The statistics don’t lie—the seniors housing development market is hot right now. More than 10,000 Americans turn 65 every day, thus strengthening the argument for developing a seniors housing asset. So how do you get in on the boom?
First, it is important to set the record straight: Yes, the seniors housing industry is a lucrative market open to commercial real estate developers interested in diversifying their development opportunities. However, developers entering the marketspace should be careful not to overlook the distinctions unique to seniors housing developments. To succeed in the market, it is critically important to consider aspects that set seniors housing developments apart from general commercial real estate projects.
Regulatory risk
Seniors housing assets are typically subject to a broader range of regulations that can vary significantly by jurisdiction. Local and federal regulatory scrutiny has drastically increased in recent years. Assisted living communities have seen an increase in licensing and regulatory oversight. State and federal governments have also attempted to tighten regulations at skilled nursing facilities regarding fraudulent and ineffective billing practices. With increased regulation come higher barriers to entry, and an emphasis on asset management for developers already playing in the industry.
In order to mitigate this risk, it is important to retain knowledgeable advisors capable of advising on the regulatory regime (including licensure, certificates of need, facility design and construction requirements) before finalizing your plans to develop a new seniors housing community. Joining forces with a seasoned manager/operator with local roots can also help in quickly gaining a foothold in a new jurisdiction.
Day-to-day operations
Unlike other commercial real estate assets, the management and operation of a seniors housing community requires significant amounts of oversight and sector-specific experience. Given that the seniors housing industry primarily focuses on dealing with elderly, and sometimes frail, residents, it is critical for developers to design the community to specifically cater to these individuals in all aspects of their housing and care. Where do accidents occur? How do seniors like to socialize? What options are residents looking for from a dining program? These are all issues inherent in the design of a community that can make or break your success in this industry. Selecting qualified third-party operators with a proven track record, carrying sufficient insurance and utilizing appropriate legal structures can help to manage operational risks which are intrinsic to this industry.
Permanent residence; level of services
Seniors housing developments require a safe and healthy environment for residents to live out the reminder of their lives, while being monitored by appropriately trained staff. This means residents expect certain minimum services, including: meals, transportation, medication assistance, activities, rehab facilities, concierge services, etc. at each community.
This means that large common areas, multiple dining rooms, planned events and varied menu options are essential. Developers should ensure that a community properly incorporates desired amenities: i.e. movie theatres, game rooms, full-service bars, beauty salons and spas. Developments with limited amenities will struggle to compete with other communities in the market that embrace this enhanced living experience.
The labor force
Seniors housing communities require a highly skilled and often government-regulated staff. The result is that communities must be able to absorb higher labor, training and management costs. Also, competition for such qualified seniors housing staff can become problematic due to the limited availability of skilled professionals in certain markets. Make sure to do your homework on the availability of staff before jumping into a market.
Further, to protect an investment in a seniors housing facility, it is important to locate, train and retain professional and licensed staff to ensure the continued safety of residents. Regardless of your planning and preparation, plaintiffs’ attorneys will look for opportunities to litigate when mistakes happen. Developers can help to mitigate operational risk by carefully considering operators and implementing appropriate training and policies at a facility.
Conclusion
Given the status of the baby boomer generation, entry into the seniors housing market can be a lucrative opportunity for commercial real estate developers. With proper consideration of sector-specific requirements, new entrants can take advantage of this profitable development sector.
By: Michael Okaty (National Real Estate Investor)
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