The Senior Housing Pendulum Has Swung: It’s Time to Build

With dwindling supply upping demand for seniors housing, and capital starting to return to the market, it’s time to start building, agreed panelists for a National Real Estate Investors webinar, To Build or to Buy: The Question for Seniors Housing.

The pendulum has swung to construction, according to Mel Gamzon, the president of Ft. Lauderdale, Fla.-based Senior Housing Investment Advisors. “As we emerge from several years of limited production due to the economy, consumer hesitance to move, and lack of capital, construction capital is becoming more readily available—but on a highly-selective basis,” he said during the session.

“It’s time to build,” agreed Alan Plush, a senior partner with valuation firm HealthTrust LLC.

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“There are a number of markets that warrant building,” thanks to fewer opportunities on the acquisition side, favorable supply/demand ratios and increasing occupancy and rate growth, he continued.

Construction lenders up until recently have been very hard to find, said Doug Schiffer, the president of Allegro Senior Living, a developer and manager of luxury retirement communities headquartered in St. Louis, Mo. He said his company heard “No, thanks” from about 50 different lenders when looking for debt financing for a Stuart, Fla.-located senior living community that opened last year.

“Things have certainly opened up a bit now,” Schiffer said. “As long as you have the right set of circumstances, there will be people willing to come to the table.”

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That “right set of circumstances” can also be viewed as possible barriers, as construction project sponsors must demonstrate their ability to fill up new buildings and handle operational risks, Gamzon said.

“Only AAA sites will be approved by debt/equity sources, and an experienced operating team is essential,” he said. “Unless you have a sophisticated loan package, it’s going to be very difficult to secure capital.”

He also pointed out “clear linkages” between real estate/multi-family developers and seniors housing owner/operators for certain opportunities, such as sites that have been cleared for hotels or other commercial development that can be used for seniors housing.

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Overall, it’s a favorable market for those looking to develop rather than just acquire, especially with 38% of the industry expecting cap rates to remain steady, with another 37% expecting cap rates to either increase or decrease by less than 25 basis points, according to a Seniors Housing Study conducted by NREI and Senior Housing Investment Advisors.

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Source: Mel Gamzon, Senior Housing Investment Advisors

“What you’re seeing with acquisitions, with prices per unit and returns, [is] you can get a bigger return on the development side,” said Jon DeLuca, President of Senior Lifestyle Corporation, an owner/operator/developer of independent and assisted living.

Written by Alyssa Gerace

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