Investors Focus on Repositioning Aging Senior Housing Stock as New Construction Lags

With new senior housing and care construction still challenging to finance, investors and operators have a great opportunity to reposition aging stock to meet the demand of future residents, said panelists at the National Investment Center for the Seniors Housing & Care Industry’s National Conference earlier this week. 

There has been a “dramatic” change in the desires, needs, and demands of seniors from 10 years ago, when a lot of the existing senior living stock was created, said Brian Beckwith, the CEO of Formation Capital, which specializes in skilled nursing.

“We’re spending a lot of time trying to identify buildings that could benefit from extra capital expenditures,” he said during the panel. 

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While many good operators have been able to keep their communities up-to-date, others have not, he continued. “It’s a great opportunity for investors and operators to go into these properties with capital, and make them match the demand of the market,” he said. 

For a lot of the buildings, the “bones” of the structure are adequate, providing opportunity to take advantage of. But that’s not true for all, warns Tim Fox, the executive vice president of luxury senior living management company Senior Resource Group LLC.

There’s a lot that artful operators and developers can accomplish with an old property, he said. However, “there’s a whole bunch that just needs to be bulldozed down. [For some,] the physical plant can’t adapt. It’s a great opportunity, but it’s fraught with risk.” 

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In addition to physical plant limitations, it’s important to keep in mind that the older, frailer population many senior living communities are now serving could also become an issue. 

“There are fire code and building code issues,” said Tom Grape, CEO of New England-based provider Benchmark Senior Living. “You want to provide more services [for a frailer population], but those are harder to fix.”

The buildings that can be repositioned can most benefit from updated lobbies and common spaces, says Beckwith. Another strategy is to make some of the rooms bigger and upgrade their amenities.

“It’s an updating of depression era versus the baby boomer era,” he says. “There’s an expectation for a level of quality inside the individual rooms. If you can make those changes, your property can become much more competitive.” 

Ultimately, it’s all about providing the services and experiences the current generation of senior residents want, said fellow panelist Ray Lewis, the president of Chicago-based healthcare REIT Ventas Inc. (NYSE:VTR). Programming is an integral part of that. 

“It’s overcoming operational obsolescence,” Lewis said. “The industry is very much up to that challenge.” 

Written by Alyssa Gerace

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