To further understand the trends of senior housing development as a product type within the greater scheme of thereal estate investments, it’s important to understand the term Continuing Care Retirement Community, commonly called CCRCs, because an increasing number of jurisdictions for zoning are codifying this term. These are designated as facilities that have tiered services for the various lifestyles of seniors, and they are considered a more comprehensive type of facility for retired persons than one imagines as the typical nursing home.
Why are CCRCs notable to Seniors?
Residents, or members of CCRCs, invest their life savings in order to have guaranteed “extended care” for a more graceful aging experience. Essentially, CCRCs are developments with a hybrid service to offer both conscious senior lifestyles with amenities such as formal dining halls, fitness studios, parks, shops or markets, in addition to required skilled nursing care by licensed professionals. The American Association of Retired Persons (AARP) defined CCRCs as those living arrangements that are “[p]art independent living, part assisted living and part skilled nursing home,” which the organization claims are communities “offer[ing] a tiered approach to the aging process, accommodating residents’ changing needs.” Often, these facilities appear to be resort-style living facilities with a medical, or nursing home, component. Furthermore, within the nicer CCRCs, seniors and their families must agree to a continuing care contract, likely requiring a relatively sizeable lump sum in advance. This serves as a deposit in order to become a member. After the initial payments, CCRCs offer models for periodic payments, taking into consideration what the member would like as care options within the CCRC for his or her future aging needs.
Why are CCRCs notable to Investors?
As the senior population booms, how can investors make a profit with the proliferation of the CCRC model? Three factors answer this: 1. the senior population is increasing as lives are longer and healthcare improves, making for relatively inelastic demand for senior housing, 2. urban development for senior housing is at an unprecedented high as cities realize seniors do not want to alienate their lifestyles for the suburbs, and 3. market mechanics are at work in real estate, because an increasing number of zoning jurisdictions have actually codified CCRCs, even though age restrictions within communities have been met with some government resistance in the past.
With lower tax burdens than other product types, especially when senior facilities form partnerships with non-profits or within planned unit developments (commonly called “PUDs” in the real estate business), more flexible zoning definitions emerge, with an increasing number of jurisdictions beginning to recognize CCRCs.
Know the Market and the Market Indicators
With such factors of an increasing senior population and longer lives, more demand with urban cities taking note, and zoning jurisdictions catching up, markets are poised more than ever to provide the largest return on investment in senior living developments. In addition to the Washington Metropolitan Area, where new development for CCRCs are prevalent in Maryland and even more pronounced in zoning codes in Pennsylvania, investors interested in new senior development may also compare lower cost markets in larger states such as California, Florida, and Texas; the latter of which has much underway development.
For example, Texas-based Civitas Senior Living’s newest development in the Austin-area, Ledgestone Living, will have the CCRC-tiered lifestyle model to afford its members semi-independent living units. This will be the seventh development for Civitas. Meanwhile, CNL Healthcare Properties is expanding senior housing in the northwest part of Texas with a $16.2 million investment (in what are commonly executed through REITs), announced in November 2014 into a major senior facility with more than 260 units on Raider Ranch in Lubbock, TX.
As such, the business model of CCRCs is worth understanding within the senior living product type of real estate development. It has more flexible retirement community regulations, usually with affordable, expansive land. In summary, despite a slowed-down pace of development within the last seven years, senior-living-investing has proven to be recession proof, and more comprehensive facilities senior living development by way of the CCRC model have grown squarely within U.S. markets. Thus, when investing in senior development, it is important to understand the nuances and differential of value between putting money into a traditional nursing home model and investing in senior living facilities with tiered lifestyle models.
Lastly, investors may note that currently senior housing is trading at a 6.5-7.5 capitalization rate, and investors should focus on buying at an 8-cap when considering new deals. Any other questions can be answered by contacting Cambridge Realty Capital today.