As the population ages, dementia care has become a quickly growing niche in the seniors housing business. Assisted living buildings are adding special wings or units just for those with memory problems. Some developers are even building freestanding facilities meant only for people with Alzheimer's disease and other disorders that cause memory impairment.

“More operators are offering dementia care,” confirms David Schless, president of the American Seniors Housing Association based in Washington, D.C. “And that (trend) will continue.”

About 4.5 million Americans have Alzheimer's disease, a major cause of dementia and memory problems. By 2050, 16 million people are projected to have the disease, according to the Alzheimer's Association.

It's widely believed that the majority of nursing home residents have some cognitive impairment. But many people with memory loss don't have a medical condition that requires them to live in a nursing home, Schless says.

As a result, housing is being developed just for those with memory problems. A recent construction report says dementia units comprise about 4% (1,301 units) of all the new seniors housing units currently being built, according to the American Seniors Housing Association. The existing supply of dementia units is about 46,000.

Dementia care is generally provided by assisted living building operators that either own the properties, or who lease it from institutional or private investors.

Though residents with memory impairment might not need medical care, they do need a lot of supervision and assistance. Dementia units have high staff-to-resident ratios. The units are usually locked to prevent wandering, a common problem among those in the late stages of dementia. And since the memory impaired tend to function better in small settings, private rooms or apartments are typically clustered around a central living area.

The housing model is an expensive one, building owners say, with dementia care running about 30% to 50% more than the cost of standard assisted living.

Silverado Senior Living Inc. has three new dementia facilities under way. Based in San Juan Capistrano, Calif., the company currently operates 13 freestanding dementia care facilities in California, Texas and Utah. “Dementia care is an underserved market segment,” says Jack Peters, Silverado's vice president of operations.

Silverado serves about 1,000 residents in buildings with anywhere from about 30 to 136 beds. Rents at the California properties are about $6,000 a month for a shared room; $12,000 for a private room. Rents at the Texas and Utah buildings are about $1,000 a month less than at the California properties. “It's a high-end product,” notes Peters. Rents are increased annually about 5%.

Like other senior housing operators, Silverado often works with REITs that own the real estate. Silverado rents the building from the REIT, but usually has a buyout clause to purchase the property in eight to 10 years, Peters explains. “If we had a strong enough cash position, we would purchase the properties outright."

Instead of developing new buildings, Silverado tends to buy existing facilities and refurbish them. The new project in Redondo Beach, Calif., set to open in 2008, was an old hospital. Peters figures the average renovation costs about $2 million.

The lease-up period typically takes anywhere from 12 to 24 months. The buildings don't make money until they're about 70% occupied, Peters says. “The capital you need in that period between purchase and when the building is paying for itself is costly,” he says. “Since we are a high-end model, we are careful about what markets we enter.”

Sunrise Senior Living Inc. has nine freestanding dementia care buildings. The company's assisted living buildings also have dementia care units, or neighborhoods called “Reminiscence.” Sunrise recently opened a new freestanding dementia care building for 46 residents in Grosse Pointe Woods, Mich., an upscale suburb of Detroit.

A typical Sunrise dementia care building includes about 45 units, according to Phil Downey, senior vice president of development and planning at Sunrise in McLean, Va. A standard Sunrise assisted living building has 80 units, though about 24 of those are usually earmarked for those with memory problems.

Sunrise plans to develop other freestanding dementia buildings, but only when the right opportunities come along, Downey says, specifically in suitable locations in upscale neighborhoods.

Though operators expect dementia care to grow, they emphasize the difficulty of the business — a labor-intensive enterprise that serves residents with complex problems. As Schless notes, “It's a challenging part of the seniors housing business.”