2000 08 152.
3.
4.
5.
6.
7.
Adjourm, nent
AGENDA
CHANHASSEN SENIOR COMMISSION
TUESDAY, August 15, 2000
9:30 A.M. TO 12:00 P.M.
CHANHASSEN COUNCIL CHAMBERS
Approval o£ agenda.
Visitors Presentation.
Congregate Dining & Meals on Wheels.
Update on Senior Center Activities.
Senior Housing Market Update, by Maxfield Research Inc.
Senior Commission Budget.
Senior Commission Comments.
senior
housing
ma.r {¢: -,u cate
update
Foreword
Maxbield t~eaearch ia pleaaed to preaent our Senior Houaing Market Update 2000. The intent
thia repo~ to prouide the induat~ with accurate mariner information critical to the evolution
ob thia dynamic induatr)/. We truat that it will be an../.~mportant re~erence toot bar owner&
lender& deuelopera and manager& or anyone who ~ollowa the aenior houaing induatry.
For over ten yeara Max~ield Reaearch haa been tracking the aenior houaing mariner through a
comprehenaive annual aurvey ob all market-rate aenior houaing developmenta in the Twin
Citiea Metro Area. The data collected brain our aurvey providea our clienta with the moat
current market trenda and inaightbul anal~vaia.
The information contained in thia report waa collected by Max~ield Reaearch through telephone
aurveya conducted with individual property managera and ownera and ia accurate to the beat
ob our I~nowledge. The data waa collected during the ~irat and aeeond quartera ob each year.
The aurvey ia limited to marlcet-rate and 'a~ordable" aenior developmenta. A~bordable
houaing ia debined aa houaing with "liberal" ineome-reatrictiona and act renta (albeit, alightly
below marl~eO veraua aubaidized projecta where renta are ~pically baaed on a aliding acale
(generally 30 percent ob adjuated houaehold income) and are geared toward very low income
aelliora
We hope you ~ind the information contained herein helpful in your endeavora. I, peraonally,
would lilce to thanl~ all ob the property managera and ownera that have reaponded to the
aurvey now and in yeara paat ~or without them, the information in thia report would not be
poaaible.
Sincerely.
Rick Fenake
Vice Preaident/Director ob Senior Houain~
Maxbieid Reaearch Inc.
Page I
e t
update
The State of the Senior Housing Market
From its inception, senior housing has evolved into a complex continuum of products
which are designed to accommodate the lifestyle needs of an extremely diverse market;
from younger active seniors who may simply desire freedom from maintaining a single-
family home to ~ery frail seniors in need of housing with support and personal care
services. Today, senior housing is one of the fastest growing and most complex real
estate segments.
As of the end of 1999, there were 18,565 market-rate and affordable senior housing
units in the Twin Cities Seven County Metro Area (TCMA). This represents an
increase of nearly 8,400 units during the 1990s. In comparison, there were only about
6,000 general occupancy rental units built in the TCMA during this period. Figure I,
below, depicts the rapid growth of the senior housing market in the TCMA.
20,000
18,000
16,000
o~
14,000
12,000
10,000
8,000
6,000
4,000
2,000
Figure 1
Senior Housing Units
TCMA
Year
Between 1980 and 2000 more than 17,000 senior housing units have been built, an
average of 855 units per year.
Page 2
update
Despite the rapid growth of the industry, the local senior housing market remains very
strong. Our most recent survey, conducted during the first and second quarters of this
year, revealed an overall industry vacancy rate of a mere 2.5 percent. This represents
the eighth consecutive year in which vacancy rates have remained below the market
equilibrium rate of 5.0 percent, indicating that demand continues to exceed supply.
It is important to remember that the local senior housing market has not always been
this healthy. A boom in senior housing accompanied the boom in other commercial real
estate during the mid- 1980s. But just as other commercial real estate crashed in the
late 1980s and early 1990s, so did the senior housing market. High vacancy rates and
slow absorption rates were common and se.v~eral existing developments were converted
to general occupancy housing while many planned developments were put on hold or
tabled altogether.
Aside from over eager lenders, several conceptual flaws also led 'to the bust in senior
housing during the period. Developers misread the market, believing that recently
retired, still active seniors would be the primary market. Projects were often oversized,
requiring substantial lease-up periods which many over leveraged projects could not
tolerate. Development slowed considerably in the early 1990s as the industry
entrenched. With limited new product coming on-line and market acceptance of senior
housing increasing, demand caught up with the supply and vacancies steadily declined
during the early 1990s. During the first half of the 1990s, the overall market vacancy
rate declined from nearly 12 to just over 4 percent in 1993, and has remained below 5
percent since. Figure 2 on the following page displays senior housing vacancy rates for
the TCMA from 1990 to present.
