sessiona-1 repositioning cm -pc oi reating oderately … · 2. square footage / size 3. operational...

SESSION A-1

Mike MartinRLPS Architects

Aaron RulnickHJ Sims

REPOSITIONINGO IUTDATED NTERIORSB C :RIDGING THE HASMC M -P CREATING ODERATELY RICED OMMUNITIES

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Outline

I. Framing the Issue

II. Key Development Levers

III.Design / Construction Considerations

IV.Moving Forward

V. Q & A

1

Framing the Issue

Understanding the Need for Moderately Priced

Senior Housing Options

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(Average Monthly Rent by Care Segment)

Cost of Senior Housing

(Real Median Income by Age Cohort)

Implications of Growing Income Disparity

(Share of 65+ Households by Income Group)

Source: Center for Housing Policy tabulations of 2009 American Housing Survey

Stratification of Median Income

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Housing Costs as a Percent of Income

65%

51%

62%

70%

77%

36%

26%

33%

38%

45%

24%

18%

23% 24%

29%

65+ 65–69 70–74 75–79 80+

Percentage of Beneficiary Unit 65+ with Income from Social Security, 2010

50% or more

90% or more

100%

Source: Social Security Administration, Income of the Population 55 or Older, 2010

Average Social Security Benefit January 2013 = $1,155/month

Reliance on Social Security

• Financial Assets of Older Adults Median per capita retirement and financial assets (excluding

home ownership): $105,000 in 2015 Median financial assets range from ~ $24,000 to ~ $337,000 Nearly 40% of people age 62+ are projected to have financial

assets < $25,000 over next 20 years

• Median Income of Older Adults Median income: $53,657 in 2015 Middle-income market for older adults = range of household

incomes between $36,000 and $107,000

• Who is Middle Income Pew Research Center defines “middle-income adults” as

household incomes between two-thirds and twice the national median income 47% of today’s older adults 44% in 2001 39% in 1971

Source: The Urban Institute and LeadingAge White Paper, “Addressing the Gap in Senior Housing Today: Creating Opportunities in the Mid‐Market”

Defining the Market

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• How do we broaden access to quality senior housing to the middle income? Gap exits between “high-

end” and affordable / subsidized products

• Must be interdisciplinary Architects Contractors/Builders Developers Lenders Operators

What is our challenge . . .and opportunity?

• What are key metrics that define moderate / middle income market? Targeted median income Home values Cost / sq. foot Other considerations

• What other models exist that could more moderate pricing “Hub” and “Spoke” “Modest” entrance fee to

lower monthly fee

What is our challenge . . .and opportunity?

Concept of Middle Income Senior Campus Development

• 1 bedroom, 800 SF, $1,700/month

• 2 bedroom, 1,538 SF, $3,250/month

• Full support amenities and common space

• Modest refundable but in $50,000-$75,000, amount is deducted by rent based on cost of capital adjustment thereby reducing rent $200-$300 per month

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2

Key Development Levers

Key Development Levers

Project Size & Configuration

Pricing

Operating Margin

Project Costs

Plan of Finance

Demand

Viable Funding

Local Presence &

Support

Managerial Efficiency

Operational CPI

Site Availability

Competition

Visibility

Key Community

Partners

SupportiveRegulatory

Environment


PROJECT

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Considerations

o Economies of Scale

o Mix of Units

o Land Availability & Zoning

o Market Depth

o Speed to Market

o Organizational Risk Tolerance


Considerations

• Monthly/Daily Service Fees

Monthly fees can often be a bigger financial hurdle than entrance fees for prospects

Independent Living residents typically spend about 60% of their income on monthly fees

Operating Margin

Considerations

• Staffing & Other Operating Expenses

Personnel‐related generally range between 50% ‐60% of total operating expenses

Non‐profits typically staff higher than statutory minimums and their for‐profit competitors

Operating Margin

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Medians Per Resident Day IL IL/AL IL/AL/ALZ AL AL/ALZ CCRC

