The largest developer of multifamily communities in the United States tries to bring fresh ideas to seniors housing.
By Jeff Shaw
While seniors housing carries more operational risk and complexity than other commercial real estate asset classes, the property sector is enticing investors because it offers comparatively higher capitalization rates, meaning a higher annual return on investment.
In 2019 before the pandemic struck, the average cap rate for garden-style apartment communities was 5.6 percent compared with 6.4 percent for private-pay seniors housing, according to Real Capital Analytics.
In 2019, Alliance Residential was the largest developer of multifamily in the country, with approximately 8,000 units started, including seniors housing, according to the National Multifamily Housing Council.
Before entering the seniors housing development space, though, the company sought out some expertise.
The company hired Dale Boyles, former vice president of operations for Brookdale Senior Living, in 2015 and Marco Vakili, former vice president of acquisitions and development for Kisco Senior Living, in 2018 to co-lead the seniors housing division.
In the six years since launching that division, Alliance has started developing 14 independent living, assisted living and memory care communities and two active adult properties totaling 3,200 units in five markets.
Most operate under the luxury Holden brand, with the active adult properties using the Marvel brand — names chosen to reflect an “ageless lifestyle” rather than care for the elderly, according to Boyles.
Alliance got into seniors housing after seeing the opportunities available in the sector.
“Seniors housing is very fragmented, and the biggest owners and operators (Brookdale Senior Living or Ventas, for example) were relatively small compared with the multifamily owners/managers,” says Boyles. “Also technology adoption and pricing transparency clearly stood out as being not in step with the consumers’ preferences. Finally, thoughtful design and better finishes had not been a priority, so the product itself has not kept up with seniors’ and families’ expectations.
“We feel that coming into the industry with a fresh perspective provides us a competitive advantage as we are not burdened by the restraint of ‘that is how it has always been done.’”
Rents “skew more toward the higher end than mid or lower price points,” Boyles notes. In the expensive San Jose market, for example, rents start around $5,000 per month and can exceed $10,000 per month based on unit size and amount of care.
Another reason Alliance became interested in senior living is that while multifamily assets tend to shift in value based on the general economy, seniors housing is more recession-resistant. What’s more, the oncoming wave of baby boomers reaching retirement is enticing.
“We really were looking at the demographic wave,” says Boyles. “Alliance has a very sizable national development platform with offices throughout the U.S. Looking at how to address the cyclical nature of multifamily, the company determined that with the silver tsunami coming, seniors housing could take some pressure off that cycle.”
With the huge, national presence of Alliance, paired with the seniors housing expertise of Boyles and Vakili, the company believes it has the tools to become a major player within seniors housing.
“We have divisional offices with talent across the country,” says Vakili. “That talent knows how to acquire land, get it entitled and build it. Dale and I were brought on board to provide senior living direction to those teams. Those foundations allowed us to move with some great momentum.”
Alliance is able to draw on its existing relationships with equity and debt providers “to help us get off the ground quickly,” he adds.
“Our relationships with capital are solid. When we’re building that many units, we also have buying power with suppliers and vendors.”
A developer’s mindset
Currently, Alliance only builds seniors housing from the ground up, though Vakili hints that future acquisitions are a possibility. The company prefers executing its vision from scratch rather than having to work within the constraints of an existing building.
“That’s one of our strategic advantages — the ability to build new, innovative seniors housing rather than take an older model and update someone else’s vision,” says Boyles. “We can design something to meet the market rather than update a 20- to 30-year-old asset.”
Alliance believes it can also offer a fresh perspective from the multifamily sector to offer a new level of amenities to the seniors housing industry. The company plans to take the “multifamily lifestyle, amenities, fit and finish and bring that into seniors housing,” as Boyles puts it.
“The seniors housing industry hasn’t really innovated in terms of design and amenities. Having Alliance approach it more from a livability approach — and incorporate that design into independent living, assisted living and memory care — is unique and different. It provides us with a greater opportunity than the industry has seen historically.”
“We look at the world through a developer’s lens,” adds Vakili. “We want to raise the bar in the physical plant. The industry has done a fantastic job on the operations side, but the area that was always secondary was the physical plant.
“People come in and it’s all about care. We believe it’s both. By raising the bar for the physical plant, people will move into senior living not because they have to, but because they want to.”
Although both Vakili and Boyles came from seniors housing backgrounds, they appreciate the parent company being a multifamily developer first and foremost, as it allows for “a fresh set of eyes to challenge assumptions,” according to Boyles. Seniors housing trails behind multifamily in areas like room size, full kitchens and washers and dryers in the units, he adds.
