As Occupancies Fall in Beantown, So Does Seniors Housing Development

Amid a wave of new development projects, occupancies at seniors housing facilities in the Boston market are slipping. Still, property owners remain generally optimistic about the area’s future.

“Boston is still a good market,” says John Moore, CEO of Atria Senior Living Group, a building owner and operator with eight properties in the Boston area. It’s more difficult to find new residents than it was several years ago, Moore admits, but “if you can provide value and show quality, you can sell rooms.”

The Boston seniors housing market has traditionally posted occupancy rates of 90% and above. The market has high barriers to entry, including costly land prices and a difficult zoning and permit process. Developers unfamiliar with the local market have shied away from it.

The occupancy rate at assisted and independent living buildings in the Boston market hit 95.3% in the second quarter of 2007, according to the National Investment Center for the Seniors Housing & Care Industry (NIC). “Developers took notice and started building,” says Michael Hargrave, vice president at NIC.

Construction as a percentage of the existing inventory hit a high point of 9.1% in the third quarter of 2007. New buildings, plus a lackluster economy, pushed down Boston’s average occupancy rate to 90.9% in the first quarter of 2010, NIC says. Three properties are still under construction. Five properties are less than two years old.

By category, assisted living is faring better than independent living buildings. The overall occupancy rate at Boston-area assisted living buildings registered 92.25% in the first quarter of 2010 compared with 89.74% for independent living buildings.

Increased competition has led to market-wide discounts. Some owners offer rent concessions or waive the one-time community fee, typically one month’s rent. But owners say concessions are used only on a case-by-case basis

Rivalry spurs upgrades
With an eye on new competition, longtime Boston area building operators are stepping up property improvements. After Sunrise Senior Living opened a new building in the suburb of Burlington, Atria Senior Living upgraded its nearby property, Longmeadow Place. Common areas were redone.

New amenities were added, such as a bistro-type dining venue, and a cognitive learning center with computers and group learning programs. Resident rooms were upgraded with new bathrooms and cabinets.

Atria has spent $100 million in each of the last two years to upgrade its buildings, according to company president Moore. The Louisville-based company owns and operates 124 communities, mostly assisted living facilities.

Moore expects to spend more than $100 million next year on property upgrades. “We’ve invested in the portfolio,” he says. “The result has been strong performance.” Occupancies at Atria’s Boston area buildings hover around 95%.

Other property owners are responding to the competition. Benchmark Assisted Living recently upgraded its Billerica Crossings project. It’s located near a new project by Brightview Senior Living based in Baltimore.

Benchmark improved the common areas at Billerica Crossings. Twenty units were converted from traditional assisted living suites to memory care units. “We thought the building would be better positioned if it offered memory care units,” says Thomas Grape, Benchmark’s chairman and chief executive. “The dementia units are full.”

Based in Wellesley, Mass., Benchmark owns and operates 44 buildings, including 12 in the Boston area. The company has upgraded eight properties portfolio-wide in the last few years. Two more properties are slated for upgrades this year. With capital for new projects scarce, owners are being prudent, says Grape. “Investors are paying attention to their existing portfolios.”

New supply drops
A slowdown in new construction should help boost Boston-area occupancy rates. Approximately 375 new seniors housing units are currently underway, according to NIC, or 2.1% of the current inventory. That’s the lowest percentage since NIC began tracking new building starts.

But developers may build again soon. Benchmark, for example, is seeking opportunities in the Boston area. “The supply-demand balance is better in Boston than in other markets,” says Grape of Benchmark. He believes that other developers will continue to avoid Boston because land is expensive and difficult to find. The grueling building permit and zoning process can take several years.

Atria plans to start a new building next year in Falmouth, Mass., a town on Cape Cod. The land has already been acquired and the zoning approvals are in place, according to Atria’s Moore. In the Boston market, Moore thinks overbuilding won’t be a problem. “Good infill locations are very difficult to find.”

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