Developer Taps Opportunity Zone Funds for ‘Hampton Inn of Assisted Living’ Pipeline

A senior living development firm has outlined a plan for new middle-market rental communities in the Tri-State Area of New York, New Jersey, and Connecticut, and perhaps beyond.

Fairfield, Connecticut-based Senior Living Development’s new middle-market model calls for five-story, 60,000-square-foot communities with 120 beds for assisted living and memory care. Currently, the company has three urban sites under contract and is securing additional sites in other areas.

The plan is to come in with rates about 30% lower than the area’s existing luxury communities by housing residents in semi-private rooms and taking advantage of “opportunity zones,” which offer tax incentives for certain real estate investments in markets across the country.

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While they would vary market-to-market, monthly rates at Senior Living Development’s communities in Connecticut would clock in at about $4,000 for assisted living and $6,000 for memory care. In its recent analysis of the middle-market opportunity in senior living, the National Investment Center for Seniors Housing & Care (NIC) used $5,000 a month as the national benchmark for market-rate assisted living.

Said another way, these planned communities will be “the Hampton Inn of assisted living,” according to Senior Living Development Principal Mark De Pecol.

“There is certainly a need for a moderate priced assisted living, memory care [communities] that can tap the middle market,” De Pecol told Senior Housing News. “We have dubbed it the ‘Hampton Inn’ of assisted living and memory care because it offers ‘affordable’ housing while providing most of the amenities offered by the luxury brands.”

The opportunity for middle-market senior living providers is great, and industry stakeholders have debated the best way to make such a model profitable. That discussion was bolstered earlier this year by new research findings released by NIC and academic institutions.

A large number of middle-income people will reach retirement age in the coming decade, but most of them would not be able to afford senior living at today’s market rates.

Senior Living Development isn’t the only company which has adopted this line of thinking. Other examples of companies seizing the middle-market opportunity include Affinity Living Group, Presbyterian Homes & Services and Benchmark Senior Living. And real estate investment trust Welltower (NYSE: WELL) is getting into the middle-market game with its newly acquired portfolio of 32 Clover Management communities. And it’s not the only group to use the Hampton Inn comparison, with Surpass Senior Living being another.

Each shared unit has two private bedrooms with hard walls, closets and lockable doors. The residents share a common living area, efficiency kitchen and a bathroom. And, residents will be interviewed for compatibility before they’re paired up in shared rooms.

Senior Living Development will own the communities as they open. The company is currently searching for providers to manage them.

One key barrier to making the model work is site acquisition, as finding reasonably priced land in dense urban settings is “extremely difficult,” De Pecol said. But, the company has carved out a name for itself identifying such opportunities.

“This is our skill set and niche,” De Pecol added. “We have very carefully selected strategic sites that capture both the required demographic and have redeeming attributes to juice stabilization.”

Total project costs for the properties the company has in the works lie in the low $20 million range, a value achieved through a combination of low land cost, efficient building design and opportunity zone financing.

To finance the communities, Senior Living Development is using conventional debt for about 62% of the project cost and providing another 30% of the equity. The remaining equity is covered by a qualified opportunity fund, eliminating the need for mezzanine financing.

“Both the opportunity fund and developer achieve tax-free returns which takes out the tax bite figured in to conventional [internal rate of returns].” De Pecol said. “In other words, the proforma can show less [internal rate of returns] because it’s an after-tax return.”

The urban model is being developed under its principal group, Senior Living Advisors, which itself is a joint partnership between Senior Living Development and TODA Capital LLC.

To date, Senior Living Development has optioned and sold to providers six sites in Connecticut, with a total completed project value of $250 million. The company also recently purchased a community in Trumbull, Connecticut, with 202 independent living, assisted living and memory care units and 157 active adult units.

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