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Disruption in Senior Housing

The senior housing industry is in the midst of a big disruption.  Occupancy in assisted living hit a record low in the first quarter of 2018 – and continues to fall. There could be numerous reasons for this, including a bad flu season, but I think there’s something bigger going on.

At a recent conference I attended, one of the speakers addressed this subject.   He suggested that two major influencers are driving the disruption.

  1. Labor shortage. A labor shortage is anticipated for high-intensity facilities such as assisted living, memory care, skilled nursing facilities. The average wage for a CNA (certified nursing assistant) is currently $11 per hour.  Soon, the speaker projects,  it will be $15. This will cause an 8% drop in NOI which translates to a 27% decline in asset value!  Or, more likely, rents will rise, and such facilities will become even less affordable.
  2. Technology. And this is where it gets cool! Technology is focusing on aging-in-place, allowing seniors to avoid institutional facilities longer. The speaker shared that aging-in-place technology will become a $7 trillion economy. Venture capital is investing 10:1 on technology versus operational improvements.

So how does this affect you and me?

It means we can age in place almost anywhere.  The secret is in choosing the place. If we live long enough, each of us will need assistance at some point, (although most of us refuse to admit it).  But technology will allow us to live wherever we choose with on-demand assistance as necessary.

Even today, technology is available to get us what we need, when we need it: a voice activated communications system connected with family or emergency-response team;  a sensor to monitor activities and detect irregularities;  a wrist band connected to an AI platform that alerts the doctor if anything is out of kilter;  apps to remind us to take our pills; apps to call a ride; apps to order meals; apps to request assistance with dressing or bathing; apps for help hanging pictures or rearranging furniture.

And that’s today.  Just wait until that $7 trillion investment is realized!

I project the future of senior housing will be focused on the independent-living model with limited services – which will be offered a-la-carte.  Technology will replace the need for personal assistance. We will not need (nor can most of us afford) the full staff that comes with assisted-living facilities. With this exciting new technology, we will remain independent much longer as we age in place.

But aging-in-place doesn’t mean staying in your four-bedroom colonial with stairs, narrow doorways, and slippery bathtubs.  Forward-thinking baby boomers are eschewing their large family homesteads that require constant up-keep and high taxes for luxury apartment living.  Here, they can age in place, but in a place with more amenities, more fitness activities, more social involvement, and more companionship.  And that socialization is very important.  Studies show that social isolation increases the risk of death by 30%;  some show it as high as 60%!

Assisted living and memory care facilities, of course, will still be needed, but they will have a much higher cost and be even less affordable to the average senior.  That said, senior housing still ranks as the most attractive property class for investment according to a recent survey of commercial real estate owners, managers, developers, and lenders.

So, we will age, in place, independently, and wherever we want. And I suspect most of us will choose an independent-living community surrounded by like-minded, active, involved friends – and cool technology!


Christopher Finlay  is Chairman/CEO of Lloyd Jones, a real estate investment firm that specializes in the multifamily and senior housing sectors. Based in Miami, the firm acquires, develops, improves, and operates multifamily and senior housing communities in growth markets throughout Texas, Florida, and the Southeast.  The firm’s investment partners include institutions, family offices, and individual accredited investors.

 

 

 

 

Inside the Deal: Lloyd Jones Capital’s Expanding Workforce Housing Portfolio

Lloyd Jones Capital’s purchase of The Westcott Apartments marked its second purchase in the market in less than a year. The Miami-based real-estate private equity firm paid $57.8 million for the 444-unit garden-style apartment complex in Tallahassee, Fla., expanding its footprint in multifamily assets located primarily in Florida, Texas and the Southeast.

Lloyd Jones, which specializes in the multifamily and senior housing sectors, was launched just four years ago, but its principals have been active in the industry for 38 years. The firm’s core strategy is to invest in cash-flowing assets that are undercapitalized or poorly managed and therefore offer value-add opportunities.

Lloyd Jones acquires, improves and operates multifamily assets with a holding strategy that ranges from three to 10 years, depending on the needs of its investors, which include institutional partners, family offices, private investors and its own principals.

Despite headwinds faced by multifamily—such as rising interest rates and construction costs as well as concerns about oversupply in some markets–Chris Finlay, chairman & CEO of Lloyd Jones Capital, remains bullish on the sector.

It’s absolutely the best asset class to invest in, primarily due to demographics,” he said. “You have 75 or 80 million Millennials, and about a third of them are still living with Mom and Dad, so there’s a huge untapped market. On the other side of the spectrum, you have the Baby Boomers, about a third of whom are renting now, and every indicator seems to show that percentage is going to increase as they get older.

Finlay said he’s not concerned about an oversupply of apartments, an issue he feels has been “exaggerated.” Due to high construction costs, most of the new supply coming online is Class A, he said, but his strategy is to focus on what he calls “market-rate workforce housing,” or housing that’s affordable to a median-income family. Since there’s little new workforce product in the pipeline, Finlay is confident that Lloyd Jones is transacting in a niche that will lead to good returns.

MARKET FUNDAMENTALS

Tallahassee is the state capital of Florida, and the multifamily market there is stable, with further growth projected. According to Yardi Matrix, in the second quarter of 2018, monthly rents averaged $1,173, up from $1,088 in the second quarter of 2016. Yardi forecasts average monthly rents to increase to $1,347 by the end of 2023. Occupancies have been holding steady, at 94.6 percent in the second quarter of 2018 and forecast to rise slightly to 94.8 percent by the end of 2023.

Unit in The Westcott Apartments

The supply/demand balance is very good there,” Finlay said. “It’s an extremely stable market because the state government is there, and irrespective of the economy, that always chugs along.

In addition, there are two major universities in Tallahassee—Florida State University and Florida Agricultural and Mechanical (A&M) University—that drive both the student housing and off-campus multifamily markets.

