Covid-19 presents a sizable challenge for the senior living industry, but two major players in real estate development also foresee multiple avenues for growth ahead. In particular, Hines and McCaffery are leveraging their scale and experience in other types of real estate as they expand in senior housing and bring new communities to some of the nation’s top markets.
Among the innovative development approaches they have in mind, the two firms foresee a future in which senior living is co-located with traditional multifamily housing, even in the same building. But, in the short-term, they are focused on building out their pipelines in the midst of the Covid-19 pandemic.
No doubt, the pandemic has created new operational hurdles and uncertainties regarding the timing of construction and development. For Hines and McCaffery that actually equals opportunity.
“Like in other cycles, I think this is a good time to plan,” McCaffery President Ed Woodbury said during the recent Senior Housing News BUILD conference, which was held virtually.
Ryan Pritchard, director of health care and senior living at Hines, is still bullish on the product type, despite the pandemic.
“I think the industry, as we all know, acquitted itself extremely well in ‘08, and these best-in-class groups continue to handle the operational items that are popping up with Covid,” Pritchard said during the BUILD panel. “When I see how the other product classes [are doing] and the challenges they have coming up, I just feel really good about dedicating my day — all day, every day — to senior living right now.”
Both companies have reasons to be bullish. For one, the long-term demographics still favor the senior living space. And, there are still plenty of real estate development opportunities with experienced operators in high-barrier-to-entry markets, pandemic or not.
“I think developers, mid-size and large-size, are going to prioritize [senior housing] in the sense that they’re going to keep building out and centralizing teams of professionals dedicated strictly to the space,” Pritchard said. “Every operator I’ve spoken to, they have large growth targets over the next five years, and new development is a major component of that.”
Leveraging multifamily and mixed-use experience
Both companies have experience in developing both multifamily and mixed-use developments — and both see opportunities to locate them along with senior housing communities.
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Hines is a global real estate firm with about $144.1 billion of assets under management in a variety of industries. The company has a presence that spans 225 cities in 25 countries. McCaffery, meanwhile offers development, leasing and property management services, marketing and investment advisory services across multifamily, office and retail real estate. The company had spearheaded the development of over $3 billion in completed developments when it entered the senior housing space last year.
Both companies are focused on new and innovative product mixes, such as co-locating senior housing and multifamily apartments on the same site — something both are already dabbling in. And looking ahead, that trend in particular is “definitely going to be part of our future,” Pritchard said.
“The code that no one’s really seemed to crack yet … is how do you do it in the same building?” he added. “I think you’re going to go vertical and share some operational expenses, but create a separate environment.”
Woodbury points to other product types commingling as a glimpse into the future of the senior living industry.
“There were days when … we couldn’t imagine putting office and condos or office and multifamily together,” he said. “Now, it’s second nature.”
In the near term, Hines and McCaffery are building out their senior housing presence by targeting urban markets and partnering with high-quality operators.
McCaffery made its debut in the senior housing world in 2019 when it announced plans to partner with Denver-based operator Solera Senior Living on a pipeline of communities in the mid-Atlantic region of the U.S. The companies broke ground on their first joint-venture project together — Modena Reserve at Kensington, a $75 million, 135-unit community in Kensington, Maryland — last year.
Hines, meanwhile, has focused on building development pipelines with operators that include Watermark Retirement Communities and MorningStar Senior Living. The company is also collaborating with real estate investment trust Welltower (NYSE: WELL) on two senior living highrise projects in New York City.
For Hines, operator relationships are paramount in guiding new development. The company looks at many sites for potential development opportunities, but typically favors infill markets or suburban sites with a “compelling story” or an unmet demand, Pritchard said. When a potential site does make the grade, Hines presents it to one of the firm’s operating partners.
“We feel that getting a best-in-class operator interested in a site in today’s environment is a big testament to that opportunity,” Pritchard said.
The company always includes its operating partners in the design process, which has led to communities with top-floor restaurants and units for residents with larger square footages.
When vetting a potential operating partner for a senior living project, Hines examines their track record, asking whether they invest in any deals themselves, whether they engage a third-party developer, which markets and service types they operate in and how they think about high-end projects.
“You’re going to spend a lot of time working on these deals with these partners, and they really are that,” Pritchard said. “They’re 50/50 partners in everything we do.”
McCaffery, meanwhile, has so far focused on projects located on urban sites, or in suburban areas near major cities. The company typically looks for markets that have a high barrier to entry — “the more brain damage, the better,” Woodbury joked, about what it takes to get projects done in its target markets.
“What does that translate to in our world? Super high quality real estate,” he continued.
Like Hines, the developer prefers projects that are amenity rich and attached to proven senior living operators. McCaffery also targets projects that will incorporate the latest technologies and supporting infrastructure. The company is currently working with Solera on a to-be-specified project near Washington, D.C. in a large mixed-use development in the Northern Virginia area.
McCaffery has a great deal of experience in urban multifamily development, and while creating and operating senior living communities brings different demands, the firm is able to draw on its highrise expertise in bringing senior living to city centers, Woodbury said. And, he and McCaffery’s partners believe that older adults will continue to prize urban living in the coming years.
“I think that’s a great, great place to be right now,” he said.