Healthcare Exec: 'Everybody Is Shooting For The Moon' On Assisted Living Rents

In land-constrained South Florida, developers of every stripe are scrambling for affordable sites as property values and construction costs soar.

Budgets can be especially tricky in the assisted living space, where meals and healthcare factor into the rents residents pay, panelists said at Bisnow's South Florida Healthcare Real Estate event last week. But developers are aiming high nonetheless. 

With baby boomers — the wealthiest generation ever — moving into their retirement years, investors have anticipated a need for more facilities tailored to elder care.

But the outlook "is going to be linked to available deals and expensive deals," Kenneth Weston Healthcare Real Estate CEO Kenneth Weston cautioned. "Everybody is shooting for the moon in terms of the $6K-a-month rent and not the $3K-a-month rent. And that, from the care perspective, there's very few places.

"So a lot of the assisted living residents are trying to put two people in a room. So instead of getting $6K a month [from one resident], they're getting two people that can afford to pay $3K."

Kraft Development CEO James Kraft said developers who add in things like meal services in order to charge higher rents risk that strategy backfiring on them as on-demand services proliferate.

For example, Kraft said, in downtown Fort Lauderdale, residents can move into a senior facility with a meal plan for $6K a month, but might instead opt for a beautiful, brand-new apartment for $3K a month and use the Cheesecake Factory next door as the meal plan.

Then again, the decision could be different for a 75-year-old versus an 85-year-old.  

Kraft said two main factors drive a person's decision about moving into a senior living facility or a nursing home: where their children live and what they can afford. And often, the decision-maker is not the elderly resident, but younger family members. 

"The key demographic really is the 56-year-old eldest daughter, because she's the one who's going to care for mom," Kraft said. 

The panelists also discussed how changes in regulations and technology are affecting the healthcare real estate market.

Florida this year eliminated its Certificate of Need program, through which regulators determined where and when medical facilities could open. That opens the doors for proliferation of more facilities — and increased competition.

Jackson Health System Chief Operating Officer Don Steigman pointed out that Jackson started building a new hospital in Doral, even while it was fighting a costly legal battle to be allowed to open it.  

"We have spent millions of dollars over the last four years fighting this in court for the demand of putting a new hospital out there. So, to us it's been a positive and we were forward thinking in this by going ahead and putting the hospital there with a 60K SF office and parking structure," Steigman said. "We made a decision three years ago that we were going to shell in this space for the hospital and we would fight the battle for this certificate of need. Well, with that going away, we'll be able to continue to get back on track."

Healthcare Trust of America Senior Vice President Todd Sloan said the CON repeal could positively impact the medical office building industry because of the ability to tap previously unmet demand. But he acknowledged that the added competition could wind up hurting the facilities that have long existed in some communities.

"It could be a detriment ... if you own the one medical office building attached to the one hospital in an area that's been serving the community, and no one's been able to build a competing hospital and then someone comes and does and puts a medical office building on that campus," Sloan said. "There's certainly a risk that you would lose some tenancy to that. But overall, big picture, I would assume that it would be a plus."

Steigman highlighted one immediate change: Surgery centers are now allowed to keep patients longer.

"Before, it was 23 hours. You had to get the patient out by midnight, otherwise you'd have to transfer the patient to a hospital setting," he said. "With the change in a certificate of need, one of the changes is you can keep the patients for 24 hours. So some of the surgery centers will be doing that, and I'm sure they will be selecting their patients cautiously." 

As for new technologies, Baptist Health Vice President of Real Estate Kathleen Moorman said 5,000 cameras in her health system's multiple facilities monitor air conditioning, operating rooms and parking lots.

"We have it all in," Moorman said. "I like to call it the 'bat room,' but just think of it as a dark room that's operated 24/7, and every facility's being monitored for security, safety, comfort, etc. And that also drives down the costs to be much more efficient." 

Healtor, an Airbnb-type technology startup, has started a service to let owners of medical office space share their premises with individual practitioners, CEO Kirat Kharode said. Like Airbnb, it can help users find and try out unique spaces.

"We're basically helping fill space and keeping them compliant and managing them," Kharode said. "There's one in Portland that actually went into what's more or less an opportunity zone, created a medical office building in a house and also has a farm-to-table [restaurant]. So there, they're checking the box of addressing food deserts as well as medical office, bringing physicians [to] a healthcare desert."