How to Reposition a Property for Success

A half-empty office building in Carpinteria, California, was repositioned as GranVida, an assisted living and memory care building. A half-empty office building in Carpinteria, California, was repositioned as GranVida, an assisted living and memory care building.

Three examples of communities that changed course for the better.

By Jane Adler

As consumer expectations change, older properties can be repositioned to compete. Local market dynamics often dictate the best approach, whether it’s adding new amenities or starting over from scratch. What follows are three different case studies of how properties can be repositioned to meet today’s market. 

John Knox Village: 

Rightsizing a CCRC

Developers and investors like to talk about unit counts as a measure of project size and success. But sometimes less is more. 

In 1990, John Knox Village operated and owned 2,500 units. Today, the continuing care retirement community (CCRC) in Lee’s Summit, Missouri, has 1,500 units. 

The loss of 1,000 units doesn’t tell the story of a campus in decline. Instead, the story is one of repositioning a property to catch up with the times. 

Outdated-looking buildings were torn down for ones with contemporary designs. Small units were replaced with large ones. New amenities were added to attract today’s residents. On-site healthcare options were expanded 

The bottom line? More revenue from fewer units. Annual proceeds from entry fees jumped from $5 million to $22 million. The monthly service fee revenue for 1,500 units now outstrips the cash flow from 2,500 units. 

“The market wanted something better,” says Dan Rexroth, president and CEO at John Knox Village. “We had a choice to make.”

The choice became most obvious coming out of the Great Recession. The single-site campus is located in a suburb of Kansas City, on the Missouri side of the state line where housing prices are moderate. 

The campus had been built from 1970-82. Many of the old units were studio apartments with small closets and bathrooms with narrow doors. The amenities on the campus were outdated. 

It was getting harder to find new residents to fill the old studio apartments. Though the community’s mission was built around the entrance-fee model, a rental option was introduced to fill the small units and generate cash. The path was not sustainable, says Rexroth. “We could wake up with a mountain of cash, but not be in business anymore.”

Half measures to fix up or combine apartments over the years didn’t work. One apartment building was completely gutted and redone, but the exterior with its mansard roof still looked outdated. 

In 2014, a bold repositioning plan was introduced. “We are tearing the entire village down and building new,” explains Rexroth. The tag line of the effort is “Redefining the Village Experience.”

Four buildings have been torn down so far, and Phase I is now complete. At a cost of $90 million, it includes a 52-unit apartment building with about 12,000 square feet of amenity space with a new dining venue, theater, beauty salon and meeting rooms. 

Another new apartment building contains 112 units and about 32,000 square feet of amenity space with a fitness and aquatic center, a fine dining venue, and community rooms. Thirty new villas have also been added to the campus. 

The first new apartment building is open and 85 percent occupied. The second building, comprised of three wings, opened sequentially as it was finished. The final portion of that building opened this year. The building is 50 percent occupied. 

Entrance fees range from about $150,000 to $400,000. One-bedroom units are about 800 square feet in size.

Phase I was financed with a bond issue and bank financing. Apartments were not presold prior to the start of construction unlike most CCRC expansions, which typically include about 12 months of presales. 

“We were able to compress the construction time by a year or two,” says Rexroth. “You can accelerate move-ins if you have a project that takes off.”

Also, Rexroth notes that the campus has to sell about 150 to 200 units a year just to stay even. Adding 52 apartments from the first new building was not a dramatic leap in terms of sales, he explains. 

One misstep was the addition of a second sales team dedicated only to the new apartments in an effort to fill those units quickly. The strategy created a number of conflicts and eventually the teams were combined into one sales unit. 

Other changes are underway. A new 25-unit expansion to an assisted living building is under construction. It is expected to open next October. Another apartment building is now being torn down.

The skilled nursing facility on the campus is being downsized. The building is currently undergoing a $2 million renovation. The facility originally contained 430 beds in shared rooms that are being remodeled into 240 private suites. 

