New Construction to Spark Senior Housing Repositioning Opportunities

As new senior living construction starts to heat up in select metros across the country, repositioning existing communities could be a way for operators to stay competitive in a market that shows little signs of slowing down.

During the third quarter, the number of assisted living units under construction rose 2% compared to the previous quarter, according to recent analysis from the National Investment Center for the Seniors Housing & Care Industry (NIC). On a year-over-year basis, assisted living construction was up 39% in the third quarter compared to the same period in 2012.

Areas reporting robust construction activity, such as Minnesota and Texas, are forcing owners to invest in their own existing properties to stay competitive, says Rick Shamberg, a partner at Chicago-based real estate investment firm Cerulean Partners.


“There are 1,000 new assisted living units going up this year alone in the Minneapolis-St. Paul metro,” says Shamberg. “Those that own existing properties are going to have to evaluate what they’re doing and how it might impact their occupancy or operating.”

Cerulean Partners currently has two repositioning projects in its portfolio: Atrium of Belleville, a 76-unit independent living community near St. Louis in Belleville, Illinois; and The Echelon Senior Living, a 116-unit independent living community in Las Vegas.

Cerulean acquired the Belleville community from Brookdale two years ago and has invested $1.5 million worth of renovations into the property. The company added close to 50 new residents, raised rent by $400 a month, and revitalized the property’s interior through a full-scale renovation that included replacing ventilation systems, changing the dining experience and performing services such as building maintenance and laundry in-house rather than outsourcing it.


The company also rebranded the entire community as part of its repositioning efforts.

“The dirty little secret about repositioning is that you have to change everything,” Shamberg says. “This includes changing the name of the property, the culture, as well as new branding and signage to stay current and competitive with other newer properties coming onto the market.”

In some instances, giving a distressed property a facelift involves adding a care segment that the community did not have previously.

Birmingham, Alabama-based PRN Capital, LLC, is currently in the process of adding a $1.2 million memory care wing to a 108-unit independent living property it purchased through defaulted bonds in 2011, says Greg Zoidis, executive vice president at PRN Capital.

The building, Commons on Pretty Pond in Zephyrhills, Florida, was initially built as an independent living community in 2009. In August 2013, PRN received licensing to add an assisted living component to the property. The conversion, which included breaking up two-bedroom units into studio apartments, cost approximately $900,000.

“The simple fact was that 108 units of only independent living wasn’t working in that market; there just wasn’t enough demand for it,” Zoidis says.

Once construction is complete in May 2014, PRN will have converted 108 independent living units into 128 units of independent living, assisted living and memory care without breaking any exterior walls.

Repositioning existing communities is part of a push toward a more affordable product, Zoidis says.

“Rather than everyone developing high-end communities that few can afford, it’s going to be cheaper to rehab an existing building and provide a price point that is more affordable,” he says.

A recent white paper survey jointly conducted by National Real Estate Investor and real estate advisory firm Senior Housing Global Advisors have showed there is a growing interest in repositioning as a strategy, as 67% of senior housing “industry players” say this will become increasingly popular in the next six months.

Repositioning a property could be more attractive than embarking on new construction, especially when considering an increasing activity of construction starts, says Stephanie Harris, CEO of Turnaround-Solutions.

“New construction is going to expose providers’ vulnerabilities more,” says Harris. “As more buildings open, there’s going to be more pressure to make capital improvements and turnarounds to existing operations.”

Headquartered in St. Charles, Missouri, Harris’ company works with senior living providers to build value in existing operations. The company also provides third-party consulting with in-place operators when a building is underperforming.

“It comes down to being a visionary or being an editor,” Harris says. “A lot of management companies with the right resource allocation can edit or improve their existing operations. It will be required to stay competitive.”

Written by Jason Oliva

Companies featured in this article:

, , ,