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									NCBDC/AAHSA Coming Home Case Study
NCBDC/AAHSA PRE-CONFERENCE INTENSIVE
                   MACDONALD RESIDENCE
                             PORTLAND, OREGON




Project Sponsor:                            Macdonald Center
Project Developer:                          Housing Partners, Inc.
Management/Operations Organization:         Concepts in Community Living, Inc.
Sources of Equity:                          Low-Income Housing Tax Credits,
                                            Private Raised Funds, FHLB AHP grant,
                                            Portland Development Commission loan

Sources of Financing:                       Network for Oregon Affordable Housing

Total Development Costs:                    $4,596,192.
Total Construction Costs:                   $3,926,814.
Development Period:                         September 1996 through June 2000
Construction Period:                        October 1998 through August 1999




                            NCBDC/AAHSA Coming Home Case Study
Macdonald Residence                                                   Portland, Oregon
I: Sponsor Description

The Macdonald Center
605 NW Couch Street
Portland, Oregon 97209

The Macdonald Center, sponsor of the Macdonald Residence, is a non-profit organization
established in 1978 with a founding grant from Maybelle and Fred Macdonald. The
Center’s mission, to assist poor, including mentally ill persons in downtown Portland, to
empower volunteers and interns to serve these chronically ill poor, and to demonstrate the
beneficial impact of personal care in the urban setting is overseen by a twelve member
Board of Directors. The Center’s staff of five help to coordinate counseling and
emergency assistance, mental health and alcohol rehab programs, health and housing
services, and provide research and information on the needs of inner city residents with
the support of over 150 volunteers.


II: Developer Description

Housing Partners, Inc.
1620 SE Ankeny Street
Portland, Oregon 97214

The Macdonald Center engaged a consultant and project manager, Housing Partners, Inc.,
to assist with the financing and development of the initiative. Based in Portland, this for-
profit, four-person firm included principals, Sharon Nielson and Kate Allen. Although
exact fees remain confidential, the total development fee was less than 10% of total
project costs and was figured as a percentage split with sponsor, with no cash flow
participation.

Sharon Nielson, project lead for Housing Partners, has since formed a new company, The
Nielson Group LLC, to focus on assisted living and housing for special needs populations
while continuing to practice primarily in Oregon.


III: Operator Description

Concepts in Community Living , Inc.
10570 SE Washington, Suite 210
Portland, OR 97216

Concepts in Community Living, Inc., (CCL) located in Portland, Oregon. A smaller,
privately owned, management, development, and consulting firm, CCL has been assisting



                            NCBDC/AAHSA Coming Home Case Study
Macdonald Residence                     Page 1                               Portland, Oregon
clients with supportive housing initiatives for the elderly since 1989. Currently managing
14 assisted living facilities for both for-profit (5) and not-for-profit (9) sponsors, CCL
operates primarily, although not exclusively, in the Pacific Northwest. In addition to
property management and service operations, Concepts in Community Living has
provided training, market analysis, design review, FF&E consultation, and marketing
services to over 500 clients nationwide. Competitively priced, contracts and agreements
have typically been adapted to meet individual project needs. CCL management fees may
vary somewhat, but most often management fees are 5 percent of a community’s gross
income, with some additional charges for special bookkeeping services. CCL negotiated
a fixed price contract for Macdonald Residence to provide consistency.


IV: Project Description

The Macdonald Residence further echoes the mission of its sponsor in serving the very-
low income, urban core resident, providing housing and making available assisted living
services.

As an affordable housing provider, the facility maintains rents at 30% of 50% of the
area’s median income, which is the income level set for tenant eligibility. As a licensed
assisted living provider, the facility serves all levels of care under Oregon’s ALF
regulations, which range from levels one through five. Although there is no specific
dementia program, the facility serves some cognitive impairments typically related to
drugs and/or alcohol. Discharge criteria include display of danger to self or others,
requirement for skilled nursing care, or failure to keep terms of resident agreement.

