Case Study · Texas · Assisted Living & Memory Care · HUD 232
Assisted Living Feasibility Study, Texas — A HUD 232 Worked Case
This is how our independent feasibility study company and senior housing feasibility consultant team analyzed a new-build assisted living and memory care community underwritten to a HUD Section 232 permanent takeout, from age- and income-qualified demand through the debt-service coverage a HUD-approved lender must document. It is a representative, anonymized worked example of the methodology — not a specific client or address — set in a high-growth suburban submarket of a major Texas metro, financed with a bank construction loan that refinances into HUD 232 at stabilization.
A new assisted living and memory care community on a growing Texas suburban edge.
A sponsor came to our feasibility study company with a ground-up seniors housing project and a two-stage capital plan: a bank construction loan to build and lease the community, then a HUD Section 232 permanent loan to take out the bank once the property stabilizes. Both lenders needed the projected going-concern cash flow independently tested before committing. The subject is a new ~90-unit community — 60 assisted living apartments and a 30-suite secured memory care neighborhood — on roughly six acres in a fast-growing outer-ring suburb of a major Texas metro, near a hospital campus and an established retail node.
Assisted living and memory care are going concerns, not passive real estate: staffing, licensure, and care delivery drive value, and a sale transfers the real estate plus FF&E plus the operating business.11 So the lenders' question is not “what is the building worth” but “can this specific community fill with age- and income-qualified residents, run to a defensible operating margin, and cover a HUD-insured mortgage at 1.45x.” HUD 232, administered through HUD's Office of Residential Care Facilities under the LEAN methodology, requires a market study, a going-concern appraisal, a Project Capital Needs Assessment, and a Phase I environmental site assessment as part of the third-party package.9 Our scope was the independent demand, penetration, competition, and debt-service analysis the feasibility study supplies inside that package.
Age- and income-qualified demand, not a raw 75-plus count.
Senior housing demand is need-driven, and the most common way a feasibility study overstates it is to apply a penetration rate to an unqualified elderly population. We qualify the primary market area by both age and income before a single unit of demand is credited.
The primary market area (PMA) is drawn to roughly a fifteen-minute drive around the site. It holds about 15,000 residents aged 75 and older, growing near 4 percent a year as the Sun Belt ages and in-migration continues.12 Not all of that population is a customer: assisted living and memory care in this submarket run about $5,750 and $7,500 a month respectively, so the model screens to the roughly 42 percent of older households that can carry a $5,000-to-$7,500 monthly private-pay fee, leaving about 6,300 income-qualified seniors.4 Against that qualified base we apply a need-adjusted penetration near 11 percent, benchmarked to the roughly 10.2 percent market penetration of the 80-plus population observed across the top 140 markets, which supports on the order of 695 units of latent demand.5 Netting existing and permitted competitive supply leaves unmet demand comfortably larger than the 90-unit subject, and the gap widens every year the 75-plus base grows. That local read sits inside a national one: NIC MAP counts a need for roughly 806,000 additional units by 2030 to hold current penetration,3 against construction that has fallen to a record-low 0.4 percent of inventory.2
| Demand driver | Basis | Supported figure |
|---|---|---|
| PMA seniors 75+ | ~15-minute drive-time ring, growing ~4%/yr12 | ≈ 15,000 |
| Income-qualified 75+ | ~42% can carry a $5,000–$7,500/mo private-pay fee4 | ≈ 6,300 households |
| Supportable AL/MC demand | ~11% need-adjusted penetration (vs ~10.2% market)5 | ≈ 695 units |
| Competitive supply | Existing (~380) + permitted (~60) AL/MC units in PMA | ≈ 440 units |
| Net unmet demand | Supportable demand less competitive supply | ≈ 255 units |
| Subject capture | 90 units at stabilized ~90% occupancy | ≈ 35% of unmet demand |
Penetration and income-qualification logic grounded in NIC MAP, Genworth/CareScout, and Plante Moran/Census data; see sources 4, 5, and 12. Figures are illustrative of the engagement type.
