority on the waiting list for the Care Center.



Table 8 (Continued) Unit Mix, Sizes and Rents


(Continued on next page)


Arbor Gardens 91% 6 - Suite 308 - 308 $2,053 - $2,0538 - Stu 476 - 515 $2,279 - $2,2798 - 1BR 546 - 546 $2,504 - $2,504

The Homestead 100% 36 - 1BR 639 - 803 $2,962 - $3,6379 - 2BR 964 - 1,082 $4,317 - $4,797

Shorewood Commons 100% 18 - EFF 450 - 450 $2,442 - $2,44232 - 1BR 528 - 668 $2,783 - $2,98711 - 2BR 681 - 882 $3,051 - $3,527

Chosen Valley 95% n.a. - Stu 397 - 397 $2,045 - $2,045n.a. - 1BR 532 - 582 $2,265 - $2,365

Green Prairie n.a. 10 - Stu 420 - 420 $4,053 - $4,053 Place n.a. - 1BR 520 - 520 $4,514 - $4,514

n.a. - 2BR 850 - 850 $5,016 - $5,016

St. Charles Assisted 85% 42 - Stu $1,920 - $2,350 Living

---- Unit Mix & Sizes ---- Base

Three assisted living packages available base on a point system of care needs. Base rates are Class I. Monthly rates for Class II residents are $4,484/stu, $5,016/1BR, $5,411/2BR. Monthly rates for Class III residents are $5,016/Stu, $5,411/1BR, and $5,860/2BR.

Base rent does not include personal care services needed by each resident. Base rent includes all utilities, 3 meals/day, weekly housekeeping, emergency pendent, 24 hr on-site staff, activities, wellness programs, and scheduled transportation.

Includes all utilities except phone, 3 meals/day, weekly housekeeping & laundry, 24 hour staff, and activities. A-la-carte services or five levels of services: A = $515/mo., B = $625/mo., C = $735/mo., D = $845/mol, E = hourly charge.

Sizes Monthly Fee

Assisted Living

Includes all utilities, 2 meals/day, weekly housekeeping, activities, scheduled transportation, and base personal care package of $307/mo. Eleven care packages based on resident care needs: $307/mo to $3,295/mo.

Includes all utilities, 3 meals/day, weekly housekeeping & linen service, activities, and daily wellness checks, and 24 hour staff. Additional personal care services are available.

Includes all utilities, 3 meals/day, housekeeping and laundry, emergency call, activities, and scheduled transportation. Personal care services are based on resident needs.

n.a.



Table 8 (Continued) Unit Mix, Sizes and Rents



Shorewood Commons 100% 4 - EFF 450 - 450 $3,026 - $3,0267 - 1BR 528 - 568 $3,378 - $3,5902 - 2BR 681 - 882 $3,658 - $4,153

Sunrise 95%+ 340 - 340 $4,742 - $4,742200 - 340 $5,776 - $5,776540 - 540 $7,020 - $7,020

The Homestead 100% 5 - EFF 412 - 560 $5,290 - $5,46511 - 1BR 639 - 680 $5,755 - $6,005


Four levels of support care - base fee includes Level 1 ($2,545/mo.). Level 1 includes 3 meals/day, laundry, housekeeping, programs, personal care services, medication monitoring, set-up, and administration, and incontinence management. Level 4 provides for more personal care services and is $1,040/month more than level 1.

Base rent does not include personal care services needed by each resident. Base rent includes all utilities, 3 meals/day, Reflections programming.

---- Unit Types and Sizes ---- BaseSizes Monthly Fee**

Memory Care

Comp. Suite Includes 3 meals/day, weekly housekeeping, activities, 24 hour staff, monthly wellness visits, programs. Four care packages available based on resident care needs: $1,580/mo. to $3,587/mo.

Private SuiteDeluxe Suite



Summary of Property Amenities Table 9 provides information on unit features and common area amenities at the comparable senior housing properties listed in Table 7. The following points summarize our key findings. For the size of Arbor Gardens, with only 34 units, it has an abundance of common area

spaces. It features two dining rooms, a community room, activity/craft room, exercise room, beauty/barber shop, two lounges at the end of hallways, and a community garden. In addition, independent units feature balconies and in-unit washer/dryers. The only other property with these unit features is The Homestead in Rochester. Overall, we find that Arbor Gardens offers units that are superior to those in other senior properties in nearby smaller communities.

Table 9 Unit Features and Common Area Amenities

Eyota Comparable Senior Housing Properties, August 2012

-------- Unit & Building Features -------

Balco

nyPr

iv. B

athr

oom

Kitc

hene

tteFu

ll Kitc

hen

Walk

-in C

lose

tAc

tivity

Roo

mBe

auty

/bar

ber

Com

mun

ity R

m.

