This article is a part of your SHN+ membership
Recently, we caught wind of a developer’s plan to create new senior living communities at two former shopping malls in the Chicago area, and our story generated high interest among readers.
No doubt, the challenges of 2023 are leading investors and developers to turn over every stone and consider more creative ways to build, in anticipation of future demand. Shopping malls, former health care offices, and even mortuaries have all become targets for senior housing development and growth plans in 2023.
In recent years, former hotels have become a particularly popular avenue for growth. The idea is that an operator can buy these properties at a decent cost, and then turn them into one-of-a-kind communities that lower the basis for the real estate all while keeping rates lower for residents.
But as splashy and well-thought-out as some of these plans have been, there are various potential roadblocks to getting such projects done, and at least two senior living companies’ plans for redeveloping former hotels have yet to pan out.
In this week’s members-only SHN+ Update, I analyze these trends and offer the following takeaways:
— Why the allure of hotel redevelopment projects may be fading in 2023
— How senior living companies have shifted their plans in accordance with the times
— Where I think adaptive reuse still makes sense
Hotels remain hard to redevelop
In the very earliest days of the Covid-19 pandemic, as the hotel industry ground to a standstill, several senior living leaders zeroed in on the potential for acquiring and redeveloping failed hotels. About a year ago, Senior Housing News again covered the trend of financial distress among hotels leading to potentially lucrative redevelopment projects.
Two companies leading the charge were IntegraCare, which at the time was converting a hotel in Solomons Island, Maryland, to an independent living, assisted living and memory care community; and Lloyd Jones, which was making hotel reuse a core part of plans to meet the middle-market in a scalable way.
At the time, construction costs were ballooning and it seemed like redevelopment of former properties already akin to senior living, such as hotels, was a logical strategy for scaling up. But when I caught up with leaders of both companies earlier this year, their plans had yet to materialize.
In the case of IntegraCare’s Solomon Island community, CEO Larry Rouvelas told me that higher-than-expected conversion costs, coupled with rising interest rates, had made the project much harder to pencil out.
In the case of Lloyd Jones and Solvida, I was told the project team did close on a hotel in Texas as originally planned, but chose to keep managing it as a hotel for the time being as they look for other opportunities.
The fact that two established companies with solid track records and well-laid plans to scale up using former hotels have pressed the pause button is an indication that the tides may be turning on the hotel conversion push.
And the fact of the matter is that these were never easy projects to begin with. Rouvelas has said he avoids deals involving “boxy, high-rise hotels,” as the buildings’ room size, footprint and layouts are not usually compatible with senior living.
Lloyd Jones Senior Vice President of Development Michael Hass also previously noted that hotel conversions are “harder than we thought,” and require a keen eye for detail.
There is also the fact that older hotels may not be as easily purchased as in prior years. After a sharp downturn in demand during Covid, occupancy and average rental rates were up in 2022 compared with the previous year, and the sector’s job market remains hot.
At the same time, it is harder in 2023 for senior living companies to access construction or acquisition financing for new projects, even when they find attractive opportunities.
And that is not to mention the number of older senior living communities that are thought to be in need of serious renovations in the coming years. While the expectation is for some of these properties to be closed or redeveloped for other better uses, such as behavioral health, for now a vintage community seems like a more logical place to start with regard to redeveloping for a lower real estate basis.
There are many examples of successful hotel-to-senior housing conversions, and some high-profile projects currently underway — notably, Maplewood’s adaptive reuse of a hotel in Washington, D.C. to create the company’s second Inspir community. But the bottom line is that I don’t think the hotel sector represents quite the glimmer of hope for easy and cheaper redevelopment, as some companies hoped in the recent past, even while I do think it will remain a viable growth strategy in specific cases.
Malls, offices still hold allure
On the flip side, where hotels have perhaps fallen out of favor for new development, I have seen malls and offices fill the gap.
Two developers’ plans come to mind: Senior Living Development’s adaptive reuse of former UnitedHealthcare offices in Trumbull, Connecticut; and more recently, Integrated Development II’s involvement in the redevelopment of land located in the footprint of two Chicago-area shopping malls.
In the case of Senior Living Development, Mark De Pecol — also the CEO of middle-market operator KindCare — is advertising the 17-acre site, which is tentatively called “Rivers Edge” and approved for the development of two different senior living properties.
And of course, Senior Living Development is not the only organization adapting former office space for senior living. Another prime example is Erickson Living’s project to redevelop Marriott International’s former global headquarters.
Integrated Development’s projects entail two communities, 166-unit Sophia at Hawthorn Mall and the 216-unit Sophia at Fox Valley Mall, which are slated to carry a full care continuum along with intergenerational and mixed-use design features.
“[Co-investor] Affinius brought us in at the planning level as they were looking at the multifamily uses, and that way we were able to come up with a plan that worked for everybody,” Integrated Development II CEO Matt Phillips told Senior Housing News in late June. “That was really important to us compared to other mall opportunities and other renovations.”
Shopping malls are not the only locales being turned into senior housing. In Los Angeles, a former mortuary in a part of the city once known as “Mortuary Row” has a new life as Washington View Apartments, a 120-unit affordable senior housing community for low-income older adults.
Mortuaries aside, Rouvelas told Senior Housing News he is still optimistic about adaptive reuse, and sees promise in plans that involve property types such as former shopping malls.
“Mall redevelopments are typically purpose-built buildings on outparcels, rather than adapting an existing building, so they can be competitive design-wise with other new-builds,” Rouvelas told SHN this week. “Repurposed malls are often in high-barrier in-fill locations that you’d give an eyetooth for.”
As developers across the country eye shopping malls and other properties for a variety of uses, there are clear opportunities for senior living companies to get involved, especially given the industry’s recent aspirations to be woven into the fabric of everyday life.
And I hope that mall redevelopment opportunities also inspire creativity and innovation across the industry. I’m reminded of the concept floated shortly before the pandemic, of transforming a vacant mall in Oklahoma City into a CCRC modeled after De Hogeweyk, the Dutch “dementia village.”
Where I once saw hotels as the most logical avenue for adaptive reuse in the months and years ahead — and to be clear, they are still viable in specific cases — I think senior living companies would be wise to consider a wide range of options for adaptive reuse.
Companies featured in this article:
