By Jean G. Bacon
3B Fund Development Group
Following more than two years of fear, paralysis and “tread water” management, senior living communities may once again be in the position to dip their toes into the development waters. It may need to be done gingerly, and most certainly will require courage on the part of administrators and boards willing to take risks, but the signs are there and developments are moving again.
The earliest signs of the bond market freeze began to appear in late spring of 2008. In the intervening three years, many a plan was put on the shelf, gathering dust as leaders struggled to cope with economic realities that were part of the overall recession.
Interest rates were all over the map and very little new construction began. Sure, there was money out there to be had, but only for those who didn’t need it. Those who did need financing, found the financial gurus – the bond underwriters and the financial feasibility consultants – were retrenching and unwilling to invest in expansions. There was some refinancing of older communities, but this was mostly done in an effort to cut monthly bond payments.
Communities that were fortunate to have a large percentage of “healthy” residents in independent living saw that their census remained relatively stable. However, new sales were a challenge given the housing crisis and how difficult it was for older people to sell their homes. Older adults who had always imagined that they would choose to move to a senior living community reversed course. They sought help in their homes for their health and support needs and settled into a “wait-and-see” mode, continuing to live in the family home with the hope that the economy would turn around. This same population, unfamiliar with the real costs of in-home healthcare, worried with stock market declines that if they were able to move they lacked the resources to live out their lives in the type of community they’d always wanted.
In an industry which requires continuous upkeep and updating, it was hard to identify cash for projects that did not immediately show revenue returns. Given the overall climate and all these conditions, there was no desire to take risks. This created an interesting dynamic in an industry that had always taken risks to improve products and services for their residents.
And, now, the pendulum is swinging. The housing crisis is easing and older adults who have adjusted to the “new normal” in resale values are showing signs that they are willing to sell their homes for less than they could have two years ago, especially when they aren’t carrying hefty mortgages.
Economic indicators are encouraging bond underwriters and financial feasibility consultants to cautiously advise communities to begin planning for the future. Projects that were in a holding pattern largely since 2009 are now moving forward and new construction is on the horizon. Management teams and Board members realize that a deteriorating physical plant will not compete successfully in the market place, and if they want to preserve their identity and market share, they are going to need to spend money to update.
For those who are willing to venture into the visioning and planning cycle, the time — and the environment – may be ripe to clean off that shelf and get those plans that have been gathering dust the past two years into action. But those same leaders are wise to keep in mind that those are two, maybe three years old, and should ask how the environment has changed and whether those plans may need re-tooling post-recession. Beyond that, smart senior living leaders will not only ask whether the plans meet current and near-term needs, but will once again start that longer range process of master planning for the resident of tomorrow.