Players who dip their toes in international waters are learning that a winning approach hinges on local market expertise.
By Jane Adler
While the U.S. senior living market may be overheating, the best opportunities could lie overseas. Developers and investors understand that the world is aging quickly, and many countries don’t have a viable senior living product.
New projects by U.S. companies are opening in China, India, the United Kingdom and Mexico. The projects are similar in many respects to their U.S. counterparts, but they’re also quite different. Each puts its own local spin on senior living (see sidebar).
This isn’t the first time American companies have dabbled overseas. The healthcare REITs were quite active overseas several years ago. Welltower and Ventas still have properties in the U.K.
Foreign activity seems to come in fits and starts, though, a testament to the difficulty of exporting an American product to different cultures. Sunrise Senior Living sold eight of its nine assisted living facilities in Germany in 2010. The company says it does not currently own any buildings or have operations in Germany.
By the numbers
There is far more capital flowing into U.S. seniors housing than there is headed outbound. Investment in U.S. seniors housing by foreign investors totaled $706 million from January through early December 2017, according to Real Capital Analytics, which tracks transaction volume across several property types. By comparison, U.S. investors accounted for less than $300 million in seniors housing deal volume abroad during the same period.
U.S. companies typically find local partners to guide them through the development process — an unfamiliar maze of regulations and business practices. American companies also hire local managers who understand the customs. The elderly in Mexico City have starkly different expectations of the dining experience than seniors in Los Angeles or Beijing.
At the same time, American companies believe in training their foreign staff to U.S. standards. It’s a way to maintain quality control, while introducing the rest of the world to the senior living experience mostly pioneered here in this country.
In another twist, foreign companies investing in U.S. seniors housing are being exposed to the American product and exporting those technologies and operating systems back to their home countries, according to Mel Gamzon, principal of Miami-based Senior Housing Global Advisors. “It’s like a reverse commute,” says Gamzon, adding that the U.S. is the most mature senior living market in the world.
Of course, the American senior living facility must be adapted to local tastes, points out Bradford Perkins, chairman and CEO of New York City-based Perkins Eastman. The architecture firm has been working on senior living projects overseas for about 20 years, mostly with foreign developers. Perkins Eastman is finishing up its design work in Japan and has new assignments in India, Thailand, the Caribbean, and the U.K. Discussions are underway for additional projects in several South American countries.
Seniors in each country have their own preferences, says Perkins, who points to Japan as an example. Seniors in the Land of the Rising Sun like small apartment units. A two-bedroom independent living unit in Japan averages about 660 square feet, compared with its U.S. counterpart at about 1,000 square feet. The common areas in Japan are much more elaborate than those here in the United States and make up a large percentage of the total square footage of the building.
With its huge and aging population, China attracts a lot of interest from seniors housing investors and operators. In fact, it’s estimated that by 2030, the country will have more than 300 million people over the age of 65. The total population of the country is about 1.4 billion.
The one-child policy, which is being phased out but will continue to have ripple effects for some time, means there are fewer adult children to care for elders in China. “The large population is overwhelming the traditional family support system,” says Perkins.
Large Chinese insurance companies sponsor many senior living developments. Perkins Eastman is designing five continuing care retirement communities in China for Taikang Insurance, Beijing. “Other insurance companies are following suit,” says Perkins.
The government often supplies land at a low price to encourage development.
“A lot of companies are dabbling in China, but the winners and losers have yet to be determined,” says John Stasinos, head of the healthcare practice at Cindat Capital Management in Los Angeles. The firm invests capital from Asian investors in U.S. healthcare properties.
Finding a good local partner is key.
Seattle-based Columbia Pacific Management owns several different Asian entities that focus on hospitals and senior living. Columbia entered China five years ago and has three communities open there. A project in Beijing is a 50/50 joint venture with Sino-Ocean Land, a leading developer in China.
Columbia prefers real estate partners that are not involved in operations, according to Nate McLemore, managing director of Columbia’s international business. Columbia formed a partnership in 2016 with Temasek, the Singaporean sovereign wealth fund, to invest $250 million in hospitals and seniors housing in Asia.
Local input is important for operations, says McLemore. Columbia China, which is building a network of hospitals and clinics in China, is headed by Bee Lan Tan, an executive from Singapore. “She has built a team of seasoned international people who know how to get things done in China,” he says. Cascade Healthcare
— “Kaijian” in Chinese — is the subsidiary of Columbia China that operates the senior care facilities.
Columbia’s projects in China include between 70 and 100 units and serve a population whose needs are somewhere between assisted living and skilled nursing. A doctor and nurses are on staff at each property, along with caregivers. Monthly rents average about $2,600 — an expensive option for local residents who pay privately.
“We are by far one of the more experienced operators,” says McLemore. The strategy is to maintain a reputation for high quality and educate the market about the value of excellent care.
Lease-up has taken longer than expected, but McLemore says the buildings are now cash flow positive. The buildings are currently about 90 percent occupied.
Columbia is taking a slightly different approach in India. The company jump-started its business there last spring by purchasing Serene Senior Living, an owner and operator with four communities and a pipeline of additional projects. Like China, India has a huge population — 1.3 billion — and a growing need for senior care. Adult children often move to the United States or the United Kingdom and aren’t available to take care of their elders, but still want their parents in a safe place. “Every country is different,” says McLemore.
