Feasibility studies. They’re conducted day in and day out by prospective builders, financiers and expansion hopefuls in real estate generally, and in senior living specifically. Factors such as population growth, density, concentration of potential adult children and competition are all considered, among other considerations.
With ongoing discussion surrounding markets that are saturated with senior living options versus those with vast potential for growth, it’s increasingly important for developers, operators and owners to understand their markets before entering or expanding in them.
But until recently, the practice of feasibility work had veered away from using the most up-to-date benchmarks or assumptions, those on the forefront of feasibility studies and research say.
“We said: ‘Let’s really look at the foundational assumptions that go into market analysis and demand studies,’” says Connie Mattox, CEO of Richmond, Virginia-based Brooks Adams Research, which specializes in feasibility studies for senior living organizations and developers. “What are core truths and foundational questions that anyone who writes these studies should ask?”
Brooks Adams joined other industry peers to begin to rethink those questions. Putting competition aside, the groups formed a task force to look at different components of the equation such as data sources, income and adult children.
Specifically, the question of competition came up, with the idea being that assumptions made across the industry lacked foundation.
“There was no standardization in the industry about why certain analysts would consider a community to be competitive to another community…” Mattox says. “There’s a big difference between what’s competitive and what’s comparable. We may not think [two properties] are competitive, but if they are comparable, such as in square footage and amenities, we can say [at least say that.]”
The process is ongoing, but the group has published a white paper on its new benchmarks including best practices as they relate to age, income and other factors that are used toward feasibility assessment.
Income qualifiers are set for independent living and assisted living, for example, with best practices that address age multipliers based on need and other factors like interest rates. Competition and adult children are also analyzed.
“It’s a baseline,” says Rob Adams, partner for Brooks Adams. “This is something the [finance] group will pay attention to and can relate back to. … We think this is a start and we want to continue to improve on it.”
As developers continue to target new areas for growth—whether expansion across existing portfolios or brand new operators entering the space and looking to break ground, the timing is relevant given the recent economic downturn.
Construction today has been described as “booming,” with many industry players seeking opportunities to capture a growing market. But even just recently, those doing market research for finance and development of senior living remember a very different time.
“Market analysis and feasibility is usually tied to development,” Mattox says. “It’s related to growth in some way. With the housing market and general economic downturn, there weren’t a lot of feasibility studies going on. Now is the time that we embark on the growth phase to have standardization for this study.”
Written by Elizabeth Ecker