Case Study · Hawaii · Assisted Living & Memory Care · HUD 232
Assisted Living Feasibility Study, Hawaii — A HUD 232 Worked Case
This is how our independent feasibility study company and senior housing feasibility consultant team analyzed a ground-up assisted living and memory care community underwritten to a HUD-FHA Section 232 credit, from age-75+ demand and penetration through the debt-service coverage a lender must document. It is a representative, anonymized worked example of the methodology — not a specific client deal — set in a supply-constrained submarket on Oahu.
A ground-up kupuna-care community on a supply-constrained island.
A sponsor came to our feasibility study company with a ground-up assisted living and memory care project and a two-stage capital plan — a bank construction loan taken out by HUD-FHA Section 232 permanent financing — that needed the projected cash flow independently tested before either lender would commit. The subject is a new ~80-unit community on an entitled Urban-district site in a supply-constrained submarket of Oahu: 56 assisted living units and 24 memory care units, purpose-built for the acuity that Hawaii's aging population is generating faster than the market can build for it.3
Because assisted living is a going-concern operating business rather than a passive real-estate play, the lender's question is not “what is the dirt worth” but “can this specific community fill, at these rates, with this staffing, and cover this debt.”1 Licensed care facilities are also treated as special-purpose property requiring a going-concern appraisal, and HUD Section 232 processing carries its own market-study and third-party report set — precisely the conditions that turn a discretionary study into an expected one on a ground-up deal.5 Our scope was the independent demand, penetration, competition, and debt-service analysis that supports that credit.
Representative and anonymized. Every figure below is illustrative of a typical engagement of this type; the site, submarket, and parties are composited, not a real named borrower, address, or completed transaction.
Age-75+ penetration and capture, not a rooftop count.
The demand read starts with a qualified population, not a raw senior headcount. The primary market area holds roughly 16,500 residents aged 75 and older, in a state with among the highest life expectancy in the nation and a rapidly aging profile even as total population slips.
Senior housing demand is a penetration-and-capture problem, and the most common way a study fails review is applying a national or metro penetration rate to a primary market area without qualifying the elderly population by both age (75+ or 80+) and income — the households that can fund $7,000 to $10,000 a month of private-pay care. Penetration averaged roughly 10.2 percent of the 80+ population across the top 140 U.S. markets in 2023.10 Here we screened the 75+ base for the age band, the income and home-equity capacity to pay privately, and the acuity that actually drives a move into assisted living or memory care, then measured the subject and its competitors against that qualified pool. On a defensible income screen, the market reads undersupplied: existing licensed supply plus the subject sits well below the penetration a market of this qualified size supports, which is why the model credits the subject with a fill to roughly 90 percent stabilized occupancy rather than an aspirational curve.1 Nationally, senior housing occupancy reached 89.5 percent in the first quarter of 2026 — the nineteenth consecutive quarterly gain, with assisted living at 87.9 percent — against record-low construction,2 and Hawaii sits at the tight end of that spectrum.19
| Demand driver | Basis | Supported figure |
|---|---|---|
| PMA age-75+ population | ~16,500 residents, aging rapidly16 | Rising captive base |
| Age- and income-qualified | ~34% can fund private-pay AL/MC | ≈ 5,600 seniors |
| Market penetration, all AL/MC | Subject + comps ÷ qualified 75+ (vs. ~10% norm)10 | ≈ 6–7% (headroom) |
| Subject capture at stabilization | 80 units at ~90% occupancy1 | ≈ 72 residents |
| Net demand vs. supply | Absorption outruns a CON-gated pipeline | Undersupplied |
Penetration and qualified-population logic grounded in national senior-housing penetration benchmarks and NIC MAP occupancy; see sources 1, 9, 10, and 16. Figures are illustrative of the engagement type.
A thin, near-full competitive set behind a permit gate.
