A joint venture between an established senior living developer and operator and a private equity firm currently has two continuing care retirement communities (CCRCs) in pre-development with plans to expand a third at a time when activity in the sector has been largely halted related to the availability of financing.
LCS-Westminster, a partnership between Des Moines, Iowa-based LCS and Lake Forest, Ill.-based The Westminster Fund, isn’t afraid to put its capital behind the projects.
The latest, Trillium Woods in Plymouth, Minn., has been in the works for some time; the first phase of development will carry an estimated $160 million price tag.
“We’re very active and very busy,” says according to Patrick Hunt, president of The Westminster Fund, of the joint venture’s portfolio and pipeline. The private equity firm currently sponsors 10 investment funds, two of which are focused on CCRC development and acquisitions.
The development comes at a time finance has constricted for new projects on the heels of occupancy declines post-recession.
“What we’re seeing is that a number of providers have stepped back and are taking a breather,” says David Laffey, vice president at LCS and director of property finance. “They’re letting properties that have come to the market [stabilize]. There hasn’t been very many new properties brought to market, and what we’re continuing to see is repositionings of existing product and expansions.”
The companies are mum on details for another CCRC development underway in Naples, Florida, which includes plans for approximately 340 independent living units on 29 acres. Additionally, Capital One Bank recently closed a $48 million loan for LCS-Westminster that will be used to refinance and expand Sagewood, an Arizona CCRC, by adding more independent living units along with another dining venue.
LCS-Westminster dates back to 1999 with a portfolio that includes a handful of CCRCs across the country. Out of more than $600 million The Westminster Fund has raised, about $257 million has been directed toward senior living. Of that, nearly $150 million has already been invested in the CCRC space, with another $111 million to be invested, according to Hunt.
“We are in the throes of finalizing our capital stack,” he says of Trillium Woods, the planned Minnesota CCRC that will be owned in co-investment with two of his firm’s funds and is currently about 65% pre-sold.
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The high-end CCRC will eventually have approximately 340 independent living units, with 209 independent living units built in the first phase along with a 36-bed skilled nursing center. The second phase of construction would start after the first phase reaches about 90% occupancy, according to Hunt, who declined to provide an estimated size or cost of the full project.
LCS’s development arm has developed and opened around 40 CCRCs and also does expansions and repositioning. The Westminster Fund services as the majority equity partner for the projects developed through the LCS joint venture.
While LCS is for-profit, it has worked extensively with not-for-profit owner/operators but typically doesn’t have the same access to capital typical of their nonprofit peers, says Laffey. More than 80% of CCRCs are owned or operated by not-for-profits, according to LeadingAge, and many not-for-profit CCRC developments utilize bond financing.
But liquidity for CCRC finance has retracted in the past few years, he says.
“We typically monetize our transactions to a higher extent than what you’d otherwise see in not-for-profit projects,” says Laffey. “In most instances, we typically have and provide for an equity contribution on behalf of the partners that is anywhere from 15, 20, or 25% [of the estimated cost] depending on market conditions.”
While Westminster Funds is typically the 80-85% equity partner for new projects, Laffey says that when the joint venture does go to the market, it has relationships with a number of lenders, including Capital One Bank and Bank of America.
“We’ve never defaulted on any debt. Because of our track record, we’re afforded access to capital perhaps more than some of our competitors,” he says. “We’ve developed a substantial and very successful track record, and we’ll remain committed to this space going forward.”
Hunt has about 30 years of experience in commercial real estate and is bullish on the senior housing space.
“On the CCRC side what we like about these types of investments is that they’re very strong and strategic,” he says. “There are excellent demographics and limited new supply. We’re currently investing existing funds, but as we move forward, we definitely plan to pursue additional senior living funds.”
Written by Alyssa Gerace