Dini

ng R

oom

Fitne

ss R

oom

Laun

dry R

oom

Libra

ryM

ini-s

tore

Terra

ceGu

est S

uite

s

Other

Arbor Gardens Y Y N Y Y Y Y Y Y Y Y Y N N N In-unit W/DThe Homestead Y Y N Y Y Y Y Y Y Y Y Y Y Y Y UG parkingShorewood Place N Y N Y S Y Y Y Y Y Y Y Y Y n.a.Chosen Valley N Y N Y N Y Y Y Y n.a. Y n.a. n.a. Y n.a.Green Prairie Place N Y N Y Y Y Y Y Y N N Y N N N BilliardRoot River Estates N Y N Y N N N Y Y Y Y N N Y N Chapel

Arbor Gardens N Y S N N Y Y Y Y Y Y Y N N N BilliardThe Homestead N Y N Y Y Y Y Y Y Y Y Y Y Y Y UG parkingShorewood Commons N Y N Y S Y Y Y Y Y Y Y Y Y n.a. UG parkingChosen Valley N Y Y N N N N Y Y Y Y N N Y NGreen Prairie Place N Y Y N N Y N Y Y N Y Y N N NSt. Charles AL N Y Y N N Y N Y Y Y Y N N Y N Whirlpool therapy

Shorewood Commons N Y N Y S Y Y Y Y Y Y Y Y Y n.a. CourtyardSunrise of Rochester N Y N N N Y n.a. Y Y n.a. N n.a. N N N CourtyardThe Homestead N Y N Y N Y Y Y Y Y Y Y Y Y Y Courtyard

* Memory care housing is located in secured wings of each property.


Memory Care*

Independent Living

Assisted Living



Prospective residents touring Arbor Gardens would find the number of common areas to be more extensive than properties in nearby smaller communities. What Arbor Gardens does not have that many other properties have is an attached skilled care center. Green Prairie Place, Chosen Valley, and Root River Estates are all attached to care centers. Thus, residents whose care needs increase to the point they can no longer be housed in assisted living can remain on the campus by moving to the care center.

While Arbor Gardens has common areas similar to the larger facilities in Rochester, the

spaces are smaller. For example, the exercise room is not large enough to hold groups and the dining and community rooms are not large enough to host all residents at the same time. The Homestead and Shorewood also have underground parking, versus Arbor Gardens’ 13 detached garage stalls.

Comparable Senior Housing Locations

• Arbor Gardens

• Sunrise • The Homestead

• The Shores

• St. Charles AL

• Root River Estates

• Chosen Valley

• Green Prairie Place



Photographs of Comparable Senior Housing Properties

Arbor Gardens Chosen Valley Assisted Living

Green Prairie Place Root River Estates

St. Charles Assisted Living The Homestead of Rochester



Photographs of Comparable Senior Housing Properties (Continued)

The Shores Sunrise of Rochester

Planned and Proposed Senior Housing Developments Planning staff at the City of Eyota were interviewed regarding the development pipeline for senior housing. No developments were identified as being proposed, in the planning stages, or under construction.



Senior Housing Demand Calculations Tables 10 through 13 provide initial demand calculations for the number of market rate independent living, assisted living, enhanced care, and memory care units that can be supported in the PMA in 2010 and 2015, along with an estimate on the number of additional units that can be supported at an expanded Arbor Gardens. Independent Senior Living As shown in Table 10, unmet demand for additional independent living units at Arbor Gardens is calculated for 10 units by 2015. The following points summarize the demand methodology. Based on the existing rents at Arbor Gardens, the target market for independent living housing is senior households age 75+ with incomes of $25,000 or more plus households with incomes between $15,000 and $25,000 who would qualify with the proceeds from a home sale. There would also be some very limited demand from seniors under age 75. These seniors are the “age/income-qualified base.” A capture rate – or “penetration rate” – is applied to the income-qualified base of younger and older seniors. The penetration rates are based on the existing penetration rate in the PMA and the typical penetration rates found in other rural markets. Applying the penetration rates to the age/income-qualified base results in demand for 18 independent units in 2010, growing to 19 units in 2015. About one-quarter of the residents at Arbor Gardens come from outside the PMA. Including demand from outside the PMA increases total demand to 24 units in 2010 and 26 units in 2015. This demand from outside the PMA will consist primarily of parents of adult children living in the local area and seniors living just outside the PMA. We subtract the number of existing competitive units (minus a 5% vacancy factor) from the total demand resulting in excess demand of 13 units in the PMA in 2010. No new developments were identified that would increase the competitive supply by 2015. Subtracting existing units from 2015 total demand results in excess demand potential in the PMA for 15 units in 2015. No single development or site can capture all of the demand in a PMA. Based on the geographic size of the PMA, the local orientation to Eyota, the lack of options other than Arbor Gardens in the PMA, and knowing that some local seniors will move to be near their adult children living elsewhere, we conservatively estimate that new units at Arbor Gardens could capture two-thirds of the excess demand potential. This results in excess demand for 10 independent living units in 2015.



