Approximately 150 industry professionals crowded into the University Club on Wednesday, November 7th for REjournals’ 10th annual Chicago Senior Housing Real Estate Conference. While the mid-term elections were fresh in everyone’s minds, the most-discussed topics of the day had more to do with overbuilding and labor shortages than politics.
Faegre Baker Daniels partner, George Mesires, moderated the first panel, which looked at the state of the real estate market for senior housing. Panelists included Mathew Dougherty, executive vice president and regional manager at McShane Construction Company; Suzanne Koenig, president and founder of SAK Management Services; Janet Meyer, AIA, principal at BCT Architects and David Watkins, partner at SHA Capital Partners.
Watkins pointed out that there are about 22 properties under construction right now in the Chicago market, mostly in the northwest suburbs. “We’re running hot right now in terms of new construction,” Watkins said. “That’s something we should be looking at.”
Koenig agreed, saying, “With all the bearish opportunities, there is a lot going on in healthcare and senior housing because there are a lot of lenders. The over-saturation of the assisted living community is an issue.”
The conversation then switched to the declining census for skilled nursing, which has become a major stressor on the industry. “Maybe six to nine months ago we would have thought tariffs would be a major conversation, and it still could be an issue. But the real problem is labor,” said Dougherty. “There is a renewed focus on labor and efficiency. Folks are looking into ways to supplement labor or extend working hours.”
Many of the skilled nurses are leaving the battlefield, according to Koenig, and opting instead to put their talents to use in insurance or human resources settings. Facilities looking to retain nurses, CNAs and other workers, she argued, have to find more creative ways beyond higher salary. Expanded health insurance for dental and optical is one approach; some companies have even experimented with giving employees loans.
Because of this, design teams now focus on making employees happy, not just residents. Meyer said that in her conversations with clients, efforts to engage with staff and improve their work environment often come up. Solutions include more efficient designs so that staff have shorter distances to travel from one station to another. Nicer break rooms are a key, but so is giving access to the outdoors.
That’s not to say that a focus on resident happiness has taken a hit, as new senior living facilities are bristling with features and activities for those that live there. “Regarding the amenity war, I’ve got news for everyone. The amenities won,” Dougherty said. Golf simulators are popping up in senior care facilities, along with spas, media rooms and even dog care operations.
“Creating an experience or a lifestyle, a lot of that comes from urban or mixed-used locations,” said Meyer. “We’ve had retail clients ask about senior living. They feel it might make a good adjacent use for a parcel that they might have.”
The second discussion of the day delved into the current and future environment for investment and development, moderated by Robert Gawronski, vice president of development and acquisitions at Senior Lifestyle Corporation. Joining him were Douglas J. Antonio, partner at Sugar Felsenthal Grais & Helsinger; Don Husi, managing director at Ziegler; Connor Jansen, energy efficiency program manager at ComEd and James Keledjian, principal at Pathway to Living.
As the senior housing segment has started to gain new investors, they are experiencing a learning curve; their familiarity with multifamily can throw some investors off as the two asset classes appear to be similar, but they behave differently. “People may not be aware this is an operating business,” Keledjian said. “It’s a lot different than putting up a garden apartment.”
Gawronski agreed, saying, “over the past five or six years, the capital markets trying to get money out the door have started drifting toward great looking developments or developers with good credit worthiness, but no operating plan.”
The panelists also discussed the new Opportunity Zone program, but disagreed as to whether it’s a good match with senior housing. Husi also mentioned the Ziegler Senior Living Municipal Long Bond Index, the first municipal bond market indicator devoted exclusively to naturally rated, long maturity municipal bonds in the senior living sector.
“We are beginning to see a slowdown in the equity that is out there. The REITs have been on the sideline as capital costs are higher than they want,” said Husi.