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Take a walk through The Terraces and you might mistake it for a luxury hotel.
The only clues it might be a retirement community are the ramp into the pool and the wider hallways with discreet grab bars. Otherwise, the white-tablecloth restaurant, tasteful artwork, chandeliers and gurgling fountains might make you think it's the Ritz-Carlton instead.
The $70 million Terraces project in Bonita Springs is just one of at least a half dozen senior-housing projects in the Fort Myers-Naples area. This surge of renovations and new construction comes on the heels of a recession that halted financing for new development for nearly eight years.
Now that baby boomers are able to sell their homes and retire to Florida, new developments are under way to meet what many have always projected to be a tidal wave of retirees. Those whose personal finances withstood the downturn are the targets of new developments. “The projects are so costly to develop that it's difficult to serve a lower income,” says Troy Hart, president of SantaFe Senior Living.
As the Terraces shows, this new round of development will have new features that are different from the last building cycle. Luxurious amenities, health clubs, physicians on site, villas instead of condos and special residences for those suffering from Alzheimer's disease or dementia will be more commonplace.
Financing for these large-scale projects is also becoming available. For example, the nonprofit SantaFe Senior Living, the operator of the Terraces, raised $143 million in a tax-exempt bond offering in November 2011. Investors snapped up the bonds that were paying 8.25%, says Hart.
Since then, bank financing has started to loosen up, too, with more favorable terms. For example, Discovery Management Group, a senior-housing developer and operator in Bonita Springs, has obtained bank financing for new developments in Fort Myers and Naples. “Our capital stack is our own equity and regional and national lenders,” says Thomas Harrison, Discovery's CEO.
Long waiting lists
Fact is, the senior-housing business has fared well relative to other sectors of the real estate industry in Southwest Florida. For example, Moorings Park in Naples has maintained the best credit rating from Standard & Poor's of any similar communities in the country. Among other strengths, S&P noted Moorings Park's 230-person waiting list as an indicator of future demand.
The market demand is strong despite Moorings Park's entrance fees that range from $350,000 to more than $2 million. In exchange for that, plus a monthly fee that ranges from $3,000 to $6,500, Moorings Park promises to care for its residents for their remaining lives.
“Aston Gardens at Pelican Marsh [in Naples] has a two-year waiting list,” says Harrison. “Both independent living and assisted living are full. People are just waiting to move in.”
When Harrison analyzed the Fort Myers and Naples markets, he found substantial demand. “Less than 10% of the need was being met in Fort Myers; in Naples, less than 20%,” he says. “It's still probably a tremendous opportunity in those markets.”
Besides Fort Myers and Naples, Discovery is planning new senior housing in Palm Beach Gardens, where Harrison says there hasn't been a new senior-housing community built in 17 years. “We've been buying land quietly and accumulating a sizable portfolio of land,” says Harrison, whose partners include Al Hoffman, the entrepreneur who built and later sold WCI Communities. In all, the company is planning another 1,500 to 1,600 units of senior housing in Florida.
Of the 144 one- to three-bedroom apartments at the Terraces, only 15 are left. The entrance fees for the continuing care retirement community range from $400,00 to $1.4 million depending on the size of the unit and the refund option, and the monthly fees range from $2,995 to $4,995. “There is just this age wave, a large influx of seniors who want options,” says Hart. “We can't build enough to meet the demand.”
Up the amenities
Each development cycle has its new products, and this time is no exception. For example, some retirees say they're willing to pay more for homes in retirement communities, but they don't want to live in condos with elevators.
At Shell Point Retirement Community in Fort Myers, homebuilders will be constructing single-family homes and attached villas in an enclave of the community called The Estuary at Shell Point. Entrance fees will range from $687,000 to just more than $1 million, depending on the size of the home and refund policy. Monthly fees will range from $3,500 to $4,900.
“There is a bifurcation of the market,” says David Moreland, vice president of sales and marketing for Shell Point. The entrance and monthly fees are substantially higher in the Estuary at Shell Point than they are for housing in other parts of the community.
“Some people were wounded financially during the Great Recession, and they will never recover,” he says. “There is clearly a group of people who made it through the recession and with the increase of the stock market are buying higher-end real estate.”
Some retirement communities are teaming up with existing communities to build retirement enclaves. For example, Moorings Park has teamed with the Collier family's Halstatt LLC to build “garden homes” at the upscale Estuary at Grey Oaks, including an assisted-living facility and clubhouse.
“A lot of people are looking for newer construction with different floor plans,” says Steve Brinkert, vice president of resident services with Moorings Park. These include details that aren't common in retirement communities: master baths, private elevators, open kitchens and lanais.
“They also like the idea of aging in a country club atmosphere,” Brinkert adds. As they grow older, people don't want to give up golf or tennis, and they want to invite their families to an active community.
On the medical side, on-site physicians and special care for those with memory impairments are commonplace. Nearly every new senior-housing project in Southwest Florida now includes memory care specialty units. Previously, people with Alzheimer's disease moved into a nursing home and mixed with others.
“All the demographic-demand analysis shows a very strong need for the memory component,” says Jim Soper, the CEO of Largo-based Autumn Senior Living, who is planning communities in Fort Myers and Naples. In fact, the first phase of any new Autumn Senior Management development is solely devoted to those who need memory care, he says.
Meanwhile, the new residential communities are installing luxury amenities such as spas and upscale dining. To keep up, existing communities are also renovating and adding these new facilities. Moorings Park, for example, recently opened a 37,000-square-foot facility called the Center for Healthy Living. The center offers cardio equipment, a spa, a salon, an Internet cafe and a theater for films and lectures.
“When you have competition, you always have to stay ahead of the pack,” says Brinkert. “You have to make plans for what that will take.”
Financing fuel needed
Banks seem to be the main impediment to a more robust development pipeline, developers say. “The banks are being very, very cautious,” says Jim Soper, the CEO of Largo-based Autumn Senior Living, who is planning communities in Fort Myers and Naples. “They don't want to see a half-dozen facilities popping up” around a new project they're financing, he says.
“We want to be first out of the ground in every market we're in,” says Thomas Harrison, CEO of Discovery Management Group, a senior-housing developer and operator in Bonita Springs. “The banks are a lot more careful and scrutinize those who want to build.”
But once banks favor a project, the terms have become much more favorable lately. For example, Soper says the mortgage on a senior-housing project closed with 85% financing and 2.75% on a seven-year term. “We're finding them extraordinarily competitive with their rates,” says Soper.
Still, most of the banks lending in this sector are large regional and national banks. Community banks haven't been significant lenders in this sector, developers say.
For now, banks have been the main source of financing for new projects. Publicly traded real estate companies have been active in single-family home development and some developers speculate that they may soon become active in senior-housing projects, too.
Private-equity firms have not yet been significant players in this sector, either. “When you look at traditional forms of financing, private equity makes that a lot less arduous,” Harrison says. “Private equity would be a help, and I see that coming real soon.”
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