Siena PSD, a partnership between Siena Senior Living and Pacific Summit Development, marked new progress on its 20-project, approximately $360 million pipeline of senior living communities after obtaining entitlements for an eighth site in mid-June.
The pairing combines real estate development veterans with some relative newcomers to the senior housing industry who are planning to build about 2,064 units of mostly assisted living and memory care with some independent living in the next couple years. The size of the communities generally ranges between about 75-125 units each at an average construction cost of $18 million.
Pacific Summit Development, founded in 1987, is led by partners Randall Driscoll and William Thurston, both of whom have extensive real estate and development experience through their backgrounds with the Downey Savings and Loan’s real estate development program.
Don and Andrew Pitarre are the co-principals of Siena Senior Living, LP, which formed in 2008 and sold its first planned and developed assisted living community, located in Longmont, Colo., to Ventas (NYSE:VTR) in March 2012.
“We always wanted to get into assisted living, but it’s hard to do unless you’ve got a track record,” says Don Pitarre, who says his company forged ahead “in spite of” the Great Recession. “So we paired up [with PSD]. They’ve got the strength to help bring a lot of projects to the market, and we’ve been on a tear this year getting properties and going through entitlements. We specialize in getting entitlements done.”
At this point there are about 20 projects in Siena PSD’s pipeline that will be developed in the next 18 months. As of June 15, eight are slated to have completed the entitlement process, with six more expected to obtain entitlements by early fall and the rest by the end of the year, according to Siena PSD’s project pipeline schedule.
Project locations include Fairfield, Ventura, Santa Barbara, San Ramon, Carmichael, Citrus Heights, Nipomo, and San Diego, Calif. Eight more projects are located in Texas, in McKinney, Temple, Waxahatchie, Austin, Houston, and San Antonio, and two more in Scottsdale, Ariz.
Once projects are entitled, Siena PSD generally breaks ground within 60 days. The developer has relationships with nearly 10 sale-leaseback senior living operators, and works with REITs both directly and through those operator partnerships, says Pitarre, although he declined to name any operator or REIT partners. Siena PSD uses architect Irwin Associates for all its projects and ProMatura Group for market studies.
REITs and private equity funds have been “very active” with development financing, and that’s where around half of the Siena PSD projects will get 100% of their financing, Pitarre estimates.
“The mindset is changing with the REITs—they’re running out of Class A properties to acquire. The only way to get that Class A property is to build it yourself,” he says, echoing sentiments voiced by Sabra Health Care REIT executives during an investor presentation at REITweek 2013. “The Class As are getting few and far in between, and to get into assisted living and memory care you have to do more and more development.”
The rest of the projects will be conventional 50/50 ownership-financed deals, he says, noting that banks are getting more active—a trend expected to continue throughout 2013.
For Siena PSD projects done with bank debt or some other form of financing in addition to REIT capital, the developer retains ownership generally until the property is stabilized with occupancy between 91-93%.
“We prefer pre-arranged [deals] with the REITs. What we’ll do is bring a lease-back operator in to work with us that guarantees a lease with the REIT, which makes them feel comfortable to fund 100% of the development,” says Pitarre.
Memory care is a key component of many of Siena PSD’s projects, and Pitarre views the sector as a growing, unmet market that will become an “acute” need. While there’s always concern about overbuilding in any segment, he says, developers just need to do their market research homework.
Moving forward, Siena PSD plans to keep its projects mostly west of the Mississippi River, with sights set toward eventually targeting the active adult market in California and Texas.
“You’re seeing home prices rise now, and seniors are going to be able to sell their homes and either purchase a 55+ home or an active adult rental,” Pitarre says. “The market studies we’re relying on indicate the active rental market has the most potential for growth, so we’re trying to get into places that match up with that interest.”
Written by Alyssa Gerace