Offering 54 studio apartments, ranging in size from 271 square feet to 425 square feet, the
4-story design accommodates common dining, living, and recreational space on the
ground floor, to include an enclosed courtyard. The 2nd, 3rd, and 4th floors house the
tenant apartments as well as sitting areas and balconies. Medication room, hydrotherapy
bath, and office space is also distributed throughout the building to include ground floor
housing of the facility’s sponsor, Macdonald Center. All private units, per Oregon ALF
regulations, each is equipped with its own kitchenette and private bath with roll-in
shower. Basic furnishings to include twin bed, chest of drawers, and side chair are also
made available.

In addition to providing complete assisted living services, resident services are further
enhanced with the relationship of the Macdonald Center groups, including nursing and
social work students from the University of Portland (a private Catholic university) as
well as the Center’s outreach volunteers.




                          NCBDC/AAHSA Coming Home Case Study
Macdonald Residence                   Page 2                                Portland, Oregon
V: Project History

Macdonald Residence was developed to serve the downtown, urban core neighborhood of
Portland, Oregon, the community also commonly referred to as Old Town. Residents of
this community were typically socially unwelcome people, who primarily resided in very
small apartments, shelters, or low-income single room occupancy (SRO) units. They
were the poor, the under-served, and the alone. Many had increased mobility, social
service, or mental health needs. This hard-to-place group had very limited options
available or acceptable to them without having to relocate outside of the area and away
from the one place they could call home.

In 1994, Father Richard Berg, pastor of the St. Vincent de Paul Parish Downtown Chapel
and Chair of the Macdonald Center Board, wanted to build housing for this population.
Already providing many outreach services to this population, he recognized one more
area in which they could be of service. Later that year, a pledge of $1,000,000 from
Maybelle Clark Macdonald, was made toward that end.

Substantiating the market proved difficult, as this was a fringe population who were not
representative of the traditional assisted living client. Much of the information regarding
the population had to be obtained through dialogue with area Case Managers.

The site location, although situated centrally for the targeted population, had very
negative perceptions in the community. The worst drug corner downtown, vacant and
dilapidated buildings were across the street, and a nightclub was located adjacent.

In conjunction with the financing, housing and services had to be separated. A property
management contract was executed with the limited partnership that owned the building
and a separate service contract was executed with Macdonald Center. Further, no service
money was allowed to flow through the limited partnership. The project financing was
underwritten on the strength of the real estate transaction. Service income and rent from
Macdonald Center offices was not considered directly.

Additionally, the project was required to establish and fund a $150,000 land purchase
reserve to grow sufficiently to exercise the option to purchase in year 25, as a portion of
the site is a ground lease with a third party. Debt reserve of $475,000 was also funded up
front to secure against the possibility that Medicaid would go away. While the facility
could function as housing, it was built as an assisted living facility with that market
criteria therefore it was unknown how it would/could function as only low-income
housing. The reserve was required so the debt could be brought down to an amount that
would be supported by what could be lower rents than required under the Medicaid
model.



                          NCBDC/AAHSA Coming Home Case Study
Macdonald Residence                   Page 3                                Portland, Oregon
Lenders required that all pledged monies had to be in place by the time the construction
loan closed. Fundraised money was required to be spent before LIHTC money or loan
funding could be applied. Although there are few sources who will bridge pledges, the
Archdiocese of Portland came through and provided an interim loan of approximately
$100,000 to keep the project moving toward construction loan close and start.

Some lessons learned from the project include the need to give consideration to the
sponsor’s organizational structure, experience, and activities. Going from a $150K per
year, primarily volunteer organization, to the owner/operator of a $6M project with
complex real estate and financing aspects required significant organizational
restructuring. More concentrated preparation and restructuring, in tandem with project
evolution, should have been made an equal priority. Also giving greater consideration to
the multiple single-focused entities in such a project and including an objective
liaison/translator early on for the team could have proved very useful. As this project
merged together housing (property/asset management focus) and services (care provider
focus), two very differing mindsets were struggling to work together.

Generally, begin early, on all aspects. Full research and understanding of the many
details required to each element of the project and assurance that a “marriage” can take
place is essential to saving a lot of time and perhaps heartache if unsuccessful. After
determining that it can indeed work, begin early to merge the two into a single workable
entity. And finally, know your clientele. The targeted population had significant mental
health and substance abuse histories tied with a complete lack of residential stability.
Very needful in some unique ways, it was recognized that a model was not in place and
thus continues to be a learning process.


