A growing number of developers, based both in Minnesota and across the Midwest, are entering the senior housing market. There’s a reason for this: The U.S. population is aging. And more residents need the services provided by senior care centers. It’s one of the few sectors of the commercial real estate market that is actually growing today.
But this is not a market that is forgiving to newcomers Running a senior housing center requires special skills that most traditional commercial developers lack. It’s why for so many developers, the smart move remains working with an outside management company to handle the day-to-day operations of senior centers.
Just consider the challenges that developers used to office or retail projects will face when applying for financing.
Lenders are stingy when it comes to passing out dollars to senior housing centers. They want to make sure that the people who are building, acquiring or operating these centers have enough knowledge and experience to do it successfully.
Again, this is where the help of an experienced outside management company comes in.
Susan Farr, vice president of business development and marketing with Minneapolis-based Ebenezer Management Services, said that her company starts working with its developer partners from the very beginning of a project or acquisition to help these developers receive financing for their senior projects. Ebenezer manages senior housing facilities throughout the Twin Cities area.
“Without the right management company can these developers even get financing?” Farr asked. “When it comes to financing, the banks and the bond markets look at how developers plan on running the business. They look at how much cash they have i the bank to keep the building afloat during the lease-up period.”
Ebenezer works with its clients to make sure that their financials are in order. And Ebenezer comes with a management that has plenty of experience when it comes to running senior care facilities. With Ebenezer behind them, it’s easier for developers to earn the financing they need to complete their senior housing projects.
“This has become more and more important,” Farr said. “The banks don’t want to take a risk without a proven brand name behind a project, a brand name with a positive track record.”
Beyond the act of acquiring financing, though, management companies provide additional valuable services. They handle the staffing needs of senior faciities, providing everything from medical aides to janitors, cooks and cafeteria workers.
They also help developers understand the financial commitment it will take to get a senior housing development not only up and running, but profitable.
“A lot of developers who enter this field think that these senior buldings lease-up overnight,” Farr said. “It doesn’t work that way. I tell people that before they start off with these projects they need to have 18 months cash flow to operate their buildings while they’re leasing space. A lot of developers when hearing this will lace up their Nikes and run.”
(For a longer version of this story, check out the next issue of Minnesota Real Estate Journal.)
— Dan Rafter