A stabilized comp set with a memory care waitlist.
Five competing communities operate within the primary market area, most stabilized above 88 percent, and the nearest dedicated memory care runs a waitlist. A rigorous study surveys the standing set and scans the permitted pipeline so capture is not quietly overstated.
| Community | Positioning | Units (AL / MC) | Distance | Read |
|---|---|---|---|---|
| Community A | National brand | 110 (80 / 30) | 3.1 mi | Stabilized ~92%; MC waitlist |
| Community B | Regional operator | 90 (90 / 0) | 4.5 mi | ~89%; no dedicated MC |
| Community C | Nonprofit (AL tier) | 60 (60 / 0) | 5.8 mi | Older plant; entry-fee model |
| Community D | Independent AL/MC | 70 (50 / 20) | 6.2 mi | ~88%; dated, care-fee compression |
| Community E | Memory-care standalone | 48 (0 / 48) | 5.0 mi | ~90%; MC-only |
| Permitted / announced | New AL/MC (in review) | ~60 (planned) | ~7 mi | Pipeline; scanned, not yet open |
Competitive set surveyed for the engagement; anonymized. Existing PMA supply totals roughly 380 licensed AL/MC units, with ~60 additional units permitted; the pipeline is scanned, not just the standing set.
The standing set is healthy but not saturated: the newest full-service community is stabilized above 90 percent and carries a waitlist for its memory care, and two of the five competitors offer no dedicated, secured memory care at all — a structural gap for a submarket adding older households.1 A defensible study does not stop at the standing set; it scans announced and permitted supply so the capture forecast is not overstated by beds the trailing data cannot yet see. Here roughly 60 units sit in the permitting pipeline, which the model already counts against demand. Even after loading that pipeline, net unmet demand exceeds the subject's 90 units, and the memory care shortage is the sharpest part of the opening — which is why the subject is programmed with a full 30-suite secured neighborhood rather than a token wing.
Texas: no Certificate of Need, so supply is the risk to price.
The state backdrop is a demand tailwind with a supply warning. Texas is the nation's second-largest economy, aging fast, and, decisively for senior housing, has no general Certificate of Need law — so assisted living and memory care supply is set by the market, not a permit.
Texas held about 31.3 million residents as of July 2024 and continues to lead the nation in in-migration; the Houston metro alone added more than 198,000 residents in a single year, and exurban cities on the metro edges are among the fastest-growing in the country.12 That growth, layered over a rapidly aging 75-plus cohort, is the demand engine a new community needs. But the same freedom that makes Texas attractive cuts both ways: because the state repealed its Certificate of Need program in 1985 and maintains no general CON law, assisted living and independent senior housing face market-driven supply rather than a permit gate, which is precisely why oversupply risk runs higher here than in CON states.12 National senior housing occupancy reached 89.5 percent in the first quarter of 2026, its nineteenth consecutive quarterly gain, yet several Texas metros lag that line — Houston has sat near 84.7 percent — which the data attributes to legacy oversupply rather than weak demand.1 That is exactly why this study is built at the submarket level, against the surveyed competitive set and the permitted pipeline, not off a statewide average.
One Texas-specific regulatory edge matters for the segment and is frequently missed. The state's no-CON posture applies to licensed assisted living and memory care, but Texas still caps Medicaid-certified nursing-facility beds under 26 TAC 554.2322, where HHSC allocates beds and may de-allocate them in facilities running below 70 percent occupancy.12 The subject is private-pay assisted living and memory care, not a Medicaid skilled-nursing facility, so the bed cap does not gate it — but the distinction is one a careful feasibility consultant states plainly, because a study that treats every senior housing segment in Texas as open-entry is wrong on the one asset class where a de facto cap applies.
Why the site captures the submarket.
The 75-plus base, adult-child proximity, and site location all point the same direction, and the drive-time geography converts that demand into tours and move-ins.