Total Revenues

$81.61 112.84 $138.55 $125.26 $181.99 $147.80

TotalOperating Expenses

$41.58 72.48 $88.47 $83.72 $129.75 $107.85

Net Operating Income

$40.03 $40.35 $50.07 $41.54 $52.24 $39.95

OperatingMargin

49.1% 35.8% 36.1% 33.2% 28.7% 27.0%

Average AnnualOccupancy

92.2% 93.7% 93.5% 92.4% 88.2% 92.7%

Source: The State of Seniors Housing – 2016

Revenue & Expenses Per Unit

Considerations

• Construction & Other Hard Costs

• Soft Costs Design & Engineering FF&E Sales & Marketing Planning & Zoning Developer Fees Contingency

• Timing & Phasing

Duration & staging of construction Occupancy declines

Project Costs

Breakdown of Project Uses of Funds

Category Low High Median

Construction 39% 64% 52%

Land & Related 0% 12% 4%

Design & Engineering 1% 7% 2%

FF&E 1% 9% 3%

Contingency 1% 7% 3%

Marketing 1% 8% 4%

Development Fees 0% 11% 4%

Prefinance Capital Return 0% 7% 2%

Other 0% 5% 2%

Total Project Related 64% 87% 76%

Funded Interest & Fees 6% 17% 12%

Debt Service Reserve Funds 2% 9% 6%

Working Capital & Operating Reserves 0% 24% 3%

Costs of Issuance 2% 4% 3%

Total Financing & Other Costs 13% 36% 24%

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What opportunities exist to reduce project costs & provide greatest consumer value?

Project Design & Construction – geared towards consumer demands and willingness/ ability to pay?

Professional Fees – developer, marketer, architect, contractor, banker, etc.

Cost of Capital – seed capital, short and long‐term financing alternatives

Driving Down Costs to Provide Greater Value

Time = Money

Can lowering price point increase speed‐to‐market?o Length of presales period for

entrance fee communities

o No pre‐sales required for rental communities

o Length of fill‐up time to break even and stabilization

How much money can be saved by shortening time frames?

Can savings be passed on to the consumer to achieve quicker results?


• Interest Reserves Debt Service Reserve Fund – Not

Required in Bank Financing Capitalized Interest During

Construction1. Utilize Draw Down Financing

Interest paid as Funds Advanced (Drawn Down) rather than from entire issue at closing Bank & some investment

funds offer draw down structure

2. Step Up Coupon Interest rate low during

construction; steps up to agreed upon rates at pre-determined intervals

Applicable to Municipal Bonds


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Considerations

• Debt Structures

Bonds, Bank Placement, HUD

Fixed vs. Floating

• Other Sources of Funds

Capital Campaign

Equity

• Finance‐Related Costs

Cost of Issuance

Funded Interest & Debt Service Reserve Funds

Plan of Finance

Financing Options• Cash/Donations (i.e. Equity)

• Bank Financing (i.e. Construction and Direct Placement)

• Draw-Down Bonds (Banks and RIAs)

• Fixed Rate Bonds

• Private/Direct Placement

• HUD / FHA Programs

• HUD Allocations of HOME, NSP, CDBG, and Other Soft Loans

• Fannie Mae/ Freddie Mac

• USDA - Farmers Home Loan

• LIHTC, Historical TC, etc.

