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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28 Seniors Housing Business n August-September 2018 Fuel growth and profits with an HR strategy. Serving the Senior Living Industry for over 15 years 833-558-9869 | Employee Attraction & Retention Employee Benefits & Benefits Administration Human Resources Software Payroll & Payroll Tax Administration Risk Mitigation & Workplace Administration Leadership & Talent Development to still flow into seniors hous- ing development, most lenders say their underwriting has got- ten more strict in the past year or two due to both increasing inter- est rates and decreasing occupancy rates. "Construction financing is more difficult to get," says Jeff Sands, managing principal and general counsel with Connecticut-based lender HJ Sims. "I see the lever- age going down and the demands for recourse financing going up. The bigger banks in particular are being very cautious about con- struction financing these days." Laffey agrees that capital sources must act as a backstop against overbuilding. It's his observation that debt and equity sources are showing signs of increased disci- pline. Whereas new construction starts for assisted living and mem- ory care were cropping up "like mushrooms after a spring rain" just a few years ago, that trend is starting to calm now. "We have a responsibility to our stockholders, investors, employees and residents that we're going to be a good steward of those homes and add value for the investors and residents," says Laffey. "All seniors housing develop- ments are not created equal. Own- ers and managers are not created equal. The marketplace is putting a premium on established, credible sources," continues Laffey. "We're seeing the lenders being a bit more discerning as to who they're doing business with." Even the municipalities should implement more stringent approval processes, and developers must be more careful about what they choose to build, says Bennema. "A lot of people own land. They say, 'I can't do much with it so why not make it a senior living facility?' That's not a good enough reason to build. Some of these local municipalities need to make sure they have more discretion on approving developments." Solera's Kaplan notes that the responsibility for preventing over- building shouldn't rest entirely on the shoulders of the capital sources. The developers themselves need to only look at the best possible locations, and only build when all the factors align to create a suc- cessful property. "I don't expect my capital part- ners to do my analysis for me. As a developer and an operator, I have to make sound investment deci- sions," says Kaplan. "I'm going to study the market, do proper dili- gence. By the time that I go out and raise the capital, I must have a compelling case." Additionally, everyone in the industry should be cautious of "develop-and-dump" companies — merchant developers that only build seniors housing communi- ties to sell them — says Kaplan. Although there's nothing inher- ently wrong with this strategy, it does attract developers that aren't invested in the long-term success of a property. "Right now we have too many fee developers and third-party operators just looking to grow scale and generate fees," says Kaplan. "I'm not saying I have an issue with that model, but it does bring into question whether all your stakeholders are truly well aligned. What are their motiva- tions? If the project doesn't suc- ceed, they're not the ones covering the cost overruns. The best-case scenario is to have good alignment of all the stakeholders." n LCS owns and operates Sagewood, a continuing care retirement community in Phoenix. Rather than attempting to start new, ground-up development in the crowded Phoenix market, LCS has undertaken several expansion and renovation projects at the property.

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