Assisted living and memory care are chosen as much by adult children as by residents, so the site read weighs both the older cohort and the working-age families who make the decision. The PMA's 75-plus population is not only large but growing near 4 percent a year, which means trailing Census counts understate the qualified base — a common exurban distortion a careful study corrects for rather than extrapolates.12 Median household income across the broader trade area sits comfortably above the level at which private-pay senior housing attaches, supporting the income screen applied in the demand build.
Location does the rest. The site sits on a landscaped arterial within a few minutes of a hospital campus, medical offices, and an established retail node — the adjacencies that drive senior housing tours, referrals, and adult-child visitation. Frontage and signalized access give the community the visibility a lease-up depends on, and the six-acre parcel carries the single-story secured memory care neighborhood the program needs without a variance. The nearest full-service competitor is more than three miles away and already stabilized with a memory care waitlist, so the subject opens into visible, unmet local need rather than splitting a saturated node.
Bank construction, then a HUD 232 permanent takeout.
Total project cost lands at $28.6 million, about $318,000 per unit.10 A bank construction loan builds and leases the community; a HUD Section 232 permanent loan then retires the bank at stabilization — the classic ground-up seniors housing execution.
| Cost component | Amount |
|---|---|
| Land (~6 acres) | $2.20M |
| Site work & utilities | $1.90M |
| Building construction (~66,000 sf) | $18.00M |
| FF&E | $2.50M |
| Soft costs (A&E, permits, legal) | $2.00M |
| Financing & construction interest reserve | $1.30M |
| Working capital & lease-up operating reserve | $0.70M |
| Total project cost | $28.60M |
Per-unit cost of ~$318,000 is consistent with the national ~$317,400/unit ($333/sf) development-cost benchmark and the $280–$452/sf assisted living construction range. See source 10.
| Item | Figure |
|---|---|
| Bank construction loan (65% LTC) | $18.60M |
| Sponsor equity injection (35%) | $10.00M |
| HUD 232 permanent loan (takeout) | ≈ $20.20M |
| Sized by | lower of ~80% LTV and 1.45x DSCR (DSCR binds) |
| Term / amortization | 35-year fully amortizing, non-recourse |
| Illustrative all-in rate | ~6.0% (note + MIP) |
| Annual debt service | ≈ $1.38M |
HUD 232 terms per HUD Handbook 4232.1 and Section 232 LEAN program materials: 1.45x DSCR, ~80% LTV, 35-year non-recourse. See sources 9 and 11.
The construction phase is financed at 65 percent loan-to-cost — an $18.60 million bank loan against $10.00 million of sponsor equity — the leverage a construction lender will carry on a ground-up going concern with lease-up risk. Once the community stabilizes, the HUD 232 permanent loan refinances the bank. HUD sizes to the lower of roughly 80 percent loan-to-value and a 1.45x debt-service coverage floor, and in the current rate environment the coverage test binds first: at a stabilized net operating income near $2.00 million, the 1.45x constraint supports about $20.20 million of permanent debt on a 35-year fully amortizing, non-recourse basis, against a stabilized value near $30.8 million — an implied loan-to-value close to 66 percent, well inside the 80 percent ceiling.9 Because that permanent loan is sized above the $18.60 million construction balance, it retires the bank and returns roughly $1.6 million of equity to the sponsor at conversion — a low-cost, non-recourse cash-out that is a core reason ground-up seniors housing targets HUD permanent debt. The feasibility study exists to support precisely that coverage: the 1.45x a HUD-approved underwriter must document, tested against an independent read of demand rather than the sponsor's own projection.
Feasible and bankable, on coverage HUD can document.
