Residents pay a premium to live in bustling urban areas where they have more choices
By Bendix Anderson
A new kind of seniors housing property will soon rise in New York City. It will be 15 stories tall.
“This Midtown Manhattan development is the first of its kind,” says Mercedes Kerr, senior vice president of business development for Welltower, a leading healthcare real estate investment trust that announced its plans for the high-rise in April.
Welltower has partnered with Hines to build 139 East 56th Street, a planned high-rise with retail at its base and senior living and memory care above. Floor-to-ceiling windows in the second-floor community rooms will overlook the frenzied traffic and sidewalk life of Midtown.
It turns out that a significant number of seniors are willing to pay more to live where the action is — or at least where they can keep an eye on it. Leading seniors housing developers are earning high rents at new developments in busy neighborhoods. Most are not as bustling as Manhattan, but all offer seniors a chance to walk a short distance to cafes, stores or even a public library.
“Development of seniors housing located in infill locations is an emerging trend — it provides residents with entertainment and shopping options as well as direct connection with a broader community,” says Beth Burnham Mace, chief economist and director of capital markets outreach at the National Investment Center for Seniors Housing & Care (NIC).
Seniors escape the cruise ship
Seniors housing is late to join the rest of the real estate world in focusing on urban neighborhoods. One-third of the new apartments now under construction are rising in the central business districts of major metropolitan areas, according to CoStar Group.
In contrast, most seniors housing communities tend to be located far from anything remotely like a downtown area.
“Historically, we haven’t seen many infill seniors housing locations,” says Mace. “There has been more of a bias to build in more suburban and rural locations.”
For most of the latest development cycle, the typical seniors community has been located on a busy, surface-level road in an affluent suburb: the kind of location the adult daughter of a senior is likely to drive past. These communities typically aren’t within walking distance to shops or other services.
Instead, these communities provide a full slate of activities and amenities to keep their residents engaged without ever having to leave the community.
“We often use the analogy of a cruise ship,” says David Carliner, executive vice president of Shelter Development. “Some prospective residents worry if they move into senior living, they would be cutting themselves off from the rest of the world.”
More than one in five seniors over 60 years of age (22 percent) indicated that “walkability” is a top priority for them when they choose a neighborhood or community, according to the 2015 Urban Land Institute National Public Opinion Survey.
That’s more than any other age group, including Millennials, who supposedly are champions of walkability. The set of people older than 60 likely includes a number of people who can no longer drive.
The Baby Boom generation, which includes persons born between 1946 and 1964, also is interested in having seniors housing in more urban neighborhoods. “There is the perception that Boomers are going to desire to live in more vibrant, walkable environments than prior generations,” says Charles Bissell, executive director of appraisal firm Integra Realty Resources.
The residents who move in to Shelter Development’s Brightview West End in the busy heart of Rockville Town Center, Md., won’t feel cut off from the world. Slated to open in summer 2017, the 195-unit community will be directly across the street from the Rockville Memorial Library and surrounded by dozens of shops and restaurants.
Brightview West End will include independent living, assisted living and memory care. Because of that mix of product, a couple can live at the community together even if they are in different stages of aging.
“We are seeing more couples as life expectancy for men rises. They are coming to us with every combination of needs,” says Carliner. “If one needs dementia care and the other is psyched to walk across the street to the library, that is great.”
The West End community will also include first-floor retail spaces that open onto the sidewalk. These shops will serve both the seniors and the broader community, including a coffee shop managed by Brightview.
“Our goal is to make our coffee shop attractive to all populations,” says Carliner. “We are hoping for some organic, intergenerational activity.”
The idea is to provide a comfortable space where potentially frail seniors can be around younger people who aren’t workers or visitors at the community. Brightview’s coffee shop will include chairs with arms so that older people can get easily in and out of them, and acoustics designed not to be too noisy. But the shop should also appeal to younger patrons who stop by on their way to run other errands in the town center.
“Everyone is trying to figure out what the new amenity profile is,” says Mace. “This is a new idea to address that — a more social setting, a more intergenerational setting as opposed to being isolated.”
Developers also are beginning to provide more choices to their residents. New seniors housing properties often include multiple dining options, ranging from a more formal dining room to a “bistro” experience.
At Brightview’s West End property, those options include restaurants located near the community that aren’t operated by the community.
“The seniors housing operator might lose revenue to the degree that residents eat meals away from the property,” says Mace. However, the community succeeds in offering more choices to its residents.
Infill is expensive, but seniors pay for it
Seniors are willing to pay more to live in neighborhoods where they can walk to shopping or restaurants — but seniors housing is also much more costly to build in these neighborhoods.
“It is expensive to build infill. You are competing for land with other property types,” says Mace. “If you can get the land, however, you yourself will have that barrier protecting your property from competition.”
Seniors pay an extra 10 to 15 percent per square foot to live at The Cardinal at North Hills in Raleigh, N.C., compared with Kisco Senior Living’s other independent living and assisted living communities in the Raleigh market.
North Hills is a 7 million-square-foot, mixed-use development in Raleigh’s Midtown District that’s been expanding for more than a decade on what was once the site of an old mall. The new seniors community will open in November overlooking a park and near cinemas, restaurants and hotels.
The independent living portion of the new, 225-unit community was already 80 percent pre-leased as of early June. It’s a rental continuing care retirement community, including independent living, assisted living, memory care and private nursing care.
It cost millions of dollars in extra construction costs to squeeze all of the units onto a smaller urban site. The developers of The Cardinal at North Hills created two steel-and-concrete, five-story, elevator buildings on top of an underground parking garage for the independent living units.
