Active Adult: With Great Opportunity Comes Great Challenge

Collaborations with builders and designers could help developers achieve profitability in this growing sector.

By Drew Blaylock, Director of Preconstruction, ARCO Living Group

As developers work to stay in front of the changing seniors housing market, the development of active adult rental communities continues to increase, but not without challenges.

For seniors housing developers, there is a high amount of risk associated with creating a new product type that is similar to traditional seniors housing facilities but charges rent rates more in line with a standard multifamily product.

There are not only the challenges seniors housing developers face, but also the key design and construction elements that impact overall budgets and unit costs.

Rent discrepancy

Rent rates associated with active living communities pose a significant challenge to senior living developers. Without luxury amenities like full-service dining, laundry and specialized services such as 24-hour nurse access and memory care, active living communities cannot justify the same high rent rates as traditional senior living facilities.

For developers, there is a high amount of risk associated with creating a product that is similar to traditional senior living, but charges rent rates more in line with a standard multifamily product.

Only with the involvement of a design-conscious contractor can alternative solutions be offered that still address market trends and fulfill desires of residents while keeping a project on budget.

When the contractor is involved in the earliest stages of project planning, the construction team can work backward from a developer’s budget. The team can target unit costs to create a facility that fulfills those needs, while also maintaining the original project concept.

By adjusting site layout, structure, façade and MEP (mechanical, electrical and plumbing) systems accordingly, overall budgets can be decreased, and target unit costs attained without spending upfront capital.

Unit layout efficiency

One of the greatest challenges faced by developers when constructing an active living facility is efficiency.

In a typical multifamily facility, amenities are offered in singular common spaces, maximizing unit space and overall facility efficiency. However, active living communities often incorporate social amenity spaces on each floor. This results in rentable space ratios that don’t work for profitable development.

In a traditional construction setting, a lack of profitability due to inefficient unit layout isn’t determined until designs are completed and significant costs incurred, as facility designs are developed without the input of the construction team. Only after bids are solicited are hard costs determined, which are approximately 65 to 70 percent of the overall development.

This decrease in efficiency, combined with a non-collaborative design and construction process, is making it especially difficult to achieve active adult facility layouts that fulfill user demands and satisfy pro forma requirements.

A collaborative approach allows the general contractor to work directly with the owner and architect during the earliest phases of a project to develop a design that works for the owner’s business and budget. Drawings can be adjusted and value-engineering solutions offered that enable seniors housing developers to make informed decisions during the design process, making the most of the space while being sensitive to the development budget.

Throughout the design process, the general contractor is simultaneously estimating construction costs and can accurately conceptualize the completed project before dollars are spent, greatly reducing cost overruns and other unexpected costs during design and construction.

Location, location, location

Active adult communities are typically constructed in highly sought-after locations, as walkability is a high priority. Because the land costs cannot be absorbed in higher rent rates like in a traditional senior living facility, those costs account for a higher percentage of the overall development pro forma.

With the assistance of the construction team during the site selection process, total cost can be determined, allowing developers to have early budget control and flexibility when evaluating potential sites.

Site selection during the preconstruction phase allows owners to make the most informed decisions regarding the cost of land development and how to offset it in areas if need be.

 

Drew Blaylock is director of preconstruction for ARCO Living Group, a designer, builder and general contractor that specializes in seniors housing.