InterFace Panel: Land Prices, Borrowing Costs Push Owners to Renovate Rather Than Build New

by Jeff Shaw

PHILADELPHIA — New construction of seniors housing communities has been noticeably slow in recent years, at first due to the COVID-19 pandemic stopping projects in their tracks, and then by high interest rates and land costs.

Fewer than 11,000 units were added within the NIC MAP 31 Primary Markets last year, the weakest inventory growth since 2014, according to the National Investment Center for Seniors Housing & Care (NIC). Construction starts were relatively weak at 3,013 units in the fourth quarter, continuing the slower pace seen in the third quarter. Total units under construction equaled 35,719 units, the fewest units under construction since 2015.

But that doesn’t mean owners are sitting idle. Instead of building ground-up projects, many are focusing on renovating their existing properties, according to Bud Grove, senior vice president of senior living, Wohlsen Construction.

“With land prices being what they are, a lot of clients are looking at repurposing existing campuses. We’re working with a client that has 15 campuses in the Northeast and they recognize it’s time to renovate and rejuvenate those properties. Now’s a good time to do it.”

Grove’s comments came during a panel titled “Design & Build: Architecture, Design and Construction Trends” at France Media’s InterFace Seniors Housing Northeast conference, held at the Sheraton Philadelphia Downtown in late November.

The other panelists included Shannon Remaley, principal, senior living practice leader, Meyer Senior Living Studio; Steve Kreiling, contract manager, IMC Construction; Chris Frommell, managing partner, Direct Supply, Aptura; and moderator Janet Meyer, principal, BCT Design Group.

“We’re seeing the new developments slow or pause or have caution surrounding them, but we’re certainly seeing the renovations and repositioning projects continue to rise,” said Remaley. “There’s still some catchup going on from COVID. Properties took a lot of abuse during that time and didn’t get the renovations that they needed. We’re seeing a lot of focus on renovating amenity spaces, that initial “wow” when you walk in.”

Kreiling said this was a dramatic change from pre-pandemic times, when new construction was at a fever pitch and the larger discussion in seniors housing was about overbuilding.

“Four or five years ago, the majority of our business was new construction. Now we’re seeing that pendulum has shifted to renovation and repositioning market. We’re seeing a big uptick in that type of work, as well as value-add purchases — clients buying underutilized assets, putting in new amenities, making them better places for the residents and the staff and really turning them around quite nicely.”

Frommell noted that the same factors lead to adaptive reuse projects, “as site selection becomes difficult and more costly” for projects on empty plots of land.

“We’re also seeing a refocus on building efficiency, looking at higher efficiency mechanical systems,” added Frommell. “People are taking a pause and re-evaluating the design of their buildings, spending the extra time, understanding the best bang for your buck, and looking at the long-term savings in a building, not just up-front construction costs.”

As far as types of renovations, Meyer said many developers are looking at making communities more specialized and unique to appeal to potential residents, such as having a heightened culinary experience or less common wellness amenities.

— Jeff Shaw

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