VI: Initial Feasibility Study

The Macdonald Center, already providing teaching and outreach support services to
residents of Old Town, envisioned housing with underground parking and perhaps a
grocery store. Operating out of rented space in the basement of the Saint Vincent DePaul
Parish, Downtown Chapel it identified an almost adjoining site that would also be
centrally situated for the community. Following a feasibility analysis, the grocery store
and underground parking were ruled out; however, an adequate market for an assisted
living facility was found. Demographics were run applying standard national averages
for functional impairment and factoring in the number of Medicaid eligible individuals
located in the primary market area. A Market Study was completed in April of 1997 and
an appraisal lending further support was done in June of 1998.

Initial financing assumptions for the project were to use a combination of tax-exempt
bonds, 4% low-income housing tax credits, a city-sponsored contingent loan, Federal



                         NCBDC/AAHSA Coming Home Case Study
Macdonald Residence                  Page 4                               Portland, Oregon
Home Loan Bank, private foundation grants, and other charitable donations. Just prior to
completing the bond application however, the IRS issued a private letter ruling that
defined assisted living as a community facility and not housing. Several months later this
confusion was resolved by the IRS, although the project had already been switched over
to 9% tax credits.

Election of a 100% set-aside building to serve those whose incomes were at or below
50% of median, required by the financing methods applied, also meant that the target
market would be Medicaid-eligible for service reimbursement costs. Thus, it was
anticipated that residents would be social security or supplemental security income
recipients, paying their own rents set at 30% of 50% of median income, with Medicaid
supplementing service costs.

The preliminary development and construction schedule was delayed by 8 months due to
the financing restructure prompted by the IRS ruling.

Initial staffing assumptions allowed for a full-time administrator, resident service
coordinator, and nurse. A dietician was factored in on an as needed basis with a 1.25
FTE cook and 1.25 FTE cook’s helper. Resident assistants were projected at 7 as well as
a 1.25 FTE certified medication assistant. Housekeeping was at 0.77 FTE, maintenance
at 0.2 FTE, and one full-time cross-trained janitor/night security/resident assistant. Initial
operating cost estimates are attached.


VII: Pre-development

The sponsor started the project with a $1,000,000 matching pledge from Maybelle Clark
Macdonald and gained site control. The site consisted of two lots totaling 11,000 square
feet; one was purchased and the other, a ground lease.

The project team included a full-time fundraiser, HG Westby Associates, and a
development consultant/project manager to secure and close the public equity and debt
financing, provide construction coordination and budget management, manage draw
request process, prepare reporting to funding sources, and close permanent loan.
Additionally, an assisted living project consultant, Mary Radtke Klein of Assisted Living
Associates, was brought in early on to further define the targeted population, develop
service plans, and dialogue with case managers and the state.

Project was design built for mechanical, electrical, and low voltage with the general
contractor, Seabold Construction working closely with SERA Architects throughout the
schematic and design development, as well as construction document phase to do value
engineering and produce updated construction cost estimates. Design was critical




                           NCBDC/AAHSA Coming Home Case Study
Macdonald Residence                    Page 5                                 Portland, Oregon
because the site was very tight to achieve the number of units while meeting all licensing
requirements.

Construction bids were in line with budget due primarily to the contractors early
participation.


VIII: Financing

The development consultant, identified and structured the project financing, having
extensive experience with the use of public and private financing, and in particular with
Low-Income Housing Tax Credits. This project was only the second project in Oregon to
use LIHTC and the first to use 9% credits. Bank of America was the construction lender
and Network for Oregon Affordable Housing was the permanent lender. They both paved
new ground in producing a 100% affordable project with significant non-government
based fundraised dollars in the deal. It was fortunate indeed that both construction and
permanent lender worked well together in completing community-lending transactions.

Most difficult during the financing process was the requirement to separate the housing
component from the services component. More appropriately, the difficulty was getting
the tax credit investors to understand how housing and assisted living services could be
provided within the structure of LIHTCs. In future efforts it would be beneficial to have
an investor knowledgeable and accepting of using the LIHTC program for assisted living.


