Hear more insights on the future of senior housing development at the SHN reBUILD conference in Chicago. Buy tickets here for the event running Nov. 20-21.
Senior living companies have had a rough time with ground-up development in 2023 and 2024. Market conditions are rapidly evolving, but development is still not for the faint of heart on the cusp of a new year.
In the weeks leading up to last year’s BUILD conference in Orlando, the industry was seemingly gripped by anxiety about the future prospect of senior living development. Fast-forward one year later, we are weeks away from yet another BUILD conference – called reBUILD and held in Chicago this year – but the industry is still having a hard time getting development projects off the ground.
Senior Housing News caught up with two headlining panelists of our event this year, IntegraCare CEO Larry Rouvelas and Charter Senior Living CEO Keven Bennema, to discuss development conditions this year versus last. The bottom line is that things are still tough, but not impossible, for companies looking to grow through ground-up development.
“The ones that get development starts done in 2025 will tend to be the more entrepreneurial and creative folks,” Rouvelas told SHN.
Starting projects requires creativity, current development ‘ahead of the curve’
In the last four years, many senior living operators have had to rely on their longest-standing capital relationships to achieve new growth, even if that growth means reinvesting in a portfolio rather than new development.
Charter Senior Living in 2024 maintained an active pipeline of new development in tertiary markets, including a new, 80-unit assisted living and memory care project outside Nashville, Tennessee. That stems from a strong relationship with Charter’s main development partner DMK Development Group and creates a method to “rinse and repeat” on new communities in the future.
“We’re able to dial in the cost of construction, and when we deliver that certificate of occupancy, we’ve had 55% depositors on the day we open,” said Keven Bennema.
Charter Senior Living seeks out parcels of land, typically on a 6-acre site, to build one-level communities that don’t balloon the cost of construction through “incredibly efficient design.”
“The opportunities for development are there, but you just can’t look through the traditional high-barrier-to-entry markets,” Bennema told SHN. “We’ve just had the good fortune to find some success in secondary markets, and we’re going to continue to do that.”
By the end of the year, Charter will have started on six new senior living developments through this lean and efficient development model, with the same number of starts anticipated in 2025.
Bennema called the recent Fed rate cut “a very good start” toward operators accessing financing for new projects, but he forecasted lingering challenges for most senior living operators looking to build new. However, being aggressive now could pay dividends once fundamentals improve, he added.
“I believe that groups that go out over the next six months and start doing new developments are going to be very successful because they’re going to be ahead of the curve,” Bennema said.
Rouvelas believes the industry will see “growth in development starts” next year but face stiff headwinds from construction and lending costs.
“Whether that happens remains to be seen,” Rouvelas said.
‘Still a challenging market’
IntegraCare this year has undergone a “major makeover” of memory care conversions across its portfolio rather than building new, according to CEO Larry Rouvelas, as it’s “still a challenging market” to get projects started in.
Rouvelas views high construction and debt costs as barriers preventing new projects from getting off the ground, while some primary markets that saw increased development before 2020 struggle with lease-up velocity.
“When banks decide to reduce their exposure to commercial real estate, our little boat [senior living] gets caught in the withdrawing tide as it falls back, even though we do not share the same traits as commercial offices.”
With construction costs remaining elevated and banks showing less appetite to finance senior living development, Rouvelas said these two factors remain the industry’s biggest challenges, adding that he doesn’t “see those two factors changing very much” early in 2025.
“What I think is likely to happen, then, in order to get projects done, is that lenders and developers will be doing deals with regional banks that don’t have the same credit committee mandates to pull back from commercial real estate,” Rouvelas said.
To overcome those challenges, both IntegraCare and Charter Senior Living have chosen to pursue development in tertiary markets with lower barriers to entry, following market study research based on demographic-driven population changes.
Outside of the direct challenges to senior living development, Bennema believes that hiring and retaining competent employees will “continue to be the biggest challenge” to the senior living industry’s growth trajectory “in the coming years.”
Outlook starts slow but pace could quicken in 2025
The outlook for future senior living development remains murky and fraught with challenges, but both Rouvelas and Bennema think that construction will start to pick up by late 2025.
Bennema believes more senior living operators will accept less favorable conditions to start projects in 2025, with an increase in groups “loosening their pens and pencils” in the second and third quarters of next year.
“Those who take the chance, take the risk, take the leap, I think, they’re going to figure out a way to do it, and they should,” Bennema said. “But I really don’t think it will be a waterfall. I think that the end of the second or end of the third [quarter] is what I would put money on right now.”
But operators that have taken on projects and struggled with lease-up, facing debt covenants, could see a tougher hill to climb in 2025, with banks that financed such projects less likely to want to support new projects.
“It’s hard to persuade a credit committee to extend new loans to developers at that point,” Rouvelas said. “There’s just a tarnish on the asset class there. Once banks work those out, I think there will be more appetite for development lending.”
That could lead to operators focusing on distressed assets early in 2025 before seeking new financing in the latter part of the year as “one way it plays out,” Rouvelas said.
By starting development now that is precise and efficient, senior living operators could attract the attention of larger banks that will be “more bullish in ’25 to work with groups that have a track record and team to show performance,” Bennema added.
“The indicators for us are that 2025 is going to be as good, if not a little better, than 2024, and I can tell you 2024 has been a very good year for us,” Bennema said.