Tallahassee is one of those markets that don’t boom but they don’t bust,” Finlay said. “It’s just a nice progressive growth—reasonable growth that you can count on.

Other experts agree. “The Tallahassee market has seen consistent growth over the last few years, both from a value-appreciation standpoint as well as rent growth and stabilized occupancy,” said Jad Richa, managing director of Capstone Apartment Partners in Tampa, who handles investment sales.

Richa said that every deal he’s sold recently in the area “has some value-add component to it.” Cap rates on closed deals range from 6 to 7.5 percent, he said, attracting investors priced out of gateway markets that are “chasing yield” in Tallahassee.

THE DEAL

The Westcott Apartments is a 444-unit Class B+ property located at 3909 Reserve Drive, just five miles from the state capital building. Most of the apartments were built in 2000 (300 units), with an expansion completed in 2005 (144 units). The floor plans include one-, two- and three-bedroom units. Rents at the time of acquisition ranged from $950 to $1,250, and the occupancy rate was about 93 percent. Finlay said the trailing cap rate was 5.5 percent.

It’s a great asset in a great location,” he added. “It’s in an area of Tallahassee that we see a lot of expansion happening, so there’s still room for growth. And it’s very easy to get to downtown.

Public records disclose that Lloyd Jones, which took title to the property in the name of an affiliated entity named LJC Westcott LLC, paid $54.6 million for the property. The $57.8 million purchase price reported by the company represents its total investment, including its anticipated capital expenditures and rehab costs.

The Westcott Apartments Amenities

Finlay said he was presented with the opportunity by the listing broker, Jones Lang LaSalle’s Capital Markets Group, which also arranged a $40.3 million 10-year floating-rate mortgage through Freddie Mac on behalf of the buyer. The seller was Irvine, Calif.-based Oaktree Capital, and the deal took about 90 days to close.

The prior owners invested $4.8 million in capital improvements such as landscaping, playground updates, exterior painting, two clubhouse remodels, two fitness center upgrades and unit upgrades. In line with its management strategy, Lloyd Jones plans value-add upgrades and improvements to The Westcott’s existing amenities, which include two swimming pools, two fitness centers, playgrounds and tennis courts.

Finlay said he’s spending some $7,000 per unit to upgrade about a quarter of the units, adding granite countertops, tile backsplashes, stainless-steel appliances, vinyl-plank flooring, and washers and dryers—what Finlay calls “a standard upgrade package typical in a value-add strategy.” Although the program hasn’t been implemented yet, plans call for an average $125 rent premium for upgraded units.

After improving the units, repositioning the project and raising rents, Finlay expects to sell. “This will probably be a five-year hold,” he said. “The strategy is to do the improvements and try to operate the property more efficiently and then position it to sell in five or seven years.

CRITICAL NEED

The Westcott is just one example of Finlay’s strategy to capitalize on the critical need for workforce housing in the United States. According to the Joint Center for Housing Studies of Harvard University’s “The State of the Nation’s Housing 2018,” nearly one-third of all U.S. households paid more than 30 percent of their incomes for housing in 2016. For renters alone, however, the cost-burdened share is 47 percent. And of the 20.8 million renter households that are burdened, some 11 million pay more than half their incomes for housing and are severely burdened.

What we focus on is something that differentiates us from a lot of investment firms,” Finlay said. “We focus on the affordability of workforce housing.

He added that the firm’s first-year projected rents at The Westcott are at 25 percent of the median income for Tallahassee. “HUD basically stipulates that 30 percent is the guideline, and anything above 30 percent is considered rent-burdened,” he said. “We’re not even close to that 30 percent. We’re providing great housing for workforce families in that market when all the new stuff is unaffordable.

by Robyn A. Friedman

 

Click here for the full article

Lloyd Jones Capital Expands Reach into Latin America

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MIAMI, Fla. — Lloyd Jones Capital, a private, multifamily real estate investment firm headquartered in Miami, is expanding its reach with the addition of a Director of Investor Relations, Latin America. Carlos A. Rincon joins the Miami office in this new role that is designed to better service clients in Latin America.

Rincon, who hails from Venezuela, brings more than a decade of finance experience to the team. He began his career in 2003 as a real estate broker. Over the next few years, he held positions at both ABA Capital Markets Brokerage and Citi International Financial Services. Most recently, he engaged in business development in international and domestic markets at SmartInvest Capital, LLC. He received his bachelor’s degree in Economics in Venezuela from La Universidad del Zulia.

At Lloyd Jones Capital, Rincon leads the LATAM team in developing relationships with overseas clients. By having an experienced team dedicated to Latin American, the firm can provide exceptional service to clients.

“We’re excited to start reaching out to investors in Latin America,” said Chairman and CEO, Chris Finlay. “Carlos has already built some strong relationships in Venezuela, Argentina and other countries. Now that we have a LATAM team in place, we can cast a wider net without sacrificing quality in service.”

“This is a time for tremendous growth at Lloyd Jones Capital,” added Rincon. “I look forward to strengthening the team and reaching new investors throughout the continent. This expansion is just the beginning for Lloyd Jones Capital.”

ABOUT LLOYD JONES CAPITAL

Lloyd Jones Capital is a private real estate investment and asset management firm that specializes in the multifamily sector. With 35 years of experience in the real estate industry, the firm identifies, acquires, and improves multifamily real estate in growth markets throughout Texas, Florida and the Southeast. Lloyd Jones Capital provides a fully integrated investment/operations platform. Its property management arm partners with the investment team to provide unprecedented local expertise in each of its markets. Headquartered in Miami, the firm has offices throughout Texas and Florida. The firm’s investors include institutional partners, private investors and its own principals. For more information, visit www.lloydjones.wpengine.com.

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