APEX GLOBAL BUSINESS PARTNERS, LLC | Acquisition Underwriting Opinion Letter
Monroe, WA | deals@apexglobalbusinesspartners.com
Prepared for: [REDACTED]
RE: Acquisition Underwriting — [REDACTED] Assisted Living Facility (Healthcare / Seniors Housing)
CONDITIONAL GREEN LIGHT. As presented, this is a stabilized, 95%-occupied licensed assisted living facility that clears the 1.75× DSCR floor at the proposed structure — 1.79× — on an 8.98% going-in cap that is defensible for a 71-bed ALF. The asset is financeable and the seller's numbers, if they hold, support the deal. It does not earn a clean Green Light for one reason, and it is the reason this report exists: the entire verdict rests on an expense load that has not been proven to include a paid licensed administrator. An ALF cannot legally operate without one. If the seller is performing that role unpaid, the buyer inherits a real cost of roughly $95,000 that is not in the stated expenses — and the deal moves from 1.79× to 1.56×, below the floor, at the asking price. The cure is documentary: prove the administrator is already on payroll and this advances to full Green. The walk-away is a seller who will not restate price when the role proves to be unpaid.
A licensed assisted living facility of 43 units / 71 beds across two buildings (two stories, ~14,036 SF) on a residential multifamily-zoned parcel, in operation since 2013 and under current ownership since 2019. Occupancy is reported at 95%. The buyer is acquiring an operating healthcare business with a regulatory license attached to real estate — not a rental property. That distinction drives everything below: the income is census-dependent, the license is transfer-dependent, and the staffing model is statutory rather than discretionary.
Building age is a live issue. The improvements date to 1975 — roughly 50 years old. In seniors housing, physical plant condition is not merely a capex question; it bears on licensure, life-safety compliance, and the facility's ability to compete for private-pay census against newer product.
All figures are seller representations pending verification at diligence.
| Line Item | Stated (Year 1) | Note |
|---|---|---|
| Gross Potential Income | $2,242,000 | 71 beds at stated rates |
| Vacancy & Credit Loss | ($112,100) | 5.0% — consistent with 95% census |
| Effective Gross Income | $2,129,900 | — |
| Operating Expenses | ($1,384,435) | 65.0% ratio — see normalization |
| Net Operating Income (stated) | $745,465 | Seller representation |
A licensed administrator is a statutory cost, not an add-back. Florida ALFs must operate under a licensed administrator. House standard is unambiguous on this point: a management role the seller performs without compensation, which the buyer will have to pay for, is deducted from NOI — it is never added back. Conversely, if the facility already carries a paid administrator inside the $1,384,435 expense load, no adjustment is warranted and the stated NOI stands. The stated financials do not disclose which is true. That single fact is worth approximately $95,000 of NOI and 0.23× of coverage.
The 65% expense ratio cuts both ways. Sixty-five percent is above our 60% target and would normally read as a caution flag. For a licensed ALF with 24-hour staffing, dietary, and housekeeping it is within a normal operating band — which is precisely why it cannot be used to infer that an administrator's salary is or is not embedded in it. A ratio that looks explainable is not the same as a ratio that has been explained.
| Scenario | Basis | NOI | Cap on $8.3M Ask |
|---|---|---|---|
| Conservative | Administrator proves unpaid; $95,000 deducted | $650,465 | 7.84% |
| Base | As stated; administrator already on payroll | $745,465 | 8.98% |
| Optimistic | Stated + partial capture of rate/census upside | ~$800,000 | 9.64% |
A 10-cap on stated NOI implies a formula value of $7,454,650 — the $8,300,000 ask sits $845,350 above it. On the conservative case the formula value falls to $6,504,650, a gap of nearly $1.8M. At $116,901 per bed the pricing is inside the $100K–$150K ALF market band, so the ask is not unreasonable on a comparable basis — but it is not supported by our own pricing discipline on income, and the buyer should understand they are paying a market price rather than a formula price.
Rates are illustrative for structuring purposes, not current market quotes. Every structure is shown against both the stated and the normalized NOI, because the difference between them is the deal.
| Structure | Composition | Annual Debt Service | DSCR — Stated | DSCR — Normalized |
|---|---|---|---|---|
| A — As proposed | $5,395,000 senior, 6.0% / 25-yr (65% LTV); $2,905,000 equity | $417,121 | 1.79× | 1.56× |
| B — Carry-blended at ask | 55% senior 6.0%/25-yr + 20% seller carry 4.0%/30-yr + 25% equity | $448,049 | 1.66× | 1.45× |
| C — Deleveraged to target | $5,268,729 senior (63.5% LTV), 6.0% / 25-yr | $407,357 | 1.83× | 1.60× |
| D — Price-adjusted cure | Price $6,316,070; 65% senior 6.0%/25-yr + 15% carry 4.0%/30-yr | $371,694 | 2.01× | 1.75× |
Read that table carefully, because it contains the whole verdict. Structure A clears the floor at 1.79× and is the reason this is a Green rather than a Caution. Structure C reaches the 1.83× target by taking leverage down 1.5 points — a cheap improvement the buyer should ask for regardless. But every structure fails the floor on the normalized case except D, and D requires the price to move. Adding seller carry (Structure B) makes coverage worse, not better, because carry paper is still debt service; carry helps the equity check, not the ratio. A buyer who assumes seller financing cures a coverage problem has misread the arithmetic.
