SESSIONA-1 REPOSITIONING CM -PC OI REATING ODERATELY … · 2. Square footage / size 3. Operational...
Transcript of 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
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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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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 Size & Configuration
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
Project Size & Configuration
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?
Driving Down Costs to Provide Greater Value
• 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
Driving Down Costs to Provide Greater Value
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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
Construction Cost Impacts: Materials
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
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
Density1. Land Acquisition Costs
12 Homes / Acre
Cluster Homes without Garages
Density1. Land Acquisition Costs
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5.5 / Acre
24 Homes / Acre
Hybrids with Under Building
Parking
(3 stories)
Hybrid 112 Homes
Hybrid 212 Homes
Density1. Land Acquisition Costs
30 Homes / Acre
Hybrids with Under Building
Parking
(4 stories)
Hybrid 115 Homes
Hybrid 215 Homes
Density1. Land Acquisition Costs
Multiple CommunityUpdates
CASE STUDY
1. Land Acquisition Costs
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Clustering Homes
Four Communities Garden Villa Model
1. Land Acquisition Costs
Clustering Homes
Four Communities Garden Villa Model
1. Land Acquisition Costs
Clustering Homes
Four Communities Garden Villa Model
1. Land Acquisition Costs
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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 Homes1. Land Acquisition Costs
Hybrid Homes
Typical Hybrid HomeGround Level
• Podium garage
• Steel /concrete construction
• Wood above
Hybrid Homes1. Land Acquisition Costs
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Hybrid Homes
Six Communities Hybrid Home Model
Alternative Ground Level
Hybrid Homes1. Land Acquisition Costs
Six Communities Hybrid Home Model
6 homes / floor14 total / building
Hybrid Homes1. Land Acquisition Costs
• Abandoned warehouses
• Underperforming retail properties
• Shopping centers
• Former corporate campuses
Repurposing1. Land Acquisition Costs
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Repurposing1. Land Acquisition Costs
Repurposing1. Land Acquisition Costs
Repurposing1. Land Acquisition Costs
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Repurposing1. Land Acquisition Costs
Repurposing1. Land Acquisition Costs
Community Partnerships1. Land Acquisition Costs
• Wellness
• Restaurant dining options
• Outside amenities
Neighboring country club
Recreation center / YMCA / JCC
Library
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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
2. Controlling SF Courtyard Homes
A Units
1BR + Den1000 SF / Unit
B B
A A
B Units
2 BR1150 SF / Unit
Connection to Commons
2. Controlling SF Courtyard Homes
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2. Controlling SF Courtyard Homes
“These homes live bigger
than they are.Steven Dunn Resident
2. Controlling SF Courtyard Homes
2. Controlling SF Courtyard Homes
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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
2. Controlling SF Working “inside the box”
Before
2. Controlling SF Working “inside the box”
After
2. Controlling SF Working “inside the box”
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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
2. Controlling SF Tiny House Movement
2. Controlling SF Tiny House Movement
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2. Controlling SF Tiny House Movement
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
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
3. Operational Costs Smart Homes
3. Operational Costs Smart Homes
3. Operational Costs Smart Homes
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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
• 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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Design & Construction Addressing the Challenges
1. Land acquisition costs
2. Square footage / size
3. Operational Costs
4. Materials / systems
5. Construction timeframe
Keeping it moderately priced
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
Design & Construction Considerations
“…
The greatest ideas are the simplest.
William GoldingLord of the Flies
Design & Construction Considerations
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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
Mike Martin, AIAManaging PartnerRLPS Architects717.560.9501