Page 3
update
12.0
10.0
8.0
Figure 2
SENIOR HOUSING VACANCY BATES
TWIN CITIES METRO AREA
1990-2000
6.0
4,0
2.01
: 2.4
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
The market began to rebound in mid-decade with the advent of assisted living.
However, the variety of types of development (cooperatives, age-restricted townhomes
and memory care), also contributed to the expansion as new market segments were
tapped. Today, many compare the current assisted living boom to the boom in
congregate housing that occurred in the mid- 1980s. However, both lenders and
developers have become savvier and the dramatic overbuilding of assisted living housing
that many predicted has yet to occur. However, this could all change very quicldy as
increasing numbers of national developers have been eyeing the local market.
The history of senior housing in the Twin Cities. Figure 3 displays TCMA senior
housing construction trends. Clearly illustrated is the mid- 1980s boom with
construction peaking in 1988, when just over 2,000 units were brought on-line. The
graph also reveals the bust period of the early 1990s and the steady resurgence that
began in the mid- 1990s and continues today. Between 1986 and 1988, the apex of the
boom, an average of 1,760 units were added to the market annually. This was followed
by the addition of only 540 units per year between 1989 and 1994. During the second
half of the 1990s, an average I, 100 units were brought on-line; doubling the absorption
rate of the first half of the decade. The short-term outlook reveals that this resurgence
should continue into the foreseeable future with just over 3,000 units expected to come
on-line during the first two years of this decade.
Page 4
update
2,400
2,000
1,600
1,200
8OO
495 440
Ji.I
0
Figure 3
NUMBER OF UNITS BROUGHT ON-LINE
TCMA
1980 to 2001
Year
Types of senior housing. In order to monitor the health of the submarkets within
the senior housing continuum, Maxfield Research Inc. has developed the following senior
housing classifications based on the level of support and/or personal care services
offered.
· Adult/few services, provides very few (if any) services,
· Congregate projects typically offer services such as transportation, meals and
housekeeping either for an additional cost ("optional services") or included in
the fee ("service-intensive").
· Assisted living, the highest service level includes at least two daily meals, along
with personal care (e.g. assistance with bathing/dressing).
· Memory Care assisted living housing is specifically designed and programmed
for persons inflicted with Alzheimer's Disease or other dementias.
Contributing to the expansi.on of the senior housing industry is the variety of product
available in today's marl<et. As the graph below shows, senior housing construction in
the 1980s was dominated by congregate housing. This lack of product differentiation
led to the market's bust at the end of the decade. Since the early 1990s, however,
development has been more balanced across product types. Over the last few years,
Page 5
S e n i o r
however, development has been somewhat polarized with construction concentrated at.
the opposite ends of the service continuum with greater numbers of adu{t and ass{steal
{{ving product being deve{oped.
Figure 4
PROJECT TYPE BY YEAR BUILT
TCMA
......................... i Memm~,r Care 2,100
I [] Assisted Living 1,800
I ' r-I Congregate
~ -- ~ o
YC.~i r
Figure 5 shows the current distribution of Twin Cities senior units among the various
product categories. Slightly less than half (48%) Of the Metro Area's senior units are
within congregate projects (30% offer optional services and 18% include at least some
services in the rents). Adult/few services projects account for 35 % while assisted living
comprises 17% (of which 3% is memory care housing) of all units.
Page 6
update
SENIOR HOUSING
Figure 5
DISTRIBUTION BY SERVICE
LEVEL
TCMA
July 2000
Congregate/
Optional Services
30%
Memory Care
3%
Geographic Distribution. Figure 6 on the following page shows the number of senior
housing units in each quadrant broken out by the service level. The Southwest Metro has,
by far, the largest number of senior housing units (nearly 5,200 units) and comprises nearly
30 percent of the Metro Area's market rate senior housing units. The Northwest quadrant
has the second largest number of units (4,212 units) with 24 percent of the Metro coral,
followed closely by the Northeast (3,870 units) with 22 percent. Minneapolis (I,842 units),
the Southeast Metro (I,331 units) and St. Paul (I,260 units) have seen far less construction.
Congregate housing dominates in Minneapolis (72% of all units) and the Southwest (62%),
while adult/few services projects have proliferated in the Northeast (52% of all units).