Four institutional communities anchor the primary market area, most running near full, and the small-scale Adult Residential Care Home model fills the balance. New large-format supply is gated by Hawaii's Certificate of Need regime and suppressed by construction cost.
| Competitor | Product | Units | Distance | Read |
|---|---|---|---|---|
| Community A | AL + memory care rental | 90 | 2.1 mi | Stabilized ~93%; active waitlist |
| Community B | Assisted living only | 64 | 3.4 mi | Older asset, no memory care |
| Community C | CCRC (AL wing) | 48 AL | 5.0 mi | Entrance-fee; different buyer |
| Community D | Standalone memory care | 40 | 4.2 mi | MC-only, near full |
| Adult Residential Care Homes | ARCH (small-scale) | Scattered | PMA-wide | Care-limited; not direct comps |
| Announced pipeline | CON-gated new supply | Minimal | — | No large project permitted |
Competitive set surveyed for the engagement; anonymized. Certificate of Need and licensing filings were scanned for announced supply, consistent with institutional practice; see source 13.
The standing set is thin and tight: the nearest genuine rental competitor runs about 93 percent occupied with a waitlist, the memory care supply is a single near-full 40-unit building, and the entrance-fee CCRC serves a different buyer entirely. Hawaii leans heavily on the small-scale Adult Residential Care Home model rather than large institutional communities, so the ARCH beds scattered across the PMA are care-limited and do not defend against a purpose-built assisted living and memory care product.13 A rigorous study does not stop at the standing set: it scans the Certificate of Need and licensing pipeline so the capture forecast is not quietly overstated by new communities the trailing data cannot yet see. Because CON gates health-care supply directly and construction cost suppresses what does get filed, the read is a genuinely undersupplied submarket — the subject fills a gap rather than splitting a saturated market.13
Hawaii macro: demand-rich, cost-heavy, permit-gated.
The state backdrop is a tailwind for needs-based senior housing, tempered by the highest operating and construction cost structure in the country. The binding constraint on supply is not demand — it is entitlement and cost.
Hawaii is structurally undersupplied across nearly every asset class because the State Land Use Commission regime and roughly double-mainland construction costs prevent supply from meeting demand.14 For senior housing the demand case is unusually strong: the state has among the nation's highest life expectancy and a rapidly aging population, so kupuna-care demand is deep even as total population slips — Hawaii counted 1,432,820 residents as of July 2025, a net loss.16 But skilled nursing and most health-care facilities are gated by the Certificate of Need program administered by the State Health Planning and Development Agency under HRS Chapter 323D, which lowers oversupply risk while raising the barrier to entry, and the CON application itself becomes a feasibility-study driver.13
The offsetting reality is cost, and it lands on both the build and the operation. A mainland cost-per-unit assumption understates Hawaii by 30 to 50 percent or more, driven by the Jones Act, so a ground-up community with specialized memory care build-out is capital-intensive;11 the feasibility test turns on whether stabilized cash flow covers a highly leveraged cost basis, not on optimistic rate growth.14 On the operating side, three Hawaii-specific edges routinely missed by mainland consultants must be carried: the General Excise Tax at 4.5 percent on gross rental and service receipts, owed whether or not it is passed through; the Prepaid Health Care Act, the nation's only state employer health-insurance mandate, which requires coverage at 20 hours a week and lifts the cost of an already labor-heavy staffing model; and residential electricity near 46.62 cents per kilowatt-hour, the highest in the country.1516 Those loads are why this model carries a Hawaii operating-expense ratio at the top of the assisted living range.
Why the community captures the submarket.
The 75+ base, the wealth held in elder home equity, and adult-child proximity all point the same direction, and an already-entitled site converts that demand into a deliverable project.
The primary market area pairs a deep, growing 75+ population with the financial capacity to fund private-pay care: long-tenured Hawaii homeowners carry substantial home equity, and the adult-child decision-makers who drive most assisted living move-ins are concentrated on Oahu, keeping parents on-island rather than relocating them to the mainland. That combination of age, wealth, and family proximity is exactly the qualified-demand profile a needs-based community requires, and it is why the penetration screen leaves headroom rather than saturation.10
The site does the rest. The single most frequently missed Hawaii feasibility variable is the carrying cost of entitlement: any project outside the Urban district generally requires a State Land Use District Boundary Amendment layered on county zoning, and that timeline can run a decade or more.14 The subject sits on an already-entitled, Urban-district parcel, which removes the boundary-amendment risk that sinks so many Hawaii pro formas and lets the schedule underwrite to a roughly 24-month construction and initial lease-up. A defensible study prices that entitlement status explicitly rather than assuming it — the difference between a buildable basis and a speculative one.
Bank construction, HUD 232 permanent takeout.
