Rule Change Sparks St. Louis Senior Housing Construction Boom

Long heralded as The Gateway to the West, St. Louis in recent years has primed itself for a senior housing land rush as developers pour into the state looking to capitalize on changes to the Missouri’s Certificate of Need (CON) laws.

Developers are investing millions into projects currently in the works for the St. Louis metro and greater county area, whether proposed, planned or underway for new construction, as well as expansions and renovations of existing communities.

“What’s happening is the market is now catching up with the demand that has been out there now that restrictions have been loosened,” says Jim Tellatin, founding principal of Chesterfield, Missouri-based Tellatin, Short & Hansen, Inc., a firm that provides consulting and valuation services for senior housing properties.

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As only one of five states in the U.S. that requires CON approval for assisted living and residential care facilities, Missouri’s CON laws have tightened entry into the senior housing development market. But, a rule change in the last three years has helped alleviate some pent-up demand, says Tellatin, who formerly chaired the state program.

Since Missouri’s CON requirement was enacted for assisted living nearly 15 years ago, the state only allowed 16 beds per 1,000 people age 65 and older. Now, the rule allows 25 beds per 1,000 population.

The change—a product of a bill passed by the state’s legislature in 2011—has since attracted a number of new developments across the state, in turn triggering a “grab those beds before your neighbor gets them” mentality among developers, says Tellatin.

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“Once passed, [the bill] opened up a huge bed gate for assisted living and a land rush in metropolitan areas,” he says.

St. Louis County currently has 868 assisted living and residential care beds that are approved but not yet licensed, according to the Missouri Department of Health’s CON occupancy survey. The figures are in addition to 2,239 licensed assisted living and 904 licensed residential care beds already in the area.

From 2010-2012, 511 units started construction in majority independent living properties while 618 units came online for majority assisted living communities in the St. Louis metro area, according to NIC data.

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“There was a fairly decent build up in new construction particularly in assisted living, but it has tapered off since then,” says Chris McGraw, senior research analyst at the National Investment Center for the Seniors Housing & Care Industry (NIC).

One of these new construction projects currently underway is a $16.6 million, four-story assisted living facility in St. Louis developed by Denver-based Spectrum Retirement Communities and its affiliate S-K Dougherty Ferry LLC.

Spectrum has five existing properties in Missouri comprising 473 units, all of which are over 96% occupied, says Managing Partner Jeff Kraus, with the S-K Dougherty Ferry project being the company’s sixth in the state.

“It’s a tight market and there is a need for assisted living,” says Kraus.

The company’s last two developments in St. Louis County, Westview at Ellisville Assisted Living & Memory Care in Ellisville, MO, and Southview Assisted Living & Memory Care in Affton, MO, opened in July and September 2012. Both communities are 100% occupied and were some of the fastest lease ups Spectrum experienced, Kraus said.

Creve Coeur Assisted Living is Spectrum’s latest development in the county. The $17.6 million community, which Spectrum expects will open this fall, has 110 CON approved beds and will compete with nearby St. Andrews Creve Coeur Assisted Living, a facility with 75 beds located a little more than 3 miles away.

Both facilities will also compete with a nearby Brookdale community, The Hallmark of Creve Coeur, a 46-bed independent and assisted living development that also sits within a 3 mile radius of the St. Andrews and Spectrum properties.

“There is a fair amount of competition, but the best operators will prevail,” Kraus says.

While some developers are looking to build anew from the ground up, others are investing efforts into expansions of their existing communities.

Some of the larger endeavors include $65 million worth of expansions at two Friendship Village continuing care retirement community (CCRC) campuses in Chesterfield and Sunset Hills, both of which are managed by Des Moines, Iowa-based LCS.

Chesterfield-based provider Delmar Gardens is taking an alternative route. In 2012, the company announced plans to invest $33 million toward converting a portion of independent living units to assisted living at five of its campuses in the Southern Illinois and St. Louis metro area—four of which are located in St. Louis County.

Lutheran Senior Services, headquartered in St. Louis, is also planning a further expansion of an estimated $50 million, 79-unit community in St. Charles, Missouri.

Demographic trends are largely spurring a greater demand, and the subsequent supply, for senior living facilities in St. Louis County and throughout the state.

Nationally, recent U.S. Census Bureau data projects the nation’s age 65 and older population will double over the next 20 years to 83.7 million in 2050.

By that time, Census data projects seniors age 65 and older will comprise approximately 21% of St. Louis County’s population—a significant increase from 2012 when this age cohort represented 15.7% of the area’s population and 14.7% in Missouri as a whole.

But with booming population growth and an inviting market also comes concerns of oversupply in the future.

“There are a few senior housing developers, not necessarily Missouri-based, that are actively trying to develop multiple properties in the state,” says Tellatin. “Since everyone is doing at least a couple of projects, the question is will there be over saturation?”

Written by Jason Oliva

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