In the news: Senior Housing News
While some senior living operators and developers have frozen their development pipeline until conditions improve, other companies are not sitting idly in anticipation of a demand wave right around the corner. Matt Derrick, Managing Director of Confluent Senior Living explains the steps that Confluent Senior Living/Confluent Development takes to keep moving forward in the development of new properties.
‘Largest development pipeline we’ve ever had’
While conditions for development in the current moment remain tough, some organizations in the space are falling back on their due diligence and pre-development work to be ready once conditions improve.
Real estate investment and development firm Confluent Development recently unveiled its $500 million senior living development pipeline. The company is primarily targeting active adult and independent living.
The company has partnered with MorningStar Senior Living and Harbor Retirement Associates (HRA) to oversee management, with the Denver, Colorado-based developer working with MorningStar on 14 projects and HRA on nine communities.
As previously reported, Confluent Development this year opened projects that first started construction in 2021 in Mission Viejo, California, Shaker Heights, Ohio and MorningStar in Denver.
“This is the largest development pipeline we’ve ever had,” Derrick said. “This is very intentional and some of the best deals we’ve done we’re coming right after the Great Recession and we find ourselves in a similar place.”
But where Confluent Development is most active right now is behind the scenes planning and preparing for the real estate cycle’s next turn, according to Derrick. That means dusting off strategies that worked during a challenging time, emphasizing planning and due diligence, pre-development efforts and more, Derrick said.
While unable to disclose details regarding project specifics, Derrick noted that “two big projects” in the pipeline included large, IL, AL and memory care campuses on the West Coast and in the southern U.S, with an active adult community planned in the Mountain West. He also sees opportunities in the Midwest for active adult.
Within the pipeline, Derrick said he expects projects to be ready for construction to break ground in 2024 at the earliest, but most likely in 2025.
“We’ve strategically renegotiated those deals and pushed some of them out further that were supposed to break ground this year to push them further to when the debt markets have corrected,” Derrick said.
Redevelopment is also another way developers are pushing ahead for senior living projects. Northfield, Illinois-based Integrated Development II (ID2) is currently working pre-development on two senior living projects to be included in the redevelopment of two Chicago-area malls.
In partnership with Affinius Capital, ID2 is gearing up to develop the 166-unit Sophia at Hawthorn Mall and the 216-unit Sophia at Fox Valley Mall, two luxury communities that are slated to carry a full continuum of care.
CEO Matt Phillips told SHN that the Fox Valley project was recently re-designed aspects of the project’s lobby, while the Hawthorn project is further behind after the Village of Vernon Hills asked stakeholders to develop the community on a different site within the greater mall redevelopment, Phillips said.
“Once the construction financing market normalizes, we will renew our active pursuit of this project,” Phillips said of the latter site.
Phillips noted that ID2 currently has two other senior living projects in development, a 150-unit community in Sarasota, Florida and a 260-unit CCRC in Riverdale, New York on The Hebrew Home’s 32-acre campus along the Hudson River as part of a $600 million development. The Hebrew Home project would be the first CCRC in New York City, Phiilips said, and recently marked achieving 10% advanced deposits for half of the units. Construction is slated for late next year.
Tough development climate lingers
Data from the National Investment Center for Seniors Housing and Care (NIC) shows that units under construction accounted for 4.9% of total existing senior living inventory in the second quarter of this year, and that’s down nearly 3% from its record high of 7.7% recorded in the fourth quarter of 2019, while also being the lowest level of construction since 2014, according to NIC Chief Operating Officer Chuck Harry.
While this remains a challenge for new development, a low rate of starts bodes well for operators to rebuild occupancy more quickly as new inventory coming online remains scarce.
If a site was identified today, Derrick said that due to current market challenges, projects could take up to two to four years to complete, and that’s why Confluent has its eye on the future of senior living development.
“That’s going to put us square into 2027 where we believe we’re going to be in arguably the best demand environment that this industry has ever had,” Derrick said. “If I wait for the market to improve and to start those deals, I am going to be late to capitalize.”
Phillips added that development was attractive, even now, based on the unmet demand for senior living in the “high-end market.”
“Getting projects teed up and ready to go now will put us in position to strike fast and be first to market once the financing markets normalize,” Phillips said. “ID2 believes the construction financing and capital markets will loosen in 2024, but will still be “tight.”
Schachter also noted that Watermark has additional projects in the pipeline with the anticipation of capital markets improving.
“We’re going to be ready to hit go on a number of these projects with our development partners in tow when conditions improve,” he added. “We’re still big believers in the direction that we’re heading.”