High Land Prices An Obstacle For SoCal Memory Care Developers
As Americans continue to age, the current inventory of senior care centers will no longer support the growing elderly population.
The demand for these facilities is noticeable among memory care centers, which treat patients living with dementia and Alzheimer’s disease. As people get older, the risk for developing memory issues rises significantly. Above 65 years old, a person’s risk of developing Alzheimer’s or dementia doubles every five years. Ninety-eight million people will enter this age group by 2060.
In Southern California, growing demand for these spaces has come up against rising land costs and a lack of space in primary markets. The scarcity of land opportunities has pushed memory care development into secondary markets like Riverside County, San Diego County and the San Fernando Valley, Silverado Senior Vice President of Development Paul Mullin said.
“We are competing with the multifamily and single-family developers, who have a much better land stake because they can pay for it with their compressed cap rates and ability to build a denser product,” Mullin said.
Silverado is a developer and operator of hospice, home care and memory care communities across seven states. Faced with rising land prices, more suburban SoCal areas have become more affordable building areas for memory care developers, Mullin said. Those markets have since become oversaturated while demand rises in denser urban areas like Los Angeles.
It is a trend construction company Parker Brown has seen throughout SoCal.
“Developable land is at a premium in Southern California, but we have a large majority of the aging population that wants to stay here,” Parker Brown partner John Parker said. “The seniors will be heard by the city planners and city councilors, and they will be a big part of the process."
Overbuilding by inexperienced memory care developers, attracted by the asset’s high rent rolls, can lead to a decline in market value. A typical shared room at an Alzheimer’s or dementia facility can cost upward of $6,500/month. But high rents and steady income growth come with careful attention to the operation of each facility. Silverado’s facilities maintain a one-to-one ratio between residents and staff and provide consistent, around-the-clock care, all of which adds up when totaling monthly operating costs.
Developers who don’t recognize the required level of operational expertise limit their return on investment.
“If you are operating a memory care facility, you are going to be in the red for at least a year if not 18 months before you stabilize your community,” Mullin said. “There aren't many developers willing to stomach that, so what will happen is that they will open and then not have the same commitment, and it becomes difficult to stabilize a community.”
To reach the wealthier senior demographics in areas like Beverly Hills or Laguna Beach, memory care developers have gotten creative in financing and building these spaces. Long-term land leases, once an unpopular underwriting option for banks and developers, has become more commonplace in SoCal across all asset classes. Rather than sell the property, the landowner can lease the property for a 99-year term, for example. Existing structures on this land, from former hospitals to apartment buildings, can then be redeveloped into memory care facilities.
In Redondo Beach, Kensington Senior Living broke ground last month on the grounds of a former high school. The Redondo Beach School District, looking to repurpose the property, entered into a 99-year lease agreement with Kensington. The facility will have 94 units and house up to 120 residents. While adaptive reuse is a more affordable strategy for entering these markets, NIMBY-ism and a lack of municipal support can create development roadblocks. For Kensington, 64.5% of Redondo Beach residents voted to change the zoning of the former school site under Measure K, making the development possible.
A benefit of the Kensington facility, and other memory care campuses, is an emphasis on common spaces. For developers like Silverado, this is an important philosophy behind building effective facilities. Unlike a typical residential complex, which focuses on individual living spaces, Silverado creates facilities with smaller and shared private rooms and invests more in shared amenities like gardens and recreational spaces.
“We don’t want residents to sit in their bed watching TV all day,” Mullin said. “We need to give them a purpose for getting out of bed every day.”
The lack of space has not dampened interest in developing these spaces, and memory care facilities, in particular, are on the rise within commercial real estate. According to a Lancaster Pollard survey of 386 real estate professionals within the senior living space, 53% of respondents forecast Alzheimer's and dementia care will be the biggest growth area this year, ahead of affordable housing, assisted living, independent living, home health services, hospice care, continuing care retirement communities and skilled nursing.
Silverado is close to getting approvals for a memory care center in Thousand Oaks, where Scott Brown, also a partner at Parker Brown, lives.
“In the Conejo Valley, there are three facilities for assisted living under construction and a fourth about to be approved," Brown said. "This is a significant part of the development and construction industry.”
This feature was produced in collaboration between Bisnow Branded Content and Parker Brown. Bisnow news staff was not involved in the production of this content.