LOS ANGELES — If you look hard enough, it’s easy to see seniors housing opportunities throughout the U.S. Leftover land, raw sites, office buildings and obsolete malls can all serve as promising locations, according to participants in the “Experts Analyze the Smartest Plays for Developers in 2020” panel.
The discussion took place during France Media’s InterFace Seniors Housing West conference, held Feb. 20 at the Omni Los Angeles.
Though there was no one-size-fits-all approach to identifying development opportunities, panelist David Waite, partner at Cox, Castle & Nicholson, believes there are a few fundamentals that make some sites more appealing than others.
“The smartest plays we’re seeing are developers going into communities with zoning and incentivizing ordinances,” he said. “You have to find the path of least resistance.”
A diverse set of options
For some, the path of least resistance to getting seniors housing built and open is to repurpose an existing structure.
“We’ve converted an office building to assisted living with memory care,” said James Palda, senior director of real estate development for Steadfast Cos. “No one had really done that before. We used to own five regional malls. We looked at all that vacant space and decided to redevelop it into seniors housing. It was a great opportunity. The facilities looked like multifamily and it was an easy route for entitlements.”
Chip Gabriel, panelist and president of Generations, has found seniors housing sites through municipalities.
“We’ve used infill sites where schools or hospitals had excess land,” he said. “As you go forward, you have to be creative. Cities and municipalities are looking for redevelopments. Seniors housing has no impact on schools and serves people in the neighborhoods they’re in.”
Panelist Adam Kaplan, founder and CEO of Solera Senior Living, knows there is a lot of competition for sites, which is why he prefers to associate with players entrenched in the local markets.
“I like to align with local developer partners,” he said. “They can tell us the story of that site. Like-minded developers can show us opportunities.”
Bryan Schachter, panelist and director of strategic investments at Watermark Retirement Communities, has had a similar experience, taking cues from his development partners who had experience in the company’s target markets.
“We’re doing projects with Hines and Tishman Speyer where they work on entitlements and then bring us in,” he said. “These are big redevelopments in New York City and Los Angeles. They were unique opportunities that weren’t seniors housing to start.”
Dan Baker, moderator and director of the national seniors housing capital markets group for Cushman & Wakefield, emphasized caution when weighing a seniors housing opportunity — especially one that was brought by another company.
“It’s safe to say if someone has a site for seniors housing, it’s probably already been looked at or is not that great of a site to begin with,” he said.
Kaplan had experience with this firsthand.
“We don’t pursue redevelopment opportunities because every one we’ve looked at we have found there are issues with the physical land,” he said.
Palda said this didn’t necessarily apply to every opportunity brought to the table, but that seniors housing developers, operators and investors still had to remain disciplined to ensure the site and deal terms are the right one for them.
“There continues to be opportunities, but deals are harder and land is smaller and smaller,” he said. “Especially in California, it’s really tough to pencil without really high rents, so you have to go up.”
A tall task
Naturally, “going up” was an especially prudent strategy in areas with dense populations and a lack of land, according to Waite.
“Verticality is in, horizontal is out, particularly in urban markets with entitlements,” he said. “Verticality is very much being encouraged in urban environments like Los Angeles, with reduced setback requirements and transit-oriented development incentive programs. You’ll continue to see fewer and fewer barriers in the urban core of L.A.”
Another way to save on space in dense areas was to outsource amenities when possible, added Gabriel.
“We have these huge community buildings,” he said. “Why build a health club? Why can’t our residents have a membership at the YMCA or 24 Hour Fitness? We’re trying to find other ways to deliver these amenities instead of us historically owning and running these ancillary services. If we can become more integrated with the neighboring businesses, we can also make it easier for residents to get to and from there.”
Modular construction was another money-saving strategy when it came to efficiently building and delivering seniors housing, though panelists were split on this strategy.
“Modular is unquestionably one of the key areas of focus, especially for affordable projects,” Waite said. “It can provide permanent supportive housing.”
Gabriel was also a fan, noting three out of the four projects Generations is currently working on involve modular construction.
“I think it’s the future; it’s where the industry’s going,” he said.
Others were less enthused.
“We’re not looking at modular construction,” Kaplan said. “We’re doing the opposite. We’re being very careful not to go deep into that area. We want to protect the integrity of assets in this environment. Our view is let’s build a high-quality building that’s going to speak to the consumer.”
Schachter agreed, suggesting that modular building was a compromise on quality.
“There are ways to save money — and the dollars that can be saved there aren’t the ones you want to save,” he said. “We have a holistic view on what we’re trying to deliver to residents. We focus on high-barrier-to-entry, expensive markets that can justify the cost.”
— Nellie Day