The coronavirus pandemic is having an unfavorable impact on senior housing development, with developers and operators across the country postponing projects until the pandemic is under control. And they are using this time to revise plans in the hopes of creating more appealing and resilient communities.
That’s one finding from a survey by Senior Housing News and architecture and design firm LWDA.
SHN and Concord, Massachusetts-based LWDA conducted an online survey of operators and developers in October, and received 185 reponses. The survey revealed that 65% of respondents reported postponing projects as a result of the pandemic, and 40% canceled projects altogether. Overall, 70% of respondents with development pipelines reported having projects postponed due to Covid-19.
Those who canceled or postponed projects cited a variety of reasons. Notably, 43% expressed a need to preserve capital and liquidity as the pandemic continues, and 23% indicated a lack of financing. Another 34% said they halted projects due to Covid-19 guidelines, opting to focus on keeping existing communities free of the coronavirus, instead.
Pandemic pressures continue to force project postponements, with news coming this week that Clark Retirement Community is halting development of an independent living community in Greenville, Michigan. Earlier in the pandemic, another Michigan-based provider — Leisure Living Management — halted two developments in its pipeline in July and turned its attention and resources to its Covid-19 response.
And most providers are using the pandemic as an opportunity to go back to the drawing board with architects and designers, revising plans in order to incorporate enhanced safety and sanitation protocols implemented in recent months, which will have added benefits for future use and improved infection control guidelines.
Covid-19 is leading developers and operators to rethink community design in order to enhance infection control procedures and improve resident and staff safety in the future.
A large majority of respondents indicated their organizations launched new projects relating to the pandemic in the form of infection control measures, social distancing measures, HVAC changes and other new projects in their communities. More than half committed new resources to development of outdoor resident spaces, and said that trends such as pocket neighborhoods, increased middle-market development and larger floor plans will become en vogue, post-pandemic.
LWDA is already discussing these changes with some of its clients, Director of Marketing, Architectural Visualization and Graphics Keith Bradley told SHN. The firm’s clients in Massachusetts are finding this to be necessary.
The Massachusetts Department of Public Health proposed new regulations in response to Covid-19 for long term care and skilled nursing environments. As a result, a number of LWDA’s clients are reaching out to the firm to evaluate their current buildings and ensure that they meet those new proposed regulations.
“It’s a double-edged sword,” Bradley said. “Some have been proactive and some are being forced to [reach out] by what might come.”
LWDA’s clients are receptive to the firm’s suggestions for changing areas and showers for staff, some of which may have been cut from development plans in the past due to budgetary constraints. Now that these recommendations are being included, clients are finding the increased costs to be negligible, and needed for future protection.
“A lot of the solutions that we are coming up with are in line with the same design that we would have done before,” Bradley said. “It’s just now the design is solving this other problem, too.”
Lack of construction financing
Tight construction financing has been an ongoing trend since the pandemic swept across the country in the spring, sending the debt and equity markets to the sidelines. Construction projects with financing in place prior to Covid-19 are moving forward, while those announced during the outbreak struggle to secure financing.
While the debt and equity markets are gradually reaching a balance for acquisition opportunities, the construction financing market continues to suffer from an imbalance. Many banks, especially, refuse to review new projects and offer term sheets.
As a result, some developers are seeing sizable delays on their developments while they continue to secure financing. Ryan Companies has experienced delays ranging between 90 days and 120 days for projects in its development pipeline, Senior Vice President of Senior Living Julie Ferguson told SHN in October.
Lenders are also taking a more proactive approach to servicing existing clients during this time, as well. Some are working with developers and operators to adjust lease pro formas, understanding that the current environment may result in withdrawn deposits or possible concessions to accelerate move-in velocity.
Debt providers that are returning to the markets are doing so cautiously, only underwriting deals where sponsors have proven track records for success. And even with those, placing debt remains a challenge, and lenders are asking for more equity from developers before underwriting.
Contractors and subcontractors have absorbed added expenses because the work contracts they negotiated were finalized before the coronavirus swept across the country, and are looking for areas to mitigate the rising expenses elsewhere.
With the U.S. in the midst of a new wave of positive coronavirus cases, contractors and subcontractors will look to protect themselves from rising costs and delayed construction timetables as they bid on new contracts, which may result in higher development pro formas.
Not all pipelines have stopped, however. Many respondents acknowledged that projects in progress prior to the pandemic continue to move forward. Among respondents reporting canceled projects, nearly half expressed optimism that projects would resume in the first half of 2021 or sooner, while 26% expect projects to restart in the second half of next year.
But it will depend on a couple factors. A majority of respondents with canceled developments cited a rebound in occupancy rates and the return of financing as the key drivers of projects resuming.