“The parking alone cost us a few million dollars,” says Mitch Brown, chief development officer for Kisco, which partnered with Welltower to create the new community. “It’s a key differentiator from suburban projects in the market.”
The developers didn’t save any money on the package of amenities and community spaces they provide for their residents, even though the community is surrounded by amenities — from coffee shops to health clubs.
“Even though our residents can walk out the door to more than a dozen great restaurants, we still felt it was important to have a full array,” says Brown. “It’s all about choice. They want choices of all kinds.”
The Cardinal at North Hills also includes a 3,000 square-foot clubhouse with all the amenities that seniors have come to expect. “It has everything that is de rigueur in our business,” says Brown. “We still needed to provide the services. We didn’t want to skimp.”
Infill can also be more expensive than building on undeveloped land because the sites are often small and oddly-shaped, and come with limits on what developers can build.
“That creates an opportunity for a more interesting building instead of the same old box,” says Michael Schonbrun, founder and CEO of Balfour Senior Living.
For example, at Balfour at Riverfront Park in downtown Denver, Balfour had to incorporate an existing landmark building into its design. The new construction will echo architectural details from the historic Moffat Depot, such as the landmark’s giant Palladian windows.
“It wouldn’t even occur to you to do something like that if you were designing a brand new building in some open field in suburbia or exurbia,” says Schonbrun.
Fixing up the landmark building cost about $2 million, bringing the development cost to $76 million.
“There was asbestos everywhere, which was much more expensive than we thought to remove,” says Schonbrun. Balfour also had to remove toxic coal ash and the forgotten foundations of earlier buildings from at the site, which once served as a railyard.
In addition, Balfour had to negotiate with neighbors who did not want Balfour’s building to obstruct their view of the mountains, even though Balfour had the legal right to build right up to the property line. “We had a number of very agitated neighbors, some of whom were quite politically connected with their own lawyers at the ready,” says Schonbrun. Consequently, Balfour redesigned its plan.
“When you are done, you have something that you are really proud of and that will be pretty hard to replicate,” says Schonbrun.
Balfour paid more for the infill site than for a comparable suburban site. “The land is more expensive,” says Schonbrun. “The construction is more expensive. There needs to be a premium from rents, unless you just create tiny apartments.”
Balfour did not create tiny apartments at Riverfront Park. The units are the same size as comparable suburban developments. “The apartments aren’t smaller but everything costs more,” says Schonbrun.
Fortunately, the leasing at Riverfront Park is going well. The 112 independent living apartments opened in fall 2014, and are now 80 percent occupied. The 65 assisted living and 28 memory care units opened in spring 2015 and are 50 percent occupied. That’s relatively fast for seniors housing, and the rents are 20 percent higher than at Balfour’s suburban communities.
Balfour is now hunting for more opportunities, but good sites are difficult to find.
“We are looking now for more infill sites in cities with vibrant downtowns and cultural events in the evenings,” says Schonbrun. “The concept has been proven out.”
New town centers bring seniors to the suburbs
Sometimes the walkable neighborhoods where it makes the most sense to build seniors housing are in suburban areas.
So far, Capitol Seniors Housing (CSH) has focused its new development activity on infill in the suburbs because the cost of land is lower than in top urban locations.
CSH is now under contract to buy two development sites in Maryland. Both are nestled into large, mixed-use developments: Waugh Chapel and Maple Lawn.
“That is the model we are pursuing in the suburbs, anchoring ourselves in these lifestyle centers,” says Kyle Henderson, chief operating officer for CSH.
The lifestyle center at Waugh Chapel has 56 retail tenants, including a Regal Cinema, a grocery store, big-box stores and a long list of restaurants.
These lifestyle centers are often hubs for whatever mass transit is available in their areas. “That makes it easier for your staff, a lot of whom might not have cars,” says Henderson.
Seniors housing can also benefit simply from being next to a conventional suburban retail center, anchored by a grocery store. The retail spaces don’t have to line up along a traditional street in a traditional town center to add value.
Three years ago, Shelter opened its Brightview South River community near Annapolis, Md., with 100 assisted living and dementia care apartments. The residents and their families say they love having a grocery store just a few steps away, just across the parking lot from the community. It creates opportunities for the seniors to participate in the lives of their adult children, who can stop by the community on their way to pick up groceries.
The shopping center also includes an International House of Pancakes family restaurant. “It’s not a restaurant brand that we usually think about, but the seniors loved being within walking distance of the IHOP,” says Carliner. “It’s very warm and homey. Eating in the same building three times a day can get old.”
Developers like Shelter are leaders in creating new seniors housing in walkable neighborhoods. But Shelter continues to create seniors housing on leafy suburban sites. That’s because not every senior is going to want to live near a busy sidewalk. “There are people who would never live in an urban area,” says Mace.
Seniors who enjoy living downtown are often picky about what kind of downtown neighborhood they will live in.
“Multifamily developers have gone to new areas. They will gravitate to the new, cutting-edge area,” says Carliner. “Seniors will not. They like locations that are really comfortable and have been comfortable for a long time.”
The Baby Boom generation might be willing to stretch into more transitional neighborhoods, but most of them are still relatively young. The first won’t even turn 80 until the year 2026.
“We are still a long way from the Baby Boomers living in seniors housing,” says Mace. “When they do get there, however, there will be so much demand that you will basically see everything… In the next decade you are going to see lots of development — urban, suburban, and rural.”