IX: Operations

A well-developed operating system and willingness to adapt standard procedure to a
specialized population was a key factor in selection of the operator. Experience with not-
for-profits and service to significant ratios of Medicaid residents were also weighed. The
management agent chosen met these criteria as well as having a proven and long-standing
track record of sensitive, compliant, and financially sound operation of assisted living
facilities. Further, and perhaps most importantly, was a shared philosophy and a
reputation of value-based service delivery. These factors contributed to little negotiation
required regarding fees, budgets, or plan of operations. Operations was made somewhat
more difficult by the fact that the management contract had to be separated into a housing
contract and a services contract. The resulting two management contracts (attached) had
to be carefully reviewed for internal inconsistencies between the contracts.

The management contracts were standard contracts that paid a flat fee per month with a
small additional charge for payroll oversight and the handling of receivables and
payables. A bonus of $5,000.00 was added for achieving full occupancy within six
months of opening.



                          NCBDC/AAHSA Coming Home Case Study
Macdonald Residence                   Page 6                                Portland, Oregon
X. Construction

The construction contract was GMP (guaranteed maximum price) and had significant
supplemental conditions to the AIA contract to protect the owner interest. Supplemental
conditions included funding issues and were prepared by Randy Stenson under the
direction of Sharon Nielson and Housing Partners.

Construction monitoring to represent project owner was provided by Randy Stenson of
Stenson & Company.

Construction generated change orders used about ½ of the 5% contingency. The balance
of the contingency went to soft cost overruns.

Construction was scheduled to be completed by August 1st but was not finished until
August 26th of 1999.

Occupancy was completed within the six-month window. It could have been completed
sooner, but the difficulty of this population required a measured lease-up to support
maximum operating stability within the building.


XI. Marketing

Macdonald Center staff and Concepts in Community Living handled all marketing of the
project. Given the unique client and geographical characteristics, marketing was directed
solely toward local referral sources. Macdonald Center’s long involvement with the local
community provided an exceptionally strong basis for attracting tenants to the facility.
Beginning about three months out, low-income housing projects, religious service
organizations, and state and local government agencies were visited. No direct marketing
was done, however extensive communication with Area Agencies on Aging, the
Northwest Pilot Project, and Senior and Disabled Services Division took place. Dusty
shoe tours, pre-completion tours, and open houses were held. Telephone inquires were
taken by the corporate office and applications mailed out to begin a waiting list.

Of considerable assistance during the early stages of marketing was the closing of the
Patton Home in north Portland. The Patton Home was due to close for a complete
remodeling at about the time of the opening of Macdonald Residence. Seventeen
residents of the Patton Home transferred to the Macdonald Residence during the first two
months of operation.




                         NCBDC/AAHSA Coming Home Case Study
Macdonald Residence                  Page 7                               Portland, Oregon
XII. Operations Start-up Coordination with Building Completion

The management contracts were set to begin at initial occupancy and were to be run for
three years, with renewal options. Staff hiring for the project was staged to limit staff
expenditures while allowing appropriate time for training. The director (administrator) of
the facility was hired four months prior to opening of the building. This allowed for
training, marketing, and hiring of other staff. Approximately, one month out, an RN was
hired; most other employees were brought on beginning two weeks prior to opening,
continuing through fill-up.

No major problems occurred with the delivery of FF&E, nor with the licensing
inspections. In spite of problems with a number of systems, e.g. security and nurse call
system and elevator reliability, the inspections and opening of the building went very
smoothly. Two factors are important here. First, allowing the opening date to be
extended for one month allowed time to “get the kinks out” of the building and second,
the development team had a great deal of experience – all the companies involved from
the developers to the assisted living consultant to the management agent had considerable
experience with similar projects. Likely problem areas were anticipated and steps were
taken to avoid them. For example, failure to coordinate licensing inspections with the
owner, the management agent, the contractor, and the architect can result in considerable
delay.




                          NCBDC/AAHSA Coming Home Case Study
Macdonald Residence                   Page 8                               Portland, Oregon

								
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