Middle-Class Affordability Is ‘Single Biggest Issue’ Facing Industry, Says HJ Sims’ Landreville

by Jeff Shaw

NEW ORLEANS — Many seniors housing developers, owners and operators are already looking forward to the “silver tsunami” of Baby Boomers reaching the proper age to enter seniors housing. However, if current trends continue, many of those seniors won’t be able to afford seniors housing anyway, according to panelists at the LeadingAge Annual Meeting and Expo.

The panel, titled “Understanding the Economics & Financing Structures of Moderately Priced Life Plan Communities,” took place at the event in New Orleans on Oct. 30. The panelists included Mark Landreville, executive vice president with bond financing specialists HJ Sims; and Steve Kuhns, a partner with seniors housing consulting firm Essential Decisions Inc. Wayne Olson, executive vice president of Volunteers of America National Services, contributed to the presentation but was unable to attend the event.

Landreville led the discussion and called affordability “the single biggest issue facing the seniors housing industry.” He cited a recent Time magazine study showing that 30 percent of U.S. households headed by people 55 and older have no retirement account at all, and the remaining 70 percent have a median account balance of just $104,000.

“Everyone talks about the Baby Boomers, but they don’t have the resources they want to have or what previous generations had,” said Landreville. He noted that the wealthy have many options for seniors housing, and the poor have government programs that can help, but the vast majority of seniors are “too poor to be rich and too rich to be poor.”

“As an industry, how are we going to deliver for these seniors?”

Tighten costs, timelines

The solutions need to start on the planning and development end, said Landreville, noting that any additional costs or overruns will inevitably equate to higher rents.

A smart, efficient, well-planned development process will save money in many ways, added Kuhn. These fringe savings can include less work from architects and a shorter timeline during which the developer is paying interest on a construction loan.

“You have to understand the total cost you’re going to incur,” said Kuhn. “Timelines over the last few years are just growing and growing. That impacts all your other costs.”

Cost-saving measures should include cutting and pasting unit designs that already work, phased construction to get doors open as quickly as possible, and reducing unnecessary features such as an excessive number of elevators.

“Elevators are super expensive,” said Kuhn. “Look for things like that that can reduce your overall cost.”

Landreville noted that developers could save between 10 percent and 30 percent on a project through these cost-cutting measures. Most investors are seeking a cash-on-cash return in the low to mid teens regardless of the project, said Landreville.

It’s also important to understand that a project designed for middle-income seniors will not be an award-winning, flagship project for anyone involved, including the architects, interior designers and builders. “People get excited and dream big,” said Kuhn. “You have to set the expectations early.”

“Forget about Architectural Digest. It ain’t going to happen,” added Landreville. “You have to check your ego at the door.”

Landreville also suggested developers look at the long-term impact of cost increases and time delays. For example, if a project takes three months longer than planned, that’s three additional months of interest paid with no new income. Developers should calculate what that cost translates to when it is passed on to future residents via the rent.

“We have to serve the residents, but that doesn’t mean we can’t be efficient,” said Landreville. “This type of building takes a different mindset.”

To view the presentation, click here.

— Jeff Shaw

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