The Why and How of Entering the Burgeoning Senior Housing Market
By Dennis Roth |
America is aging fast. Currently almost 33 million people are over the age of 65. In 25 years, that number will double. For commercial real estate, these figures represent a continually growing market for retirement housing.
Though overbuilding and a lack of understanding about the market led to high vacancy rates and foreclosures in the 1980s and early 1990s, recent reports indicate that supply is now catching up with demand. A 1994 survey of U.S. senior housing by the American Seniors Housing Association found a median occupancy rate of 93 percent. Nearly 80 percent of the 326 senior housing executives surveyed said they were considering new projects, and almost half of those projects would be free-standing assisted-living residences.
Market Pros and Cons From a business standpoint, assisted-living facilities offer an easier, less risky entry into retirement housing than the other market segments. The smaller facilities require less investment and start-up capital for land and construction and have lower operating expenses because they don’t use professionally trained medical staff. Less government regulation than nursing homes means more freedom in designing “homier” facilities that appeal to consumers.
On the minus side, competition exists, and it will grow quickly in the coming years. Cheaper home care and adult day-care services will emerge. Many of the congregate-care facilities built in the 1980s failed to attract the younger senior market; in order to survive they are retooling by adding Activities of Daily Living (ADL) facilities to stay afloat as continuing care centers. (ADL is the term used to describe everyday activities that elderly persons may need help with, such as bathing, getting in and out of bed, dressing, and preparing meals.)
Other drawbacks are the management-intensive nature of the business, possible lower-skilled labor shortages, and the high turnover rate. The average length of stay in a facility is two-and-a-half years; most vacancies result from death or the need for medical care. So an added expense is an ongoing marketing campaign to maintain constant occupancy.
Targeting the Right Market The successful developer of assisted-living facilities understands their unique marketing considerations. In this situation, the consumer is usually not the elderly person who will be living there. Most often the residents’ adult children (usually the eldest daughter or daughter-in-law) choose the housing for their elderly parents or they greatly influence the decision. Accordingly, it is crucial to target both the middle-age and the elderly consumer in marketing an assisted-living community. If marketing is directed toward only one of these two groups, half of the audience is lost before the advertising has begun.
The other mistake is to market assisted-living facilities as retirement centers. Active, independent seniors will not choose to live in housing where the majority of residents are frail and needing assistance. Confusing or euphemistic names serve no purpose other than to attract the wrong market.
The successful development is a combination of housing and services. Understanding the specific ADL market helps to identify location and design considerations, as well as the necessary services and amenities that create a marketable facility.
What Is Assisted Living? Of the three retirement housing market segments-congregate units aimed at healthy, independent seniors; assisted-living units for the “frail elderly”; and nursing homes, limited to those who need continual medical help-assisted living is forecast as the wave of the future, offering the most economical and flexible choice to consumers and a growing opportunity for investors and developers.
Although assisted-living facilities go by a variety of names-residential care, board and care, or sheltered care-all offer a variety of services to individuals with ADL deficiencies. In addition to providing ADL assistanceo n an “as needed” basis, assisted-living facilities are often small-less than 250 units-and more residential in design than nursing homes. They usually offer three meals a day in a communal dining room, local transportation, and extensive recreation programs. Occupants rent rather than own their units, which are usually one-bedroom apartments.
The popularity of this type of senior care is due to changing family roles as well as the general aging of the population. The typical resident is a widow in her early eighties, with a yearly income of around $20,000. Because of her ADL disabilities, resulting from age rather than illness, she can no longer live alone. Moving in with her adult children is not an option, because they and their spouses work outside the home, leaving no one to provide daytime care. Financially, she cannot afford home health-care services, which often cost $50 to $60 an hour. Thus, the most economical-and desirable-choice is the assisted-living facility.
As more people live into their eighties in relative good health, the over-85 population is expected to triple to seven million in the next 30 years. Because of demographics, economics, and desirability, the assisted-living market should experience steady growth for the next several decades.
Creating the Right Environment Like most people, the elderly hate to move, and often, they do not want to leave “home” to receive assistance. The key to creating a marketable assisted-living community is to create an environment that resembles “home.” The more the assisted-living community looks like a nursing home or otherwise reproduces an institutional atmosphere, the more likely the project will fail.
No uniform set of rules or regulations governs assisted-living communities throughout the country. Therefore, it is important to investigate the pertinent regulatory, building, and zoning laws in each state you are considering placing an assisted-living community. Because each state and local municipality has its own set of regulations with which developers must comply, it is unlikely that the same assisted-living plans will be suitable for use throughout the country.
Design Considerations In designing the assisted-living community, keep in mind that what is actually being sold is the delicate balance between maintaining the independence of the elderly and providing services the elderly individual can afford. The best communities provide safety, ease of obtaining help, and a home-like atmosphere while retaining the residents’ sense of autonomy.
This balance can be maintained through location, thoughtful design, and choice of amenities. Here are a few suggestions that will help to create an environment that fosters independence while providing the necessary level of service.
Choose Mainstream Locations. One of the biggest mistakes developers make is placing assisted-living communities in quiet, isolated environments. In contrast, the best location may be on top of a mall or right next to an elementary school.
Despite the common misconception, the elderly do not want to be isolated from society; they want to be where the people are. They want to live in a fairly busy location where they can sit on the porch and watch people hustle by on their way to work or school. While the residents may no longer participate in the routines of the workaday world, a physical connection to that life is important.