Table 10 Independent Senior Housing Demand Calculation


Assisted Living As shown in Table 11, unmet assisted living demand at Arbor Gardens has been calculated for four units in 2015. This demand is for market rate (or “private pay”) units and does not include additional demand from lower-income seniors who could utilize the Elderly Waiver program to pay for services. The following points summarize our demand methodology. The primary market for assisted living housing in the PMA is seniors ages 75 and over needing assistance with Activities of Daily Living (ADLs). Based on data from the 1999 Health and Aging Chartbook that was conducted by the Centers for Disease Control and Prevention and the National Center for Health Statistics, the percentage of seniors unable to perform, or having difficulty with, ADLs ranges from 25.5% of seniors ages 75 to 79, 33.6% of seniors ages 80 to 84

2010 2015

A 65 to 74 Households in the PMA 155 200B Percent income-qualified 87% 87%C Potential penetration rate of independent living housing 0.5% 0.5%D Income-qualified 65-74 households in the PMA (A x B x C) 1 1

E 75+ Households in the PMA 165 177F Percent income-qualified 66% 66%G Potential penetration rate of independent living housing 16% 16%H Income-qualified 75+ households in the PMA (E x F x G) 17 19

I Total demand for independent housing from the PMA (D + H) 18 19

J Estimated percent of demand from outside the PMA 25% 25%K Total demand for independent living units in the PMA (I / (1- J)) 24 26

L Competitive independent living supply* 11 11M Excess independent living demand (K - L) 13 15

N Estimated percent of demand capturable by subject Site 67% 67%O Independent living demand on the subject Site (M x N) 8 10

* Competitive units minus a 5% vacancy factorSource: Viewpoint Consulting Group, Inc.



and 51.6% of seniors ages 85 and over. Applying these percentages to the senior population in the PMA results in the total age-qualified population needing assistance with ADLs. To afford market rents, these seniors will generally need incomes of at least $35,000 or have assets available through the proceeds received from the sale of their home. Overall, we calculate that 45% of the senior population in the PMA in 2010 was income-qualified for market rate assisted living housing. Assisted living housing in the PMA is currently achieving a 30% penetration rate of the age/income-qualified seniors needing assistance – which is similar to many markets across Minnesota. The remaining 70% of age/income-qualified seniors needing assistance are able to remain in their homes by receiving home health care services or to live in other less service-intensive senior housing. This percentage also takes into account that many seniors are not living alone and will be able to remain in their existing homes with assistance from their spouse/partner. We estimate that seniors who currently reside outside the PMA will generate 25% of the demand for assisted living senior housing – increasing total demand in the PMA to 14 units in 2010 and 17 units in 2015. The next step in calculating demand is to subtract competitive supply from total PMA demand. A total of 22 competitive units were identified in Table 6, all of them at Arbor Gardens. However, half of the assisted living residents at Arbor Gardens are lower-income seniors utilizing the Elderly Waiver program to pay for services. The seniors occupying Elderly Waiver units would not income-qualify for market rate housing and they are excluded from this demand calculation. Subtracting the competitive market rate units (minus a 5% vacancy factor) from total demand results in the excess demand of four assisted living units in the PMA in 2010. No pending developments were identified that would increase the competitive supply. Excess demand is calculated for six units in the PMA in 2015. Again, no single site can capture all of the demand in a PMA. We estimate that an expanded Arbor Gardens could capture 67% of the excess demand potential in the PMA. This results in excess demand for four additional market rate units in 2015.