Total development cost lands at $34.0 million. A bank construction loan funds the build at 65 percent loan-to-cost against 35 percent sponsor equity; a HUD-FHA Section 232 permanent loan then retires that construction debt once the community stabilizes.
| Cost component | Amount |
|---|---|
| Land (entitled, Urban district) | $6.50M |
| Site work & offsites | $2.40M |
| Building shell & core (80 units) | $16.60M |
| FF&E & memory-care specialty fit-out | $2.80M |
| Soft costs, design & GET on contracts | $3.10M |
| Financing, HUD application & reserves | $1.60M |
| Working capital / initial operating deficit | $1.00M |
| Total development cost | $34.00M |
~$425,000 per unit, a defensible Hawaii premium over the ~$317,400-per-unit mainland benchmark, driven by the Jones Act cost structure. See sources 11 and 14.
| Item | Figure |
|---|---|
| Bank construction loan (65% LTC) | $22.10M |
| Sponsor equity (35%) | $11.90M |
| Construction term | ~24-month, interest reserve |
| HUD 232 permanent loan | $24.00M |
| HUD term / amortization | 35-year, fully amortizing, non-recourse |
| Illustrative HUD rate | ~6.0% + MIP |
| HUD annual debt service | ≈ $1.64M |
HUD Section 232 sized to the lesser of ~80% LTV and a 1.45x DSCR; here coverage binds. Section 232 requires state licensure, continuous protective oversight, and an FHA/MAP-approved lender. See sources 5 and 12.
The two-stage structure is deliberate. A bank construction loan at 65 percent loan-to-cost, with an interest reserve, carries the build and initial lease-up; the sponsor's 35 percent equity injection — $11.9 million — funds the balance and the HUD-required working-capital and initial operating-deficit reserves. Once the community stabilizes, the HUD-FHA Section 232 loan provides the permanent takeout: 35-year, fully amortizing, non-recourse debt at an illustrative 6 percent plus mortgage insurance premium.5 HUD sizes the permanent loan to the lesser of roughly 80 percent loan-to-value and a 1.45x debt-service coverage minimum, and on this cash flow coverage binds first: the DSCR-supported loan of $24.0 million sits at about 62 percent of stabilized value, comfortably inside the LTV ceiling. At a roughly 6 percent rate over 35 years, annual debt service is about $1.64 million — the number the projected coverage has to clear. Because the $24.0 million permanent loan slightly exceeds the $22.1 million construction balance, the takeout retires the bank debt and returns roughly $2.0 million of equity to the sponsor at stabilization.
Feasible and bankable, on coverage the credit can document.
The stabilized model builds revenue from an acuity-tiered rate structure, nets a Hawaii-loaded operating expense, and carries the coverage to the HUD 232 floor of 1.45x on a graded fill-up.
| Line | Basis | Amount |
|---|---|---|
| Assisted living revenue | 56 units × ~$7,950/mo blended (room + care)4 | ≈ $5.34M |
| Memory care revenue | 24 units × ~$10,350/mo blended4 | ≈ $2.98M |
| Gross potential revenue | 80 units at 100% occupancy | ≈ $8.32M |
| Vacancy & collection loss | Stabilized ~90% occupancy1 | ≈ ($0.83M) |
| Effective gross revenue | Collected room and care revenue | ≈ $7.49M |
| Operating expenses | Labor ~55% of opex; GET, power, insurance loaded for Hawaii615 | ≈ ($5.11M) |
| Net operating income (NOI) | ~31.8% margin | ≈ $2.38M |
Rates set at a defensible Hawaii premium over the ~$6,200/mo national median assisted living cost, with memory care ~30% above AL; the ~68% operating-expense ratio sits at the top of the 55–70% AL/MC range on Hawaii labor, GET, and utility loads. See sources 4, 6, 7, and 15.
| Year | Stage | Occupancy | NOI | DSCR |
|---|---|---|---|---|
| Year 1 | Construction & initial lease-up | ~42% avg | ~$0.55M | Reserve-covered |
| Year 2 | Fill-up | ~78% avg | ~$1.89M | 1.15 |
| Year 3 | Stabilized | ~90% | ~$2.38M | 1.45 |
DSCR computed as NOI divided by HUD annual debt service of ~$1.64M. Year 1 coverage is below 1.0 by design and covered by the HUD-required working-capital and initial operating-deficit reserve. See source 5 for the 1.45x convention.