“My parents were avid golfers. I had several residents that were avid golfers. We were putting golf simulators into our multifamily buildings, so I asked if we could do that in seniors housing and the company said ‘yes, of course.’”
If Alliance employed only seniors housing professionals, there would’ve been a lot of pushback, emphasizes Boyles. “The willingness to put an amenity in, to me that’s a huge competitive advantage. There’s no ‘We can’t do that’ or ‘The residents won’t value that.’ We’re saying, ‘Why not? Let’s try it.’”
Part of this mindset comes from Boyles’ experience earlier in his career as an executive director, where he would see adult children come to the community, put the resident in their car and drive away. Most families would only stay around on Mother’s Day or Thanksgiving, he says.
“Why? Are we chopped liver? Don’t they want to be part of the community? My goal is to create an environment where the adult child wants to come visit. My vision is for the adult child to have the mindset that ‘I’m going to visit mom, work on my golf game, have a beer, bring the kids, hang out at the pool or barbecue.’ As an operator, I get really excited about that.”
While some industry experts suggest that amenities should be a secondary consideration, Vakili says this may be one of the hurdles between residents who have to live in seniors housing and those who voluntarily want to live there. Care is obviously important, he says, but it should not be the only consideration.
“It is somewhat like saying cars need to be safe. Of course they need to be safe, and people expect it — it is foundational to the business proposition. However, after safety, people also strongly consider features like gas mileage, body style, number of seats and performance,” explains Vakili.
“In fact, these features are oftentimes the difference makers. The idea that senior living is only about quality care and that we should not explore other items misses a very big opportunity,” he adds.
Alliance also seeks to build each community to match the surrounding area, rather than roll out a similar design across multiple markets. In Anaheim, California, for example, the company is building a two-story community in the Spanish Colonial style. Meanwhile, in the bustling downtown of Bellevue, Washington, Alliance is building a 21-story modern high-rise with a sky bar on the top floor.
“We spend a lot of time looking at the subculture in every market and build to that subculture,” says Vakili. “Our residents like the areas that they live, and there are certain things about it they like. If we can incorporate that into the community, they’ll like to live there.”
“In the past I’ve worked for operators that had a footprint like Starbucks or Home Depot,” adds Boyles. “They stamped out the same building again and again. That could work, and certainly gets you volume, but every site we do is unique and custom. I love that.”
A team approach
Of course, no matter how beautiful it is, a seniors housing community only performs as well as its operations. If poor care is provided, no amenities in the world will fill the building.
To solve this challenge, Alliance partners with a team of four well-regarded operators to manage the communities once they’re built. Allegro Senior Living for the Midwest, Arbor Retirement for the Southeast, Milestone Retirement for the West Coast and Atria Senior Living for the areas in between.
The operator is chosen before the design process even begins and is included in the process the whole way.
“Our strategy is to bring the operator on early in the process,” says Boyles. “We’re working shoulder to shoulder to integrate the operator’s approach to care with our approach to design and lifestyle to come out with a building that will make us all successful.”
By working with so many operators, Vakili also notes that Alliance gets to learn from several of the best in the business.
“We’re able to select the operator that’s best for the community and submarket. We’re also able to look under the hood and learn best practices from multiple operators as we go through the design process. We found that to be really incredibly helpful and informative.”
For an outside perspective on interior design, Alliance likes to partner with two firms: one a specialist within seniors housing, the other from multifamily.
“We’ve been hiring interior designers from outside the senior living industry to help us with the aesthetic nature, thinking outside the box from a cosmetic standpoint,” says Vakili. “For example, in one community we have a ground-floor bistro that’s open to the public as well as retail.”
“In order to get the functional aspect right, we’ll also hire a senior living designer to work side by side with the interior designer,” continues Vakili. “That’s proved to be a little more expensive, but very rewarding in the designs. The interior designers push Dale and I past our comfort zone. We like that, having to pull them back in rather than having to push people further.”
Other features include lots of landscaping and outdoor courtyards, which have proven to be a big asset during the COVID lockdowns, notes Vakili. In fact, he hopes the challenges of COVID shine a light on the fact that many seniors were happier and safer in senior living than in single-family homes.
“Senior living is a safer place to be than at home when you’ve got a pandemic. We need to communicate that to potential residents, their loved ones and families.”
These high levels of finishes and amenities make for a more expensive luxury product. Boyles compares it to the high-performance AMG subset of Mercedes-Benz luxury cars. However, Alliance hopes these higher standards are able to trickle down into more affordable options as well.
“It’s nice to be part of a group that’s thinking about seniors housing with a fresh approach,” says Boyles. “Our goal is to raise the boat for everyone in the industry.”