The stabilized going-concern model builds revenue from acuity-tiered assisted living and memory care, nets a labor-heavy operating expense load, and carries coverage to the 1.45x HUD floor by Year 3 on a graded fill-up ramp.
| Line | Basis | Amount |
|---|---|---|
| Assisted living revenue | 60 units × ~$5,750/mo room + care, ~90% occ4 | ≈ $3.73M |
| Memory care revenue | 30 suites × ~$7,500/mo (~30% AL premium), ~90% occ4 | ≈ $2.43M |
| Ancillary (second-person, community & care fees) | Second-occupant, community, and level-of-care fees | ≈ $0.10M |
| Effective gross revenue | AL + MC + ancillary, net of vacancy | ≈ $6.26M |
| Operating expenses | Labor ~55% of opex; care, dietary, utilities, insurance, management, property tax6 | ≈ ($4.26M) |
| Net operating income (NOI) | ~32% going-concern margin (68% opex ratio)7 | ≈ $2.00M |
Room-and-care rates grounded in NIC MAP asking rent (>$5,650/mo) and Genworth/CareScout median cost; the ~55–70% operating-expense band and ~55% labor share per Janover/MMCG and PHI. See sources 4, 6, and 7.
| Year | Stage | Avg occupancy | NOI | DSCR |
|---|---|---|---|---|
| Year 1 | Lease-up (interest reserve) | ~35% | ~$0.40M | Reserve-covered |
| Year 2 | Fill-up (nearing conversion) | ~80% | ~$1.59M | 1.15 |
| Year 3 | Stabilized (HUD 232 in place) | ~90% | ~$2.00M | 1.45 |
DSCR computed as NOI divided by the ~$1.38M HUD 232 permanent annual debt service. Years 1–2 are pre-conversion, on the bank construction loan with a funded interest reserve; permanent 1.45x coverage is measured at stabilization. See source 8 for lease-up pace.
The stabilized 1.45x coverage is the figure HUD documents, and it sits exactly at the Section 232 minimum for market-rate assisted living.9 The ramp to get there 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 a 90-unit community in twelve months without a comparable-property basis is a red flag.8 Year 1 is a pre-stabilized lease-up year funded from an interest reserve; by Year 2 the community covers fully amortizing debt service at 1.15x, and Year 3 reaches the 1.45x HUD floor. Breakeven occupancy lands near 78 percent — roughly twelve points below the stabilized 90 percent and inside the sub-85-percent cushion HUD and agency underwriters look for — so the credit carries real margin of safety against a slower fill or a labor-cost shock.6
On the equity side, the $10.00 million injection first recovers roughly $1.6 million at the HUD refinance, then earns growing distributable cash flow — on the order of $0.6 million a year once stabilized and net of a replacement reserve, building as acuity mix and rate mature in the 4-to-4.5 percent band NIC MAP has observed against fixed-rate HUD debt.1 The exit is valued on a going-concern basis, not a leased-fee cap rate: capitalizing a Year-10 stabilized NOI grown to roughly $2.7 million at a going-concern rate near the market's ~6.2-to-6.5 percent — the range applied to seniors housing at the end of 2025 — implies a gross value in the low-$40-millions, and, after selling costs and the amortized HUD balance, roughly $24 million of net equity.11 Holding acuity mix and occupancy at stabilized levels rather than assuming further rate acceleration, the blended result is an illustrative levered equity IRR of about 16 percent over a 10-year hold.
Verdict: financially feasible and bankable. On independently derived, age- and income-qualified demand, a stabilized 1.45x DSCR at the HUD 232 floor, and a ~16% levered equity IRR, the projections support the bank construction loan and the HUD 232 permanent takeout.
Independent demand, penetration, competition, and coverage stress.
The engagement was scoped the way a HUD LEAN underwriter and a construction credit committee read it. As an independent 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 an age- and income-qualified primary market area and a need-adjusted penetration rate benchmarked to observed market penetration, then netted the surveyed competitive set and the permitted pipeline rather than applying an aspirational capture rate. Revenue was modeled as acuity-tiered room-and-care fees, and operating expenses were built as a labor-heavy going concern — staffing modeled toward documented local wages — not imported from multifamily ratios.
