Valuation of Nonprofit Homes for the Elderly

# (1)

(1) Comparable Facilities includes both nonprofit and for-profit facilities with similar:

(a) Levels of care:

(A) Retirement living only: no meals are included in the rent; similar to apartment or condominium living.

(B) Retirement living: monthly rent can include meals; laundry; utilities; housekeeping; and, assistance with daily living activities.

(C) Retirement living: includes all of (B), and nursing services.

(b) Age, quality, and building condition.

(c) Functional considerations: For example; ADA requirements; room mix; and, size.

(d) Locational considerations.

# (2)

(2) Qualified Operating Gross Income is income that meets the 95 percent test outlined in ORS 307.375, and tenant rent is competitive with other comparable facilities. If the tenant rent is not at market rent, then stabilized market rent is to be used. Periodic donations made solely to keep the facility solvent are excluded from the 95 percent test.

# (3)

(3) Qualified Operating Gross Income includes the income generated from the following sources:

(a) Meals;

(b) Amortized entrance fees. The present worth of amortized entrance fees is based on both life expectancy and level of care provided according to GAAP. The interest rate is the same as calculated in (6).

(c) Monthly tenant rent;

(d) Pharmacy fees;

(e) Nursing fees;

(f) Income or fees received for space rent from vendors who provide social services, such as a bank, beauty parlor, gift shop, or post office.

(g) Recreational facility income from the publics participation and use of the facility.

(h) Service income from rented storage space, laundry machines, concessions, etc.

# (4)

(4) Investment Income earnings from invested entry fees or other invested revenues is specifically excluded from the Qualified Operating Gross Income calculation ORS 307.375(2).

# (5)

(5) For the purpose of determining net operating income, income and expenses must be adjusted to typical market levels for comparable facilities. If actual expenses are at typical market levels for comparable facilities, they may be used to calculate the net operating income. Expenses may include, but are not limited to, the following:

(a) Real Estate Taxes. If real estate taxes are a line item expense, they may not be included in the overall rate.

(b) Repairs and Maintenance. Charges may not include accounted for replacement reserves.

(c) Real Estate Insurance;

(d) Landscaping Maintenance;

(e) Replacement Reserve is based on current replacement costs. Items in this category are short lived and may include built-in appliances, carpeting, roofing, heating, air conditioning, elevator machinery, plumbing fixtures, and electrical fixtures. Reserves to replace personal property may be included in this category;

(f) Payroll;

(g) Management not included in payroll;

(h) Food;

(i) Supplies;

(j) Phones;

(k) Utilities such as gas, electricity, water, sewer, garbage;

(l) Housekeeping not included in payroll;

(m) Advertising. Does not include start-up costs;

(n) Publication and membership dues;

(o) Purchased Services other than those accounted for in listed categories;

(p) Nursing Services not included in payroll;

(q) Liability Insurance;

(r) Security;

(s) Other miscellaneous operating costs.

# (6)

(6) Overall Rate. The appropriate overall rate is selected from the analysis of sales of comparable for-profit facilities. The overall rate includes the appropriate tax component.

# (7)

(7) Additional Depreciation. Additional depreciation shall be calculated using age life tables and current cost information from commercial cost publications for the type and quality of structure being appraised. The amount of additional annual depreciation will be capitalized using the rate calculated in (6). This amount is deducted from the estimated real market value.

# (8)

(8) Personal Property. The current assessed value of personal property is deducted from the estimated value. If there is no personal property account for the facility being appraised, no deduction shall be made.