• Bond Insurance

• EB-5

• Subordinate debt/mezzanine loans/equity

HUD Financing

• Private Placement

• Fixed Rate• Up to 40 year

term • 80% LTV

Requirement• No Capitalized

Interest Funded at Closing

• No Debt Service Reserve Fund Required

• Restrictive Covenants (i.e. 1.45x DSCR)

Bank Financing

• Taxable Loan or Direct Purchase of Tax Exempt Bonds

• 10+ Year Hold Period

• Floating Rate Swapped to Fixed

• 25-30 Year Amortization

• 70 – 80% LTV Requirement

• No Capitalized Interest Funded at Closing

• No Debt Service Reserve Fund Required

• Restrictive Covenants

Municipal Bond Financing

• Publicly Issued Tax Exempt Bonds

• 35 Year Term• Fixed Rate to

Maturity• No LTV

Requirement• Capitalized

Interest Funded at Closing

• Debt Service Reserve Fund Required

• Less Restrictive Covenants

Equity

• No Impact on Debt Service Coverage Ratio

• Negative Impact on Days Cash on Hand and Reserve Ratio

• Loss of Investment Income

Financing Options

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Long‐Term Fixed

Rate BondsBank Financing

RIA Direct Bond

PurchaseHUD/FHA

Lowest cost of capital X X

No interest rate / market access risk X X X

Fast and efficient closing X X

Minimize negative arbitrage X X X

Avoid debt service reserve requirement X X

Avoid loan to value constraints X X

Avoid ancillary business requirement X X X

Maximize flexibility for future borrowing and

covenantsX

Financing Options

Compare the cumulative impact over a 10‐year period for a $30 million project borrowing under the following four financing scenarios:

1. Traditional Fixed Rate Bonds – Assuming a 5.5% interest rate on the bonds and a 1.0% interest earnings rate on the escrowed bond proceeds, which are assumed to all be borrowed at closing and drawn down ratably over a 20‐month construction period.

2. Fixed Rate Draw Down Bonds – The same assumptions as Scenario #1, but with bond proceeds borrowed as needed to pay construction costs over 20 months, similar to a construction loan. This scenario demonstrates the financial impact of eliminating negative arbitrage on borrowed funds.

3. Taxable Bank Loan – Assumes the $30 million is drawn down ratably over 20 months under a taxable loan at an all‐in rate of 3.0%.

4. Tax‐Exempt Direct Bank Placement – Same as Scenario #3, but assuming the borrowing is at a tax‐exempt all‐in rate of 2.0%.

Comparison of Financing Structures

Comparison of Financing Structures

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3 Design & Construction ConsiderationsNimble & Quick

Construction Cost Impacts

Construction Cost Impacts: Labor

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Construction Cost Impacts: Labor

Construction Cost Impacts: Land

“…

Buy land, they’re not making it anymore.

Mark Twain

Construction Cost Impacts: Land

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Construction Cost Impacts: Materials



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1. Land acquisition costs

2. Square footage / size

3. Operational Costs

4. Materials / systems

5. Construction timeframe

Keeping it moderately priced

Design & Construction Addressing the Challenges








Density

5.5 Homes / Acre

Single Story Cottages

1. Land Acquisition Costs

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8 Homes / Acre

Duplex Cottages

Density1. Land Acquisition Costs

10 - 12 Homes / Acre

Cluster Homes with Garages


12 Homes / Acre

Cluster Homes without Garages


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5.5 / Acre

24 Homes / Acre

Hybrids with Under Building

Parking

(3 stories)

Hybrid 112 Homes

Hybrid 212 Homes


30 Homes / Acre

Hybrids with Under Building

Parking

(4 stories)

Hybrid 115 Homes

Hybrid 215 Homes


Multiple CommunityUpdates

CASE STUDY


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Clustering Homes

Four Communities Garden Villa Model


Clustering Homes



Clustering Homes



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Cottage Amenities in an Apartment Setting

• Incremental Growth

• Higher Density 3:1 Ratio Increase

• Financing Options

• Pre-Sales / Timing

• A la carte Services

Hybrid Homes1. Land Acquisition Costs


Hybrid Homes

Typical Hybrid HomeGround Level

• Podium garage

• Steel /concrete construction

• Wood above


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Hybrid Homes

Six Communities Hybrid Home Model

Alternative Ground Level


Six Communities Hybrid Home Model

6 homes / floor14 total / building


• Abandoned warehouses

• Underperforming retail properties

• Shopping centers

• Former corporate campuses

Repurposing1. Land Acquisition Costs

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Community Partnerships1. Land Acquisition Costs

