Senior housing as a component of mixed-use development is gaining in popularity with investors, developers and future residents alike. The trend is driven by the impending arrival of baby boomers to the senior living space and the broader shift from acute care to wellness and prevention, which is paving the way for more health-focused real estate to be integrated with traditional housing and retail.
But there are several factors for developers and providers to consider before deciding if senior housing should be a component of a mixed-use development. Here are some of the most important considerations to make before building a community within a community.
Mixed-use reflects a broader move away from a single-use, suburban-based product and into a model more suited for dense urban environments. But it does come with a fair amount of risk.
Land, construction labor and materials costs are rising. U.S. nonresidential construction starts, paced by mixed-use, increased 4% year-to-year in December 2018 and accounted for nearly 58% of total construction starts, according to the Census Bureau. In the face of such tight margins, a developer looking to build affordable senior living in a mixed-use development, for example, may find itself unable to get a community built. That is where subsidies such as tax credits and incentives become important tools to make a balance sheet work.
“Developers need to be able to leverage the kinds of federal resources a large city has access to,” Evergreen Real Estate Group President David Block told Senior Housing News. Chicago-based Evergreen has a specialty in developing and managing affordable senior apartments.
While it is not easy, it is possible to bring more affordable senior housing to mixed-use. Nonprofit Senior Housing Assistance Group (SHAG) is creating senior living communities in two mixed-use centers in the Puget Sound area in the Pacific Northwest. SHAG has an “independent living light” operating model that saves on labor costs by leveraging partnerships with community organizations. Plans call for its mixed-use projects to also be mixed-income, offering rents at different price points.
This is a strategy that can make sense even for more traditional, upscale senior living communities that are part of mixed-use developments. Take Brightview West End, a Brightview Senior Living community that is part of Rockville Town Square in Rockville, Maryland. The top floor of the building has been designated as the “club level,” and offers exclusive amenities such as penthouse units and a concierge to handle transportation requests and the like — at a premium price point that helps offset the higher costs that inevitably come with urban development.
From an investor perspective, having the ability to integrate multiple uses provides risk diversification, should any one real estate product type struggle due to market headwinds. It also allows the development team to invest more in shared amenities that would otherwise be value engineered out of construction.
Meeting consumer demand
Part of the risk mitigation is assessing the barriers to entry in a market for gaps between demand and supply, Structured Development Senior Director of Real Estate Development Jeff Berta told SHN. Chicago-based Structured found success building medical office buildings in a former industrial area of Chicago’s Lincoln Park neighborhood after the area hospital, Children’s Memorial, shut down in 2012.
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“We recognized there was a market we didn’t know about,” he said.
Market research is essential for providers to determine if there is lasting, sustainable demand for senior housing near a target site, Jewish Senior Living Group COO Michael Skaff told SHN. The San Francisco-based provider is undertaking a $140 million expansion and renovation of its campus, including new affordable senior rentals and retail.
“It is a trend that I can see rising, and also one that makes a lot of sense for the expensive San Francisco real estate market,” he said.
Demand for senior housing in dense urban environments will grow moving forward. The coming wave of boomers have made it clear they want to live in walkable communities, preferably in 24-7 live/work/play environments. Even as new construction starts have contributed to low occupancy rates and oversupply, many urban markets with high barriers to entry urban centers remain under-supplied.
Connecting to the surrounding community
The shared amenities within a mixed-use development are the foundation to creating a “community within a community,” Belmont Village Senior Living founder and CEO Patricia Will told SHN. Houston-based Belmont Village is actively developing senior living in mixed-use centers, including in Chicago’s Lincoln Park neighborhood.
Amenities such as high-traffic retail, fitness, courtyards and greenspace create destination locations within a mixed-use campus, for use by residents and outsiders alike, and lay the groundwork for true intergenerational living.
Central hubs should be designed with complementary programming in mind, Skaff said. Outpatient centers can co-exist with fitness and wellness centers, and continuing education programs.
Another way to become part of the larger community is to forge strategic partnerships with community groups and area businesses. This also helps to market a senior housing community to future residents.
However, as the senior living building opens its doors to the wider community, maintaining proper security measures for residents is paramount, Cynthia Shonaiya, principal at architecture firm Hord Coplan Macht, told SHN. In designing Brightview West End, she and her team had to pay special attention to the parking garage, for example, and install proper electronic locks and key fob entries.
The struggles endured by retail real estate are opportunities for senior living providers to fill a gap in mixed-use, Skaff said. Larger retail footprints may be demolished and redeveloped into senior housing.
In dense urban markets, this means retail can be redeveloped into senior housing at a larger scale. This has attracted interest from larger developers and health care real estate investment trusts (REITs).
Toledo, Ohio based REIT Welltower (NYSE: WELL) is redeveloping a former shopping center in Charlotte, North Carolina to include ambulatory care and multifamily. Welltower Chief Investment Officer Shankh Mitra told SHN that senior housing will become a greater component in future mixed-use projects.
Adaptive reuse offers the potential to keep costs down during construction, but it requires detailed planning as the process of converting to mixed-use means fighting what a building was originally built for, SAS Architects & Planners Partner Jim Moyer told SHN.