With turnaround deals being harder to come by in senior living, Capitol Seniors Housing (CSH) is putting over $406 million toward new development and is starting to see the first of its communities open up.
Based in Washington, D.C., CSH is a private equity-backed real estate acquisition, development and investment management firm founded in 2003.
“We’ve really pivoted and became a development firm over the last year,” says Scott Stewart, managing principal at CSH.
To execute the shift in strategy, CSH has been adding more people with experience in development. Its effort is being led by Principal of Development Joe McElwee, former vice president of development for McLean, Virginia-based Sunrise Senior Living, one of the largest senior living operators in the nation.
“We picked up three people from Sunrise,” says Stewart, noting these new hires had responsibilities specifically related to new construction.
CSH has seven communities in various stages of construction and another five obtaining entitlements. The firm has been targeting high barrier to entry markets that often take two to three years to get entitled.
“We are just starting to see those first properties come out of the ground,” says Stewart.
However, with average occupancy rates for assisted living properties at 86.6% during the third quarter of 2017, nearing record lows, there is plenty of concern in the marketplace. The latest data from the National Investment Center for Seniors Housing and Care (NIC) shows the inventory growth rate in the third quarter of this year was 4.1%, down 0.1 percentage point from the second quarter, when it also hit its fastest pace since 2006.
Stewart realizes it’s very competitive and admits he has concerns about all the new communities coming on the market.
“We have a community in Naperville, Illinois, [that] looks great and is really appropriate for the area, but there are two new properties under development in the [area],” he said. “However, we are confident we can win the market.”
Stewart admits that he has been singing the tune of many in the industry, that the silver tsunami is coming, but the amount of new development coming online could challenge investors and operators in the meantime.
“You can’t be dumb in this market,” he says.
Even with the shift to new construction, Stewart admits that he is still interested in buying distressed assets and turning them around. However, those types of opportunities are extremely competitive these days.
“We got our start in opportunistic, but those opportunities are few and far between,” he says. “When we got into this14 years ago, we were the only guys with a rifle and there was open plain of buffalo. Now you have to slug it out for every opportunity.”
Written by John Yedinak