After a two-year buying binge, industry giant Brookdale Senior Living is shifting gears with a $500 million program to expand existing facilities. The change comes at a crucial point for Chicago-based Brookdale (NYSE:BKD), which currently operates 550 seniors housing buildings with more than 51,000 residents in 35 states.

The company almost doubled its size in 2006 via acquisitions, including the $1.2 billion buyout of American Retirement Corp. But the acquisition market has recently slowed, property brokers say. Many big seniors housing operators have already been purchased, leaving acquisitions in the fragmented industry a slow route to growth.

"There is consumer demand for additional product," says Mark J. Schulte, co-CEO at Brookdale. "In many markets, we are 98% occupied."

The company expects to add 2,500 units to existing properties over the next three years. About 60 properties have been identified as likely candidates for expansion, Schulte says. The properties have extra land and also the right infrastructure in place, such as experienced on-site administrators.

The expansion plan should boost cash flow, analysts say. That's important for Brookdale whose majority owner, Fortress Investment Group, specializes in businesses with strong cash flow. Monthly rents at Brookdale's independent living buildings average about $3,200. Rents grew 7.8% in the year ended June 30, 2007.

So far this year, Brookdale has completed four expansions. Another 25 are in progress. The expansions vary in size and scope, from big new wings to small 10-unit additions. In certain cases, new services and therapy programs are being added, too.

Though Brookdale has been known for its rental buildings aimed at independent seniors, the company is making a push to provide more health services for residents, including skilled nursing care. "There is demand for other levels of care," says Schulte.

Three months ago, Brookdale completed an $18 million expansion at the Summit at Lakeway, a 100-unit assisted living facility in Lakeway, Texas, a suburb of Austin. A 100-bed skilled nursing facility was added to the six-year-old assisted living building. Brookdale acquired the facility in the American Retirement Corp. deal.

Schulte says the property was ripe for expansion because the Austin area has a growing population. Also, no other high-end private-pay nursing facilities are located nearby.

"We saw demand for something that was not offered," says Schulte. Prices for skilled nursing at the Summit range from about $400 to $600 a day. "The property is doing very well," Schulte adds.

Beyond the expansions, aging Brookdale properties that are at least 20 years old are also being improved. These are typically Class-B properties in Class-A locations that the company has acquired. "We upgrade everything," says Schulte.

Brookdale isn't forgoing new acquisitions altogether, either. So far this year, the company has bought properties worth about $200 million. "We see an active market," says Schulte.

Amid the credit squeeze, Schulte thinks more properties may actually come on the market as sellers seek to cash out. "Building prices will come down and demand will slack off," he predicts. "There will be fewer buyers out there and we will pick up more properties."

Despite the turmoil in the credit markets, Schulte doesn't expect seniors housing to be affected, noting the industry's low default rate. "We have talked to all our major lenders and we have not seen any cutback," he says. "We are processing transactions."