Proven Operators Are A Difference Maker in Today’s Frothy Market, Say Panelists

by Jeff Shaw

CHICAGO — There are many aspects to consider during development of a seniors housing project, ranging from amenities to technology to demographics. However, the biggest key to whether a seniors housing project can succeed over a long period of time is the quality of the operator, according to several expert panelists at the InterFace Seniors Housing Midwest conference held last Thursday, June 11 at The Westin Chicago River North.

The seniors housing industry is booming right now, with record sales volume and all-time-low capitalization rates reached in 2014.

Development is robust as well, as investors see a low penetration rate at 10 percent as a sign that there is still great need for seniors housing, according to Randal Richardson, president of Chicago-based developer and operator Vi and a speaker on a “State of the Industry” conference panel.

“The industry is poised for an incredible period of growth,” said Richardson. “There are a lot of new investors coming into the space, but the operators are the most important part.”

The fact that investors and developers from other property types are considering an entry into seniors housing “is an indicator of a frothy market,” said Richardson. Although he warned that the highly competitive market has “a lot of parallels to 2005,” he said lenders’ underwriting standards have remained stringent enough to prevent another housing crash in the near term.

Fellow panelist Jon DeLuca, president and CEO of Chicago-based owner/operator/developer Senior Lifestyle Corp., agreed that the 10 percent penetration rate is a positive sign for future development, but suggested that it’s also an opportunity to examine the shortcomings of the seniors housing industry.

“We’re all competing for the same resident,” said DeLuca. “We as an industry have to do a better job figuring out how to appeal to that senior.”

More than ever, lenders are putting an emphasis on the operator of a proposed development before choosing what seniors housing developments to back, said Nate Underwood, CFO of Nebraska-based Heritage Communities, in a separate panel titled “The Outlook for Seniors Housing Development.”

“There’s definitely a strong operator focus right now from lenders,” said Underwood.

Choosing an operator should be one of the first considerations before construction even begins, said Joe Weisenburger, vice president of seniors housing for Health Care REIT. Even in a frothy market, a proven operator will allow developers to succeed, he added.

“Our concern is we’re seeing too much development too fast,” said Weisenburger. “But as long as you have a good operator, you’ll survive.”

— Jeff Shaw

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