How to reposition a property

by Jeff Shaw

Three case studies reveal different ways to give tired properties a new lease on life

By Jane Adler

As the stock of seniors housing ages, the repositioning of communities is becoming more commonplace, though the process is costly and complex. 

What follows are case studies of three very different properties: a continuing care campus on the West Coast, a high-rise in the Midwest, and two skilled nursing facilities in the greater Philadelphia area. 

Each case provides insights into changing consumer tastes, the market forces shaping different industry segments, and the strategies that made the turnarounds a success. 

 

Massive overhaul saves Rose Villa

At first glance, Rose Villa seemed to have all the ingredients of a successful continuing care or life plan community. It was situated in a prime spot on 22 acres in Portland, Ore., overlooking the scenic Willamette River. The independent living units were mostly cottages with sizable yards. Entry fees were moderately priced, and the community had a reputation for providing generous amounts of high-quality care. 

The nonprofit community had its problems, however. Rose Villa opened in 1960 with 100 independent living units. More units had been added through the years, eventually topping out at 250 apartments and a 45-bed intermediate care unit. But like many single-site communities, little had been done to update its look or to upgrade business operations. 

By 2006, when Vassar Byrd arrived as CEO, Rose Villa was in crisis. Entrance fees had become a significant source of operating funds. The annual operating margin registered a negative 14 percent. Residents were receiving extra care for free. And the 1960s vibe of the community wasn’t attracting new residents.

“People would drive through our community and not even get out of their cars,” says Byrd. “It looked like a trailer park.” She adds, “It was devastating. Everything else means nothing if you can’t get new customers.” 

Recognizing a serious threat, Byrd, along with the community’s board of directors, set out to reposition the property. “There was opportunity everywhere,” says Byrd. 

The first goal was to improve business operations. The community needed a healthy balance sheet with positive cash flow so it could borrow the millions of dollars needed to upgrade the property, and survive. 

A big selling point of the community was that residents were allowed to stay in their independent living units as they aged. Services were brought in as needed, but residents weren’t charged for much of the help. “We had the most serious case of service creep you can imagine,” says Byrd, a former economist and business consultant. 

Cash flow improved when the community stopped giving services away. New business systems were introduced. Staff training was improved, and a new management team, including a CFO, was hired. 

At the same time, redevelopment plans got underway. Chicago-based investment bank Ziegler arranged a $60 million bond financing package to upgrade the property. The resident census of the campus was intentionally driven down by not offering contracts on the old cottages marked for demolition.

In July 2014, construction began on a major campus overhaul. Maintaining operations in a construction zone was tricky. “The first six months was a nightmare,” says Byrd. “It was loud and dusty, and the residents hated it.”

Seventy-five new independent living units were added. These included modern cottages as well as loft-style apartments in two new multi-story buildings. New ground-floor common areas featured an art studio, training room, performing arts center, fitness center, meeting space and a new dining venue. A rooftop deck and casual dining room, with river views, were added atop one of the new apartment buildings. 

A new $1 million aquatic center provided the “wow” factor. The center features a pool, a lazy river and a big water slide for visiting grandchildren and families. At first, Byrd wasn’t sure she’d have the money for the aquatic center. But the bond offering to finance the community’s redevelopment was oversubscribed, which drove down the overall interest rate resulting in enough savings to pay for the aquatic center. “It was worth every penny,” says Byrd.

The interiors of the older cottages were renovated. The exteriors of the older cottages are also being upgraded to match the new buildings. And despite concerns that the older cottages wouldn’t sell, a marketing program has lured buyers who like the units’ large yards. 

Today, Rose Villa boasts 210 units and the community is fully occupied. The new units were sold out prior to completion. Entrance fees range from about $60,000 to $250,000. Monthly fees average about $2,600.

Planning for Phase II is underway. It will include a new health center, and 40 to 50 new independent living homes. Work on Phase II is expected to begin in July 2017. 

Reflecting on the repositioning, Byrd says the key factor was assembling a professional management team to improve operations before seeking the debt needed for redevelopment. 

The result: “The exterior of Rose Villa now reflects the kind of community we really are,” says Byrd. “We were wearing an old house dress for such a long time.”

 

Major facelift for high-rise Brookdale Edina

Brookdale Edina is a 25-year-old, 18-story rental senior living community in Edina, a suburb of Minneapolis. The building is located in Edinborough Park, an expansive indoor park with a glass atrium, walking paths, a swimming pool, track, and theater, as well as landscaped gardens and grounds. 

With its amenities and prime location near restaurants and retailers, the building was once recognized as a premier retirement address for independent seniors. But as the building aged, the facility no longer met the needs of residents or those of the wider community. 

“The building was falling behind in its ability to compete,” says Jay Keopf, senior director of corporate development at Brentwood, Tenn.-based Brookdale Senior Living.
“Its age was showing.”

The age of the residents was showing too. Many had aged in place and needed assisted living and memory care services. Minor renovations were made to create assisted living suites on several floors. But the makeshift arrangement wasn’t ideal for the staff or the residents. 

The market was also changing. Consumers were seeking senior living communities with a continuum of care, so residents didn’t have to move when more care was needed. 

Occupancies at Brookdale Edina had dipped to the mid-70 percent range. 

The goal of the redevelopment was to change the building’s unit mix and modernize the common areas and apartments. “We had the opportunity to reposition the community and to provide appropriate levels of care for residents,” says Keopf.

