ATLANTA — In today’s high-cost environment where obtaining development financing remains tricky, seniors housing builders are focused on cutting expenses — whether it be shrinking spaces or eliminating underutilized amenities altogether. That was the major takeaway from the development panel at the 12th annual InterFace Seniors Housing Southeast conference, which took place at the InterContinental Hotel in Atlanta on Wednesday, Aug. 27.
The panel, which was titled “When Will Development Rebound? Outlook & Strategies for 2026,” included Richard Ackerman, managing partner of Big Rock Partners; Joe Jasmon, CEO of American Healthcare Management Group; Tod Petty, chief investment officer of Mainstay Senior Living; Leland Rice, president of QSL Management; Bear Mahon, president and CEO of Oaks Senior Living; and Alan Moise, chief investment officer of Thrive Senior Living.
Editor’s note: InterFace Conference Group, a division of France Media Inc., produces networking and educational conferences for commercial real estate executives. To sign up for email announcements about specific events, visit www.interfaceconferencegroup.com/subscribe.
Moise, the panel’s moderator, kicked off the discussion by asking participants for their definition of “rebound.” For Rice, the answer was a return to a mature market with stabilized assets selling at full price.
“For a long time, we had seen deals trade at below replacement cost,” explained Rice. “Very recently, we’ve seen a return to a mature market.”
Panelists focused on the limitations on seniors housing development currently, and how they are working to cut costs and create efficiencies. Jasmon said the industry needs to be more creative in finding ways to secure development financing.
“It was easy in the last six to 18 months to find a reason not to do the deal. But we’ve got to figure out a way to get these deals done now,” said Jasmon. “If we look at the data, there’s an enormous amount of volume coming our way. The question I ask is, ‘Are we willing to let it knock us down or are we ready to catch it?’ I want to catch it and be prepared for these folks, because there’s a huge opportunity in the market.”
Mahon advised working backwards when calculating a development’s operating costs and debt. “Developers should ask, ‘How much rent do I need to charge each room just to pay the mortgage?’ Break down the debt needed on a per-unit basis. Realistically, not everyone is going to be able to pay $6,000 to $10,000 per month.”
Ackerman acknowledged that the costs of both construction and operations have risen, leading to deals not penciling out. “It’s just going to be a lot more difficult,” he said.
According to Petty, it’s important for developers to understand the psychographics and demographics of the areas where they are trying to build. He said having a cookie-cutter model is not going to work; developers need to understand the wants and needs of each community.
In one example, Petty shared how to disrupt the traditional independent living model of three meals, two snacks, housekeeping and activities. He said that artificial intelligence brings an opportunity for independent living residents to utilize a pharmacy medicine delivery system and telehealth or home health services, enabling them to age in place longer and avoid moving to assisted living.
“This way, a resident can stay in independent living a lot longer with a lower rent. There’s a real opportunity to look at that and think outside the box,” said Petty.
Less spaces, more flexibility
Another strategy for creating cost efficiencies is shrinking spaces, according to Petty. In assisted living, instead of having multiple spaces for various amenities, one multipurpose room can be utilized for ministry, karaoke, wine and cheese nights and other activities.
“We don’t need these isolated areas that no one’s going to,” he said. “This will bring that price down. We have to find a price point to reach the majority of the middle market that’s coming in.”
For Jasmon, a successful strategy is to design a building around how a person lives and cut features or areas that are not necessary.
“We designed a 96-bed, 55,000-square-foot community, and it’s not small,” he said. “It matches up with high-end, luxury product for look, feel and lifestyle. We did this by eliminating wasted space.”
Examples of “wasted space” include a giant dining room, separate theater room, extra space in corridors and even Triple Crown linoleum, a type of waterproof luxury vinyl plank flooring. American Healthcare Management Group created “neighborhoods” that are flexible for various uses.
“We cut $10 million of construction costs and cut our utility costs in half. We cut our food costs by $400,000 and staffing costs by $500,000,” said Jasmon. “The community is just as beautiful as high-end product; it’s just simpler.
“Those cost savings might be the difference in getting a deal done,” he added. “At the end of the day, our returns and bottom line are almost the same as high-end communities, but we get to profitability faster because we fill up faster and have fewer expenses.”
Ackerman echoed this sentiment, saying his firm looked at a project in Pennsylvania and questioned whether the auditorium and pool were necessary.
“When you have the luxury of not worrying about costs, you throw everything in there thinking that’s going to help leasing. But now, we have the discipline of really having to bring the costs in,” said Ackerman. “We have now built enough collectively to know what is actually being used. If the consumer’s not going to pay for it and doesn’t want to pay for it, then maybe we should be thinking about different air conditioning systems or different facades, for instance.”
Rice said his firm is currently developing a new prototype and thinking critically about amenity spaces and programming (planned activities). “From our experience, if you don’t invest in the programming, the space typically doesn’t get used,” he explained. “So, we’re looking at amenities that we’re willing to invest in and program. That just typically means fewer amenities.”
Jasmon’s advice regarding programming was to integrate a building into the larger community.
“Open the doors and invite volunteers, churches, nonprofits or local business owners. They will come in and do the programming and you don’t have to pay for it,” he said. “It’s amazing how quickly building those relationships reaps enormous benefits both from a cost savings and marketing perspective. That’s something the industry has forgotten by closing the doors to the outside.”
— Kristin Harlow