Maintain Privacy. Assisted-living housing complexes can offer residents a choice of studio, one-bedroom, two-bedroom, and even three-bedroom units if guests and family want to stay occasionally with the resident. However, the typical resident is a single woman, and one-bedroom units are often the easiest to keep occupied. To make them feel at home, residents often bring their own furniture, such as a bed, a favorite chair and sofa, and decorative items, so units should be large enough to accommodate these items. From a marketing standpoint, it makes sense to include a few larger units that can accommodate such items as a king-size bed or a full dining room suite.
The units may be in an apartment building setting or a cluster of individual free-standing homes. Whichever structural model the developer chooses, it is critical that the units have private entrances-outside doors that lock from both sides. While it is less expensive to build semi-private units, the cost savings are outweighed by the undesirability of the arrangement.
Foster Independence. Elderly individuals want to remain independent as long as possible. Providing each unit with a fully equipped kitchen or a kitchenette area enhances the feeling of independence. Even if the resident eats all three meals in the community dining room, having the capability to microwave popcorn or make snacks in the unit helps maintain a sense of autonomy. For safety reasons, however, consider installing electric instead of gas appliances.
Provide Safety Measures. Implementing safety features in each unit as well as in the community at large is crucial. Call buttons that are mounted in the unit or worn around the resident’s neck are a frequent feature, allowing residents to reach a nurse or security guard on a 24-hour basis. Burglar alarms and motion-sensor spotlights are other safety features commonly incorporated into the assisted-living community.
Meet ADA Standards. Every structure in the community must comply with the Americans with Disabilities Act, as well as the regulations set forth by the Architectural and Transportation Barriers Compliance Board, and any other federal guidelines. These regulations are primarily designed to ensure convenient access for individuals with disabilities, which may include a number of potential residents.
Space must be designed so that an elderly individual can easily navigate a walker or wheelchair through the entire assisted-living community. The individual’s unit should have sufficient room to easily maneuver a walker or wheelchair in the bathroom, bedroom, living area, and kitchen area. Public hallways should be wide enough for two wheelchairs to pass by easily. Tables in the community dining room should be designed so that wheelchairs can easily slide under them. There should be ample accessible space to store walkers and wheelchairs if the elderly person decides to transfer to a chair for the meal.
Whether the resident is ambulatory or not, she is likely to have difficulty reaching high cabinets. All storage, as well as light switches and electrical outlets, should be within easy reach. Other considerations include levered handles on all doors, lowered windowsills, lighted switches, and decorative but functional grab rails.
Bathrooms require particular forethought and sensitivity in design. Tubs should be large enough for tub chairs, as well as aerators, which are often used therapeutically in the geriatric community. The tub should also have a grab rail and skid strips. A removable shower head allows the resident to shower unassisted in a bath chair. The sink, mirror, and cosmetic table should accommodate a wheelchair or another chair to allow individuals to wash, brush teeth, shave, or apply makeup easily and independently.
External and Community Aesthetics. The aesthetics of the building style (ranch, colonial, Tudor, etc.) as well as the landscaping (gardens, fountains, trees, and shrubbery) can have a huge impact on the consumer. Strong selling points of apartment-type assisted-living communities may include wrap-around porches with swings and rocking chairs and spacious, well-lighted community facilities. However, don’t lose sight of the demographic characteristics of the target population. A large, grandiose community in a blue-collar town will most likely experience occupancy problems. On the other hand, a moderately priced, homey community will thrive in that situation.
Attention to detail can not be overlooked, as the resident’s family will use this as a benchmark to evaluate care. If the physical plant of the assisted-living facility is well kept and cared for, consumers will feel more comfortable that the personal care they (or their loved ones) receive will be of that same high quality.
Providing Services In addition to ADL services, assisted-living facilities typically offer:
24-hour emergency response system
electronic security and/or night security guards
recreation and exercise facilities
Many will also monitor medication schedules, and some state laws allow assisted-living facilities to pass drugs and even provide nursing care. Other states have created specific packages of services that assisted-living communities are required to provide, such as social services and specialized services for residents with cognitive disabilities.
The key to providing the right services is to know the target market based on the demographics and economic profile of the proposed community site. More services can be added to the basic menu as the occupants request them or show an ability to afford them. For example, some assisted-living communities have gift shops, ice cream parlors, restaurants, and chapels or meditation rooms.
Payment Sources Services provided in an assisted-living community currently are not covered by Medicare or Medicaid, an important distinction from nursing homes. Some states, such as Oregon, have created Medicaid waivers to help pay for the services; however, this is not yet a widespread practice.
The federal government realizes the need to promote cost-effective alternatives to nursing home care. In fact, in 1987, the government launched an initiative to prevent ADL individuals from entering nursing homes by requiring states to develop and implement preadmission screening programs. Since that time, the federal government has mandated screening not only for elderly individuals who receive federal funding, but also for those who are paying for nursing home services out of their own pockets.
Industry executives are divided over whether increased government reimbursement for senior services is a favorable move. Those who oppose it fear increased government regulation, while those who favor it believe that government reimbursement will broaden the market base and reduce resident turnover caused by the depletion of personal resources. It is probably only a matter of time before the government implements waivers as it desperately attempts to cut Medicaid spending. State and possibly even federal funding for assisted-living communities is on the horizon.
Despite the fact that assisted-living communities are not currently eligible for Medicare or Medicaid funding, affordable residences must be developed so that all segments of the target population can be served. With foresight and planning, developers can create assisted-living communities in an economically feasible manner.