Finding a Site and Assessing Demand

It all begins with the land. The hardest thing about senior living development is finding the right site. Many of the good spots are already taken and competition is fierce for the remaining. You need to find a location that has good demand for senior living, is zoned (or can be re-zoned) to allow senior living, is at a price that is financially feasible, and hopefully has some barriers to entry to keep the competition out.

Identifying potential land sites for senior living development is tough. Senior living developers all over the nation are looking for these land sites. In anticipation of the forthcoming huge wave of senior living demand from Baby Boomers that I mention in the introduction, developers quickly snap up any site that could possibly make a successful senior living development. In fact, I would say that the supply of senior living is a bit overbuilt now for the current demand from the Silent Generation and the older Baby Boomers who are already in senior living.

There is no great way to find sites - it's mostly hard work and luck. Site discovery comes through: real estate brokers marketing sites, searching for or hearing about off-market land sites, making an unsolicited offer on an unlisted site, or picking up a site that another developer passed on or failed at developing.

After you do find a site and get it under purchase contract, the seller will give you an inspection period to evaluate the land before having to purchase it. During this inspection period, you need to do all of your site evaluation and due diligence to ensure this land site will lead to a successful senior living development.

Independent 3rd Party Marketing Study

After you have found a site that you think might work, you are going to want a qualified independent 3rd party to validate that the local demographic demand is sufficient to fill your facility and get you the rents you assume in your proforma. Not only do you want this study for yourself, but your lender and equity investors are going to want this independent party to prove up your assumptions in your proforma, which drives their investment internal rate of return.

This marketing study will show:

How many of each type of unit (IL, AL, and MC) are going into your development (this is information you provide the market analysist).
How many square feet the different types of units are (this is information you provide the market analysist).
The local demand for each type of unit.
The range for expected rents the owner should be able to achieve for units of different square footages and bedroom counts. This range is based on the local competing senior living communities, and income/wealth level of the local seniors and their adult children.
The amenities and service level of the community, and how that compares to the competition.
Information on other competing senior living communities in the area, to include number of units, year built, and amenity and service highlights.

You sometimes have to guide this 3rd party market analyst to get him to say what you want him to say in this report. He is independent, but is open to listening to your desired report revision suggestions if you can back it up. For example, if this analyst shows anticipated rents in his report that are below what you what you think you can get, you can tell him that your new facility is going to be much higher end than the existing comparable facilities, therefore, you should be able to get higher rents than what the comps show.

Click here for an example 3rd party market study for a proposed senior living project.

Operator Involvement for Pro-Forma and Secrete Shopping.

You want to get your operator involved in providing you an operations pro-forma to feed your development pro-forma. You also want them to do some secrete shopping to determine what your local competitors are charging and what services they are providing.

Next Section: Impact Fees (Senior Living)