Assisted living housing currently comprises between 10 percent (Minneapolis) and 22
percent (St. Paul and the Southeast) of the senior units in each quadrant.
The large number of adult units in the Northeast Metro is primarily the result of a
concentration of affordable "cottage-style" housing product. The majority of these
Page 7
update
projects was financed with tax-credits and have relatively liberal income restrictions and
rents slightly below market rates. This product has been particularly successful, capitalizing
on the large moderate-income markets found in the Northeast and Northwest suburbs.
Figure 6
SENIOR HOUSING DISTRIBUTION BY PRODUCT TYPE AND
QUADRANT
TCMA
6,000
5.000
4.000
3.000
2.000
1,000
L
[~ Assisted Living
[] Congregate
I~Aduh
SY, V. N.W. N.E. M pis. S.E. SP
Q u adran t
Affordable units account for nearly 35 percent of all senior housing units in the Northeast
quadrant and slightly more than one-half of the adult product. The Northwest quadrant
also has a substantial number of affordable units, however a significant number of these
units are in older apartment buildings that have been converted to senior housing over the
years or projects that have been developed by municipalities (i.e. Champlin, Plymouth,
Maple Grove). Still, affordable units comprise only about 20 percent of the units in the
Page 8
update
The Twin Cities Metro Area
: -'4 ~,.~.~ ": ::.. "?.':..',':-" ' ,,,~' ,, "-.~."..~._~ .. ~'.?.. , :" ' ·
· ;' "..: "." ~ "' 4 "~ --' : · : /:." ." · ~," ·
~.~, i i ' ~"-""'"~'--"" i .._
Northwest quadrant. In contrast, affordable housing accounts for between 3 percent
(Southwest quadrant) and 13 percent (Southeast) of remaining quadrant's senior units.
Page 9
update
It is important to note that the Dakota County Community Development Authority has
and continues to be active in developing senior housing. Over the last decade, the CDA
has built a dozen projects with just over 660 units. The projects have successfully
maintained near full occupancy with significant waiting lists. However, the projects
primarily serve Iow-income seniors with rents based on a percentage of the household's
income. Thus, the majority of the Dakota County CDA units (562) were not included in
our survey of the Metro Area's affordable/market-rate developments.
Vacancy Rates. Figure 7 below shows the number of units and vacancy rates by product
type in each of the Metro Area's quadrants during the first and second quarters of this
year. ,.,
Figure 7
SENIOR HOUSING VACANCY MATRIX
TWIN CITIES METRO AREA
2000
Congregate
Adult/Few Services Optional-Services
Units Vac. Rate Units Vac. Rate
Mpls. 330 0 0.0% 1,289 68 5.3%
N.E. 2.063 19 0.9% 642 3 0.5%
N.W. 1,733 13 0.8% 1,258 31 2.5%
S.E. 576 4 0.7% 327 3 0.9%
SP 356 0 0.0% 239 5 2.1%
S.W. 1,236 18 1.5% . 1,503 3 0.2%
Total 6,294 54 0.9% 5,258 113 2.1%
Congregate
Service-Intensive
Units Vac. Rate
45 4 8.9%
427 6 1.4%
542 2 0.4%
129 0 0.0%
390 22 5.6%
1,738 17 1.0%
3,271 51 1.6%
Total
Independent
Units Vac. Rate
1,664 72 4.3%
3,132 28 0.9%
3,533 46 1.3%
1,032 7 0.7%
985 27 2.7%
4,477 38 0.8%
14,823 218 1.5%
Miffs.
N.E.
N.W.
S.E.
SP
S.W.
Total
Assisted Living Memory Care
Units Vac. Rate Units Vac. Rate
178 2 1.1% 0 0
630 45 7.1% 108 12
519 39 7.5% 160 43
228 0 0.0% 71 19
275 15 5.5% 0 0
595 21 3.5% 118 20
0.0%
11.1%
26.9%
26.8%
0.0%
16.9%
2,425 122 5.0% 457 94 20.6%
Source: Maxfield Research Inc.
