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Investors Give Aging Commercial Buildings New Life as Senior Living Complexes

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Multifamily investors are finding new redevelopment opportunities in the senior living sector by acquiring and converting vacant commercial properties into seniors housing.

As corporations leave the suburbs for urban settings to attract millennial talent, they are leaving behind vacant office campuses that real estate investors have discovered are ideal for seniors housing communities.

Commercial properties that may have fallen out of favor due to a challenging location can find a second life as senior housing. Properties that aren't accessible by public transit, for example, may be unable to garner high enough rents to justify renovations as a value-add office play. Yet such a location could be perfect as residential living for older adults who have little need for transit.

Major Players

Marriott International's corporate headquarters in Bethesda, Md., is one of the highest profile examples of this emerging trend. Seniors housing developer Erickson bought the 34-acre Marriott office park earlier this year with plans to develop a continuing care retirement community.

In Fairfax, Va., Peterson Cos. hopes to transform SRA International's former headquarters into a continuing care campus and townhomes. And last year, National Development and Epoch Senior Living Inc. partnered on a plan to transform GE Capital's former Stamford, Conn., headquarters into a luxury senior living complex.

This isn't just an option for real estate investors acquiring large corporate campuses in the suburbs. Conversions of commercial properties into senior living communities are also underway in central business districts, with transactions involving a range of property types and sizes.

Greystone Brown Real Estate Advisors last year negotiated the sale of Presidential Tower, one of Atlanta's most recognizable buildings. Built in 1973 as the Presidential Hotel, the 15-story cylindrical tower later became condos. Now it's slated to become seniors housing.

On Milwaukee's east side, two entities are seeking zoning approvals to develop the six-story Fenwick Building into a 58-unit senior living center.

Long-Term Demand

Although senior housing has experienced some supply/demand imbalances and a constrained labor supply in certain markets, it's on track to sustain long-term demand, driven by the aging baby boomer generation.

The Joint Center for Housing Studies of Harvard University projects the demand for affordable, accessible housing for older adults that includes health supports will increase as baby boomers start to turn 80 in less than a decade.

Currently, someone 50 or older is in charge in at least half of the nation's households, with baby boomers (born 1946 to 1964) driving much of the senior housing growth. The number of households headed by adults in the 65–74 year-old age range climbed 26 percent from 2011 to 2016 to more than 17 million, according to JCHS.

Investors Wanted

Commercial real estate brokers are becoming astute at identifying which vacant properties could be ripe for repositioning and are marketing these as redevelopment plays. That was the case with the sale of Marriott's corporate headquarters site, which is an affluent area with plentiful retail.

PwC and Urban Land Institute (ULI) ranked seniors housing as the second highest investment prospect for the U.S. and Canada, among 24 commercial/multifamily sectors, in their Emerging Trends in Real Estate 2019 report. For development prospects, seniors housing ranks third.

Caution certainly is advisable at this late stage of the real estate cycle, but PwC and ULI note in their report that investors in seniors housing who partner with solid operators in strong markets are seeing outsized returns.

Real estate investors will want to keep an eye on this redevelopment trend in the senior housing segment to take advantage of market opportunities that might present themselves.

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