Table 11 Market Rate Assisted Living Demand Calculation


2010 2015

A 75 to 79 Population in the PMA 88 94B Percent needing ADL assistance 25.5% 25.5%C Estimated population needing ADL assistance (A x B) 22 24

D 80 to 84 Population in the PMA 63 64E Percent needing ADL assistance 33.6% 33.6%F Estimated population needing ADL assistance (D x E) 21 22

G 85+ Population in the PMA 67 75H Percent needing ADL assistance 51.6% 51.6%I Estimated population needing ADL assistance (G x H) 35 39

J Total 75+ population needing ADL assistance (C + F + I) 78 84

K Percent of PMA population income-qualified 45.2% 49.6%L Total income-qualified population needing ADL assistance (J x K) 35 42

M Potential penetration rate of assisted living housing 30% 30%N Total demand for assisted living units (L x M) 11 13

O Estimated percent of demand from outside the PMA 25% 25%P Total demand for assisted living units in the PMA (N / (1-O)) 14 17

Q Competitive assisted living supply* 10 10R Excess assisted living demand (P - Q) 4 6

S Estimated percent of demand capturable by subject Site 67% 67%T Assisted living demand on the subject Site (R x S) 2 4




Enhanced Care Suites Table 12 calculates unmet enhanced care suite demand at Arbor Gardens for two units in 2015. Like the other senior housing types in this assessment, the demand calculated is for market rate units and does not include additional demand from lower-income seniors who could utilize the Elderly Waiver program to pay for services. The following points summarize our demand methodology. Enhanced care suites are assisted living units that serve seniors with much greater frailty than traditional assisted living (also known as “high acuity assisted living units”). Typically, enhanced care suites serve seniors needing assistance with more than three ADLs, whereas the average resident in traditional assisted living needs assistance with 2.25 ADLs, according to the National Center for Assisted Living. The care provided in enhanced care suites is often similar to what seniors receive in skilled nursing facilities, such as assistance with eating, toileting and two person transfers. Enhanced care suites overlap with both assisted living and skilled nursing care, and as such, Table 10 calculates the potential enhanced care demand coming from both markets. Based on the number of seniors ages 65 to 84 plus seniors aged 85+ that are utilizing nursing homes, (data obtained from the utilization rate data released by the Minnesota Department of Health Services), we calculate demand within the PMA for approximately 23 skilled nursing beds in 2010, increasing to 26 beds by 2015. However, the statewide average for private pay residents in skilled nursing facilities is 26%, with the remaining residents being low-income seniors receiving Medical Assistance. Applying 26% to the total demand results in demand for about six private pay skilled care beds in 2010 increasing to seven beds by 2015. With market overlap, we estimate that one-quarter of the skilled nursing care private pay demand could be captured by enhanced care suites. Also, an estimated 25% of the demand for enhanced care suites would come from seniors residing outside of the PMA. This additional demand brings the total demand within the PMA to two units in 2010 and 2015. The demand for assisted living units was calculated in Table 11, and total demand in the PMA was found for 14 units in 2010 and 17 units by 2015. While most of this demand is for traditional units, we estimate that 10% of the demand is from high acuity seniors who would be candidates for enhanced care suites. However, we estimate that half of these high acuity seniors can stay in existing assisted living units and receive enhanced assisted living service packages. Specialized enhanced care units could capture the remaining half. Multiplying total assisted living demand by 10% to account for market overlap and by a 50% capture rate results in demand for one enhanced care suite in 2010 and 2015. Combined, demand from the overlap of skilled nursing care and assisted living results in total demand within the PMA for three enhanced care suites in 2010 and 2015. There are no properties that supply the PMA with enhanced care units. Thus, excess demand potential in the PMA remains for three enhanced care suites through 2015.



Table 12 Enhanced Care Suite Demand Calculation


No single development or site can capture all of the demand in a PMA. We estimate that Arbor Gardens can capture 67% of the excess demand potential, or two market rate enhanced care suites in 2010 and 2015.

2010 2015

A 65 to 84 Population in the PMA 416 498B Percent needing skilled nursing care 2.6% 2.6%C Estimated bed need (A x B) 11 13

D 85+ Population in the PMA 67 75E Percent needing skilled nursing care 17.6% 17.6%F Estimated bed need (D x E) 12 13

G Total skilled nursing care demand (C + F) 23 26

H Estimated percent private pay 26.0% 26.0%I Number of private pay residents (G x H) 6 7

J Estimated percent capturable by enhanced care suites 25% 25%K Potential demand from overlap with skilled care (G x J) 1 2

L Estimated percent of demand from outside the PMA 25% 25%M Total demand from overlap with skilled nursing care (K / (1-L)) 2 2

N Total calculated assisted living demand 14 17O Estimated percent from high acuity seniors 10% 10%P Estimated percent capturable by enhanced care suites 50% 50%Q Total demand from overlap with assisted living (N x O x P) 1 1

R Total enhanced care suite demand (M + Q) 3 3S Competitive enhanced care suite supply 0 0T Excess enhanced care suite demand (R - S) 3 3

U Estimated percent of demand capturable by subject Site 67% 67%V Enhanced care suite demand on the subject Site (T x U) 2 2