Total Assisted Living
Units Vac. Rate
178 2 1.1%
738 57 7.7%
679 82 12.1%
299 19 6.4%
275 15 5.5%
713 41 5.8%
2,882 216 7.5%
Gm'and Total
Units Vac. Rate
1,842 74 4.0%
3,870 85 2.2%
4,212 128 3.0%
1,331 26 2.0%
1,260 42 3.3%
5,190 79 1.5%
17,705 434 2.5%
Page I0
update
While the senior market as a whole is healthy (with a current vacancy rate of 2.5%), the
market for independent senior housing (defined as "adult" and "congregate" housing) is
especially strong, with an overall vacancy rate of 1.5 percent. Adult projects have a vacancy
rate of just under 1.0 percent while congregate projects have a combined vacancy rate of
only 1.8 percent.
Conversely, the Metro Area's assisted living projects have a vacancy rate of 7.5 percent.
Due to high turnover rates in assisted living housing (anywhere from 35 to 50 percent per
year), a 7.0 percent vacancy rate is considered healthy in the assisted living market.
Nationally, assisted living housing has seen vacancy rates of 9 to I 0 percent over the past
three years. The Metro Area's assisted living vacancy figure is somewhat deceiving in that
traditional assisted living currently has a healthy'~'.0 percent vacancy rate. Meanwhile~ the
memory care market appears to be experiencing short-term saturation with an industry-
wide vacancy rate of nearly 21 percent. However, a closer examination reveals that the
vast majority of the vacant memory care beds and a significant number of the vacant
assisted living units are located in one I~rge national chain's facilities. Their memory care
facilities, in particular, have been under performing with nearly 36 percent of the beds
vacant. While marketing and management issues have factored heavily in the firm's less
than stellar performance, there has also been resistance to the firm's shared-suite assisted
living model.
Another national assisted living chain has also experienced slow fill rates in two of its three
local facilities. Overall, 12 percent of the chain's assisted units were vacant at the time of
our survey.
These two providers currently comprise nearly 20 percent of the market's assisted living
units and one-half of the memory care beds, yet account for roughly 40 percent of the
vacant assisted living units and nearly 95 percent of the vacant memory care units in the
Metro Area.
The local market's remaining assisted living and memory care facilities have been
performing well with overall vacancy rates of 3.6 and 2.4 percent, respectively.
Each quadrant in the Twin Cities posted overall vacancy rates of less than 5 percent. The
Southwest quadrant had the lowest overall vacancy rate at (I.5%) while Minneapolis posted
the highest (4.0%). In Minneapolis, two projects accounted for three-quarters of the
vacancies. Both projects are older and located in somewhat less desirable neighborhoods.
The vacancy rate among the remaining Minneapolis projects was 1.2 percent and the
median vacancy rate was 1.4 percent.
Page II
update
Figure 8 reveals vacancy rates for independent senior housing have remained remarkably
stable over the last several years with only slight variations from year to year. Adult
product has seen vacancy rates drop from 1.5 percent in 1997 to 0.9 percent in 2000,
while congregate housing has seen consistent vacancy rates of between 1.7 and 1.9 percent
over the last four years. Vacancy rates for the assisted living market have been slightly
more volatile. Vacancy rates declined slightly between 1997 and 1998, despite a substantial
increase in units. However, vacancies fell dramatically in 1999, as the market absorbed
these units. The increase in vacancies over the last year was primarily due to the significant
growth in memory care housing which has yet to gain full market acceptance.
Figure 8
VACANCY RATE BY PRODUCT TYPE
1997-2000
10'%
8%
6 '36
4 %
2'%
0%
[] 1997
[] 1998
[] 1999
[] 2000
9.9%
·
Adult Congregate Assisted Living Overall
Currently, four out-of-five Metro Area senior units are rental. However, the market for senior
ownership housing is strong and growing. The recent resurgence in cooperative housing, the
introduction of age-restricted townhomes and the recent addition of an age restricted single-
family subdivision are all creating more diverse options for today's seniors. As of the first half of
2000, there were nearly 3,600 units of owner-occupied senior housing in the Metro Area
including just over 2,000 cooperative units. Overall, for-sale housing had a vacancy rate of less
than 1.0 percent. The Iow vacancy rates in owner-occupied housing product are aided to some
Page 12
update
degree by the build-to-suit character of these projects. Currently, only about one-third of the
owner-occupied senior housing in the Twin Cities offers support services.