Demand for skilled nursing has declined as residents opt to stay in their apartments and receive home care or move to assisted living instead of nursing care. “Our census in skilled nursing has dropped over the last 10 years,” says Rexroth. 

A contributing factor is that John Knox Village operates a robust home health and home care agency that serves its residents as well as the wider community. “We have cannibalized our own skilled nursing business,” says Rexroth. 

A crucial part of the repositioning has been a renewed dedication to service excellence and the quality of healthcare. “Anyone can build a nice building,” says Rexroth. “But it’s what happens inside that counts.”

GranVida’s Bold Conversion:

From Office to Assisted Living

Good locations are hard to find, so developers and investors are getting creative. Distressed commercial properties are being repositioned as senior living communities. 

A half-empty office building in Carpinteria, California, for example, has been converted into GranVida, an assisted living and memory care building. GranVida is owned by Steadfast Senior Living of Irvine, California. The operator is Seniority of Dallas. 

GranVida features 57 assisted living apartments and 13 memory support suites, some of which are shared. The property opened in February 2017. The building is 69 percent occupied. Base rents range from about $4,900 to $6,100 a month, plus extra fees for several care levels. 

Before its conversion, the office building had once housed a Microsoft office and other tech-related businesses. But when those tenants left, the property presented a repositioning opportunity. 

The building had a favorable location on the edge of downtown Carpinteria, a town of about 14,000 residents between Santa Barbara and Ventura. The building was close to the beach and within walking distance of banks, restaurants and stores. 

GranVida is the first senior living community to open in Carpinteria. “We like coastal California,” says Jim Yoder, senior vice president at five-year-old Steadfast Senior Living. It is a division of Steadfast Companies, a real estate company that primarily focuses on multifamily properties. 

The town of Carpinteria has a premier location as well as a large population of affluent adult children and seniors age 75 and older, says Yoder. Also, the senior living properties in the surrounding towns were older. “We positioned GranVida as a brand new community even though this was the adaptive reuse of an office building,” says Yoder.

The conversion was also seen as a good opportunity because the permitting process for new construction in Carpinteria could take as long as three years, according to Greg Irwin, principal at Irwin Partners Architects, the firm based in Costa Mesa, California, that handled the project. But the permitting process to convert the office property to a different use took about six months. “That was a plus,” says Irwin. 

Specializing in seniors housing, Irwin has converted hotels to seniors housing but had never attempted the conversion of an office building to senior living. “This was unique,” he says. 

GranVida has unobstructed views of the nearby Santa Ynez Mountains. The two-story building features a white stucco exterior and a red tile roof, a Spanish style that is popular in coastal California. It did not look like a conventional office building and had a residential feel, says Irwin. That was an advantage because the exterior of the building could not be changed without going through a long permitting process. 

The interior of the building was gutted. Life and safety building elements were upgraded to meet residential and assisted living standards. The windows were replaced with sliding windows to meet egress requirements in the case of an emergency. The main stairway and elevator were adapted to comply with ADA (Americans With Disabilities Act) requirements. The building already had sprinklers but the building materials had to meet a higher standard for fire resistance than office buildings.

A second elevator was added at the back of the property so the staff could more easily access the basement. Exterior landscaping was upgraded to create a park-like look.

Ground-up senior living developments typically include a number of units with the same floor plan. But in this case, every unit is slightly different because the existing structure dictated much of the design. “You are stuck with the space you have,” says Irwin. 

Common area amenities were added to the building including a living room, bistro, dining room with an outdoor patio with fireplaces, a beauty salon, and arts and crafts room. The amenities had to be squeezed into spaces that weren’t exactly the right shape or size for the use. “We had to be flexible,” says Irwin. “The spaces are one-of-a-kind.”

The renovation took about nine months. Irwin figures a new building would have taken about a year to construct. The expedited schedule reduced carrying costs for the project. The cost of the renovation was $15 million. 

