- What The amenity package in senior housing has taken off across Canada
- Why As affluent baby boomers transition to senior housing, they bring higher expectations
- What next Fundamentals remain strong, but developments can be difficult to pencil
It’s not just that Canada’s senior-housing providers are worried whether they have enough rooms to accommodate the onslaught of baby boomers aging into their facilities. It’s that those new residents want more amenities and bigger suites.
Owners are adapting to meet their demands and earn higher rent payments, but the effort doesn’t come without challenges.
Perhaps the first adjustment is acknowledging the changing – and more affluent – face of senior-housing residents.
“In the early ’90s, our typical resident in our seniors-housing buildings was probably in their early 70s,” said Brian Kimmel, assistant vice president of commercial financing at First National Financial. “They might’ve been still working, oftentimes they were still driving, and they were in a home almost as a precaution as they were aging. They were really a transitional place for people to go until they needed some more serious care.”
Now, the average resident is in their 80s. They’re not working, not driving and they have a different set of expectations compared with the previous generation.
“The baby boomers have led a much more affluent life,” said Kimmel, who has specialized in financing the sector for 30-plus years. “They’re demanding more and they can afford to pay for more, so we’re seeing a lot more amenities.”
An explosion of amenitization
Kimmel compares the level of amenitization in some of today’s seniors housing communities to Four Seasons hotels.
“It’s like resort living where you have golf simulators, some of them have bowling alleys, they have multiple recreation facilities, they have woodworking facilities, they have movie theatres, they have gyms – things that we definitely did not have 30 years ago,” he adds.
The upshot: General-purpose recreation areas and a single dining room with fixed meal times are on the way out. Specialized botany areas, sports courts, swimming pools with aquafit classes, theatres for live performances and multiple dining rooms closer to all-inclusive resort dining are in. So are indoor walking tracks, dog parks, shuttle services with luxury vehicles and on-site markets.
Andrea Prashad, senior vice president of operations at Amica Senior Lifestyles, said the company has also started investing more in technological infrastructure across its more than 30 properties. That includes high-speed Wi-Fi access for residents and online information portals.
“Amica has been testing the savviness of tech devices among our residents for a few years now and there was this progression where at first it was asking whether they had a smart device,” she said. “Most of the residents, even a couple years ago, would say, ‘Yes,’ but what’s changed is how they use it. Originally, they only used it for phone calls, but now, we’re starting to see in the last two years that they are using it for purposes beyond that.”
Superior suites
It’s not just better that residents are demanding. It’s bigger, too. New units are roughly 150 sq ft larger than they were 15 to 20 years ago.
“What we’ve been very proactive about in our portfolio with new product that we brought to market is considering who our customer is today, and who’s our customer going to be tomorrow and how we can create purposeful space to support next-gen living,” Matthew Tatoff, associate vice president of investments at Fengate Asset Management, told Green Street News.
“Tomorrow’s customers – baby boomers – they are active, they prioritize wellness, they in many cases have made good money with their homes over last 20 years. They want well-programmed spaces that support community engagement and they don’t want to feel like they’re going into a box. So we’ve been very thoughtful in terms of building product to meet this need, which also includes larger suite sizes.”
Interior finishes have also seen an upgrade, with most now having either a full kitchen or a kitchenette – a feature that used to be more of a rarity.
Amica’s Prashad noted, however, that how big the units need to be varies from market to market. A senior in Toronto, for example, is likely already used to a smaller floor plan given the experience of urban living.
“But if you’re coming from a suburban area with a very large home and then moving into a senior-living home, that’s a more difficult transition,” Prashad said.
Strong fundamentals, but development price challenges
Fundamentals for senior housing are undeniably strong, but Canada’s supply is nowhere close to meeting what Fengate’s Tatoff calls a “silver tsunami” of baby boomers entering their 80s.
“The projection over the next 10 years is the seniors housing population – 75-plus – will grow about 50% to 5.1 million,” he said. “So this big influx of demand is coming our way and there is a big supply gap to catch up, given new starts are at an all-time low and have been on the downward trajectory over the past five years.”
In February, the Real Estate Institute of Canada estimated that an additional 450,000 senior-housing units are required to meet the growing need. With such demand and proven profitability, lender sentiment has shifted on the asset class.
“Twenty years ago, it was a very niche product. I could name the lenders on one hand who were financing seniors housing … and I would say most institutional-type lenders wouldn’t touch it,” First National’s Kimmel said. “Today, I think it’s [gotten closer] to more traditional real estate.”
But demand for larger units and more amenities is a pricing challenge, particularly as construction costs rise. As senior-housing projects become more difficult to pencil out, many smaller developers are out of the game.
“Twenty years ago, you could have small mom-and-pop players build a property. It might cost them $15m, but they could pull it off,” Kimmel said. “Today, most properties are looking closer to $100m.”
While developers can adjust costs – cutting back on parking, for example – residents paying higher rents is the only way it all works.
“When I started in this business, if we could get $3,000 a month in rent, that was a home run. Now I’m seeing rents of $12,000 and $15,000,” Kimmel said, referring to higher-end prices.
A pending gap in the middle market
Those higher rents, while a win for developers, pose a problem for middle-market renters priced out.
“We’re providing a great service to the top 5% or 10% of the senior population, but the rest can’t afford the services that we offer because we cannot provide that service at an affordable rent,” First National’s Kimmel said.
Less expensive rents are available at older properties, but the question becomes how long many of those can continue to operate.
“Approximately 50% of the stock right now in the country is over 20 years old,” Fengate’s Tatoff said. “Future obsolescence of older product will also add to the demand-supply imbalance.”
First National’s Kimmel said there are developers looking to target low to middle markets with more cost-efficient models, achieved via limited amenity space and smaller room sizes.
“They can try and compete against the high-end facilities on price, but I would say so far, the jury’s out on that,” he said.
Another byproduct of rising rents is that seniors who can’t afford them are waiting until they qualify for placement in a long-term care home where costs are offset by the provincial government. That is further inflating already lengthy waitlists.
And while governmental policies change – such as the removal of sales taxes on new units – have helped encourage development, Amica’s Prashad said more can be done.
“Government, I think, has a significant role that they can play here,” she added. “It’s thinking about how to make senior living more affordable. Imagine a day where seniors have a similar self-directed prepay tax credit – like what they do in Québec – so they could use that money to have their own autonomy and choice on what services they want and where they want to live. Overall, this would help avoid these premature [long-term care] placements and inappropriate hospital admissions that are financially driven versus care-driven.”