Memory Care Table 13 calculates unmet memory care demand at Arbor Gardens for seven units in 2015. Like assisted living, this demand is for market rate units and does not include additional demand from lower-income seniors who could utilize the Elderly Waiver program to pay for services. The following points summarize our demand methodology. Demand is calculated by multiplying the PMA age 65+ population in 2010 and 2015 by the incidence rate of Alzheimer’s/dementia (based on data from the Alzheimer’s Association: Alzheimer’s Disease Facts & Figures – 2007). An estimated 62 seniors living in the PMA as of 2010 had memory impairment. Due to the high cost of memory care housing, the income needed to afford market rate memory care is much higher than independent and assisted living housing. The income-qualified base for memory care housing is defined as 85% of households with incomes of at least $55,000 plus 25% of homeowners with incomes below $55,000. The majority of seniors with dementia are able to live independently with the assistance of a caregiver, while those in the latter stages of dementia require intensive medical care that is only available in skilled nursing facilities. Some also choose other types of housing like adult foster care. An estimated 30% of age/income-qualified people with memory impairment constitute the market for memory care housing. An estimated 25% of the demand for memory care housing would come from seniors residing outside of the PMA. This additional demand brings the total demand within the PMA to nine units in 2010 growing to eleven units in 2015. The competitive supply is then subtracted from the total demand to reveal unmet demand. No existing or pending competitive units were identified serving the PMA. Thus, total unmet demand remains for nine units in 2010 and eleven units in 2015. No single site can capture all of the demand in a PMA. We estimate that Arbor Gardens can capture 67% of the excess demand potential in the PMA. This results in excess demand at Arbor Gardens for seven market rate units in 2015.



Table 13 Market Rate Memory Care Housing Demand Calculation


2010 2015

A 65 to 75 Population 265 340B Dementia incidence rate 2.0% 2.0%C Estimated population with Dementia (A x B) 5 7

D 75 to 84 Population 151 158E Dementia incidence rate 19.0% 19.0%F Estimated population with Dementia (D x E) 29 30

G 85+ Population 67 75H Dementia incidence rate 42.0% 42.0%I Estimated population with Dementia (G x H) 28 32

J Total population with Dementia (C + F + I) 62 68

K Percent of population income-qualified 34% 39%L Total income-qualified population needing assistance (J x K) 21 26

M Potential penetration rate of specialized memory care housing 30% 30%N Total demand for memory care units (L x M) 6 8

O Estimated percent of demand from outside the PMA 25% 25%P Total demand for memory care units in the PMA (N / (1- O)) 9 11

Q Competitive memory care supply 0 0R Excess memory care demand (P - Q) 9 11

S Percent of demand capturable by subject Site 67% 67%T Memory care demand on the subject Site (R x S) 6 7




Summary of Demand The demand calculations reveal that additional units will be needed to adequately meet the future senior housing needs of Eyota’s residents. The initial demand calculations for additional market rate units that can be supported at Arbor Gardens are summarized in Table 14. Total unmet demand in the PMA for the four service-levels is projected for 32 units in 2013. The estimated portion of demand that can be captured by Arbor Gardens in 2013 is two-thirds, which equates to nine independent units, four assisted living units, two enhanced care suites, and seven memory care units, for a total of over 20 units.

Table 14 Summary of Demand Calculations


Total Unmet DemandPMA Competitive PMA at Arbor

Demand Supply Demand Gardens

Independent Living 24 11 13 8Assisted Living 14 10 4 2Enhanced Care 3 0 3 2Memory Care 9 0 9 6Total 49 22 28 18