The $30 million redevelopment began in June 2014, and was completed in November 2015. 

The entire first floor was renovated, including the lobby, dining room, living room, activity rooms, library, marketing offices and other ancillary spaces. The fitness center was moved from the 18th floor to the first floor, making it more accessible to residents. The 18th floor space was converted into upscale apartments with a rooftop terrace.

A café/bistro was added to the first floor. While a café/bistro has become a popular addition to senior living communities, Keopf believes it should be located near the lobby, or building entrance, as a natural draw to residents and visitors. “It has to be a place that people gravitate toward,” he says.

The third and fourth floors of the building were redesigned for assisted living apartments. The second floor was reconfigured to accommodate the common areas for the assisted living residents. 

Floors five and six were redone for residents of Brookdale’s Clare Bridge program, the company’s memory care brand. Each memory care floor was designed to be self-sufficient, with its own living room, dining room, activity rooms, life skills stations, and other spaces. 

The elevators presented a big challenge. The building had two small elevators that were no longer adequate to serve aging residents, many of whom used walkers and wheelchairs. Long wait times for the elevators were a source of complaints. “It was unthinkable to renovate the building without addressing the elevator problem,” says Keopf. 

An elevator study was conducted to determine usage patterns, and a new elevator tower was added along the perimeter of the building to accommodate two new elevators. The space for the tower was carved from one-bedroom units that were converted into deluxe studio apartments. The cost was $1 million. 

Relocating residents during the renovation presented another challenge. Full floors were vacated and residents were moved to empty units. Other empty units were left unleased.

With the renovation complete, the building is now being re-leased. Rents are being re-evaluated and will likely be raised, says Keopf. 

The selection of a general contractor with the ability to handle the logistics of a complex project was key to success, says Keopf. The construction team was also sensitive to the needs of the existing residents. “That was vital,” he adds.

 

PowerBack Rehabilitation centers capture new market

In 2013, Genesis HealthCare repositioned two skilled nursing facilities in the Philadelphia area as part of its effort to serve short-stay patients recovering from an illness or surgery.

The first facility was a 100-year-old building in the Center City neighborhood near downtown Philadelphia. The other building was a suburban nursing center built in 1996. 

Both properties were renovated and rebranded as PowerBack Rehabilitation, a concept introduced by Genesis in 2012 to help patients get back home as quickly and safely as possible.

The buildings shared similarities that made them ripe for repositioning. Both had an active pipeline of short-stay rehabilitation patients. They also had the strong clinical staffs needed to implement a robust rehabilitation program. 

The facilities had stark differences, too. “Both buildings required different approaches,” says Craig Harris, senior vice president of PowerBack rehabilitation operations at Genesis HealthCare based in Kennett Square, Pa.

The changes took place amid a larger shift in the skilled nursing sector that continues to unfold. While skilled nursing facilities have traditionally handled short-stay and long-term residents, demand has been growing for modern facilities meant only for short stays. 

Aging baby boomers want to recuperate in a place with fancy amenities, and without feeling like they’re stuck in an old-style nursing home. 

Other factors are contributing to the shift. The introduction of the Affordable Care Act and the growth of bundled insurance payments are changing reimbursement models. Payors are putting pressure on skilled nursing operators to rehabilitate and discharge short-stay patients quickly.

Genesis currently operates 10 PowerBack Rehabilitation centers, a combination of new ground-up developments and existing facilities that have been renovated and repositioned. Three new facilities are also underway.

The six-story Center City property was originally built as a hospital and later converted into a traditional skilled nursing facility. The recent renovation included a reduction in the number of shared rooms to create 50 private rooms — a feature that appeals to baby boomers. Two gyms were added to accommodate the need for more therapy sessions.

Modern bistros were built on the fourth and fifth floors. A lounge for families and patients was added to the top floor with a rooftop deck that provides a sweeping view of downtown Philadelphia. The top floor also includes a spa, common areas and conference rooms. The first floor lobby and common areas were redone. 

The cost of the renovation was $3.6 million.

“When you come into the building, it really feels like a boutique hotel rather than a skilled nursing facility,” says Harris. 

The conversion of the suburban property, located in Montgomery County outside of Philadelphia, was a much simpler process, according to Harris. The building was relatively new and was fairly typical of a 120-bed skilled nursing facility. 

The 3,000-square-foot gym was expanded to accommodate specialized therapy equipment. A second gym was added to allow for more therapy sessions. Formerly known as the Willow Ridge Center, the facility has been rebranded as PowerBack Rehabilitation Willow Grove. The cost of the repositioning was $1.4 million. 

The suburban and downtown PowerBack Rehabilitation centers handle about 45 to 50 therapists a day, which explains the need for more gym space. “We wanted to make sure we could handle that kind of volume,” says Harris. Occupancies at both properties
are strong, he adds.

Is repositioning an older property better than ground-up development? That depends, says Harris. New construction offers the ability to design a purpose-built facility. Patient rooms can be designed according to consumer preferences. Therapy pools and gyms can be integrated into the original plans in a way that improves staff efficiency and patient satisfaction. 

A repositioning can be completed more quickly than a new development, however. Existing properties don’t run into the thorny issues of land acquisition and municipal approvals either, explains Harris. “Less time is needed to finish a product that the market will like.”

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