• Wellness

• Restaurant dining options

• Outside amenities

Neighboring country club

Recreation center / YMCA / JCC

Library

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2. Controlling SF Courtyard Homes

A Units

1BR + Den1000 SF / Unit

B B

A A

B Units

2 BR1150 SF / Unit

Connection to Commons


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“These homes live bigger

than they are.Steven Dunn Resident



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• Library

• Clubroom

• Meeting room

• Game room

• Pre-event

• Expanded event space

2. Controlling SF Flexible Spaces

• Lounge

• Game room

• Grab n’ Go breakfast & lunch

• Pre-dining

2. Controlling SF Flexible Spaces

585 SF

2. Controlling SF Working “inside the box”

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Moderate Size & Cost / Maximum “Livability”

• Open floor plan

• Monolithic flooring

• Pocket doors

585 SF


Before


After


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15% of people 55+ are “interested or

enthusiastic” about the idea of living in

a tiny house.(60% said “No Way!”)

40% of tiny house owners

are over age 50.seniorplanet.org / custommade.com

Photo – Gayle Cuddy/the Tribune

Bette Presley, Age 72Arroyo Grande, California

2. Controlling SF Tiny House Movement



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Tablet or iPad Stations

Tablets or iPads integrate with K4 to become the control center for devices.

3. Operational Costs Smart Homes

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• TV Controls• Family & Friend Connection

• Video Chat• Photo Sharing

• Community News• Dining & Events

• Automation• Thermostat ‐ Nest• Light Control• Door Entry

• Sensors• Health Tracking




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• Rectilinear footprint

• Wood-frame construction

• Single elevator

• Simple roof construction

• Balconies under main roof structure or eliminated

• Phasing Strategies

4. Materials / Systems Cost-Efficient Options

• System selection / payback

• Natural ventilation strategies

• Decentralized exhaust fans

• Generator

• LED lighting

4. Materials / Systems Cost-Efficient Options

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Pros

• Cost: 10 – 20% less than traditional stick frame construction

• Time: up to 50% less start to completion Less “in field” errors Less trades involved / less

coordination Few bad weather delays

• Quality control: easier to control in plant

5. Construction Timeframe Modular Construction

Cons

• Perception: may negatively impact future home value

• Location: availability of local plants

• Creativity: tend to be less creative / more basic plans for ease of construction to keep costs down.

5. Construction Timeframe Modular Construction

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• A simple state or quality, as a form of composition

• Freedom from complexity

Design & Construction Considerations

“…

Our life is frittered away by detail . . . simplify, simplify.

Walden Pond Cabin Replica; Concord, MA

Henry David Thoreau Walden


“…

The greatest ideas are the simplest.

William GoldingLord of the Flies


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4 Moving Forward Open Discussion

• Land

• Costs of Construction

• Financing Efficiency

Challenges?

• Size of Market

• Lack of Product

• Demand – Moderate / Middle Income Population is Underserved

• Few Organizations have Acquired Understanding / Discipline to Develop and Operate this Product

Opportunities

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• Housing Types

• Services / Amenities

What does this product look like?

• Models?

• Approaches?

• Solutions?

Lessons learned from other sectors?

• Role of LeadingAge Maryland

o LeadingAge has established task force to study issue and draft white paper

o Other roles / initiatives for LeadingAge Maryland?

LeadingAge White Paper: http://leadingage.org/sites/default/files/Addressing%20the%20Gap%20in%20Senior%20Housing%20Today.pdf

Action Steps

Q / :UESTIONS ADDITIONAL INFORMATION

A RLL RIGHTS ESERVED

Aaron RulnickManaging Principal

HJ Sims301.424.9135

[email protected]

Mike Martin, AIAManaging PartnerRLPS Architects717.560.9501

[email protected]

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