2010

2015

2013



While Table 14 summarizes demand for market rate senior housing types, we note that demand was also calculated for 26 skilled nursing beds in the Eyota PMA through 2015 in Table 12. Of the calculated skilled nursing demand, approximately six would be private pay residents and 19 would be Medicaid residents. Moving to skilled nursing care is the primary reason for turnover of residents at Arbor Gardens. By offering enhanced care at Arbor Gardens, some of the residents who currently must move to a skilled nursing facility when their care needs grow could be retained through the end of their life. The senior population and household income projections in the demographic section of this assessment are available to 2015 – hence the senior housing demand calculations are made for 2015. Because the current population of seniors over age 70 were born during the depression era, a period of lower birth rates, modest growth of the age 75+ population in the PMA is expected through 2020. Thus, we do not anticipate demand for additional units in Eyota to increase substantially from 2015 to 2020. Units added as recommended below should meet Eyota’s needs through the remainder of the decade. The first baby boomers will not be entering their late-70s until close to 2025, or not for another 13 years. It is then that demand for additional units in Eyota will begin to spike beyond the level calculated in this assessment. Projecting the senior population in Table 2 forward, the age 75+ population in the PMA is estimated to grow from 218 seniors in 2010 to 265 seniors in 2020 and then spike to 390 seniors in 2025. Recommendations We recommend an expansion of Arbor Gardens to meet the long-term needs of Eyota’s senior population (until about 2025). The recommended expansion is summarized in Table 15 and includes 21 to 27 new units and the removal of the six existing assisted living suites (to make space for expanded common areas), for a total expansion of 15 to 21 units. The recommendations are based on the historical performance of Arbor Gardens, the excess demand calculated in Tables 10 through 13, interviews with staff at Arbor Gardens, and our knowledge of senior housing design trends. After 2025 there will likely be a need for a similarly sized expansion as the first baby boomers reach their late-70s and the senior population begins to swell. As shown in Table 15, we recommend eight to ten additional independent units, six to eight assisted living units, and seven to nine memory care units. There is not enough demand to support designated enhanced care suites. However, enhanced assisted living care (“enhanced care”) should be offered in any assisted living unit as this service offering would reduce some resident move-outs to skilled nursing care. Arbor Gardens has generously sized units and we recommended similarly sized units in the expansion, with balconies and in-unit washer/dryers in the independent units. The recommended rents are similar, but slightly higher than existing units. While there is potential to go higher, we caution against increasing rents too far past existing rents in order to reduce push-back among potential residents.



The recommended expansion of Arbor Gardens would include two new service offerings in addition to the existing independent and assisted living housing – memory care housing and enhanced assisted living care. The following are specific recommendations for secured memory care housing and enhanced care. Recommended Memory Care Housing All of the memory care units should be studio units with 400 to 450 square feet and include private bathrooms and kitchenettes. The base monthly fees should range from $5,500 to $5,700 and include all utilities (except telephone), three meals per day plus snacks, daily housekeeping, medication management, periodic wellness checks, personal laundry, linen services, passive and stimulating programming, and basic personal/hygiene care. These monthly fees are in-line with fees at facilities in Rochester, or the nearest facilities to Eyota that offer specialized memory care housing. We recommend seven to nine units, or slightly more than the market rate demand to accommodate a few Elderly Waiver residents. A specialized memory care area may not be feasible with any fewer than seven units. We recommend that the memory care units be located at the end of the first floor of a new wing. Common design features unique to memory care that should also be included are a separate kitchen and dining area, activity areas for both passive and active programming, and a secured landscaped outdoor plaza area for wandering and exercise. This design is a recent trend where properties are creating smaller “pods” where a smaller number of residents share a common home-like living area. Recommended Enhanced Care A trend among newer assisted living properties is to offer enhanced care suites. The target market for enhanced care is seniors who need more care than traditional assisted living but prefer an alternative to a skilled nursing setting. Eyota does not have a skilled nursing facility, and moving to a skilled care facility is the primary reason for resident turnover. By offering enhanced care at Arbor Gardens, some of the residents who currently must move to a skilled nursing facility when their care needs grow could be retained through the end of their life. There is not enough demand in Eyota to support designated care suites at Arbor Gardens, but at any one time we project that two to three residents in assisted living units would need enhanced care to avoid or delay a move to a skilled nursing setting. We recommend offering an enhanced care package to residents in any assisted living unit. The monthly fee for the enhanced care package should be all-inclusive (i.e., all utilities, three meals/day, activities, housekeeping and laundry, mediation management and administration, assistance with dressing, grooming, bathing, and personal assistance, assistance with eating at meal times, assistance to help manage and care for incontinence, assistance with transfers from



bed, toilet and wheelchair, personal observation every hour, escorts to and from daily activities, and 24-hour emergency response).

Table 15 Recommended Arbor Gardens Expansion

September 2012

Recommended location and features There are options when choosing which direction to expand Arbor Gardens – to the west, north, or east. When looking at the existing layout of Arbor Gardens, the easiest connection would be from the one-story wing on the north that contains the six small assisted living suits. A connection here could go to the east or north. We recommend expanding north onto commercial parcels that front Sandstone Drive. Expanding to the east would be somewhat intrusive into a neighborhood as it would require the acquisition of single-family lots on Whetstone Place, with homes on either side.

Pricing Notes

Independent*3 - 4 1BR 700 - 725 $975 - $1,0505 - 6 2BR 1,000 - 1,050 $1,200 - $1,300

Assisted Living**6 - 8 1BR 550 - 575 $2,600 - $2,700

Enhanced Care Suites$5,500 - $5,700

Memory Care7 - 9 Stu 400 - 450 $5,100 - $5,300


Note: Base monthly rents are quoted in 2012 dollars and can be trended upward by 2.5% annually until opening.

