Assisted-Living Units to Open in Hollywood
A Houston firm is betting that Los Angeles needs many more assisted-living apartments for the elderly, despite a nationwide slump in that segment of the senior housing industry.
BelmontCorp. is scheduled to open its first assisted-living apartments in early December near the Hollywood Bowl, and the company plans to build at least three more assisted-living centers in the L.A. area in the next few years, including a 147-unit project under construction in Burbank.
The opening of the $21-million, 115-unit Belmont Village in Hollywood comes at a troubled time for the assisted-living industry, which provides apartments for senior citizens--usually 75 and older--who need help with such tasks as dressing, bathing and shopping but aren’t frail enough to need a nursing home.
The assisted-living segment of the senior housing industry is reeling from overbuilding and financial problems that have sent several of its publicly held companies into bankruptcy and have prompted analysts to describe the business as “abysmal” and “dismal.”
But BelmontCorp. believes the supply of assisted-living apartments in Los Angeles falls far short of demand, said Patricia Will, the company’s president and co-founder.
Most of the publicly held assisted-living companies “have performed very dismally,” Will said, but she blames their poor performances on such blunders as building too many assisted-living units too quickly in rural areas where there is little demand. BelmontCorp., a private company that is 99% owned by Santa Fe, N.M.-based Security Capital Group Inc., has a different strategy. The company plans to build in densely populated urban areas with lots of seniors because, Will said, many seniors don’t want to move to assisted-living centers in less urban states even if rents are cheaper.
Although building assisted-living centers in Los Angeles is costlier and more time-consuming than building in many other parts of the country, Will said, those obstacles make Los Angeles a more attractive investment than places where builders created a glut of units in the mid-to-late 1990s.
The building boom has subsided, according to analyst James Kumpel of Raymond James & Associates, because investors have stopped pouring capital into assisted-living developments. But the industry still suffers from an oversupply of units, said Kumpel, who described California as “relatively underdeveloped versus the rest of the country because it costs too much to develop here.”
The most overbuilding occurred on the East Coast, in the upper Midwest and in Arizona, said David Lacy, director of the senior housing division at Los Angeles-based Ramsey Shilling Co., a commercial real estate brokerage.
Although Lacy agreed that demand for assisted-living units is bound to increase, he disagreed with BelmontCorp.’s estimates about supply and demand. BelmontCorp. said the Los Angeles area has about 5,000 units to serve 67,000 seniors who can afford the $3,000-a-month rent. Lacy said the region has closer to 9,000 units in that price range and that the number of potential renters is considerably smaller than BelmontCorp. estimates.
“The actual demand is a subject of debate,” Lacy said. No one has conducted a reliable, comprehensive study of the call for assisted living, he said.
L.A. could face an oversupply of assisted-living units, Lacy said, especially in the San Fernando Valley. About 10% of the 2,300 assisted-living units in the Valley are empty, he said, with about 1,200 new units planned for construction in the next several years.
Southern California does face a shortage of affordable assisted-living facilities--with rents well under $1,000 a month, said David Stolte, director of senior and affordable housing for Charles Dunn Co. commercial real estate brokerage.
The need for affordable units represents “one of society’s most compelling issues,” Will said, because the gap between supply and demand is rising every year.
“The problem,” she said, “is that there isn’t a way to form capital in the private sector and to earn a rate of return for an affordable product, not only because of the cost of the real estate, but because of the cost of providing the services.”
Building affordable assisted-living apartments is much harder than building affordable apartments for the public, Will said, because the cost of providing assisted-living services is about $1,000 a month per resident.
For example, Will said Belmont Village will have a staff of 100 full-and part-time workers to provide meals and snacks, entertainment, social activities, physical fitness programs and personal care, including assistance with bathing, dressing and grooming.
This broad range of services provided by assisted-living operators means the business is “part real estate, part hospitality and part health care,” analyst Kumpel said.
Kumpel agreed that demand for assisted living will continue to grow as the population ages, but he said the capacity to pay often is overlooked by those who make optimistic projections about the industry.
The stock market slump and the slowing economy, he said, have reduced the ability of seniors and their children to pay for assisted living.
Prospects for the industry should improve in the long term, Kumpel said, because construction of new facilities has fallen off since investors stopped pouring capital into assisted-living companies at the end of 1999. Still, he said, demand will take several years to catch up with supply.
