MorningStar Goes Hyperlocal with $120 Million Senior Living Pipeline

MorningStar Senior Living is one of several companies active in Colorado’s booming senior living development scene, having recently opened one community with two more in the works and a $120 million pipeline planned for 2014.

The Denver-based developer and operator takes a hyper-local approach to finding sites for new projects, relying not just on age and income demographics but also on psychographics. That encompasses the psychology associated with which side of a highway someone might want to live on, or which neighborhoods are considered desirable, says Matt Turner, Chief Financial & Development Officer at MorningStar.

MorningStar recently completed an approximately $13 million, 64-unit assisted living and memory care community in Colorado Springs that was more than 50% pre-leased when its doors opened in mid-September. The community joins five other communities located in Denver, Littleton, and Parker, Colo.


Two more projects are currently under construction, totaling around $32 million in estimated development costs. One is a freestanding 48-unit memory care community, also located in the Colorado Springs area that will open in Summer 2014.

The other is an assisted living and memory care community being built in the Denver area which will have 55 units of assisted living and 29 units of memory care, with an expected Spring 2014 opening.

Four new projects planned for 2014 totaling about $120 million in development costs come in addition to MorningStar Senior Living’s recently-completed and current development pipeline that totals about $180 million in Colorado. There are another four projects for approximately $90 million under construction or set to break ground in Arizona next year.


Despite multiple new entrants into the Colorado senior living development market, MorningStar believes its localized knowledge gives the company an advantage.

“One thing that sets us apart as far as developers and operators go, especially in this market, is the local expertise that allows us to find the best sites in this area,” says Turner. “A key understanding is psychographics—the psychology of people who live here—and how to pinpoint areas that will be successful long term and be relatively insulated to new competition. We feel we’ve been successful at getting ahead of that curve.”

Data from Denver-based The Highland Group indicates construction activity in Colorado will increase the state’s existing supply by about 11%, with units planned and under construction including market-rate, age-restricted housing, independent living, assisted living, memory care, and skilled nursing, compared to a national construction versus inventory rate of 2.8%, according to NIC’s second quarter numbers.

Because so much attention is being paid to this marketplace, MorningStar executives emphasized the importance of being aware of other activity. The company ended up backing away from a site it had under contract after two competitors moved into the area, concluding that it would be over-saturated.

“At the end of the day, you’ve really got to do your due diligence, and we’re very careful about understanding the market,”  says Ken Jaeger, founder and CEO of MorningStar. “We do our own internal market studies, and it’s important to us to do that before engaging a third-party market study to understand the demographics and make sure the metrics all line up.”

Another of the company’s strategies is to pick high-barrier sites.

“We’re firm believers in urban areas where the demographics are deep; where the sites are difficult to secure and entitlements are difficult,” Turner says. “It protects you from future competition. While it’s more work, we are adept at navigating those, and it creates value through those processes, allowing us to be insulated from competition.”

That willingness to exercise discipline with entitlement processes that can range anywhere from nine months to two years, or even longer—by the time MorningStar breaks ground on its Boulder-area project, it will have taken about three years—puts the company in a position to be confident its pipeline sites aren’t in jeopardy, Jaeger says.

MorningStar uses a mix of traditional commercial mortgage debt and private equity to finance its projects, along with some REIT capital.

“Our equity is a combination of high net-worth relationships and institutional relationships,” says Turner. “Capital tends to be available for what people would consider ‘best in breed’ developers/operators. Those with proven track records and an experienced team have more options when it comes to equity.”

It’s becoming more difficult to find high-quality sites as competition increases, Turner says, but more players in the field in turn is making capital “slightly easier” to procure.

Financing sources consider strength of the developer, track record, backbone of the operating company and ability to operate at a high level with high operating margins, says Jaeger, but they also want to work with those who have solid relationships with healthcare departments.

“When you’re competing against someone, you look for a strong operator who’s going to cross all the t’s and dot the i’s,” he says. “At the end of the day, it’s about outstanding quality of care to our residents.”

Written by Alyssa Gerace

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