Amid intensifying competition from new properties, a redevelopment wave of older continuing care retirement communities is under way nationally.
Lenders are putting big money into the projects, with the redevelopment cost of a single property ranging from $10 million to as much as $100 million.
The redevelopments are primarily occurring in states where many older communities are located. In the Chicago area alone, seven big facelifts are on the drawing boards. Several renovation projects are also underway in California.
Continuing care communities typically include apartments for independent seniors, as well as assisted and nursing care units. The idea is to provide a number of housing options on one campus for seniors who pay a hefty entry fee.
But now the aging communities are feeling the pressure from big operators such as Classic Residence by Hyatt and Erickson Retirement Communities. Both companies are building fancy new continuing care projects in a handful of markets.
The redevelopments are mostly at properties owned by non-profit entities usually affiliated with a church or social service organization. Many of the old communities were opened 50 or more years ago, and they need to be updated in order to survive.
Century-old buildings are being torn down, replaced by new ones that have large apartments, with great rooms and fancy kitchens -- a sharp contrast to the small, featureless studios often found in the old buildings. Older communities are renovating existing buildings, too -- adding amenities that today's seniors want. These features include wellness centers, swimming pools and multiple dining venues, features rarely found in the last generation of buildings.
"These communities are looking to put on a new face. We're not talking about a coat of fresh paint here, but an entire revamp of buildings, services and activities," says Dave McDowell, senior vice president at Greystone Communities Inc. based in Irving Texas. With 40 projects under way, Greystone assists only the non-profit owners of retirement communities.
Three Crowns Park in Evanston, Ill., is currently under redevelopment. The property sits on a block in a dense neighborhood. Built about 100 years ago, the community included 88 nursing and assisted care units and only 31 units for independent seniors.
Over time, the facility had become insufficient. Today’s prototype requires more units for independent seniors since these residents eventually take the spots in the nursing and assisted care units. Consequently, a new building with 91 apartments for independent seniors is now under way. Built on an old parking lot, the new facility will include a swimming pool, library and business center.
The $55 million project was financed with $15 million of temporary debt in the form of variable-rate bonds, to be repaid with entrance fees, and $40 million of permanent debt. Financing was arranged by Milwaukee-based Ziegler Capital Markets.
The redevelopment market is large, and growing. It accounted for about 25% of the $5 billion tax-exempt seniors housing bond issues in 2006, according to a Ziegler estimate. And a recent report by the National Investment Center for Seniors Housing & Care Industry shows that 44% of continuing care communities indicated that their properties needed to be upgraded.
A healthy economy, available capital and competition from new projects will drive more redevelopment activity, predicts Daniel J. Hermann, managing director and group head at Ziegler's Chicago office. "When a new community is built, that triggers a fast response from the older communities," Hermann says. "These projects must refurbish."
Not all older projects are candidates for redevelopment, however. Projects must be located in a desirable neighborhood where seniors want to live, notes Hermann of Ziegler. Also, the area's median home value must be at least as much as the average community entry fee because a senior typically sells a house and uses the proceeds for the entrance fee, according to Hermann. "All those elements have to come together.”