The stabilized 1.45x coverage is the figure the lender documents, and it sits exactly at the HUD Section 232 minimum for market-rate assisted living.5 The ramp is deliberately graded, because assisted living and memory care lease-up is slower and more needs-driven than multifamily: industry practice models 18 to 30 months to stabilization, and a pro forma that fills an 80-unit community in twelve months without a comparable-property basis is a red flag.89 Year 1 is a construction and initial lease-up year, its sub-1.0 coverage intentionally carried by the HUD working-capital and operating-deficit reserve; by Year 2 the community covers fully amortizing debt service at 1.15x, and by Year 3 it reaches the 1.45x floor. Short length of stay — average assisted living tenure near 22 months, with nearly 40 percent of residents leaving within the first year — is carried as continuous re-lease cost, not ignored, so the stabilized occupancy holds rather than drifting.8
On the equity side, the $11.9 million injection earns a return in two pieces. At stabilization the HUD takeout returns roughly $2.0 million of equity, lowering the sponsor's basis; from there the community throws off growing levered free cash flow — about $0.25 million in Year 2, rising past $1.2 million a year late in the hold as acuity-tiered rate growth outpaces expense growth, net of a replacement reserve. The exit is valued on a going-concern basis, not a leased-fee cap rate: assisted living transfers real estate plus FF&E plus the operating business, and capitalizing a Year-11 stabilized NOI near $3.06 million at a going-concern rate around 6.0 percent — inside the ~6.2 percent sector average, tighter for a supply-constrained Hawaii asset — implies a gross value near $51 million and roughly $28.8 million of net equity after selling costs and the outstanding HUD balance.12 The blended result is an illustrative levered equity IRR of about 15 percent over a 10-year hold.
Verdict: financially feasible and bankable. On independently derived demand, a stabilized 1.45x DSCR at the HUD 232 floor, and a ~15% levered equity IRR, the projections support the bank construction-to-HUD 232 credit.
Independent demand, penetration, competition, and DSCR stress.
The engagement was scoped the way a HUD underwriter and a credit committee read it. As an independent senior housing feasibility consultant, our role is to test the sponsor's projection against the market, not to restate it — the value of the deliverable is precisely that it carries no stake in the outcome. We derived demand from a qualified 75+ population screened for age, income, and acuity, then measured the subject and its competitors as a penetration and capture problem rather than applying a national rate to a rooftop count. Revenue was built from an acuity-tiered rate structure at a defensible Hawaii premium, and the fill was graded across an 18-to-30-month lease-up on a comparable-property basis.
The operating model was then stress-tested where senior-housing studies most often break. We built the staffing model position by position at documented Hawaii wages,7 carried the Prepaid Health Care Act, the General Excise Tax, and utility costs explicitly, and stress-tested labor and agency re-escalation against the coverage. One scope boundary is worth stating plainly: as the feasibility consultant we reference, but do not perform, the going-concern appraisal, the Project Capital Needs Assessment, and the Phase I environmental site assessment that HUD Section 232 also requires; each is a separate professional's engagement running in parallel to the study.5 That combination — independent demand, penetration, competition, and a stressed DSCR — is what lets the lender rely on the file.
Underwriting a Hawaii assisted living project for HUD 232? Start with the feasibility study.
Feasibility Study Company prepares independent assisted living and memory care feasibility studies for HUD-FHA Section 232, bank construction, SBA, and agency credits, built to the coverage standard your lender must document. A methodology briefing walks through the demand, penetration, competition, and DSCR analysis behind a case like this one, calibrated to your island and care model.
Request a methodology briefingData sources and dates.
The deal figures are illustrative of the engagement type; the market data that grounds each dimension is real and sourced, drawn from our standing Hawaii, Assisted Living & Memory Care, and Conventional & Institutional analyses and the primary authorities they cite.
- NIC and NIC MAP Vision press release (April 23, 2026): Q1 2026 Primary Market senior housing occupancy 89.5 percent, 19th consecutive quarterly gain; independent living above 91 percent, assisted living 87.9 percent; occupied units a record 637,000; average asking rent above $5,650 per month.
