In the pursuit of new development of senior housing properties, there are plenty of viable sites and financing available, those in the market say, if you know where to find them.
From areas characterized more by urban sprawl, such as Houston and Dallas, to the Northeast where suburban areas are more saturated with an aging population, there are development opportunities available in light of existing properties aging and sometimes approaching obsolescence.
For those doing the developing today, the considerations include everything from zoning to market penetration. But the factors may not always weigh in as they might appear.
Local competition, for example, can actually signal a good place for new development, says Debbie Laycock, Managing Director for ARA Seniors Housing.
“The higher the penetration rate, typically you’d say you don’t want to build there,” Laycock said during a Senior Housing News webinar on land acquisition and development strategies. “But acceptability of the product tends to push penetration rates up as well. So, you can go into a market with a high rate of penetration as well and be successful.”
In a market where there is high penetration, developers are looking to a second set of factors to determine whether there is opportunity for development.
“You want to look very closely at what you perceive to be competition,” says John Dragat, Head of Development for Benchmark Senior Living. “If you have penetration with good occupancy and rates, it may very well be a market to be in.”
One major factor Benchmark looks to is homeownership and home prices; not only among potential residents; but also qualified caregivers or adult children of potential residents.
According to Benchmark’s research, 75% of a community’s residents come from within a five-mile radius.
“While the resident is the senior, the decision maker is really the adult child,” Dragat says. “We look for concentrations of adult children who are 55-65 and maybe even older. We have to find locations where both are concentrated. People in their late 80s returning to the area; they may be moving back from Florida.”
A host of additional considerations, such as proximity to health care services and transportation are secondary considerations, with community reception and neighborhood remaining paramount.
Because most financing terms are contingent upon permitting, working with communities and municipalities upfront is essential. Many developers are working with towns and cities proactively to introduce community benefits, for example.
“Zoning is highly site- and locality-specific,” says George Mesires, Partner at Ungaretti & Harris LLP. “Sometimes it is introducing green space or other space [with the municipality].
Yet patience, perseverance and flexibility will all serve developers going forward, as they hone in on new development in the sector, says Dragat.
“There isn’t any tried and true set of metrics,” he says. “We, like many of our brethren that have been involved in development and expanding portfolios have thought: what correlates to high occupancy? what correlates to high [average daily rates]?. How do we pick the right site? A lot of very smart people have tried to find that smoking gun. There isn’t one.”
Written by Elizabeth Ecker