Arizona has long been seen as a retirement destination, but with home values beginning to recover in hard hit areas like Phoenix, some developers are seeing it as a brand new opportunity for senior living.
“The last couple of years have been on the quiet side for senior housing development—the [real estate] market in general,” says Susannah Myerson, vice president of research & applied strategies with ProMatura, a market research firm that maintains an office in Tucson. “But now as more people are able to sell their homes, it will lead to more senior housing development.”
Arizona, among other sunshine destinations such as Florida and Texas, was named one of the best places to retire in 2013 by Forbes. It was also one of the states that had the most entries (Mesa, Prescott and Tucson) as both good weather and a favorable state tax environment played to the appeal of retirees for the 2013 list.
Although Arizona might have been one of the hardest hit states coming out of the recession, with home values currently 32.1% below peak values, according to the latest home price index from CoreLogic, it is one of the top-10 states seeing an uptick in new senior housing construction in recent years.
In the past five years, there have been 18 new senior housing properties coming onto the Phoenix market, according to data compiled by the National Investment Center for the Seniors Housing and Care Industries (NIC).
Arizona’s primary senior housing market is split between the Phoenix and Tucson metros, with the former city representing a larger chunk of development than the latter. To provide a clearer distinction between the two markets in terms of size, as of the third quarter of 2013, Phoenix had 182 properties (28,459 units), while Tucson had 57 (8,778 units), respectively, according to NIC data.
In terms of new units under construction, in the third quarter of 2013 alone, Phoenix had 858 units, while Tucson had 50—both majority AL for a total of 908 units, respectively.
While Arizona is further down the ranks than states like Texas, which have had booming senior housing developments in various metros as of late, some say a recovering housing market looks to bring some spark into more development.
Although not many senior housing projects were opening their doors as housing started to decline with the onset of the recession, the Northeast Valley of Arizona saw some considerable growth, giving rise to a number of luxury communities for seniors since 2010.
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In particular, Scottsdale—located less than 15 miles from Phoenix—saw at least four luxury projects since then, including a 270-unit Vi at Silverstone and Senior Resource Group’s Maravilla Scottsdale community that features 118 independent living units along with 39 “casitas.”
“The Phoenix area continues to grow,” says Myerson. “The Sun Belt attracts many retirees who are tired of Midwest winters. There are a lot of Midwest license plates driving around, especially during the winter.”
The trend of migrating snowbirds to Arizona will continue, Myerson adds, as the weather as well as the low cost of living will keep drawing older adults to the state.
Senior living developers should be cautious when considering the Arizona market for new development, warns James Parker, vice president of development and capital markets for Spectrum Retirement Communities.
“Developers have to be careful of the demographics and their understanding of them,” says Parker. “Seniors that are snowbirds are likely active seniors that often times go back to their home cities when they come down with an impairment that affects their activities of daily living.”
Headquartered in Denver, Spectrum is a national developer, owner and operator of assisted living and memory care communities with two facilities in Arizona and one slated for groundbreaking in November.
The company opened its first development, Palos Verdes Senior Living, in Peoria, AZ—about 14 miles northwest of Phoenix—in 2010. The $25 million, 140-unit community provides a 50-50 split for independent living and assisted living with memory care for its residents.
Spectrum’s second Arizona community, Mountain Park Senior Living located in Phoenix, offers similar living arrangements for residents as the Palos Verdes community.
At development costs of $27 million, the community opened in March 2012, and like the Palos Verdes community, the project faced some initial struggles coming onto the market during the later years of the Recession before achieving 95% occupancy, says Parker.
“Arizona is a unique market,” Parker says. “While it’s one of those states that felt the depths of the recession, it is coming back but you need to find specific locations where this is true.”
Spectrum’s third Arizona venture will be located in the Phoenix suburb of Chandler. The community will have a similar mix of living options as the company’s previous two Arizona projects.
The company joins other senior housing developers such as JEA Senior Living, MorningStar and Silverado that have committed stake in Arizona markets like Tucson, Phoenix, Scottsdale and Peoria, according to NIC’s tracking.
“We like Arizona and we’ve spent time to truly understand the area,” says Parker.
The company enlists the service of a local demographic consultant, as well as available resources provided by NIC and the American Seniors Housing Association in its market analysis of Arizona.
“Spend time to get comfortable with your numbers,” Parker says. “It’s a different time for different people and these are big decisions to make when you enter a market like Arizona.”
Written by Jason Oliva