When CEO Tom Scott decided in 2014 to start a new branch of his development company, CA Ventures, to begin building seniors housing, he didn’t do so lightly.
Founded in 2004, the Chicago-based developer specialized in student housing (the CA originally stood for “campus acquisitions”) and hotels and had recently branched into the office sector. The company’s portfolio is worth approximately $6.7 billion.
Scott found a high level of success, particularly in student housing, by building high-amenity properties with a hospitality-like service structure. He also recognized that his developments needed to appeal to two generations: the students who live there and their parents.
Thinking about the oncoming demographic wave of Baby Boomers — a 76 million-person group the oldest members of which are now 70 years old — he realized that many of the cutting-edge principles he was applying to student housing could be replicated in seniors housing: a high level of amenities, a strong service structure, and an appeal to multiple generations.
“When CA Ventures was founded in 2004, student housing was a warehouse. The units were highly compartmentalized with few open common areas and very few amenities,” says John Dempsey, a principal for both the seniors and office branches of the company. “We realized these things we were fighting against in student housing were also happening in the seniors sector.”
Scott knew Dempsey as a broker for CBRE, and brought him on board in 2014 to build CA Senior Living. The first step was to staff the division with seniors housing experts who knew the sector inside and out.
Ben Burke was soon hired as vice president of CA Senior Living, bringing a deep knowledge of the industry gained from his stint at Spectrum Retirement Communities, where he served as vice president of development and investor relations.
During his five years at Spectrum, Burke oversaw the development of 20 independent living, assisted living and memory care communities in nine states, more than doubling that company’s number of units from 1,700 to 4,000. The communities are located throughout the country.
While at Spectrum, Burke was also involved at every level of the process including market analysis, site selection, underwriting, finance, design, construction and operations. This experience gave him a comprehensive understanding of the industry that he was able to bring to CA Senior Living.
A breakneck pace
In just two years, CA Senior Living has started the construction of five communities, with another six ready for groundbreaking and eight in early stages of development.
The company also purchased, redeveloped and opened an adaptive-reuse project — a former Holiday Inn Express in Olathe, Kan., that was converted into a 135-unit assisted living and memory care community.
Although the company is focused on assisted living and memory care, the redevelopment project also features a short-term rehabilitation center on site operated by a third party. The rehab center serves patients from both within and outside the seniors housing community.
The facilities currently under development are largely in the Midwest — Kansas, Illinois, Michigan, Ohio and Utah — but the company has ambitions for a national presence in the long run.
The company describes its style as “a luxury product, but at market-rate rents.” Development funding comes through several institutional sources, including private equity, pension funds, life companies and others. The company seeks a 65 percent loan-to-cost ratio, and the equity contributed varies by project depending on the partner.
The rapid pace of development is possible because CA Ventures already has the infrastructure in place to enter a market quickly. The company has relationships with contractors, bankers, financial sources and municipalities nationwide.
“One thing Tom has developed through his platforms is national and global reach. As we expand our portfolio, we’re going to markets where it’s our first time in regard to seniors housing, but we’ve already been there with student or office or multifamily,” says Dempsey. “That helps us achieve the scale we desire. What may look like a fast start is really just our people doing what they normally do.”
CA Senior Living’s business model is to own the communities that it builds and partner with one of two operators: Senior Lifestyle Corp. and Pathway Senior Living. The two companies were specifically chosen for being “best in class” based on their track records.
Operators pay a monthly fee, rather than enter into a long-term, triple-net lease. The company prefers this structure because “we are hands-on owners, and feel we can collaborate with the managers to improve the community,” says Burke.
CA Senior Living is in a unique position to bring together the business side of seniors housing with the care side of the equation, points out Dempsey. “There are many in the industry who excel at business, and many who excel at resident care. We had an opportunity to pair them.”
“We’re not operating, but we speak the same language because I and several other people here come from seniors housing operators,” adds Burke. “It creates a transparent relationship and strips away a lot of question marks. It expedites communication.”
How to pick a market
Thanks to its parent company’s existing platform, CA Senior Living has lots of boots on the ground in several markets around the country. For that reason, the developer approaches a market in a way that some might consider backwards.
Rather than pore over hard data on real estate market fundamentals in select markets, the company first takes a look at more qualitative measures.
“It has to fit our eye; it has to look like markets we’ve performed well in,” says Burke. “Do folks in the market say we’re looking in the right part of town? We start there, then back it up with quantitative research.”
That doesn’t mean CA Senior Living isn’t cautious. As Burke puts it, “we find way more markets we don’t like than markets we like.”
The thinking behind this practice is that the data can often paint an inaccurate picture. The number of existing units in a market, for example, doesn’t inherently indicate anything about the quality of those units.
