New York City developers are finding a new market to explore — senior housing.
While the city has one of the greatest percentages of elderly people in the country, the amount of senior housing here cannot accommodate its growing aging population.
In Staten Island, the absence of senior housing is causing a mass exodus of the over-65 set from the area.
“They’re leaving Staten Island in droves to go to New Jersey,” said Michael Diaz, president of Village Realty and the president of the Staten Island Board of Realtors. “A lot of them would like to stay here, but there’s not a lot to choose from.”
Some developers are poised to meet that need and make a profit doing so.
New Jersey-based Leewood Real Estate Group recently started looking for property in New York on which to build a senior facility. The company is focusing on prospects in Manhattan, Queens, Staten Island and Nassau County. It hopes to provide independent living, assisted living and skilled nursing care in one place.
The challenge is “to keep our population comfortable in New York City as it ages,” said Kenneth Simons, COO at Leewood Real Estate. “We’re looking for the opportunities to provide that kind of housing in New York City.”
In the rest of the country, developers have made a profit building senior facilities. “The question is, would it be possible to build a facility and make a profit in New York City. I believe it’s yes,” Simons said.
Among large cities, New York City had the third-highest percentage of people age 65 and older, according to a 2005 U.S. Census Bureau survey. At 11.9 percent, the number of seniors represented 943,257 people out of the 8 million living in the city, the survey indicated.
Michael Berne, who heads the housing and healthcare group at Cushman & Wakefield, said the number of facilities has increased in the city. Including Nassau and Suffolk counties, he said, between 30 and 50 facilities have emerged in the last 18 months. Between August and the end of September, Cushman & Wakefield had five senior center deals in the pipeline, Berne said.
One senior healthcare provider, Village Care of New York, is slated to begin construction next year of a new 100-bed facility for intensive skilled nursing care and short-stay, said Louis Ganim, spokesman for Village Care. The new facility on West Houston Street between Sixth Avenue and Varick Street will replace the existing Village Nursing Home on West 12th and Hudson streets.
Village Care, a private not-for-profit organization, is spending $25 million on the new facility, which has a mid-2008 opening date.
“It’s an excellent investment in terms of meeting the needs of today’s seniors,” as well as tomorrow’s seniors, Ganim said. The facility will be high-tech, but will serve seniors of every socioeconomic background.
The majority of the new places are for-profit, age-restricted properties. “Those have done exceedingly well and many of them get 100 percent occupied at the blue prints,” Cushman & Wakefield’s Berne said, “before they even get in the ground.”
The real scarcity in senior housing is in the low- to-moderate income stock. At the lower-priced end of the market, “there’s no major developer that has stepped out front in New York City,” Berne said. In New York City, 154 projects comprised of 15,132 units were built with government funding and cater to low-income seniors, but that’s just a drop in the bucket compared to total demand.
A developer can profit in the senior facility market if buildings are “sited and operated properly,” Berne said. But, he cautioned, “senior housing is not a real estate play. It’s an operating business.”
The senior housing industry looks promising on the equity side. Real estate investment trusts, for example, are investing in senior housing. “There’s almost no company that’s not investing in senior housing,” Berne said.
According to first quarter 2006 key financial and operating indicators, the National Investment Center for the Seniors Housing & Care Industry reported that the seniors housing and care industry showed “strength in terms of loan performance, occupancy rates and capitalization rates.”
Not every developer can invest in the senior sector because a facility generally does not yield a cash flow until the fourth year after the project’s inception, said the vice president of investor relations at Sunrise Senior Living, David Spille. He said it costs between $20 and $30 million to build a facility, plus the high costs for staffing. Virginia-based Sunrise Senior Living operates 423 senior living communities nationwide, including two in Brooklyn and one in Staten Island. The company has one more under construction in Staten Island.
“We’re kind of like the Ritz Carlton of the senior citizen community,” Spille said. He argued that Sunrise is a good stock option because it is a large company, it focuses on the top metropolitan markets and it is “very capital intensive.”
Like all New York developers, senior housing builders face exorbitant land and construction costs. Closer government scrutiny, necessary approvals, and, in some cases, licensing can also make erecting senior housing facilities a feat.