CITY COUNCIL REGULAR MEETING AGENDA PACKET

Page 2 of 4 defined in Section 2.3(a)(vii) of the Loan Agreement, could be used to cover the property's operating deficit for "extraordinary operating costs". Furthermore, the definition of Operating/Management Reserve Deposit gives flexibility as it "may be used for an unforeseen economic situation related to the Project and shall not be considered ongoing Gross Revenue". These unforeseen operating costs and expenses for The Parkview since 2021 are high vacancy rate and continued increased staffing and maintenance costs. New costs in 2023 are associated with additional interest expenses resulting from the increasing interest rate. Starting in 2020, the COVID-19 pandemic had a significant and ongoing impact on The Parkview, resulting in operating deficits in 2021 and 2022. The Parkview submitted and the City approved requests in 2021 and 2022 to draw down from its operating reserves: a drawdown of $188,144 was approved in May 2022 to offset operating deficits in 2021, and a drawdown of $701,935 in August 2023 to offset the 2022 operating deficits. Reasons cited at that time included: a significantly high and prolonged vacancy rate and challenges re-leasing units due to health concerns from families; increases in labor costs in the healthcare sector more generally and to address COVID-specific requirements; and increased maintenance and other costs. A further operating deficit occurred in 2023, for which The Parkview is requesting approval to draw down operating reserves by an additional $891,002. This draw down request amount exceeds the City Manager's individual budget authority; therefore, this item is before the City Council for approval. DISCUSSION Current Operating Reserve Withdrawal Request In 2023, the property continued to experience significant vacancy due to several residents passing away and due to ongoing implications from COVID. Filling the vacant units continue to be challenging as many seniors and their families are still resistant to move into this type of facility. In general, The Parkview is finding that seniors are waiting longer to move to assisted living; while those who are moving into The Parkview are older seniors with higher needs. This population generally have a shorter tenancy that is resulting in higher turnover rate at the property. This trend is consistent within the industry for senior assisted living facilities. During 2023, the average occupancy at the property was 90%, which is an average of 11 vacant market rate units per month. With an average rent of $8,500 per unit, the total rent loss due to vacancy in 2023 was $1,470,000. This shortfall was offset by $1,064,000 in increased revenue from raising the market rents upon turnover and from implementing 5% rent increases in 2023. The property had an increase in operating expenses of 6% in 2023 due to increased staffing and maintenance costs. Generally, staff costs have tripled compared to pre-COVID levels as qualified personnel must not only meet The Parkview's eligibility criteria but also the California state requirements for employees at an assisted living facility regulated under Title 22. Filling such positions has been challenging in the current tight labor market. There was an increase in salaries for permanent employees as Eskaton increased overall pay rates for new hires and existing staff and implemented different pay rates for weekend and night shifts. These factors have been successful in hiring and retaining needed staff. Eskaton has also made significant efforts to reduce the use of high-cost temporary staff by implementing a revised work schedule for permanent staff. In 2023, there was a 30% reduction in temporary staffing costs, and in Page 280 of 454