Break-even ratio is 80.35% against a 75% target. The facility must hold roughly 80% of gross potential income to cover debt and operations — meaning census can fall about 15 points from 95% before the deal stops paying for itself. That is adequate, not comfortable, and it is thinner than the 1.79× headline suggests.
Recommended: Structure C at the ask, converting to Structure D if the administrator condition fails. Take leverage to roughly 63.5% to reach the 1.83× target — the incremental equity is modest and it buys real cushion in a census-dependent asset. Then write the administrator question into the purchase agreement as a price adjustment mechanism rather than a diligence hope: if the seller's payroll records do not evidence a compensated licensed administrator, price steps to the normalized 10-cap basis and a seller carry note bridges the difference. This converts the single largest unknown in the deal into a contractual outcome instead of a negotiation the buyer will be losing at day 45 with money already spent.
Seller carry is worth pursuing here for a different reason than coverage: it keeps the seller economically present through the licensure transfer and the census transition, which is exactly when a departed seller's cooperation becomes hard to obtain. Structure carry with a right of offset against representations about census and expenses.
An ALF cannot operate without a licensed administrator; the stated expenses do not evidence one. Resolution: payroll register, W-2s, and the administrator's license naming the individual and their compensation. Bad answer: the seller or a family member holds the license and draws nothing — NOI restates to $650,465, DSCR falls to 1.56×, and the price must move to approximately $6.3M on a carry-blended structure.
The ALF license does not convey automatically; a change-of-ownership application is required and the facility's survey history travels with it. Resolution: pull three years of state survey results and deficiency citations, confirm CHOW timeline, and make closing contingent on license issuance rather than application. Bad answer: open deficiencies, a moratorium, or a conditional license — any of which can interrupt admissions and therefore income.
The 95% occupancy figure carries the entire NOI, and unlike a rent roll a census can turn in weeks. Resolution: 24 months of month-end census by payor source, resident agreements, and aging — distinguishing private pay from Medicaid waiver, since payor mix drives both rate durability and regulatory exposure. Bad answer: census concentrated in a payor whose rates are set administratively, or a trailing trend that is falling while the snapshot reads 95%.
A 50-year-old building in a licensed healthcare use is a compliance exposure as much as a capex one. Resolution: third-party property condition assessment plus a life-safety review against current code, and a funded reserve sized to its findings. Bad answer: deferred maintenance that a surveyor will find before the buyer's second year.
Thirteen ALFs operate within three miles, four of them at 60+ beds including national and CCRC-affiliated operators. Against a 1975 physical plant, this facility competes on price and relationships rather than product. This does not disqualify the deal — 95% census suggests it is competing successfully today — but it caps rate growth and it means a census loss is harder to win back than the projections assume.
At stated figures the deal produces $328,344 of pre-tax cash flow on $2,905,000 of equity — an 11.3% cash-on-cash return in year one, above our 8% target — with coverage improving to 2.01× by year five on the same fixed debt service. Twelve years of operating history and stabilized census are genuine assets. This is a real operating business, not a repositioning story, and that is why it earns a Green under conditions rather than a Caution.
Treated as upside, not base income. Rate optimization toward market for private-pay residents; payor-mix improvement toward private pay where census allows; memory-care conversion of a unit cluster, which commands materially higher rates in this market and would use existing licensed square footage; and ancillary service revenue (therapy, transportation, salon) common in the peer set and absent here. None of this is underwritten and none of it should be paid for at close — but a buyer acquiring at a corrected basis with 1.75×+ coverage has the balance sheet to pursue it.
CONDITIONAL GREEN LIGHT. A stabilized, twelve-year-operating licensed ALF at 95% census, clearing the 1.75× floor at 1.79× and returning 11.3% cash-on-cash in year one — a financeable deal at a defensible per-bed basis. It is conditional, not clean, because the stated expense load has not been shown to include the licensed administrator the facility is legally required to employ, and that single unproven line is worth $95,000 of NOI and the difference between 1.79× and 1.56×. Cure: documentary proof of a compensated administrator, clean survey history, substantiated 24-month census, and a funded reserve sized to a condition assessment — on which this advances to full Green at the ask. Walk-away: an uncompensated administrator paired with a seller who will not restate price, or a licensure transfer that cannot be made a condition of closing.
Underwritten by Apex Global Business Partners, LLC | Monroe, WA | deals@apexglobalbusinesspartners.com
This underwriting opinion is for informational purposes only. It is not a guarantee of financing or a legal opinion. All figures are seller-stated unless noted. Engage independent legal, tax, and financial counsel before proceeding.