The headlines call the current real estate climate turbulent and uncertain, but Patricia G. Will, CEO of assisted living owner and operator Belmont Corp., calls it a good time to be a seniors housing developer. That’s a stark contrast from the days when non-seniors developers provided stiff competition for well-located sites in high-quality markets. Those are precisely the sorts of sites that Belmont, which already owns and operates 18 seniors’ communities with about 2,500 units, needs to spur its growth.
Now, with most highly leveraged developers out of the picture, Houston-based Belmont is having an easier time assembling its pipeline. Still, the possibility of an economic recession remains a concern, although so far, Will says sales haven’t slowed down.
National Real Estate Investor recently spoke with Will about how Belmont Corp. is taking advantage of the new financial environment, and how she expects things to play out for Belmont and the seniors housing business in the coming year.
NREI: Has the credit crunch had an impact on your expansion plans?
Will: It’s been a positive impact so far. Today’s environment is slightly more favorable to the development of seniors housing than it has been in recent years. We’re currently building a pipeline for 2008-2010 starts, and now things are more favorable with respect to competition for land, and the cost of construction.
Coming into this cycle as developers who build in high barriers-to-entry markets, we’re sanguine about being able to acquire good sites. The debt markets have tightened, but since we consistently come into deals with a lot of equity, typically 35% to 40%, we don’t anticipate any issues with getting favorable terms for construction loans.
Lenders are still making loans, but they want more equity from the borrowers. The seniors housing industry has never been highly leveraged, simply because lenders have construed -- rightfully so -- that the industry has greater operating risk. In these times, the equity requirement is going to be even more important to lenders.
More important than the lending climate, there’s less competition for land now. In our business, we look for sites in very strong residential areas of major markets. In the last 90 days we’ve bought sites that a year ago would have gone to a high-density condo developer against whom we couldn’t afford to compete.
NREI: Are you finding sites at a price discount compared with a year ago?
Will: I don’t know if we’re getting a discount for the land, but we aren’t participating in a slugfest. It isn’t so much a discount as a difference in terms. We don’t want to close on a piece of land until it’s fully entitled for our purpose, in terms of zoning and permits and so forth. A year ago, we saw developers buying land that was not entitled with plans to develop condos. Fortunately, those buyers have disappeared. We might pay the same price as we would have a year ago, but the seller will work with us to get entitlements. That part of the equation is easier now.
NREI: Do you anticipate a reduction in construction costs?
Will: Not necessarily, but construction is becoming a little easier to deal with as well. Some factors driving up the cost of construction recently haven’t changed, such as demand for raw materials from China. But among quality general contractors, the ones we deal with, backlogs are going down. We see the contractors becoming a little hungrier – a little easier to work with.
NREI: Has market turbulence affected Belmont as an owner?
Will: We haven’t seen a change in our metrics since the crunch started. We don’t see any degradation of our traffic – or in our closings by new residents. Those have continued at a normal pace, unchanged from early last year through the end of 2007.
Our assisted living properties are in high-end demographic markets. In California, for instance, where there’s clearly a crisis in the housing market, that hasn’t affected demand for assisted living properties in high-end West Los Angeles, or high-end San Fernando Valley, or high-end San Diego.
There could be a drop in demand ahead, though we don’t know exactly what form it will take. As owners we haven’t suffered any ill effects of the broader economic turbulence thus far, but that doesn’t mean it won’t happen. It may be that in the coming months, people will take longer to make their decision to move. We’re keeping a close eye on our metrics to try to anticipate that kind of trend.
-- Alex Stallings