Colorado Real Estate Journal - December 7, 2016
Q: As we head into 2017, what do you see as the greatest opportunities or threats relative to development of additional senior housing and care in Colorado? Camille M. Burke Despite reports that senior living development is coming close to the point of reaching maximum penetration, we believe that there are still markets ripe for new development in Colorado. Markets that appear at first glance to have adequate inventory may be filled with buildings that are subpar or “tired.” Similarly, there may be operators that have a more traditional or institutional way of thinking and a paternalistic approach to services and support. What these old buildings and old mindsets create are markets where people steadfastly resist leaving their homes. Through innovative design and operating cultures, we can expand the current prospect pool and encourage people to move to senior living settings sooner. The big threat that exists, in my mind, is to those competitors that haven’t updated their buildings or their approach to services and care. If these communities aren’t reinvesting in creating a fresh product, they end up struggling to build occupancy and retain team members when new competition enters the market. Other opportunities include the development of a midmarket assisted living product, one with a more moderate price point that can serve those who are currently unable to afford assisted living. Those who can make this model work financially, through more modest amenities and services, will be “golden.” In addition, opportunities remain for “55 and better” residential apartment home dwellings. Rather than focusing on luxury and full-service amenities, these communities offer an affordable option with services provided through community partnerships. Michael K. Schonbrun In the short term, overbuilding in Colorado’s major market is a significant threat to the senior housing industry in Colorado. While much attention has been paid to the imminent arrival of the baby boomers, the senior housing industry and their financial backers need to remember that the first wave of the boomer generation won’t be entering senior housing in any meaningful way for at least another 10 years when they start turning 80. The recent surge in building assisted living communities, spurred by the increased flow of equity capital into the field, already has produced a drop in occupancy levels in the average assisted living community nationwide. The Front Range of Colorado is showing similar results. The risk here is not only to these new buildings now coming on line but also to the future supply of capital to the field because slower-than-predicted fill-up rates could well dampen the enthusiasm of capital to enter or remain in the field. A second threat will be the shortage of qualified personnel – not only at the senior and midmanagement levels but also at the direct care and service level. An increasingly demanding clientele as the industry turns its focus to members of the silent generation and in the next decade to the boomers – far more demanding than their older siblings in the World War II generation – will stress the capabilities of the current level of general managers already in the field, who are not accustomed to such a demanding clientele. Possible changes in immigration policies would exacerbate the problem of finding front-line staff. Attention will have to be paid to luring executives from other fields where there is experience in managing culinary, housekeeping and concierge services. Needing to deal with the not insignificant health care needs of their clientele could further reduce the number of competent managers willing and able to enter the field and learn new skills, even those individuals coming from the hotel world. At the entry level of management, senior housing has yet to attract much attention of the millennials. Recent signs of emerging interest in universities among such noted hotel and restaurant schools as those at Cornell and University of Denver is an encouraging sign. Those universities and training programs will need to get busy to meet the needs of the boomers when they do start to arrive 10 years from now. Lynne Katzmann Industry fundamentals are changing and that means both new opportunity and obstacles to overcome. For 2017, I am concerned that the obstacles may outnumber the immediate opportunities. Next year, I expect significant pressure on both the revenue and expense sides of our business. New building openings will likely impact both sides of the equation in 2017. Despite the rosy picture that some industry sources continue to paint, many of us are seeing new communities open both in primary and, more recently, secondary markets. Several remain either in development or construction. Short term, both new and long-term operators are likely to see greater challenge in occupancy. In addition, new communities need staff – competition in this arena too is already impacting overtime, turnover and wage levels. On the latter point, consider these new, frankly very impactful, facts: Unemployment is as low as the last cyclical bottom in 2008, 4.9 percent nationwide, and wages increased an average of 2.8 percent over the last year.
I also am concerned that the paradigm shift to value-based care wrought by the Affordable Care Act together with changing consumer preferences will dictate that we shift or perhaps even reinvent our product much as we did with the advent of assisted living in the mid-‘90s. But this is also the opportunity! It will mean that those who can design, develop and construct a product that addresses new needs can in fact be very successful. In my mind, this product will be a larger residential-type unit with universal design whose location will afford residents an opportunity for continued integration in the larger community, not only access to health and other services, but also to maintain social connectedness, a key to healthy, good living. And those who can assure that provision of services to those who need them and coordinate them will lead the pack! Matt Turner Colorado has seen a tremendous amount of new activity in the senior housing space over the past several years. There is no obvious market area along the Front Range that hasn’t seen some amount of new senior living construction, and many areas have seen multiple projects of various types. Many factors have driven this, including (among others) a stable and growing state economy, significant population growth, liquidity and increasing prices in the housing market, strong rates for senior housing projects and relatively low barriers to entry for developers. In general, this new supply, if designed, capitalized and operated well, is great for residents and families. It creates optionality of design, quality, services and price point, and it ultimately results in a better-educated consumer. However, some areas could be passing the tipping point of saturation. The amount of new supply in primary markets is creating downward pressure on rates, and new communities are, in some cases, filling very slowly and at lower rates than forecast. Oversupply, coupled with quickly increasing wages, impacts from labor law changes and a statewide unemployment rate hovering just over 3 percent likely will have a huge impact on the viability of new supply coming into certain areas at this late stage in the Colorado senior housing development cycle. For our platform, the near-term opportunity is to manage growing operating expenses while we continue innovating and improving ways to care for and engage our residents.