“We go into a market and analyze the quality of the competing buildings,” says Dempsey. “If there are a lot of units in the market, but they’re all 20 years old and don’t reflect the state of the industry, we look at that as an opportunity. We can go in there and serve the new generation.”
Once it’s time to drill down on the data to determine the feasibility of a project, CA Senior Living uses a standard checklist with regard to supply, rents, government regulations and their effect on operations, construction costs and site availability.
After a site is chosen and the development is completed, CA Senior Living will continue to own the property at least through the period of stabilized occupancy. But the company doesn’t have a set plan yet on whether it will hold a property for the long term or sell it off after stabilization.
“We’ll make the decision that makes the most sense for each community,” says Dempsey. “We want to make sure we always do the right thing. Tom is constantly evaluating scenarios — looking at the platform and the portfolio and deciding which way is the right way to go.”
Developing a menu of amenities
All three CA Senior Living executives — Scott, Dempsey and Burke — aren’t just opportunists who saw an opening in seniors housing. All cite personal stories as reasons they wanted to get involved.
Scott had to shop for seniors housing for his mother and “saw the old models and their deficiencies,” according to Dempsey, who had a similar experience with his in-laws. Dempsey’s parents are also reaching the age where they and their friends are considering seniors housing.
“They’re middle-class. They’ve done very well and put their kids through college, but every dollar means something to them,” says Dempsey. “As they look to their future, housing is a concern.”
Although Spectrum was Burke’s first exposure to seniors housing, he quickly recognized the value of the industry. Upon visiting the communities, he realized that residents in seniors housing were happier and healthier than those who remained in their homes. Better nutrition, care and socialization make for a healthier person.
“One of the healthiest activities is simply to be around other people and socialize and be engaged,” says Burke. “I’ve seen residents come in at a higher level of care, then after a month they’re at a lower level. They’ve improved. That makes it so exciting.”
The problem is that most people don’t see past the stigma of seniors housing, notes Dempsey. The industry has only achieved a 6.3 percent penetration rate for seniors 75 and over, according to the company’s exclusive research. As a whole, it will take a lot of work to show potential residents that seniors housing is the right place to be. The answer to that quandary, he suggests, is through amenities and a service structure.
“If seniors stop saying “Don’t put me in that place’ and instead ask ‘What’s going on over there?’ I think we’ll get better market penetration,” says Dempsey. “We need to move away from the warehousing model to the wellness and enrichment model that actually gets people better.”
One way to help this transition is to blur the lines between the levels of care. Service packages should offer much more variety, Burke believes, so each resident can have a unique, customized set of services that meet their needs rather than being simply pigeonholed into independent or assisted living.
Many properties, for example, now feature “transitional memory care,” which is for residents whose cognitive impairment is too acute for assisted living but not acute enough for full memory care.
The same applies to meal plans, where many of the top developers are adopting more restaurant-style dining and multiple dining venues.
“You’re not thinking about it correctly if you think the difference between independent living, assisted living and memory care is black and white. There’s a ton of gray in between,” says Burke. “The industry is always evolving. There’s always a way to provide a unique level of service.”
Another goal of CA Senior Living is to increase the amount of common space, which encourages socialization. Approximately 45 percent of the square footage at CA Senior Living Developments is devoted to common space.
“You have to have a variety of areas to visit with family members,” says Burke. “The common areas should be part of the residents’ home instead of just the unit being their home.”
Amenities are chosen for each community based on its specific needs, but examples include multiple dining options, physical therapy centers, chapels, movie theaters, bistros, workout rooms, medical offices for on-location doctor visits, beauty salons, outdoor gardens and roof deck terraces.
The vast experience of parent company CA Ventures in other property types gives the seniors housing division a leg up on the competition, according to Dempsey. The company plans to incorporate ideas from many other commercial real estate sectors.
“There’s such a crossroads today. If we say we’re adding more amenities, different units, different price points, I could be talking apartments or seniors or student,” says Dempsey. “The basic strategy is flowing in the same direction: everything is more service-based and hospitality-driven. You’re going to see more things with CA Senior Living that are ahead of the competition because we have this platform we can leverage.”
While other sectors have started putting more emphasis on common areas, seniors housing appears fixated on the units themselves, a misguided strategy, Dempsey believes.
“These communities were not built to encourage gatherings of the residents or even guests. The result was a design that unintentionally favored isolation and discouraged community,” says Dempsey.
“In our most recent student and multifamily developments, residents prefer a focus on the common areas and the amenities. In fact, smaller units are becoming more desirable as people crave efficiency and mobility,” continues Dempsey. “We finish our common areas with furniture and lighting that draws residents out of their units and encourages visitors to come into the community.”