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April 2017 — Health Care Properties Quarterly — Page 19
Senior Housing & Care
While rising con-
struction costs in
Colorado are certainly
having a downstream
impact on costs to res-
idents and consumers,
construction is still on
a strong pace – par-
tially because local
home values have
risen drastically. As a
result, resident can-
didates can sell their
homes at a premium
in order to move into
senior housing, even
though the costs are rising.
While developers and health care
providers coming from other markets
may see Colorado’s economy as daunt-
ing when trying to enter our market,
developers and general contractors in
weak out-of-state home markets seem
attracted to Colorado’s economy.
Regardless, developers are seeking
to save money by finding lower-cost
land in suburbs and nonpremium
locales; and some may choose to pur-
sue tax credits to provide desperately
needed affordable senior housing,
which also allows developers to build
a more economical product.
The tight local labor market is a
major contributor to rising costs:
Busy subcontractors are charging
more, and if a too-busy subcontrac-
tor fails to perform, schedules extend
and costs rise. Responsible contrac-
tors don’t take on more work than
they can handle and are careful not to
overload subs. Careful vetting of sub-
contractors is also recommended.
Locally fabricated materials influ-
ence costs in much the same ways as
the local labor market. Responsible
contractors are constantly explor-
ing materials and labor markets to
find reasonable options for owners
and developers to mitigate costs. The
recent trend of modular construc-
tion has entered the conversation for
senior housing in premium markets.
If interest rates rise, it is likely that
fewer projects will be built, regardless
of construction costs.
The biggest issue affecting the
construction industry today is find-
ing and retaining qualified talent.
Now more than ever
construction firms
are faced with the
challenge of finding
qualified workers due
to an aging workforce
and the loss of skilled
workers during the
recession. A recent
Bureau of Labor Sta-
tistics Job Openings
and Labor Turnover
Survey shows that
nearly 200,000 con-
struction industry
jobs are unfilled
across the country, a
jump of 81 percent in
just two years.
Lack of a skilled workforce is a
problem for various reasons, but fun-
damentally there are just not enough
people to build the projects we will
need in the future. This squeeze in
the labor market is increasing the
cost of wages which in turn makes
projects costlier and, potentially, unvi-
able for development.
The construction sector must get
more young people interested in
working in the industry. Research
shows that the construction sector
has an image problem that deters peo-
ple from entering the industry. This
is especially true amongst millennials,
who tend to view the industry as old
fashioned and not very dynamic. For
the last 50 years, the belief has been
that college was the route to fulfilling
careers and financial success: College
equates to high wages; trade skills
equate to low wages. Enrollment in
technical colleges is dwindling and
there has been a significant decline in
apprenticeships.
As new technologies emerge and
the population continues to grow, the
need for more workers increases. The
talent crisis will reach critical levels
regardless of the type of project being
built, senior housing or otherwise.
The viability of a strong construction
outlook depends on the industry’s
ability to dispel stereotypes of the
construction industry in order to
attract talent and remain competitive.
Rising construction costs are mak-
ing it more difficult for smaller,
independent private
owners to be competi-
tive. Even in markets
where need has been
identified, rising
construction costs
make pro formas on
new construction or
expansion difficult to
work out. We recently
had an experience
where we were plan-
ning an expansion to
one of our campuses
in a market that had identified a
definite need and we used traditional
costs to work the pro forma. When
construction bids came in 30 percent
higher, it essentially killed the expan-
sion.
While higher construction costs
don’t seem to have the same impact
on larger, for-profit (usually publicly
traded) companies, they definitely
have an impact on smaller, nonprofit
owners’ ability to be competitive with
new product, expansion and even
upkeep of their properties. We have
seen a 25 to 30 percent increase in
just the cost to remodel apartments.
Ultimately, higher construction
costs translate to higher rent rates
that, in the end, makes senior hous-
ing less affordable to those in need.
The higher costs for vertical con-
struction are affecting all of our
Tony Burke
Construction
manager, Pinkard
Construction Co.
Shawn Donohoe
Business
development,
Catamount
Constructors Inc.
Larry Smith
President, Bethesda
Senior Living
Tony Burke
Shawn Donohoe
Larry Smith
Tom Kooiman
Colorado’s Leader in Senior Living Quality and Innovation
Recognized expertise in memory care, rehabilitation services,
and tailored approaches to hospitality, optimal health and
wellness, and select high quality housing options.
12136 W. Bayaud Ave. #200 Lakewood, CO 80228 303.238.3838
VIVAGE SENIOR LIVING
Full Management Services • Consulting Partner • New
Development & Design Collaboration • Market Positioning
We create models that reflect exciting
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