- NIC MAP Vision construction and inventory data (2025–2026): quarterly starts ~1,076 units in Q1 2025 (lowest since Q2 2009); units under construction ~17,000 by Q3 2025 (lowest since 2012); year-over-year inventory growth a record-low 0.4 percent in Q1 2026.
- NIC MAP Vision Senior Housing Outlook (June 26, 2024): roughly 806,000 additional units needed by 2030 to hold current penetration; development "must accelerate to more than 3.5 times the current pace."
- Genworth and CareScout Cost of Care Survey: 2024 survey national median assisted living cost $5,900 per month, up 10 percent; 2025 survey national median $6,200 per month; memory care typically runs 20–30 percent above assisted living. Subject rates set at a defensible Hawaii premium above the national median.
- U.S. Department of Housing and Urban Development, Handbook 4232.1 and Section 232 program materials (Office of Residential Care Facilities, LEAN): 1.45x minimum DSCR for market-rate assisted living, up to ~80 percent LTV, 35-year fully amortizing non-recourse term, state licensure with continuous protective oversight, and the third-party report set (market study, going-concern appraisal, PCNA, Phase I ESA).
- Janover Pro and MMCG (2025): labor roughly 55 percent of AL and memory-care operating expense; stabilized AL/MC operating-expense ratios 55–70 percent of revenue versus 35–45 percent for stabilized multifamily; memory-care staffing ratios (roughly 1:5–6 versus 1:8 in AL) and margin compression.
- PHI, Direct Care Workers in the United States: Key Facts 2025 (June 2025; BLS OEWS analysis): direct-care median wage $17.36 per hour in 2024; turnover routinely cited at 40 to 80 percent.
- NCAL and Senior Housing News operator survey (March 2025): average assisted living length of stay near 22 months; roughly 18–28 months in AL and 18 months to three years in memory care; nearly 40 percent of AL residents leave within the first year.
- NIC and Senior Housing News (2025): net absorption outpaced new openings for 17-plus consecutive quarters, roughly 31 units absorbed per 10 opened; average operating margins above 25 percent in mid-2025; industry practice models 18 to 30 months to stabilization, with a rising share of new communities that never reach 80 percent occupancy.
- Plante Moran (2024), citing Census projections: senior-housing penetration averaged roughly 10.2 percent of the 80+ population across the top 140 markets in 2023; the U.S. 80+ population projected to roughly double from about 13 million (2020) to about 27 million (2040).
- ASHA / State of Seniors Housing (via McKnight's) and The Weitz Company ASHA construction-cost briefs (early 2026): total development cost ~$317,400 per unit ($333 per square foot); assisted living construction $280–$452 per square foot by tier.
- JLL, 2026 Seniors Housing & Care Investor Survey (March 12, 2026): average Q4 2025 cap rate 6.2 percent; rolling four-quarter transaction volume just over $24 billion, the highest since 2015. Going-concern value allocates among real estate, FF&E, and business enterprise value.
- Hawaii State Health Planning and Development Agency (SHPDA), Certificate of Need program, HRS Chapter 323D; administrative review threshold at $1 million capital expense / $500,000 operating expense; Hawaii's reliance on the small-scale Adult Residential Care Home model; Grassroot Institute CON white paper (December 2025).
- Clearhouse Lending, Hawaii construction-cost analysis (2025); Grassroot Institute of Hawaii, "Quantifying the Cost of the Jones Act to Hawaii," John Dunham & Associates (2020): Hawaii construction costs roughly 30 to 50 percent or more above the mainland; State Land Use Commission four-district regime under HRS Chapter 205, with entitlement timelines of a decade or more outside the Urban district.
- Hawaii Department of Taxation, General Excise Tax on gross rental and service receipts at 4.5 percent (HRS §237); Hawaii Prepaid Health Care Act, HRS Chapter 393 (employer health-insurance mandate at 20+ hours per week); Hawaii Department of Labor and Industrial Relations minimum-wage schedule ($16 on January 1, 2026).
- Hawaii State Census office and DBEDT, Vintage 2025 population estimates (released January 27, 2026): 1,432,820 residents as of July 1, 2025, a net loss of 2,132; U.S. Energy Information Administration via Electric Choice, residential electricity 46.62 cents per kWh (April 2026); Hawaii among the nation's highest life expectancy with a rapidly aging population.