This fall, the Boston University Graduate School of Hospitality Management will add a concentration in Senior Living. The program will integrate the BU’s comprehensive hospitality program with innovative and forward-thinking senior housing programs and balance business-oriented disciplines with courses on resident life experiences.
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According to Senior Housing Global Advisors Senior Director Mel Gamzon, who has been a prolific real estate investment advisor in senior housing for the past four decades, this is a sign of the times. The pandemic has accelerated interest in the adaptive reuse of hotels as housing for the elderly.
READ ALSO: A Guide to Marketing Senior Housing Properties Amid COVID-19
Multi-dwelling news recently sat down with Gamzon for an in-depth conversation on how, when and why these two sectors can work together.
You see emerging collaboration opportunities for investors in senior housing and hospitality. What conversion opportunities do you see and why?
Gamzon: While the conversion of hotels to retirement homes has slowly evolved over the past decades, it is the pandemic that has accelerated the recognition that the adaptive reuse of some accommodation facilities may be part of a new reality. for the hospitality industry.
The accommodation industry has been severely affected by the impacts of COVID-19, and the financial losses in many cases are massive. Just consider the current and impending defaults on CMBS loans. The numbers are staggering. The American Hotel & Lodging Association has revealed that unemployment in the space is 18.9%. The association predicts that half of the country’s hotel rooms will remain empty until 2021. Business travel is not expected to normalize until perhaps 2024 – and the leisure sector seeing a slow but measured recovery – hotel lenders, investors and operators have started to consider viable repositioning alternatives. , including residences for the elderly.
So where are the opportunities for working with senior home professionals? Assuming that in-depth due diligence is initiated early in the acquisition and planning process, there are several types of products and approaches available, ranging from acquiring underperforming hotels to purchasing sites that have been selected or approved for hotels or mixed-use businesses.
What synergies make it ideal and / or possible to adapt hotel assets into senior housing assets?
Gamzon: Like the hospitality sector, retirement homes are also facing challenges from the pandemic. Fortunately, our industry has tackled issues of critical importance throughout the past year, resulting in steady progress in the recovery process. Due to innovation at all levels, the emergence of new technological solutions, refined operating models, a patient attitude on the part of the lending and investment community and the recognition that the demographics of seniors is generally strong, we will likely see an industry resurgence towards a new normal within the next 12-30 months or so.
In terms of synergies with the hospitality industry, now is the perfect time to accelerate the discussion on how sectors can align. The fundamentals are obvious. Both sectors are based on business models where the caliber of operations is fundamental to the value proposition to the client and investors. The integration of quality employees in well thought out real estate is the key to their success.
However, according to AHLA, while the hotel sector is expected to create 200,000 new operational jobs in 2021, the total number of employees is 500,000 below the pre-pandemic employment level of 2.3 million. Likewise, senior housing is struggling with staffing issues. Looking at this challenge, in addition to caregivers, we find that there is a compatibility between the skills of hospitality staff and those of senior staff.
What conditions must be met for a successful conversion to senior residency?
Gamzon: Generally speaking, both types of assets require high visibility locations in prime markets. Newer and lower performing hotels may have somewhat similar overall floor plates. For example, they can have 150 to 200 rooms that can be adapted for residential use, dining rooms that can be modified, and common areas that can be reprogrammed for an older clientele. âWellness programmingâ is a key term in both industries and can provide a cost effective approach to reusing hotels.
Newer properties may be easier to convert. Hallways are wider to accommodate seniors with mobility issues and also meet building code requirements. HVAC and other building systems, as well as rooms or suites may be easier to reconfigure, especially with wood and frame construction. And, more importantly, the technological systems already installed in these hotels can be converted into communication and telehealth systems.
What does the new graduate program mean for the two industries?
Gamzon: These sectors will develop by increasing their number of well-educated young professionals. Reflecting the growth potential of both industries, colleges such as Boston University recognize the need for dynamic new talent. This fall, the BU Graduate School of Hospitality Management will add a concentration in retirement homes. The program will integrate their comprehensive hospitality program with innovative and forward-thinking senior housing programs that highlight the balance between business-oriented disciplines and resident life experiences courses.
What will new senior housing models look like and how will they adapt to hotel reuse?
Gamzon: The pandemic has accelerated the need to refine development and operating models, which in some format could improve the feasibility of converting hotels into senior housing. The senior housing industry is focused on platforms that improve market acceptance of the ‘new reality’, reduce overall development and operating costs to create more cost effective senior living alternatives and ultimately produce returns on investment that meet investors’ expectations. We find that changing senior housing business models is expensive and not an easy undertaking in light of the stricter underwriting requirements of investors and lenders.
In large part because of the push of the pandemic, well-capitalized and forward-thinking senior housing operators are thinking outside the box to create value-added business platforms. As I mentioned earlier, technology at all levels has become a priority for capital allocation. For those who continue to embrace the old ways of doing business, many are likely to falter and could become targets of adaptive reuse themselves.
The senior housing industry is changing dramatically, shifting from a predominantly caregiving orientation and a broad vision to the huge baby boom generation to befall the sector. So, while many models of independent living merge and look more like âlightâ assisted living, a growing number of industry operators are also focusing on preventive health and wellness programs where the mantra â rejuvenate âwill replaceâ we will take care of you. “
In both directions, there are opportunities for adaptive reuse of hotels and motels. Whether it’s urban infill or other prime locations, investment opportunities will become more and more common in the future.
Can you give us some examples of successful conversions?
Gamzon: Two remarkable hotel conversions into senior residences that had been in the planning stages for several years opened their doors last fall. The conversion of Leverich Towers, a 16-story hotel dating from 1928, which has been transformed into The Watermark in Brooklyn Heights, a community of 275 independent units, assisted living and memory-care rentals, illustrates the top of range from the New York subway market. Upgraded wellness amenities in a resort style environment illustrate the possibilities for hotel conversions.
While the numbers are staggering for a total cost of $ 330 million or $ 1.2 million per unit, the economics on paper seem logical to their financial partners and their operator. Rents range from $ 8,500 to $ 19,500 per month. I firmly believe that there is more to come in major markets, including New York City, where hotel lenders and investors are looking for viable reuse solutions for their struggling hotel assets.
Then there’s the adaptive reuse of a former 170-room Residence Inn by Marriott on Long Island, New York City that has been converted into The Residences at Plainview, a fully self-contained 114-unit senior community. Shrewd developer Capitol Seniors Housing and its institutional investment partner recognized the opportunity for a well-being-focused project. The business was completed at a total cost of about $ 285,000 per unit, well below what it would cost to build from scratch with a vast set of common equipment. Upon stabilization, this property will get a higher value.
So the pandemic has in some ways been a silver lining for adaptive reuse of hotels?
Gamzon: Of course, the pandemic has been a stimulus that inspires hotel conversions. That said, while adaptive hotel reuse continues to gain in importance, it is not for everyone. There are many design and construction details, programmatic realignments, budgetary complexities, and licenses for assisted living and memory care. The message is perfectly clear. With the right advice and realistic expectations, there can be substantial returns on your investment. Also, keep in mind that these are not easy endeavors and the margin for error is limited.
Read the June 2021 issue of MHN.