Multifamily Investor Makes $500M Power Play Into Senior Living

It’s no secret that senior housing has seen an increase in multi-family real estate players entering the space.

Drawing many outside investors are attractive investment returns — with senior housing outperforming other asset types in commercial real estate even during the recent economic downturn, according to the National Investment Center for Senior Housing (NIC).

And the demand for senior housing will only get greater as Baby Boomers age. By 2029, when all of the boomers will be 65 and older, more than 20% of the total U.S. population will be over the age of 65, according to the U.S. Census Bureau.


Among those multi-family investment firms eyeing the senior housing space is Belvedere Tiburon, Calif.-based Drever Capital Management, with the company aiming to allocate $500 million in potential acquisitions and/or developments in the senior housing space within the next decade, says Drever Capital Management’s Chairman Maxwell Drever.

Since 1968, Drever and his team have acquired, managed or redeveloped a portfolio of more than 170,000 apartment units primarily for workforce-income families. Targeting the “working man” was key to the company’s successful portfolio growth, and also set it apart from other institutional investors, Drever says, noting that the company plans to carry out the same middle market approach in its latest real estate play.

“It’s a natural transition,” Drever says about entering the senior housing space. “As these people retire and age in our multi-family apartments, we are now providing this same middle market demographic with senior housing.”


Drever’s transition into the senior housing landscape is buoyed through partnerships with experts in the space, including full service senior living provider Renaissance Senior Communities. Louisville, Ky.-based Renaissance Senior Communities offers operation and management services, among others.

Drever spoke with SHN about why the senior housing market will continue to see interest from outside investors, its newest senior living development, and the company’s acquisition and development strategy.

SHN: Can you speak to the company’s confidence in senior housing? Why is this an attractive opportunity?

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Maxwell Drever: Providing senior housing fills an underserved need in a socially responsible way, while simultaneously generating strong returns to our investors. Americans are aging at a geometrically faster pace, while the supply of senior housing remains relatively flat.  And the bulk of that supply is targeted toward the minority of the senior population at the high and lower ends of the spectrum. Those in the middle have been largely ignored.

We will target that underserved senior middle class which includes workforce retirees, i.e., the same people who have been renting our apartments.

SHN: What is your senior housing pipeline, and what do you plan to do with your current multifamily assets as you ramp up senior housing development and acquisitions? 

MD: Our pipeline is always evolving. But currently it has over $500 million in potential acquisitions and/or developments. We typically favor moderate leverage. We expect to require debt financing of about $300-$350 million for our $500 million pipeline. The remainder would be equity.

Our senior housing business is a separate company from our multi-family housing holdings.   We expect to continue to selectively increase our investment in certain multi-family assets and also continue to opportunistically exit those assets where we feel value has been maximized.

SHN: Is your senior housing strategy more focused on development projects, or acquisitions?

MD: While our bias is toward acquisitions that enable us to acquire properties for below replacement cost and add value through our signature enhancements program, the lack of existing supply has both limited those opportunities and created the ability to build product targeted toward the specific needs of aging working class retirees and other middle market seniors.

SHN: What has your strategy been in the multi-family space, and how will that translate into the senior housing sector? 

MD: Our strategy has been the same in each sector: Target the largest yet most underserved demographic, the “middle” class. In multi-family that meant targeting the niche of workforce apartments.
We have provided working families with relatively affordable (but not government-subsidized) apartments, with really nice amenities. We have done this by acquiring properties at a significant discount to replacement cost, then adding cost effective amenities. That strategy enables our properties to compete favorably with newer more expensive competitors.

Similarly, we are targeting the exact same demographic in the senior housing sector. The only difference is instead of being part of the workforce, our tenants are now part of the retired workforce. They still need and want a cost effective, nice place to live during their retirement, just as they did while they were working.

Given the lack of existing product in the senior space, we are more likely to cost effectively develop new product than we were in the ample, if not over, supplied multi-family market.

We are targeting seniors who have a source of income other than social subsidies. All or virtually all of our tenants are or will be private pay. Their source of income may be a pension, savings, family member assistance or some combination of the foregoing.

SHN: Are you more focused on one particular acuity type than another?

MD: We’re looking at the spectrum of acuity –  from independent living through assisted living and memory care. We are not just multi-family housing with a sign that says “55 and over.” Nor are we in, and do not foresee us getting in, the nursing home business.

Ideally our communities will offer all three levels of care: independent living, assisted living and memory care.

For example, our project in San Antonio, Texas will feature these levels of care. We’ll close on the land in the third quarter of 2015 and hope to be under construction around the same time, dependent on lining up the appropriate construction financing. Construction will take about 18 months, but we’ll plan to open in phases as the memory care will take the shortest time to construct (about 10 months).

The community is slated to have 150 independent living units, 56 assisted living units, and 24 memory care units in Phase 1 on 15 acres. We have space to add an additional 120 independent living units, 24 memory care units, and 25 townhomes, plus a skilled nursing site which we will sell or lease.

The community will have a Life Center which is envisioned to have wellness programs, hobby and learning areas designed to be inclusive to all the seniors in the community rather than exclusive to those living on campus.

The operator will be Renaissance Senior Communities, and the budget is estimated to be $40-45 million.

SHN: Drever Capital Market’s first senior housing acquisition in 2012 in South Carolina was of an independent living community at around 50% occupancy. Just over two years later, the community is operating at over 90% occupancy. What steps were taken to turn this community around? 

MD: That is a perfect case study of the kind of acquisition we are targeting. We were able to use our existing relationships to acquire the property, an REO, “off market” for well below replacement cost.

We put our signature enhancements which included an updated lobby, garden areas and other common areas. We then focused, and are continuing to focus, on maximizing revenue and bottom line to our investors.

SHN: What qualities do you look for in a senior housing operator?

MD: For us, any senior operator must also be a partner with similar goals. Professionalism, experience and, above all, a commitment to providing first class service to our senior tenants are pre-requisites.  We have selectively aligned ourselves with those operators who share our vision and values and bring to the table significant experience in the senior sector.

SHN: What are some of the biggest challenges you face as a newcomer to senior housing, and how are you working to overcome them?

MD: We are recognized experts in the multi-family housing space, but are still new to the senior housing business.

We bring with us the “bricks and sticks” knowledge that is the same across asset classes, as well as the discipline to find, evaluate and close on the opportunities that provide strong returns to our investors.

Supply, demand and other market analysis is the same. Financial analysis is the same.  Executing on a renovation or development is the same. But it remains a new business, which is why it is so crucial for us to align with the top existing operators and to continue to learn the business by joining quality organizations like the American Senior Housing Association, where we have come in at the highest level.

Written by Cassandra Dowell

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