Seniors Housing Business

AUG-SEP 2018

Seniors Housing Business is the magazine that helps you navigate the evolution of the seniors housing industry.

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Page 23 of 80 23 August-September 2018 n Seniors Housing Business Build something great. And enjoy the journey. We orchestrate the people and processes of your construction project, making it easy for you to bring your vision to life. David Laffey, head of LCS Real Estate, the equity investment sub- sidiary of Des Moines, Iowa-based owner-operator LCS. LCS uses an in-house market research group to vet potential development opportunities. Key metrics are tracked, including local penetration rates, job market, pop- ulation growth, household income and average home price. "There's a swath of things to consider in determining the appropriate mar- ket score," says Laffey. It's also extremely important to physically visit the market, he adds. Putting "boots on the ground" allows LCS to gain a dif- ferent perspective of the area. "We're being more disciplined about where we're building," says Laffey. "But it's market specific, right? You can't just say the market is generally overbuilt. There are niche markets, and more infill and urban areas." Solera Senior Living searches for "hyper-local" pockets of opportu- nity, according to Adam Kaplan, founder and CEO of the Denver- based developer and operator. Kaplan launched the company in 2016. Solera currently owns and operates one community with three more in various stages of Affordability may unlock 'secret sauce' of better penetration A continuing impediment to growth in seniors housing has been the low penetration rate (inventory divided by the number of 75-and- older households in the market). The average penetration rate for seniors housing in the 99 primary and secondary markets tracked by NIC was 9.9 percent in the first quarter of 2018. That means more than 90 percent of qualified resi- dents choose not to live in seniors housing. But there's one type of senior living that seems to always be full: affordable housing. Governmental assistance such as Low-Income Housing Tax Credits puts a cap on true afford- able housing. However, many seniors housing developers believe the key to higher penetration rates may be market-rate housing that's truly affordable for the typical middle-class senior. When the Silver Tsunami hits, rich seniors will have plenty of options, but better opportunities may lie with the retired teachers and firefighters, says Jeff Sands, managing principal and general counsel with HJ Sims. "The more affordable you can make the proj- ect, the broader the market you can penetrate. As you move down the income levels, the broader the age and income population gets." "The secret sauce of middle-class seniors housing is still in the recipe stage," adds David Laffey, executive vice president and managing director of LCS Real Estate. "Some companies are testing new ideas in select markets. Others are studying it. But the secret sauce has not hit the marketplace in any sort of a broad way." One of the many companies trying new ideas to solve the affordability problem is Solera Senior Living, according to Adam Kaplan, the company's founder and CEO. "You can address afford- ability in many different forms. One way is to build cheaper, so you have lower land costs or construction costs. The other is that you build a product that is much more efficient." Kaplan recommends taking a hard look at amenities and common spaces to decide which help boost occupancy. "Which spaces are necessary? Can they be integrated together? I would never build a busi- ness center because that's not an amenity that people will move in for. If you can create bet- ter common areas that are more active, you can reduce your rates and get a lift in occupancy." Another method is to pursue redevelopment opportunities. This way seniors housing supply can be updated without adding new units to a market. Redevelopment may also unlock oppor- tunities for cost savings because the structure of the building is already built and paid for. "With an old property, capital costs are already sunk or even out of the picture," says Sands. "That's where you can get more affordability: rehabbing old product instead of building new." Redevelopment options must take into account many factors, notes Kaplan. Physical obsolescence can be a major problem for product built in the 1990s. Examples of obso- lescence are units that are weighted too heavily toward studio apartments, common spaces that are too compart- mentalized and fitness cen- ters that are too small. When the opportunity arises, though, redevelop- ment is a great way to intro- duce state-of-the-art units at an affordable price without increasing oversup- ply, says Keven Bennema, president and CEO of Charter Senior Living. Charter, along with capital partner Welltower, recently acquired a portfolio of four communi- ties across the Midwest and Southeast with the express purpose of redeveloping the properties. The markets include St. Louis, Nashville, South- ern Georgia and the Florida Panhandle. "These buildings were not getting proper sup- port," says Bennema. "We saw an opportunity to take over these assets, invest in the infrastructure and make sure we were providing affordable pricing. In these markets there are a number of new developments commanding a high price." "We saw an opportunity to provide excel- lent services for value pricing and still be able to run a profitable business," concludes Ben- nema. "Every one of those markets has a need for affordable senior living." — Jeff Shaw Adam Kaplan Solera Senior Living David Laffey LCS Real Estate

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