About two decades after its founding, Louisville, Colorado-based Balfour Senior Living is entering a new era. With real estate investment trust Welltower Inc. (NYSE: WELL) as its capital partner, Balfour is primed to bring its high-end offering to the East Coast for the first time — which will be a homecoming of sorts for CEO and founder Michael Schonbrun.
“I grew up in New York City and went to college and law school in Connecticut and Pennsylvania, so it’s very familiar territory, and I have a son and grandchildren in the Boston area,” Schonbrun told Senior Housing News.
Schonbrun’s partner and Balfour co-founder Susan Juroe spent 20 years working in Washington, D.C., he added.
Since starting the company in 1997, Schonbrun and Juroe have built Balfour into a premium senior living brand, serving an affluent clientele in highly amenitized communities with unique designs inspired by their locales — from an equestrian-themed building to an urban site that includes a rehabbed train depot. That urban project in Denver — Balfour at Riverfront Park — won a 2015 Senior Housing News Architecture & Design Award.
These are the types of locally-integrated, upscale communities that Balfour will be introducing on the East Coast — and that drew Toledo, Ohio-based Welltower to forge a relationship with the provider, which currently operates a portfolio of eight communities.
“Michael and Susan are true industry innovators and are delivering a next generation senior housing and care model in high-end urban and suburban locations,” said Thomas J. DeRosa, Welltower chairman and CEO, when the transaction was announced in late July. ” … Balfour helps to further differentiate Welltower’s portfolio with one-of-a-kind design, which is unparalleled in the industry, as evidenced by its numerous awards and accolades from Hospitality Design and the National Association of Home Builders.”
New partner, new horizons
Balfour’s new relationship with Welltower was borne out of necessity. Private equity firm AEW was invested in six of Balfour’s communities, and the fund was nearing the end of its hold period.
That six-property portfolio drew healthy interest, with at least 10 serious bidders at the table, Schonbrun told SHN. Balfour was seeking a long-term partner that would not only help back the company’s development pipeline, but one that understood and appreciated the operational component of the business.
Welltower fit the bill, and the REIT acquired the six properties for $308 million. In addition, Welltower has received exclusive rights to Balfour’s future development and acquisition pipeline, and has an option to acquire up to a 34.9% stake in the management company.
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Schonbrun is maintaining a “modest co-investment” in the acquired properties and is “delighted” to move forward with the REIT, he said.
As for what the future development pipeline looks like, Schonbrun noted that Welltower and Balfour are working together on a project in Colorado as well as those on the East Coast.
It is too early to disclose specifics about the plans on the East Coast, including the size of the pipeline or specific locations, Schonbrun said. But, large urban markets in the mid-Atlantic through New England will be targeted.
“These would be major markets,” he said. “A combination of urban and infill suburban [sites], close to city centers and mass transit.”
Philosophically, Balfour prefers to create continuum-of-care communities that mix independent living, assisted living and memory care, including in urban areas. Its Riverfront Park community in Denver is one example, and can be viewed as a prototype for future urban developments, which could range in size from about 125 units on the low end up to potentially 300 units, Schonbrun said.
Balfour is not alone in pursuing urban senior living development. Older adults have increasingly expressed a preference for living in urban centers that are within walking distance of retail, restaurants, health care, transportation and other amenities. At the same time, real estate trends — such as the waning retail sector — have made more land available to senior housing development. As a result, there has been a wave of projects in cities across the country. Welltower has been a prominent player, including in Manhattan, where it has two communities under development.
Despite the factors that have paved the way for more urban senior living development, rising construction costs are a real concern, and prime sites are expensive, Schonbrun noted.
On a per-unit basis, Balfour’s land costs can exceed typical senior living developments by two or three times, he said. But paying this premium is worthwhile, if there is sufficient demand from an older adult population who can afford the company’s prices.
“Location, location, location matters, and you’ve got to pay for that,” Schonbrun said.
Future growth for Balfour is not limited to big East Coast cities, however. The company is planning to open its first Michigan location, in Ann Arbor, in mid-October of this year. And there is a community under construction in Longmont, Colorado, which should open its doors in late summer of 2020.
A boutique experience
Occupancy is down industry-wide in senior living, due in large part to oversupply in certain markets. But Balfour’s communities have occupancy in the mid- to high-90% range, despite rents typically being 10% to 15% higher than other luxury products in its markets, Schonbrun said.
“The reason for our success is that we have unique architecture and interiors, and vastly superior dining and activity and care programs, and there are people … prepared to pay for what they perceive to be real value,” he said.
Balfour at Littleton is one example of unique architecture and design. The town of Littleton, just south of Denver, has a rich history tied to horse ranches, so Balfour’s community there has an equestrian theme.
The interior and exterior resemble an equestrian estate, with details such as high ceilings with wooden beams. The whole interior is permeated with horse-related mementoes and artwork, including a commissioned outdoor sculpture of English spurs.
Littleton is not the only example of this approach. Balfour’s community near the old Stapleton airport draws from that aviation history, and its forthcoming Ann Arbor community will pay homage to the University of Michigan.
This is an approach that boutique hotels have also embraced. Namely, to give guests a strong sense of being in a particular place with a distinctive character, rather than in a cookie-cutter hotel that could be located anywhere.
“The Holiday Inn would look the same because it gave travelers comfort, but it didn’t reflect where it was,” Schonbrun observed.
The more boutique experience extends beyond the design, to the activities, dining and other elements of operation. To create these offerings, Balfour relies on sophisticated life enrichment directors, who have a keen understanding and appreciation of the local arts, culture and cuisine.
“That takes searching,” Schonbrun said, of finding life enrichment directors that fit this profile. “Those folks don’t necessarily think that they have a career in senior housing. You’ve got to find them and convince them.”
Balfour also has a robust transportation program to facilitate these types of activities in the local community, with each property typically having a few sedans, usually Teslas. The cost of utilizing the transportation services is baked into residents’ rent, Schonbrun said.
Despite these luxury services and the corresponding high rents, not every Balfour resident is “on the Forbes 400,” he added. There are those who made money on the sale of their home, and who have healthy pensions and savings, for example.
But Schonbrun described Balfour residents as all being discerning, with high expectations — and he noted that can move out relatively easily, as they have not laid down a large entrance fee as they would at a traditional continuing care retirement community.
“We’re only as good as last month’s results, so we are keenly focused on satisfying our residents,” he said.
In their high expectations, Balfour’s residents are similar to to Schonbrun’s mother, who inspired him to start the company in the first place.
Now, though, as Balfour embarks on its partnership with Welltower and gains greater scale, Schonbrun is beginning to see what the company offers through another lens — his own future.
“I’m personally in the first couple years of the boomers,” he said. “I can begin to say, more and more, what do I want, what will I want?”