Despite the shaky economy and weak housing market, a few regional operators are forging ahead with new communities. Knowledge of local markets coupled with prudent growth plans could prove to be a winning combination, company executives believe.
Take, for example, Westmont Living, an owner and operator of high-end rental communities on the West Coast. The San Diego-based company has a new project, Westmont of Morgan Hill, set to open next spring. The $22 million project is located about seven miles south of San Jose, Calif.
The rental building features 67 independent and assisted living units, along with 19 memory care units. Monthly rents start at about $2,800 for a small studio. The largest two-bedroom units cost $5,400 a month.
“We think this is a good market," says Andy Plant, CEO at Westmont Living. Morgan Hill is located in the southern part of Santa Clara County. The town is a bedroom community for companies in the Silicon Valley. Even though the area is upscale, Plant explains that customers are still looking for value. “We are focused on that.”
The rental project offers a better value for residents than nearby competing continuing care retirement communities, which typically cost at least about $100 million to build and charge residents large entrance fees, sometimes as much as $1 million, according to Plant.
"People don't want to pay those big entry fees," Plant emphasizes. Morgan Hill also offers a top-notch service package, with meals, a fitness center and educational programs. That package is vital to attracting customers, he adds.
Westmont Living expects cash-on-cash investment returns of 12% and higher. Plant has previously owned shopping centers and apartment buildings. But he views senior apartments as a different type of investment. "This is an operating business," he notes.
With that in mind, Plant plans to grow the company gradually. His vision is for Westmont Living to own a maximum of 30 communities to ensure that it stays focused on property management. "We don't need to be a huge company, but rather a quality company."
Plant plans to stay in California. "We want to be a solid regional player," he says. "We have our deepest knowledge here. It's a smarter place for us." The company owns five acres in San Diego County. The parcel is part of the San Miguel Ranch master planned community. There are no plans to start a community there yet.
Dementia care blossoms on West Coast
Regional operator Silverado Senior Living will open its 20th property, Beverly Place, in December. Located on the edge of Beverly Hills, Calif., the $12 million project will include 156 beds.
Silverado specializes in facilities for persons with memory problems. The company typically rehabs existing properties. Silverado operates buildings in California, Texas, Utah and Arizona.
"The West Coast is a good market going forward," says Mark Mostow, senior vice president of sales and marketing at Silverado, headquartered in San Juan Capistrano, Calif. "The age and income demographics are good for us."
California is not overbuilt, Mostow says. When Beverly Place opens, Silverado will have 11 projects in California. A new community opened in Redondo Beach, south of Los Angeles, eight months ago. The building is 80% occupied. Silverado’s portfolio-wide occupancy is approximately 88%. "There are some great markets in California that still aren't tapped," says Mostow.
Targeted at upscale consumers, Silverado buildings charge an average rent of about $5,700 a month for a shared room. "It's an expensive product," says Mostow. "But it's a value proposition. We have a level of service no one else has."
The staffing at Silverado facilities includes physician medical directors, licensed nurses and social workers with master's degrees. The buildings are staffed like a nursing facility, but licensed as traditional assisted living properties. "Our model of care is so different," says Mostow.
Though Silverado eventually plans to expand nationally, for now the company will grow slowly in order to integrate new projects into operations. Silverado has plans for another project in 2010, but has yet to pick a site. Likely places include Northern California or Arizona.
Eyeing the Southeast
Isakson Living has sales under way at Peachtree Hills Place, a planned 274-unit continuing care retirement community in the exclusive Buckhead neighborhood of Atlanta. Entrance fees range from about $500,000 to $1 million.
About 50% of the units are reserved, and construction is expected to begin in the later part of 2010. "We've seen a pickup in sales over the last several quarters," says Andy Isakson, managing partner of the privately held company.
Isakson is developing another nearby project, Park Springs, a 54-acre campus next to Stone Mountain Park. "There's an advantage to doing multiple projects in the same market," notes Isakson.
He cites operating efficiencies as one of the biggest advantages. What’s more, Isakson and his team have a deep knowledge of the local market, and the company enjoys good name recognition locally.
Park Springs’ most recent completed phase, which included 92 independent living units, opened last year at the peak of the housing slump. The newest phase had been sold out, but the housing downturn caused a number of cancellations. About 75% of the units are sold. "That's pretty good,” says Isakson.
The Atlanta area will continue to be the focus for Isakson. Seniors housing isn't overbuilt in the region, there’s little new supply and Isakson believes there's pent-up demand.
According to the “2009 Seniors Housing Construction Trends Report,” Atlanta ranks 28th among metro markets for the number of new units under way. "Our business will be one of the first to come back strong,” says Isakson.