Unit Mix Unit Sizes Base Monthly Rent

Rent should include all utilities, meals, housekeeping & linen, specialized programming, health monitoring, and basic personal care services.

Enhanced care should be available in any unit. The fee should be all-inclusive.

** These assisted living units would replace the six suites we recommend removing to accommodate a new community/dining room area.

Rent should include all utilities, 3 meals/day, weekly housekeeping and laundry, emergency call, activities, 24 hour staffing, and scheduled transportation.

Rents should include utilities (except electricity and phone), activities, scheduled transportation, and 24 hour staff. Meals, housekeeping, and other services should be optional for a fee.

* Residents in independent units should be allowed to purchase assisted living services.



In addition to new units, we recommend a larger kitchen and dining room. An ideal place to create this space is in the existing portion of the building that contains the six assisted living suites and activity/craft area. This existing area, combined with the space in the existing kitchen and dining room, would be the center of three residential wings and would contain ample space for an appropriately sized kitchen, kitchen storage, and a dining room large enough to accommodate all residents plus more at Arbor Gardens. We recommend renovating this space and connecting a wing to the north that would include assisted living and memory care on the first floor and independent living on the second floor.

Recommended Expansion Location

Overall, Arbor Gardens has plenty of common spaces available to residents in comparison to other senior housing properties of its size. Besides a larger kitchen and dining room, the spaces that Arbor Gardens needs to better serve residents over the long-term would be a therapy room/clinic room, tub room, larger laundry room with storage and area for folding clothes, staff offices and break room. These spaces could be added on the first floor of an expansion wing near the center of the building. It is also important to add adequate storage for building maintenance as well as kitchen storage.

Recommended Expansion



While there is an abundance of indoor common spaces at Arbor Gardens, there are not many outdoor spaces to enjoy. We recommend adding walking paths around the building and an outdoor courtyard. This is an especially appealing feature for independent residents who still have good mobility and like to take walks. Depending on the width of the recommended wing, it may be necessary to remove one or two of the eastern most garage stalls, reducing the total to 11 stalls. If the property directly north of the garage stalls is acquired, additional stalls could be added on the back side of the existing row of garages. Vehicles could have access to both rows of garages from the existing entrance off Canyon Drive and a new entrance off Sandstone Drive. If possible, we recommend attaching the garages to Arbor Gardens so that residents can access their vehicles without having to go outside. Based on current use of the garages, we do not anticipate needing more than 18 total garage stalls. Senior Housing Design Trends and Keys for Marketing The senior housing design trends and marketing keys listed below come from our observations in many different senior buildings and from talking with marketing staff at a variety of senior housing management firms. Currently a majority of seniors living in senior housing are from the “silent generation.” They are not likely to have a list of demands when it comes to housing. However, this begins to change in other generations where the seniors, and especially their children (who are key in deciding where their parent will live), want more choices and are much more specific in the things they are looking for in a senior building. Looking to meet future demand we’ve outlined some key points below.

“First impressions” are keys for a marketing strategy, especially for the children of potential residents. The outside entrance to Arbor Gardens is very attractive and creates a good first impression. This could be improved upon when entering the building by eliminating the double lobby to create a larger, more open and inviting lobby. If structurally possible, we recommend removing most of the wall separating the two entry-ways, creating just one entry door, and perhaps moving the manager’s office to one side. An open, light and well-decorated lobby area is crucial to creating a good first impression for potential residents and especially their families entering the building.

Another key to “first impressions” is to make sure that visitors receive a friendly

welcome. It is just as important that the baby-boomer daughter making the decision for their elderly parent leave Arbor Gardens with as good of an impression of the staff as they do the building itself.

Medical Access - A newer trend is the inclusion of a therapy/clinic room, which would

have a sink and private bathroom. This is an option instead of a separate clinic. The designated room can be used by/for physician visits, foot care, massage therapy, hearing checks, nurse practitioner, therapy, etc. It can be staffed by a visiting physician(s) only one or two days per week or as needed. Bluestone Physicians Services



is a group of physicians, nurse practitioners, and physician assistants that provide in-home customized medical care to complex, frail, and special-needs patients at many assisted living properties in the Twin Cities Metro Area. This care system avoids stress to patients and their families while eliminating time and travel to a clinic. Bluestone or a similar firm could be sought to provide these services at Arbor Gardens. Eyota currently does not have a medical clinic. If the idea of a clinic room is not pursued, we would encourage the location of a medical clinic on one of the undeveloped parcels adjacent to Arbor Gardens. The clinic would be a benefit to the entire community and would also strengthen the appeal of Arbor Gardens to potential residents.

