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Senior Living Sees a Boom: Developers Move to Meet Demand

The following is a news article by A. D. Pruitt, released on May 9, 2011MacRo_OldSize_BlogPlaceholder

Seven years ago, real-estate developer Greg Smith purchased a failed nursing home in Danbury, Conn., with an eye toward converting it into residential condominiums.

When a friend suggested instead a senior housing strategy known as assisted living Mr. Smith initially wasn”t enthused. “I didn”t even know what assisted living was,” Mr. Smith says.

Now he knows. His company Maplewood Communities LLC has developed and is operating three assisted-living communities including the one in Danbury and has three others under development. Moreover, Maplewood also just cut a deal with Aviv REIT Inc., one of the country”s largest landlords of skilled nursing facilities, under which Aviv will provide capital for future growth, initially $60 million.

“We”re talking about getting 15 to 25 communities under our belt,” Mr. Smith says.

Assisted-living housing is growing into a bigger business in the New York region. While development is slow of most commercial property types—like office buildings and retail centers—a number of developers are moving ahead with plans to provide facilities that occupy a middle ground between standard apartment buildings and nursing homes.

Assisted-living tenants typically are elderly people who are generally healthy and can take care of themselves, but the facilities provide services like nurses, aides, dining and memory care. Average rents at Maplewood are $4,700 to $4,900 per month.

The New York metro area has the second lowest number of available assisted-living units in the country with 2.6 units for every 100 households with seniors aged 75 years and older, according to the National Investment Center for the Seniors Housing & Care Industry. The number of units has grown only 3% in the last five years in the region compared to 7.4% nationally, according to the center.

But the region”s population is aging. People 75 years and older constitute nearly 20% of all households in the metro area, compared to 14.7% in the U.S. overall, according to the National Investment Center.

“We see that demand [is growing] as baby boomers start to climb” in age, says Mr. Smith. “The amount of [new] supply over the last 10 years has been virtually nonexistent.”

The strategy so far has paid off for Maplewood. For example, it spent $11.5 million to buy the Danbury property and convert into an assisted-living facility equipped with a manmade waterfall in the dinning area. Today, it”s roughly 90% occupied, has an annual income of $1.5 million. Mr. Smith estimates its worth at $18 million.

Altogether, Maplewood has invested about $35 million for its three existing properties. For the properties under development, it has invested about $45 million with a total of 225 units. Mr. Smith estimates that “conservatively” they”re worth $55 million.

Other regional operators also are expanding. Benchmark Senior Living, which is Connecticut”s largest owner of assisted living with 15 facilities, is expanding into northern New Jersey and suburban New York as well as New England, according to Thomas Grape, Benchmark”s chief executive. He declined to elaborate citing competitive concerns.

The regional activity reflects a national trend. The biggest real-estate mergers so far this year involved national health- care landlords seeking to expand their senior housing exposure including Ventas”s $5.8 billion acquisition of Nationwide Health Properties in February several months after it acquired Atria Senior Living, one the biggest regional operators in the New York region. In addition, Health Care REIT recently enters a partnership with Benchmark Senior Living involving 34 assisted living facilities in New England.

Jeff Theiler, an analyst at Green Street Advisors, says there are nearly 2 million assisted living units in the U.S. and on average, the number has increased 5% every year for the past 25 years. “Because of that resiliency, there has been a big …interest in the property type among the health care REITs,” Mr. Theiler says.

To be sure, assisted living isn”t without its pitfalls. Although rents have risen in recent years, the growth hasn”t been robust. During the recession, many seniors or their children couldn”t sell their homes or didn”t have viable employment to pay for assisted-living accommodations, which are relatively expensive.

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