Developers See Risk and Big Reward in Tackling Crazy Zoning Markets

While some senior living providers see tough zoning laws as a barrier to breaking ground in a certain market, others see an opportunity to stake claim in otherwise uncharted territory.

“In difficult markets to zone there are substantial entitlement hurdles, and usually you’re going to find an underserved population because of the challenges developers have,” says Daniel Gorham, partner with assisted living facility developer Kensington. “If you take the time and money to zone these locations, you can get a good view of the competitive landscape and know where you stand in the foreseeable future in terms of supply and demand.”

Tough markets, like California and New Jersey, are less likely to be overrun with surplus supply because of the state’s more difficult zoning regulations, Gorham says, noting that The Kensington is opening assisted living residences in Sierra Madre, Calif.; Redwood City, Calif.; Redondo Beach, Calif.; Montclair, N.J.; and Falls Church, Va.

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In addition, Ziegler recently closed a $140 million financing for a California nonprofit CCRC, which signaled good news for providers willing to put in the effort to break ground in a state known for high barriers to entry. MonteCedro, the not-for-profit public benefit corporation that owns and operates the CCRC, plans to develop 186 independent living units and 20 assisted living units in Altadena, Calif.

“California has a lot of barriers to entry,” Muñoz says in a past SHN article about the CCRC development. “It’s one of the most highly regulated states in the country for senior living.”

Generally, no new developments are coming into those markets because they’re time consuming and expensive to zone, Gorham says, noting that spending the time to develop those markets gives that developer precedence in those communities.

And, while there can be a big reward, there is plenty of risk for operators as well.

Before plans for the development of The Kensington’s assisted living facility in Sierra Madre could be finalized, community members had to vote to approve its construction. Voting on related zoning changes is part of the city’s entitlement process.  

“You’ve got to put the project up on a ballot for an up or down vote — that’s a risk some people would look me in the eye and say, ‘You’re crazy to take,’” Gorham says. “And while going through the entitlement process is a gamble — if the community votes to OK development then the provider’s stake in that community is much greater than those areas where community members have less say.”

Developers flocking to markets undergoing construction booms should be wary, he says.

For example, in Houston, Texas, developers don’t have to wait long to break ground on developments compared to other markets. During the first quarter of this year, Houston cornered 17.4% of the top-10 market in assisted living construction, according to data from National Investment Center for the Seniors Housing & Care Industry (NIC). But, the opportunities some developers eye in easy zoning areas are short-term, Gorham says.

“In Houston you can generally identify a site and be able to build well within a year,” he says. “However, you don’t know where you stand year to year because anybody else who has the same idea can be in your backyard with a newer, maybe better [campus] and be up in running within one to two years.”

Senior housing is unique to other types of property developments because the decision to join such a community is often tough, and personal for residents and their loved ones, Gorham says, noting that successful developers partner with quality operators invested in resident well-being. However, developers looking to build fast often sell fast, which can hurt relationships with the surrounding community.

Written by Cassandra Dowell

 

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