Keep space updated – baby boomer women who are often making the decisions don’t

want to walk into a space that feels outdated. They want a space to be fresh and new. It is important to continually paint, replace carpet, update décor and generally have the property clean.

Choices – While we don’t know exactly how this will play out in years to come in terms

of senior housing, we do know that the baby boomers are used to demanding and receiving a variety of choices (whether it be with products, services or housing) compared to their “silent generation” parents. It will be important to stay on top of trends for offering activities and available services in order to maintain a full occupied building in future years.

Technology – One of the recent trends for technology in senior housing is with

monitoring systems. It provides comfort not only to the seniors but to their children to know that if something happens, someone is notified immediately. Many operators in Minnesota have recently begun to use a firm called Healthsense to provide monitoring technology. Other firms could also researched to provide similar services.

We understand that Wi-Fi was recently installed throughout Arbor Gardens. Wi-Fi is crucial for residents to be able to use computers and portable electronic devices. Wireless technology is also important for staff communications and resident reporting requirements. Some senior facilities are offering nursing staff iPads to record information instantly when in each resident’s room. Going forward, it is important to continue to offer the most current technology.

Staffing Ratios The staffing requirement in Minnesota states that “In order to use the term assisted living, Housing with Services establishments are required to have a person available 24 hours a day, seven days a week, who is responsible for responding to the requests of assisted living clients for assistance with health or safety needs, unless they meet the criteria for exemption for awake-staff.” It is our understanding that each management company determines the



appropriate staff to resident ratio to adequately provide the “health care services required by their resident’s service agreement or service plan.” Information on average staffing ratios at assisted living facilities was obtained from the 2009 Overview of Assisted Living, published by a collaboration of five national assisted living associations, including the Assisted Living Federation of America and the National Investment Center (NIC). The 2009 survey found that the median number of FTE staff (“full-time equivalent,” which is 2,080 hours of staff time annually) per 100 residents was 52.3 FTEs among all assisted living types. The highest staff ratio was among assisted living/memory care facilities, with a median of 61.0 FTEs per 100 residents. Freestanding independent/assisted living facilities – such as Arbor Gardens – had a median staff ratio of 39.6 FTEs per 100 residents.

September 10, 2012

Summary of Findings Preliminary Demand Assessment for Senior Housing in Eyota, Minnesota

Recommendations are based on the historical performance of Arbor Gardens, demand calculations, interviews with staff at Arbor Gardens, analysis of the site location, and our knowledge of senior housing design trends.

1. Arbor Gardens is a 34-unit independent and assisted living property in Eyota, Minnesota that

has been performing near full occupancy. The purpose of this assessment is to determine the number and types of units that could be added to meet the current and future needs of Eyota’s seniors.

2. Potential unmet demand in the Eyota PMA exists to support 23 additional market rate units at

Arbor Gardens. Our recommended expansion is for 15 to 21 additional units with the following mix:

Independent units: 8-10 units Assisted Living units: 6-8 units (to replace six assisted living suites removed for expansion) Memory Care units: 7-9 units

(See Tables 10 through 14 for in-depth detail of demand calculations) 3. We also recommend offering enhanced assisted living care (“enhanced care”) in any assisted

living unit as this service offering would reduce some resident move-outs to skilled nursing care. (See Table 15 for detailed unit mix and pricing recommendations)

4. We recommend expanding Arbor Gardens north onto commercial parcels that front Sandstone

Drive. The new wing would connect at the existing one-story wing on the north, which would be renovated into a larger kitchen and dining area.

5. Arbor Gardens has generously sized units and we recommend similarly sized units in the

expansion, with balconies and in-unit washer/dryers in the independent units. 6. Any addition should be attached to the existing building so that the same “small town feel” that

is so important to many residents is maintained. Recommended additions and features: Larger kitchen Clinic/therapy room Larger dining/community room Kitchen & Maintenance storage Remodeled lobby Outdoor courtyard Walking paths Staff break room Van with lift and grab bars Staff offices

7. Additional suggestions to help Arbor Gardens remain competitive into the future: “First impressions” are important; create a larger, open lobby, maintain cleanliness, make

sure Arbor Gardens has updated décor, newer paint and carpet, etc. Technology – utilize latest technology both for residents and for staff Medical access; a clinic room where physicians, nurse practitioners and other medical staff

(massage, therapy, foot clinic, hearing clinic, etc.) can see patients

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