Occupancy is expected stabilize at 94 percent in the first or second quarter of 2019, says Yoder. 

Casa de las Campanas: 

‘Vulnerable’ CCRC Overhauled

An older senior living community often needs to be repositioned when new competition opens nearby. 

Casa de las Campanas is a continuing care retirement community in Rancho Bernardo, California, about 25 miles north of San Diego. The first phase of the community opened in 1986. A second phase opened in 1998. 

The property is owned by a community-based nonprofit organization. The development currently contains 377 independent living apartments, 45 assisted living units, 27 memory care suites and 99 skilled nursing beds. 

Life Care Services (LCS) has operated the property since the late 1990s. In 2012, the board of the community hired LCS Development, a division of LCS, to reposition the property. 

A big concern was competition. Plans had been announced in late 2016 for a new retirement community, the Glen at Scripps Ranch, about 15 miles to the south. The developer is Continuing Life Communities, Carlsbad, California. The project broke ground last January and is slated to open in late 2019. 

“Competition was coming,” recalls Ted MacBeth, senior vice president at LCS Development based in Des Moines. “The Board felt vulnerable.”

The repositioning presented a number of challenges:

• The facility was aging. Built in the 1980s, the product was out of date. Units were not meeting consumer expectations.

• The amenity offerings were modest. There was no indoor pool. The fitness center was small. And there was no casual dining venue.

• There was no purpose-built assisted living section. Vacant independent living apartments had been turned into assisted living units over time, but were inadequate.

• The community was built into a hill so the main common areas lacked natural light. 

• The health center had mostly shared rooms. Beds had to be situated at a 45-degree angle to fit in the small rooms. 

• The campus was landlocked. A highway to the east prevented expansion in that direction. City-owned land and a park boxed in the property on the north and south. 

Despite these challenges, the community was well positioned financially, says MacBeth. “The community needed to reinvest.”

LCS conducted a market study, reviewed the competition, and determined what was missing in the community. The end result was a four-phase master plan. The first phase focused on improving the culinary offerings and building a wellness center. It included a new fitness center with gyms, locker rooms and a new pool. Garages at the end of an apartment building were removed to make room for the fitness center, which opened in 2017. 

The salon and art studio were relocated to make room for a bistro near the entrance of the community. A courtyard was built to connect the fitness center and the bistro with an outdoor gathering place. 

“The bistro created a hub for socialization,” says MacBeth. “It brought the community back to life.” He adds that the bistro expanded dining options for residents and allowed for a more flexible dining program. 

Phase II addressed the need for a new health center, which is currently under construction. It is being built on what had been a graded parking lot for the staff. The health center will be a two-story building on a podium with parking on the ground level. The new building will contain 72 units, mostly private rooms. It is expected to open in 2019. 

Phase I and II cost $70 million and were financed with a construction loan and tax-exempt bond financing.

Phase III includes plans to demolish the old health center and replace it with a five-story, mixed-use building. It will feature 50 independent living apartments, 44 new assisted living apartments and 22 memory care units. The new building will also include a new theater, library, outdoor space, lounges and a multi-purpose space. 

Phase III will cost $80 million and is being financed by tax-exempt bonds.

The average entrance fee
community-wide had been approximately $400,000. New units will be priced higher and will average about $500,000. 

LCS Development is trying to acquire 10 acres north of the campus for Phase IV. The land is owned by the city and negotiations could take a few years, says MacBeth. The goal is to build 48 casitas ranging in size from about 1,900 to 2,100 square feet. 

The changes have been well received, says MacBeth. Prospective residents are showing interest in the community. “Staying competitive is key,” he says.

Looking back on the entire process, MacBeth advises taking time to plan. The planning process alone for Casa de las Campanas took six months. “Collaborate with the board, residents and the senior staff,” MacBeth says. “Before you execute… plan, plan, plan.”