As the economy has rebounded from the financial crisis, continuing care retirement communities again have started opening in city centers. These gleaming new communities signal the renewed strength of the senior housing market, but questions remain as to how much CCRC development to expect in urban locales and what will prove successful operationally.
While the pace of urban CCRC development still lags what was anticipated before the economic collapse — and experts say those predictions may never be realized — new operations in Colorado and Texas, and a revitalized community in Chicago, provide a glimpse into what the future may hold for metropolitan senior living.
The Balfour: Seizing the Moment
This week, the Balfour at Riverfront Park in Denver begins welcoming assisted living and memory care residents, after opening its five-story independent living wing in October.
The building occupies prime real estate beside a 17-acre park, close to downtown landmarks such as Coor’s Field, and is ahead of projections with nearly 50% occupancy for its 112 IL apartments. It also has 65 assisted living units and 28 for memory care.
While operations might now be unfolding smoothly for the Balfour, prospects for the CCRC for years seemed much murkier.
The history of the community stretches back a decade. That’s when Balfour Senior Living founder and CEO Michael Schonbrun and his wife purchased the site.
They had been approached by one of the senior partners at East West Partners, which was spearheading the urban renewal project for the area and wanted a diverse demographic mix of residents, including seniors.
The renewal effort already had transformed the neighborhood from an unwelcoming industrial zone to one featuring some of Denver’s priciest condos.
“It seemed almost like a no-brainer,” Schonbrun tells SHN of the decision to move ahead with the project. “We were intrigued with the possibilities of this site.”
In fact, Schonbrun and his wife put up about $3 million of their own money to buy the real estate, taking out a mortgage to do so. The balance of the $8 million purchase price came from a land loan through a local bank.
Schonbrun says the decision to finance so much of the project from personal funds was extraordinary, unlike any other Balfour project since the company first opened a community in 1999.
And the decision highlights not only his personal commitment but one of the continuing barriers to entry for urban CCRCs: City real estate is pricey and in high demand, putting pressure on operators to move rapidly and seize the moment when they find a site.
Schonbrun succeeded not only in buying the land but securing a capital partner, and the project gained steam — as the economy began cratering. The equity partner, seeing a looming recession, decided it wanted to exit the project.
Ultimately, the parties worked out an an agreement under which the property could be relisted for sale, with Balfour having the right to match the best offer. However, given the depth of the economic crisis and its effects on the real estate market, the site did not go back on the market for about three years.
The Balfour was hardly the only urban CCRC development negatively impacted by the recession. Take the planned Skyline Commons in New York City. In 2007, The New York Times ran an article on the projected boom in urban CCRCs that namechecked Skyline Commons. Two years later, the project was shelved.
The ultimate outcome in Denver was positive. The Balfour lined up a new equity partner and succeeded in purchasing the land after it went back up for sale in 2012.
Construction moved forward, but the altered economic conditions meant that the original plans for the CCRC had to be updated. One major decision: Cutting out a skilled nursing component.
“After the recession, we made a decision to make the project somewhat smaller,” Schonbrun explains. “We concluded that we could live without skilled. Arguably, these residents are bed-bound and not inclined to use all amenities of vital urban center.”
The Balfour’s choice to forgo a SNF wing makes it part of a larger trend in urban CCRCs.
“There is growth in urban environments, but it’s not necessarily the typical, full-continuum CCRC,” Dan Hermann, senior managing director-head of investment banking at Ziegler, tells SHN.
Zoning requirements for SNFs and other considerations are at play, and even operators that want to offer a full continuum may find that bottom-line considerations prohibit them from serving high-acuity residents.
“A licensed nursing setting in an urban market is especially costly,” Hermann says.
The Balfour might be a representative urban CCRC in another way: It operates on a rental model.
Schonbrun and other Balfour leaders do not fear that prospective residents cannot afford an entrance fee — and in fact the top monthly rates for independent living and assisted living are in the range of $10,000 at the Balfour at Riverfront Park — but having a rental model is the company’s philosophy.
“For us, not having that big upfront amount, we look at that as people being able to keep their funds and invest them as they wish,” Balfour at Riverfront Park Executive Director Niki Gewirtz tells SHN.
While other operators might have different reasoning, it appears the rental model is gaining favor. Gewirtz says she sees more rental models than entrance-fee communities, and Hermann supports that impression.
“Our observation on the national landscape is virtually all for-profit new construction of this type is rental in nature, except with a handful of exceptions,” Hermann notes.
If the Balfour at Riverfront Park continues on its current successful path, other operators interested in urban expansion likely will be glad to have it as an example, as there are relatively few they currently can learn from — and use to reassure equity investors, lenders and other capital sources that plans for new developments are viable.
“You can’t point to hundreds of similar facilities to give banks reassurance, or even equity investors,” Schonbrun observes.
Despite the challenges that the Riverfront Park CCRC had to surmount, Schonbrun remains convinced that there is a significant if niche demand for urban senior living, which he wants to target.
“We think there’s going to be a market there. Is it most of the senior housing market? No. For a discerning quarter? We think yes,” he says. “We want to do more of these.”
The Stayton: Smooth Sailing
While the Balfour at Riverside Park could be a fairly typical urban CCRC if present trends hold, The Stayton at Museum Way shows that there still is a place for full-continuum, entrance fee communities.
