Covid-19 has caused a slowdown in senior housing construction across the country, and will delay one of the largest projects underway: the Manhattan highrise that will launch Maplewood Senior Living’s Inspir brand.
Initially scheduled to open at the end of Q1 2020, Inspir Carnegie Hill now is on track to open in the third quarter at the earliest, executives with Omega Healthcare Investors (NYSE: OHI) said Tuesday on the company’s earnings call. Hunt Valley, Maryland-based Omega is a real estate investment trust that is a capital partner on the project.
“Fortunately, as an essential business, we have been able to continue with the construction of Inspir, albeit not at the feverish rate we had hoped for,” Maplewood CEO Greg Smith told Senior Housing News. Based in Westport, Connecticut, Maplewood’s portfolio includes 16 communities either operational or in development across Connecticut, Massachusetts, New York, New Jersey and Ohio.
Supply chain challenges, as well as the need to limit crew on the build site in order to enable social distancing, have slowed the pace the construction, Omega Chief Corporate Development Officer Steven Insoft said on Tuesday’s call.
The delays will lead to additional costs. Initially estimated at a total cost of $270 million, the project now will come in closer to $310 million, Insoft said. A more exact estimate of the final cost will only be possible when the building’s opening date is set.
As of early February 2020, Inspir Carnegie Hill was on track to have deposits for 40% to 50% of units as of the building opening, Omega said at the time.
Since then, New York City has been hit hard by Covid-19, but no future residents have pulled their deposits due to coronavirus concerns, Smith told SHN. Maplewood is reaching out to them to help provide them with resources and support.
“We have creatively developed a number of engagement opportunities, resources and support services through a variety of partnerships,” Smith said. “For instance, we have an upcoming four-week program entitled “Around the World in 12 Museums,” where a professional museum curator will share fascinating backstories and narratives on incredible objects from institutions big and small. We also have weekly learning series, on-going book clubs, and support groups for caregivers.”
Overall, Maplewood has stepped up sales and marketing for Inspir, with a focus on bringing elements of community’s lifestyle “to the doorsteps” of prospects, he added. Technology will play a large part in the resident experience at Inspir, with Maplewood creating a tech suite called Alli for the building. Capabilities include virtual reality and concierge care enabled by Amazon Echo devices.
After a few quiet weeks, sales activity is picking back up.
“People are beginning to see signs of hope,” Smith said.
Omega remains “constructive” on the prospects for senior housing but is evaluating its development pipeline in light of Covid-18, Insoft said.
“This analysis may take several fiscal quarters as we have an opportunity to see how market demand and facility cost structures adjust,” he said.
Smith has spoken in the past of a potential $5 billion pipeline of Inspir projects in other urban centers around the globe, with Omega being one potential capital partner. Covid-19 has raised some questions about future demand for senior housing in dense urban markets, but Smith still intends to expand the Inspir portfolio.
“We remain steadfast in our commitment to future developments,” he said. “We are confidently moving forward on pursuing future opportunities and believe we will come through this on the other side, better and stronger.”
Occupancy declining but rents coming in
Skilled nursing dominates Omega’s portfolio, but the REIT’s senior housing portfolio totaled about $1.6 billion in investments on the balance sheet at the end of Q1 2020.
All its senior housing assets are in triple-net leases, with Maplewood as its largest tenant, accounting for about half the total portfolio. Another 25% of assets are located in the United Kingdom. As senior housing buildings began to impose visitor restrictions and ban in-person tours in March, occupancy began to erode. Omega is seeing about a 1% to 3% monthly occupancy decline currently, Insoft said.
Lease coverage is also declining, although Omega collected 98% of April rents across its full portfolio and has not received any requests for May deferrals.
On its Inspir project alone, Maplewood has annual rent totaling $21 million, which it began paying in January. Maplewood has a line of credit with adequate collateral and is continuing to pay rent, although Omega is in ongoing discussions with the provider, executives said Tuesday.
While rent is being paid, senior living operators are facing elevated expenses related to Covid-19, and financial support from federal stimulus packages has been sparse, and Omega is operating under the assumption that only assisted living providers with some level of Medicaid revenue will receive future funds from the $2 trillion CARES Act, SVP of Operations Megan Krull said.
Meanwhile, providers are working hard to not only maintain financial stability but keep workforce morale up, Omega COO Daniel Booth noted. Between mid-March and last Friday, Omega’s operators had identified 4,136 confirmed Covid-19 cases among their residents and employees, with at least 350 deaths. These numbers will increase as testing becomes more widespread, Booth said.
“Ultimately, it would be both premature and irresponsible to attempt to project the impact of this virus on any given facility’s residents or staff, their occupancy, financial performance or otherwise,” he said. “Until that time comes when the virus has subsided and some new form of normalcy has returned, Omega … will continue to stand behind our operators, provide support and assistance to their frontline caregivers, and continue to tout their day-after-day heroic efforts.”