Merrill Gardens China, a division of Seattle-based Merrill Gardens, has operated in China since 2011. It started by consulting with local companies that sought to enter the senior living space. The consulting work led to management contracts.
“We are looking for good partners,” says Cole Wright, managing director of Merrill Gardens China, which has offices in Seattle and Shanghai. He adds that the company follows its partners to markets they like.
Merrill Gardens manages a 215-unit senior living building in Harbin, a city of about 6 million, small by Chinese standards. Monthly rents start at about $1,000 for independent living. Assisted living fees are extra.
A second project in Suzhou is expected to open in March. It is a joint venture between Merrill Gardens and China Life, a large insurance company.
Merrill Gardens has a 60 percent stake in a third project. The China Railway Engineering Corp., a state-owned enterprise, will own the other 40 percent. The building will have about 150 units and is expected to open in March 2019.
A different model in Europe
The senior living industry is still in its infancy in Europe and the U.K., notes Margaret Wylde, president and CEO of ProMatura Group, a market research firm based in Oxford, Miss. Her company has a database of Canadian properties and recently conducted research on consumers in the U.K. in advance of creating a database there.
Wylde figures the penetration rate of senior living at about one-half of a percent in the U.K., compared to about 10 percent at properties here in the U.S., though local rates can vary widely. (The penetration rate is typically defined as the number of occupied units divided by the number of age 75+ households.) “All the European countries, except perhaps Ireland, have a higher population of older people than the U.S.,” says Wylde. “They have the need for the product.”
Seattle-based One Eighty International — a division of the hospitality company One Eighty that owns senior living provider Leisure Care — currently has two projects underway in London in partnership with Elysian, a U.K. company. One Eighty had been active in Canada but exited that market in 2016 to seek opportunities elsewhere. “The big challenge internationally is finding a strong equity and debt partner,” says Bob Westermann, president of One Eighty International.
Elysian is providing the development expertise and equity for the London projects. One Eighty will handle operations and is also a part investor in the projects. Two more sites have been identified for future developments.
The projects now underway are located in the London neighborhoods of Hampstead and Stanmore. The Hampstead project consists of 46 high-end condominiums. The 101-unit Stanmore project will be mostly condominiums, but may have some rental units as well.
“We did a significant amount of research and there is a strong desire to own,” says Westermann. “The amount of wealth held by 75- to 85-year-old Londoners in real estate is enormous.” He believes these seniors are at an age where they would prefer to use the proceeds from the sale of a home to rent or buy an apartment in a building with services. “It could be a strong dynamic,” he says.
One Eighty will train the executive managers in operations.
The projects are meant for independent seniors with a focus on hospitality. The buildings will include a full restaurant and demonstration kitchen, fitness facility, and educational programming. Assisted living services will be available by an on-site staff on an as-needed basis. The assisted living services will also be available to the wider community.
Bienvenido a Mexico
Belmont Village Senior Living is bringing U.S.-style senior living to Mexico. The company opened a high-rise project in Mexico City last summer. The 135-unit project, Belmont Village Santa Fe, is located in the Santa Fe district and is part of a mixed-use development that includes retail and a restaurant on the ground floor.
Belmont occupies 11 stories of the tower. A Hyatt Hotel sits atop the Belmont portion of the building. It is adjacent to a medical office tower and connected by a sky bridge to the ABC Medical Center, one of the best hospitals in Mexico City.
The project took about three years to develop.
“We made a big investment to create an operating company to bring this building on line,” says Patricia Will, founder and CEO of Belmont Village, Houston. “There was virtually no senior living in a city of 21 million people.”
Belmont has plans underway for two more projects in Mexico City. The company would not have made a commitment for only one project in the city, says Will, comparing it to the strategy in the U.S. where operators tend to concentrate their properties in certain markets. For example, Belmont currently has its seventh building underway in the Los Angeles area.
Will was comfortable undertaking development in Mexico since she is fluent in Spanish. Also, the plane ride from Belmont’s headquarters in Houston to Mexico City is 1 hour and 40 minutes, a manageable distance.
Belmont Village Santa Fe is attracting plenty of media attention that helps educate the market about senior care, says Will. Her team even had to decide what to call assisted living and memory care since the Spanish words don’t really describe the services. They finally decided to use the English words.
Managers are brought to the U.S. for training. Belmont selected some of its top Spanish-speaking caregivers from its Los Angeles properties to travel to Mexico City to train the employees.
Monthly rents at the Belmont Village building in Mexico City average approximately $4,000 to $5,000. The building is about 30 percent leased, and Will expects the lease-up process to take longer than it would in the U.S. because assisted living is a new product in Mexico. The lease-up period in the U.S. is typically 18 to 36 months.
“A lot of the groundwork is getting the first wave of residents into the building and getting their families comfortable with the concept,” says Will.
The pilot project has gone well, says Will. She’s even gotten some fan mail. After the September earthquake, Belmont Village Santa Fe received messages from family members grateful that their loved ones had remained safe because the building performed well and was not impacted.
“They were happy mom was with us.”