Is the freestanding long-term care facility obsolete? It wasn't long ago that Ziegler Capital Markets offered a presentation suggesting as much at a National Investment Center For the Seniors Housing & Care Industry (NIC) conference. The message, in a nutshell, was that facilities had to keep moving, generally in the direction of expanded campuses and services, in order to survive in today's dynamic long-term care marketplace. And, as a corollary to that, those that “stood still” risked obsolescence. What would lead this stalwart of the senior care financing community to claim such a thing? And how did the firm see this evolution playing out in today's market? Recently Daniel Hermann, Ziegler's Managing Director and Group Head of Senior Living, surveyed the horizon of long-term care for Long-Term Living Editor-in-Chief Richard L. Peck.
Peck: How do you see the marketplace evolving these days?
Hermann: We call it “repositioning,” which essentially is a modernization of campuses toward providing the full continuum of seniors' environments and services. Our focus is particularly on the not-for-profit sector. In this field, the more urban the market, the more intense the competition and the more likely it is for the campus to expand its continuum. If the facility or campus is not landlocked, where the pressure is not as intense, we see what we call a rolling repositioning—a new wing added, perhaps a phase-2–type project undertaken and, ultimately, a teardown and new construction. With a landlocked campus, repositioning is a more intense challenge and the tendency for these providers is to wait until a complete teardown is needed—what we call a dramatic repositioning. So, on one hand, we see organizations like Covenant Retirement Communities or Ohio Presbyterian Retirement Services developing and building out single sites, but with places like Plymouth Place or Three Crowns (formerly Swedish Home) in Chicago, they were landlocked and eventually became so dated, with their residents becoming more frail and occupancy declining, that their only choice was to do a complete redevelopment.
Peck: Do you see urban revitalization being a part of this change?
Hermann: Yes, especially with multifacility providers who have the necessary resources to do this. A prime example of this today is The Clare at Water Tower in downtown Chicago, a 53-story high-rise offering seniors apartments and bringing in services residents need to age in place.
I think this sort of development may be even more common in the downtowns of “second-ring” suburbs or train stops at the edge of cities. Some organizations are providing nursing care in small home settings in these suburbs (models of resident-centered care) and are reaching out to the community with home- and community-based services, adult day care, home healthcare, Meals on Wheels, and more.
Peck: What do facility operators who are interested in this sort of expansion need to consider to get up and running?
Hermann: They need to determine what economic model and mix will work in a given area, what service orientation—for example, dementia-oriented, homelike settings—and what sort of scale is needed to make it a working campus. Of course, what can be entitled as a real estate development in a particular community is always an issue.
Peck: And what are you looking for to finance this sort of development?
Hermann: The most basic attribute we seek is an organized approach to development. Sponsors need a reasonable team of developer, architect, a market study firm—in short, a development plan that is well thought out and a team that can implement it. Of course, solid projected financial ratios and a sound financial forecast are all necessary for us to bring permanent financing to the project. We find, in general, that providers who are continuing to grow their product do tend to have the needed economics behind them. Those sitting on a single site have a much more difficult time. And people who are not organized and don't have a well thought out development plan will not gain access to capital.