Urban Appeal: Development Trends & Considerations in Senior Living
On May 15, 2018 by Guest Contributor
When people think of the rental population in big cities, they often picture young professionals looking to advance in their careers before making a move to the suburbs later in life. While there are still plenty of urban renters that fit that profile, new stats reveal an interesting trend. Between the years from 2009 to 2015, the largest increase in the renting population was for the age group of 55 and older, which increased by 28 percent.
By comparison, the age group of 34 and younger only increased by 3 percent. Clearly, the demand for urban rental options for seniors is increasing, and seniors housing and care developers are responding accordingly.
The share of the U.S. population that lives in the suburbs doubled from 1900 to 1950 and doubled again from 1950 to 2000, as the availability of larger houses and more green space drew families away from cities and into surrounding suburbs. Subsequently, senior living options expanded in the suburbs, allowing seniors access to the complete continuum of care while remaining close to family. Often, the availability of land allowed development to be affordable, and as such, there is an ample supply of suburban senior living communities across the nation.
Although suburban developments will continue to play an important role in the seniors housing and care industry, aging Baby Boomers who are drawn to urban vibrancy may not find a suburban community that fits their needs. In recent years, many cities have been increasing efforts to revitalize downtown areas to attract residents. Houston’s Discovery Green and Portland’s River District are two great examples, as they reflect successful efforts to convert urban areas into appealing “live, work and play” communities.
Urban settings are appealing because they offer proximity to cultural, dining and nightlife options that attract individuals of all ages, seniors included. Another benefit of urban settings is walkability, which a recent survey rated as “very important” or “mandatory” according to seniors looking to reside in cities. Relatedly, access to public transportation was listed as a preference in the same survey. Residential developments in or near such areas benefit from a unique sense of connectivity that is often unmatched by their suburban counterparts.
When seniors make a decision about where to move, urban developments will be highly desirable for the segment of seniors who either currently live downtown and wish to stay, or those who are downsizing from a larger suburban house and are attracted to the city lifestyle. An additional advantage of urban seniors housing communities is that both the neighborhood and the community benefit from intergenerational integration.
A good example of a high-end urban senior living community is Balfour at Riverfront Park in Denver, which was developed by Balfour Senior Living, a Louisville, Colorado-based owner and operator. Balfour was able to incorporate an old train depot into the design of the community, in addition to granting residents easy access to downtown Denver. Offering Independent Living and Assisted Living in addition to Memory Care, the development fronts 17 acres of riverfront parks. Higher development costs, driven by a scarcity of available land, led to a product that targets higher-end customers. These residents are attracted to amenities that are commensurate with the surrounding area, including curbside valet parking, 24/7 concierge services, upscale dining with gourmet menus, a fitness center that includes a spacious locker room, personal trainers, a steam room, a pool and Jacuzzi, and service one would expect from a five-star hotel. Residents can choose from a variety of room layouts, some as large as 1,600 square feet. Access to the city’s best restaurants, entertainment, nightlife, and attractions such as the nearby Museum of Contemporary Art and Coors Field, offers a unique allure that only urban developments can provide.
While the demand is likely to continue for such high-end urban seniors housing developments, those settings pose unique challenges as well. A lack of available/desirable sites, permitting challenges, and the cost of urban construction all require a thoughtful approach.
A different but equally successful example can be found in Central Parkway Place, located in Cincinnati’s Over-the-Rhine historic district neighborhood. The 65-unit affordable seniors housing apartment developed by Episcopal Retirement Services resides in a renovated YMCA originally constructed in 1917. The renovation included adapting space for the YMCA to continue to house its offices in the building, while also updating fitness amenities and constructing the apartments. Seniors residing at Central Parkway Place have walkable access to Cincinnati’s Music Hall and Washington Park, as well as the nearby streetcar station, which links the neighborhood to downtown.
There are a variety of financing options for urban senior living developments. One popular option is 142(d) bonds. These fixed-rate bonds carry 30- to 35-year terms and require 20 percent of the units to be leased to residents under 50 percent of the area median income. The bonds are non-recourse and the range can be as high as 80 percent to 90 percent of total cost. Depending on the buyer, potential flexibility regarding call provisions and interest-only can make these an appealing option for Independent Living and Assisted Living projects.
Another attractive option is the U.S. Department of Housing and Urban Development (HUD)/Federal Housing Administration (FHA) Sec. 232 new construction program. This program is focused on higher acuity projects, but it can work for facilities that offer 25 percent to 30 percent Independent Living, assuming there are no entry fee units. These non-recourse loans can run 80 percent of value or 90 percent of cost, although they do require significant escrows that can be funded with either cash or letters of credit, and construction is subject to prevailing wage requirements. The fully amortizing 40-year loan has a fixed rate, with an annual mortgage insurance premium paid to HUD. For an experienced development team with a longer timeline, this option allows for a market interest rate that is fixed at construction commencement.
A third option for urban development is a triple-net lease structure. For growth-minded owner/operators who have a desire to ultimately own the real estate and who are focused on Independent Living, Assisted Living, Memory Care or skilled nursing (or combinations thereof), this program can fund the land acquisition, in addition to all hard and soft development costs, with lease payments commencing at Certificate of Occupancy. The operator is responsible for start-up losses and operating deficit escrows and holds a purchase option at a predetermined price schedule.
Due to the growing appeal of urban areas to seniors, opportunities to construct or renovate seniors housing and care facilities in cities will likely expand as the senior population grows in the decades to come. Developers that are proactive and informed of all the available financing options will be best positioned to benefit from this emerging trend.
By Rob McAdams, Vice President, and Keith Jones, Assistant Vice President, Lancaster Pollard. Lancaster Pollard, a valued business partner of LeadingAge Minnesota, helps health care and senior living expand and improve their services by providing financial advice and financing options. Learn more at www.lancasterpollard.com.