Winning Strategies to Develop Affordable Assisted Living

Affordable assisted living: one of the biggest puzzles for the future of senior housing. But there’s a growing demand for this asset class, and with the right financing and development approach in certain U.S. states, this elusive offering might soon become more of a reality.

“Right now, there’s a huge population that’s in need of a level of care that just doesn’t exist for them,” Orin Parvin, a vice president with financing firm Lancaster Pollard, tells Senior Housing News. “There’s care available for those individuals who need skilled nursing, and some level of affordable housing for seniors who are older, but … communities are almost all exclusively private pay.”

But in time, affordable assisted living options will very likely increase within the overall marketplace, Parvin and Lancaster Pollard Associate Adam Walter wrote in a post for the firm’s “Capital Issue” newsletter. Achieving this, they say, will take planning on three fronts: development costs, operating costs and design considerations.

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To start, the debt and equity used in developing affordable assisted living facilities is typically untraditional.

“Financing the development of an affordable assisted living facility often requires a patchwork of funding sources in order to create a financially feasible project,” they say. This may look like a combination of traditional debt and equity, as well as additional gap financing.

Debt, for instance, may come from real estate investment trusts (REITs), speciality finance companies, banks, the U.S. Department of Housing and Urban Development (HUD)/Federal Housing Administration (FHA) or government sponsored entities (GSEs), including state housing authorities, the authors write.

Affordable assisted living facilities should also be designed differently than their private-pay counterparts, Parvin and Walter suggest. For example, it may be more cost-effective to build facilities with only semi-private units, as private units are more costly to build initially, and then to operate.

Another suggestion for affordable assisted living facilities? Build big.

Affordable assisted living facilities that have anywhere from 100 to 200 beds achieve greater economies than smaller facilities, the authors write. Plus, filling affordable assisted living facilities is often easier than filling private pay facilities due to the dearth of them in existence, the authors add.

“It comes down to economies of scale— the expectation is larger facilities will do better, and that’s what I’ve seen,” Parvin tells SHN.

Funding for rent payments in affordable assisted living, meanwhile, has to come from sources other than residents, the authors note. To adjust accordingly, an operator can either reduce the cost of operations or combine more than one revenue source—think Medicaid waiver revenue, Section 8 contracts, out-of-pocket resident charges.

Charitable organizations or grant funding can also provide service or funding to cover care expenses, the authors write.

Although there will eventually be more affordable assisted living facilities nationwide, some states will have more luck than others getting these facilities up and running, Parvin predicts.

“The level of success will be pretty state-specific because of the variety of reimbursement programs in different states,” Parvin says. “Some states are more conducive to affordable assisted living than others, whereas I think there are some states where we won’t see much development at all.”

Illinois and Indiana, for example, have programs in place to support affordable assisted living, namely supportive living facilities in Illinois and Medicaid waivers in Indiana, Parvin and Walter note.

And even in the more conducive states, affordable assisted living facilities won’t necessarily be super quick to arise.

“I think it will be slow at first,” Parvin says. “If it works, great—but it’s going to take a little while.”

Written by Mary Kate Nelson

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