Senior Housing News is taking a more in-depth look at our list of Top Development Locations for 2013. This fourth installment looks at development trends in Arizona that are focused more on repositioning than new construction. Read the first installment on the Carolinas here; the second, on Florida, here, and the third, on Georgia, here. Please note that SHN’s development list is not ranked in any particular order.
Snowbirds are still flying south (or more accurately, southwest) in retirement, making the Scottsdale/Phoenix region of Arizona a consistent choice for those in the senior living industry, but in 2013 the focus may turn to retaining retirees in existing communities.
In the wake of the recession, the senior housing market recovery has been slow in Phoenix. The market area remained at its cyclical low through the end of the third quarter of 2012, said the National Investment Center (NIC) for the Seniors Housing & Care Industry during a press briefing at its annual convention held in September.
While there’s still plenty of demand for affordable senior housing, the private-pay segment—generally independent and assisting living—got “pretty well overbuilt” in the last five years, says Tom McQuillen, a principal at senior living architecture firm Lizard Rock Designs, LLC, based in Tucson, Ariz.
“A lot of the folks who might potentially move into some of these retirement communities were in homes they couldn’t sell [after the housing bubble burst], and that put a damper on the senior living market,” says McQuillen. “The one thing we’re starting to see more of is companies that are coming from Chicago and the West Coast into markets here, purchasing existing properties, and renovating them.”
Phoenix had 427 units of senior housing under construction for a 1.98% construction versus inventory rate—ten basis points beneath the national rate—as of the third quarter, according to NIC data, giving the market a chance to absorb existing supply.
Independent and assisted living occupancy rates are still down on an annual basis in Phoenix, but the third quarter saw improvement for both, along with roughly half of NIC’s top 31 market area profiles.
The recovery process may be slow, but the market demographics are still very much in the senior living industry’s favor: The median age for residents of Maricopa County, which encompasses Phoenix, Scottsdale, and nearby Sun City, was 73.4 years old as of 2010, compared to Arizona’s median age of 37.1 years and the national median age of 36.8 years.
The area attracts a lot of younger retirees with its temperate climate and low property taxes, among other features. Enter national homebuilder PulteGroup, Inc. (NYSE:PHM), whose active adult community brand got its start in Arizona. PulteGroup spokesperson Jacque Petroulakis says the metro area is one of just a few large markets with more than one sizable Del Webb community, as the brand currently has two active adult communities in the greater Phoenix area with more than 11,000 homes built or planned for 55+ buyers.
Although a PulteGroup survey of baby boomers conducted earlier this year showed higher variation in retirement destinations among pre-retirees, Arizona continues to be a “top destination” for the 55+ crowd, says the homebuilder. More than four in ten Del Webb community residents in Arizona are from out of state, according to Petroulakis, with Washington, Illinois, California, and Colorado functioning as the biggest “feeder markets.”
However, the Phoenix/Scottsdale market is still dealing with the after-effects of the recession, says McQuillen, which caused “everyone to delay everything”—including moving into a retirement community.
“Now, the age of a person entering independent living is much older,” he says. “In a lot of cases where seniors have left their homes and moved into independent living, communities are much more attractive if residents can also get assisted living, if they need it, and memory care.”
Many Lizard Rock Design clients are renovating existing communities to change or expand the types of services that are offered, McQuillen says, in order to better retain residents. One project his firm is currently working on is licensing an independent living apartment building so it can also provide assisted living, along with converting a portion of it for memory care.
Other repositioning projects include combining two one-bedroom units into a two-bedroom apartment with “great rooms” and open areas. This is becoming a more common strategy, says McQuillen, as the incoming generation of retirees are coming from a “different kind of home” often characterized by their modern features and spacious, open floor plans.
Although much of Lizard Rock Design’s business came from affordable housing projects funded by tax credits throughout the recession, McQuillen says activity is starting to pick up in other sectors as well.
“There’s definitely more activity in the private sector now,” he says. “There’s not as much new construction, but there is a lot of repositioning.”
Written by Alyssa Gerace