Is Luxury Senior Housing a Viable (or Necessary) Concept?

Sunrise Senior Living (NYSE:SRZ) recently announced that a Maryland senior condominium complex it manages is facing foreclosure due to much lower-than-expected residency, just a few months after Chicago’s The Clare filed for bankruptcy in November after being unable to keep up with bond payments thanks to the tough financial market.

Are these high-profile struggles indicative of the entire luxury senior living industry? And is this particular product concept even necessary, considering the clients they’re trying to attract are likely able to afford these services on their own?

Creating a Valuable Commodity

Advertisement

To the first question: Not necessarily, says Aaron D’Costa, chief business development officer at Chicago, Ill.-based Pathway Senior Living, although for the second question he concedes that it is a more difficult task to convince clients of this model’s worth.

“The luxury urban communities in many markets are struggling and having quite a bit of difficulty because of the overall value proposition compared to what seniors have access to, and may have had access to for quite some time when living in an urban environment,” he says. “So, the services that are being offered may not necessarily seem as appealing [to the urban dweller] versus someone who may be living in the suburbs, where transportation and meals may not be as readily accessible.”

Value is locational, he says, and luxury residences need to offer more in terms of services and amenities that align with the type of consumer they’re looking to appeal to, especially at a time when the economic recession is hurting just about everyone.

“Looking at the services that that type of senior would want, in many ways it would be like a hotel concierge, and that becomes the greater value that’s being offered,” says D’Costa.

That, along with the operator’s ability to create a seamless, convenient process and the potential for some sort of discount or value proposition for third party services, can make the high costs of luxury senior living “worth” it.

“If they know that they could go to this concierge in their community and they could arrange flights, hotels, concerts, etc., and they could arrange that for less than what they could on their own, then they’re more likely to use that service,” he says.

Supply and Demand

But in order for a commodity to be made valuable, it must first be in demand.

For Fountain Square Properties, LLC’s senior housing division Kensington Senior Living, which offers high-quality, high-acuity assisted living, the viability of a product depends on the market.

“The first step is that you’ve gotta go to the right zip code,” says Tiffany Tomasso, a founding partner of Kensington Senior Living. “We look for deep, dense, high-barrier areas; there has to be enough demand.”

She says the first thing her company looks at is the depth of adult children, or qualified caregivers, in the market. Two key components are their income level and housing values, she says, along with their age.

Next, the depth of the qualified senior market is assessed—the number of 75+ people who live in that market, at different housing and income levels.

The third thing to consider is existing supply, and how many assisted or independent living, or memory care options, are in the market area.

“If we think that surface information indicates this is a place we should go look, then we visit the market and check out the competition,” says Tomasso. And here’s where it’s important to differentiate a product in order to meet demand: “What are they [our potential competitors] doing well—and what are the gaps?”

Kensington’s product, for high-acuity, high-lifestyle assisted living residents, is meant to fill those gaps.

A new development includes The Kensington at White Plains, New York, an assisted living/memory care community with 53 units of assisted living and two floors of memory care units, with a total capacity for 105 residents.

The senior living provider has the “most progressive license in New York,” according to Tomasso, which allows them to provide “enhanced assisted living” for a very high acuity model. “We have nurses around the clock, and there’s a physician’s office on-site, along with a rehabilitation center; we bring a lot of the medical services to the community. It’s highly convenient.”

And convenience, similar to what D’Costa said about concierge-style services, is exactly what’s needed in order to attract clientele in a crowded market. Most senior living communities will offer either a luxury—or “high” lifestyle, as Tomasso terms it—product, or offer care for high-acuity residents. “We haven’t found many brands out there that are able to do both,” she says.

So far, it seems that Kensington’s model is working. The White Plains community has been open for six months and has a 60% occupancy rate, which Tomasso expects to rise to at least 93% in the next 18 months—significantly above the current industry average of 88.2%.

“We’ve looked at things that in this zip code, with the level of affluence that is here– What can we offer that is not currently being offered in the market?” says Tomasso, listing community amenities such as extended dining hours, made-to-order meals, point-of-service booking, activity programs distinct to each neighborhood, and higher staffing ratios compared to much of the rest of the industry.

In the Pipeline

Meanwhile, despite The Clare’s travails, and the possibility of foreclosure for the Sunrise-managed Fox Hill Condominium, other luxury senior housing developments are moving forward.

Kensington Senior Living has another couple projects in the zoning process in California, according to Tomasso, with several more pieces of land being considered for development in northern New Jersey and metro New York.

In Chicago, retirement community operator Kendal Corp. is providing technical advice and operating systems for The New Admiral at the Lake, a retirement high-rise located on the city’s North Side that’s currently under development. This urban senior living residence will have entrance fees ranging between $300,000 to $900,000 in addition to monthly fees of about $2,000 to $4,500 depending on the size of the unit and contract.

And on the West Coast, another developer is pitching a luxury senior independent living project to the local planning board for a community whose units could cost anywhere from $350,000 to more than $1 million, depending on size and location.

Creating a value proposition in an attractive location with strong market demand can go a long way toward proving the concept of luxury senior living’s viability. But at the end of the day, it’s important to keep in mind the changing American demographics, says Dave Stolte, vice president of Senior Housing at NAI Capital, based in Orange County, Calif.

“The gulf between the wealthy and the poor is becoming greater and greater, and the middle class is shrinking,” he says. “There aren’t too many people in the future who are going to be able to afford a $9,000 to $10,000-a-month stay in a CCRC’s lap of luxury.”

Written by Alyssa Gerace

Companies featured in this article:

, , ,