The coverage analysis was then stress-tested. We ran the debt-service coverage and breakeven occupancy against a slower lease-up and a labor-cost re-escalation — the two variables senior housing is most exposed to — to confirm the 1.45x still holds with margin. 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 complete the HUD 232 package; those are separate third-party engagements that run in parallel to the study.9 That combination — independent, qualified demand, competition, a going-concern operating model, and a stressed DSCR — is what lets the bank and HUD rely on the file.
Underwriting a Texas assisted living or memory care community for HUD 232? Start with the feasibility study.
Feasibility Study Company prepares independent assisted living and memory care feasibility and market studies for HUD Section 232, bank construction, and agency credits, built to the going-concern and coverage standard your lender must document. A methodology briefing walks through the age- and income-qualified demand, competition, and DSCR analysis behind a case like this one, calibrated to your submarket and unit mix.
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 Assisted Living & Memory Care, Texas, and Conventional & Institutional analyses and the primary authorities they cite.
- NIC and NIC MAP Vision (April 23, 2026 release): Q1 2026 Primary Market senior housing occupancy 89.5 percent, 19th consecutive quarterly gain; independent living above 91 percent, assisted living 87.9 percent; same-store asking-rent growth ~4.3–4.4 percent and average asking rent above $5,650 per month; several Texas metros lag the national line, with Houston near 84.7 percent on legacy oversupply.
- NIC MAP Vision construction and inventory data (2025–2026): units under construction ~17,000 by Q3 2025 (fewest since 2012); year-over-year inventory growth a record-low 0.4 percent in Q1 2026; the asset class broadly supply-constrained.
- NIC MAP Vision Senior Housing Outlook (June 26, 2024): roughly 806,000 additional units needed by 2030 to hold current penetration; a ~550,000-unit shortfall and $275 billion investment gap; the first baby boomers turned 80 in 2026.
- Genworth and CareScout Cost of Care Survey: national median assisted living cost $5,900 per month in 2024, rising to $6,200 per month in the 2025 survey; memory care commonly 20–30 percent above assisted living on acuity-tiered care fees.
- 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 ~13 million (2020) to ~27 million (2040), qualified by age and income for private-pay demand.
- 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; labor the single largest operating risk in the going-concern model.
- Janover Pro and MMCG (2025): labor roughly 55 percent of assisted living 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 compress margin.
- NCAL and Senior Housing News operator survey (2025): average assisted living length of stay near 22 months, ~18–28 months in AL and 18 months to three years in memory care, and nearly 40 percent of AL residents leaving within the first year; industry practice models 18 to 30 months to stabilization.
- U.S. Department of Housing and Urban Development, Handbook 4232.1 and Section 232 program materials (Office of Residential Care Facilities, LEAN): minimum 1.45x debt-service coverage for market-rate assisted living, up to ~80 percent LTV, 35-year fully amortizing non-recourse term, state licensure with continuous protective oversight, and a third-party report set (market study, going-concern appraisal, PCNA, Phase I ESA).
- ASHA / State of Seniors Housing and The Weitz Company 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.
- CBRE, 17th U.S. Senior Housing & Care Investor Survey (late October 2025) and JLL, 2026 Seniors Housing & Care Investor Survey (March 12, 2026): average Q4 2025 cap rate ~6.2 percent, transaction volume the highest since 2015; Appraisal Institute going-concern / business-enterprise-value method allocating value among real estate, FF&E, and intangible value.
- U.S. Census Bureau, Vintage 2024 Population Estimates (Texas ~31.3 million as of July 1, 2024; Houston metro added 198,000+ residents in 2023–24; exurban Texas cities among the fastest-growing nationally); Texas Comptroller of Public Accounts (2nd-largest U.S. economy, ~$2.9 trillion GDP; 90%+ of Texans in metropolitan counties; no state personal income tax); National Conference of State Legislatures on Certificate of Need and Texas HHSC 26 TAC 554.2322 (no general CON law, but a Medicaid nursing-facility bed cap; HHSC may de-allocate beds below 70 percent occupancy).