The Stayton (pictured at top) is an 11-story CCRC that opened in Fort Worth, Texas, in 2011. It has 188 independent living apartments, 42 assisted living units, 46 skilled nursing beds and 20 memory support units, and is sponsored by Senior Quality Lifestyles Corporation (SQLC), a Texas-based nonprofit organization.
As was the case in Denver, development was largely driven by a real estate opportunity.
“I think what really drew the developer, Greystone, to this site was the fact that was adjacent to the cultural district here in Fort Worth,” Stayton Executive Director Scott Polzin tells SHN. “Being able to develop on such a small footprint of three acres and the vibrant cultural district made it very attractive.”
In fact, the site was so attractive that construction proceeded despite another CCRC being located nearby, Polzin observes.
“Trinity Terrace is literally right across the river from us,” he says.
The Stayton at Museum Way differentiates itself from that competition in some notable ways — including by offering an entrance fee option for life care, while Trinity Terrace is a rental model. And, so far, the nearby competition has not suppressed occupancy at the Stayton.
The community began 2014 at 62% occupancy and ended at about 90%, according to Polzin, who took over as executive director that year.
While the Stayton will not quite hit full occupancy in 36 months, as projected originally, Polzin anticipates that they will reach that milestone by June.
The relatively smooth fill-up is characteristic of this development, which also had few construction hiccups.
In this regard, the Stayton is an outlier among urban CCRC developments. Snafus that hold up construction and drive up costs is a major concern for financers and operators alike, notes Ziegler’s Hermann.
“The track record is that there are always delays on denser site construction,” Hermann says. “Fire, flooding, lack of delivery of materials, holds up the entire construction. I’d say more than half of high-rises of 13 stories or higher built in last 20 years had delays of one sort of another, whether one or two months or longer. You rarely see delays on a classic green field site that’s suburban.”
Yet, the Stayton’s success is not only due to unusual luck but a smart assessment of favorable market forces.
In Fort Worth, a strong real estate market means that prospective residents are able to sell their homes within six months essentially at the list price, giving them the needed resources to move to the Stayton, Polzin says.
Demand for senior living also is high in the area in general — even as the Stayton has seen a surge in move-ins, Trinity Terrace is expanding to a third tower, Polzin says.
“I really think its going to be market to market,” he says of urban CCRCs. “In some places, it’s going to be expensive and difficult to find land. But areas like Fort Worth are going through an urban renewal, and there is land available and it makes sense. I personally think we’ll see more of this urban model in the future.”
The Clare: Coming Back Strong
Considering the Stayton’s early success, it might seem that senior living providers should eagerly be exploring opportunities for traditional, entrance-fee CCRCs in major metro areas. The Clare is a high-profile example of why many operators are leary of doing so — but the Chicago community also has managed to bounce back strong from hard times, showing the resilience of the urban senior living model.
The Clare, a 53-story skyscraper rising from the downtown campus of Loyola University-Chicago, might be the most dramatic example of an urban CCRC in the nation. It also could be Exhibit A proving the point that urban construction can be plagued with difficulties, in this case including delays and cost overruns related to the building process and working through the regulations for building a high-rise in the heart of downtown Chicago.
“One of the things that I think happened here at the Clare was a budget creep, so the cost of the development continued to creep upwards, which drove the entry fee up to pay back development costs,” explains current Executive Director Kyle Exline.
Those rising entrance fees proved unsustainable, in part due to terrible timing: The Clare opened its doors in 2008, just as the financial crisis hit. Many residents suddenly did not have the assets to make a move.
“The Clare is the quintessential CCRC that ran into problems during the crisis,” Hermann says.
Those problems ultimately led to bankruptcy — but that ushered in new ownership in 2012 and began a turnaround for the troubled CCRC, says Exline.
“We reduced entry fee pricing around 30% to 40% from where it originally was in 2008,” Exline says. “The Clare really had to reevaluate its pricing structure to make sure it was competitive with the condo market and overall real estate market in Chicago.”
Another big change: The Clare saw unanticipated demand and decided to expand its SNF care. This proved a logistical challenge.
“It was a Rubik’s cube how we made it work, because of how our floors are set up,” Exline says. “First, we built a state-of-the art memory care floor, allowing us to free up space on a traditional AL floor, and we were able to renovate that to skilled nursing.”
The Clare got certified for the additional skilled nursing beds just last month, underscoring how this is the beginning of a new — and more profitable — era even for a pioneer in urban CCRCs.
“Any time you go through a bankruptcy and sale, it creates a lack of trust in the product,” Exline says. “We’re seeing seniors trust the product again. There’s a pent-up demand with our senior population here in Chicago.”
Despite the Clare’s comeback, Exline is circumspect about whether future urban CCRCs will resemble the Chicago community. The financial crisis has seniors nervous about putting down large sums for an entry fee, meaning rental communities indeed may have an advantage, he says.
Exline ultimately concludes that high-rise CCRCs on the scale of the Clare likely will be “somewhat rare.” Hermann confirms that to his knowledge, “nobody” is discussing such a plan.
However, like Schonbrun and Polzin, Exline does anticipate growth in urban senior living developments that offer some sort of continuum of care, because an increasing number of seniors will want the option.
Exline puts it simply: “People will be interested in this type of community.”
Written by Tim Mullaney
