| By Bob Howard |
| |
| Southern California
could face a shortage of so-called assisted-living facilities for
seniors in the next few years, although there is plentiful capital
chasing the senior housing market and a rush by developers to build
assisted-living complexes. |
| |
| The problem, industry
observers say, is that developers are focusing on well-fixed
retirees-those who can pay monthly rents of $2,500 or more-and
overlooking those who must pay less. |
| |
| "We're going to have
too much [housing] on the high end and too little on the low end,"
said David W. Lacy, a Los Angeles broker specializing in the
fast-growing senior housing market. |
| |
| The tilt is unlikely
to shift in California as long as debate continues about whether
public funds should be used to support tenants in assisted-living
facilities, which serve a healthier clientele than do nursing homes. |
| |
| An assisted-living
facility is typically an apartment complex in which residents live
independently for the most part but are given some help in what the
industry calls "activities of daily living" such as bathing or getting
dressed. Residents of assisted-living complexes generally need
more care than those in independent-living facilities but less care
than those in nursing homes. |
| |
| Investors, developers
and lenders specializing in senior and medical facilities have been
putting higher amounts of capital into assisted-living facilities in
recent years, and at least three Southern California real estate
investment trusts have significant investments in such facilities: G&L
Realty of Beverly Hills, Nationwide Health Properties of Newport Beach
and LTC Properties of Oxnard. |
| |
| G&L recently spent $10
million to buy the 110-unit Pacific Gardens independent-living complex
at 2nd Street and Idaho Avenue in Santa Monica and is converting it to
an assisted-living facility, according to G&L chief executive Dan
Gottlieb. In addition, Gottlieb said, G&L is spending about $10
million to develop new assisted-living complexes in Yorba Linda and
near Rancho Bernardo in San Diego County. |
| |
| Nationwide has
investments in 78 and LTC has investments in 77 assisted-living
facilities, according to the companies' most recent annual reports. |
| |
| One reason for the
popularity of assisted-living facilities, according to the LTC annual
report, is that they represent a lower-cost long-term care alternative
than skilled nursing facilities. |
| |
| LTC executives could
not comment Monday because the company is in a quiet period in
connection with a stock offering. But the company's latest
annual report says LTC expects to focus on assisted-living facilities
even more in the future. |
| |
| REIT's and other
investors in assisted living cite U.S. Census Bureau statistics that
say that the proportion of Americans 65 and older has gained steadily
during this century. In 1994, 1 in 8 Americans was over 65,
compared with 1 in 25 in 1900. By the year 2050, the Census
Bureau estimates, 1 in 5 Americans will be over 65. |
| |
| This graying of
America has prompted "almost everybody and their brother to get into
the act" of developing assisted-living facilities, Lacy notes, but, he
said, the emphasis on upscale facilities in Southern California could
hurt developers and investors in the future. |
| |
| "Everybody is
developing high-end projects at the same time, and that could cause
rental rates to drop for the high-end product" by the time the
projects are completed, he said. |
| |
| Lacy said developers
focus on the pricier projects because they generate larger profits.
This makes sense from a developer's perspective, he said, because the
rents for assisted-living facilities for the most part are paid for
with private money-there is little or none of the government
assistance associated with nursing home residents. |
| |
| "Probably 90% of it is
private pay," he said. "Insurance companies are starting to
focus on providing long-term care insurance, but it's still in its
infancy." |
| |
| The bottom line, he
said, is that developers have a hard time making money on the lower
end of the market-assisted-living units that rent for %750 to $1400
per month. To make such projects feasible, he said, local
communities will need to lend support in the form of tax incentives
and help in acquiring building sites. |
| |
| Who will pay for
assisted-living facilities is a thorny issue nationally, according to
David S. Schless, executive director of the American Seniors Housing
Association in Washington. |
| |
| Schless said that
although much private capital has poured into developing new
facilities, the aging of the population is going to create an even
greater demand for assisted-living complexes. A study by his
association projects the number of assisted-living units in the U.S.
would grow to 1.3 million by 2000, generating $33 billion in revenue.
That compares with 600,000 and $12 billion in revenue in 1993. |
| |
| But Schless said some
in the industry fear that if the government chooses to pay for seniors
dwelling in assisted-living facilities, it would create a "woodwork
effect" that would further increase the demand and strain the U.S.
Treasury. "The fear is that if the government paid for assisted
living, everybody who is now being cared for by spouses and children
and all those who are paying their own way would come out of the
woodwork to take advantage of it," Schless said. "The cost would
be absolutely astronomical." |
| |
| On the other side of
the argument however, is the contention that government programs might
ultimately save money by paying for assisted living. |
| |
| About 20 states have
adopted "Medicaid waiver programs: in which the states get federal
authorization to pay for assisted living with funds that otherwise
would go toward nursing home care, according to Lacy, who said
California has not adopted such a program but is evaluating the
potential impact of such a plan. |
| |
| "The thinking is that
if they can take people out of nursing homes and put them into
assisted living when they really don't need nursing care, the states
can save money," said Lacy, explaining that assisted living usually
costs about half as much as nursing home care. |
| |
| States with Medicaid
waivers are attractive to REIT's such as LTC, which invests primarily
in assisted-living facilities in states that have adopted Medicaid
waiver programs or are in the process of adopting or reviewing their
policies and reimbursement programs to provide funding for
assisted-living residences, according to the LTC annual report. |
| |
| In states such as
California that haven't adopted the Medicaid waiver, however, Lacy
said, there is the concern that the larger number of seniors who might
qualify for assisted living would more than compensate for the savings
realized by moving some people from nursing homes to assisted living.
In other words, the woodwork effect. |
| |
| "The states want to be
able to control their budgets. Their fear is that, instead of
one person in a nursing home, they'll have three in an assisted-living
facility," he said. |
| |
| According to Schless,
it's a bit early to be assessing the effect of Medicaid waiver
programs because the assisted-living issue has only recently arrived
at the forefront of the senior housing business. |
| |
| "The issue is one of
funding, and it's going to be part of our country's ongoing debate on
long-term care policy for a long time to come," he said. |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