Demographic projections. The aging baby boom population should ensure increasing demand
for senior housing well into the first half of this century. As of 2000, there are 206,000 persons
age 65 and older in the Twin Cities Metro Area. The senior population is expected to increase
by approximately I 15,000 persons (55%) over the next two decades alone. The Twin Cities'
senior population is projected to grow by just over 28,000 persons (I 6%) this decade and by
nearly 86,000 persons (36%) between 2010 and 2020 as the leading edge of the baby boom
begins entering their mid-60 next decade. The majority of the senior population growth over the
next two decades, however, will come from perso? age 65 to 74. These younger seniors will
comprise 70 percent of the Metro Area's senior i~opulation growth this decade, and 80 percent
of the growth over the next decade. Although the primary market for senior housing is persons
age 70 and older, demand for senior housing will continue to increase, particularly for product
geared towards the active, independent lifestyles of recent retirees. While demand for more
service-intensive senior housing may not see the same growth potential, life expectancies and
seniors' incomes are increasing. This coupled with greater awareness and acceptance of these
housing options should equate to higher market capture rates. Furthermore, the peak of the
baby boom will not begin turning 65 until after 2020 and thus, demand for senior housing should
remain strong in the following decades.
Figure 9
Senior Population Projections
TCMA
2000 - 2020
200,000
175,000
150,000
125,000
100,000
75,000
50,000
25,000
0
103,780
65 to 74
191,560
~2000
~2010
~2020
I r;2,490
Age Cohort
75+
Page 13
update
Market Absorption. The number of senior units brought on line during 1999 topped the
1,000-unit mark for the fourth time in the last five years. During this period, vacancy rates fell
from 3.8 to 2.5 percent, resulting in an average annual absorption of about I, 100 units. Despite
the significant absorption, we believe pent-up demand exists for additional senior housing
product, particularly, independent senior housing. Based on current market conditions,
another 500 independent senior units would need to become vacant in order to bring the
independent senior market up to equilibrium.
Strong senior household growth, a tight overall rental market and greater acceptance of the
senior housing concept should lead to the local market's ability to absorb a significant number
of senior units in the coming years.
We project demand for roughly 1,200 units of market-rate senior housing annually in the Twin
Cities over the next decade. In order to achieve this rate of absorption, the market will need
to respond with continued diversification in product types that meet the needs and preferences
of the market.
Figure I 0 shows the effect of new units on the overall vacancy rate of senior housing in the
Twin Cities over the last decade with our projections through 2002.
Figure l0
SENIOR CONSTRUCT[ON/VACANCY TRENDS
TCMA
1990 to 2002
1,600
'----~ ~ New Units
11
,400 ~ Vacancy Rate
,200
1,000 8'z' s.~77774
800 74
600 539
388 414
400 361
3.5
20O
0
1990 1991 1992 1993 1994 1995
1,236 1,218
1.072 1.068
947
2.?
1996 1997 1998
Year
Projected
m ~ '~ 3.2
~ = 2.8
2.4 2.5
1999 2000 2001 2002
12.0
I0.0
8.0
6.0
4.0
2.0
0.0
Page 14
update
Based on recent absorption trends coupled with an examination of the mix and geographic
distribution of the units that are expected to come on-line through 200 I, we believe vacancy
rates will increase only slightly over the next two years. We project vacancy rates will increase
to about 3.2 percent by 2002.
Currently, there are several constraints that may hinder the market's ability to achieve this
level of absorption into the future, including:
a lack of quality sites
increasing land/construction costs
increasing labor/service costs
· limited funding sources for add!.tLonal affordable housing
· declines in the availability of capital, particularly for assisted living developments
as other national markets become saturated
· workforce shortages, particularly among healthcare workers
· potential for regulation of the assisted living industry
· growth in the home health care industry
Conclusions
At present, the TCMA senior housing market is strong. Most sub-markets have high growth
potential (senior households). High occupancy rates and rapid absorption in independent
housing indicates pent-up demand exists in nearly all markets with the potential to develop
additional product throughout the Metro Area. While some submarkets could experience
saturation in assisted living product over the short-term, we believe this will likely be
temporary, as the demand for assisted living should continue to grow as the population ages.
Assisted living housing should remain strong in developments where a continuum of care exists
and as the independent components feed into the more service-intensive components. The
aging of the baby boom population into their retirement years will also create an enormous
potential for adult developments that cater to the active lifestyle of this independent market
segment.
Given projected growth trends and current market conditions, the demand for senior housing
in the Twin Cities should average about 1,200 units per year over the next decade with the
potential for higher absorption as the peak baby boomers hit their retirement years. New
construction should satisfy much of the demand, but potential also exists to convert other
Page 15
update
housing developments to senior housing as the population ages. Older rental or condominium
buildings with a majority of studio and one-bedroom units may be reconfigured to have larger
one-bedroom or two-bedroom units and/or may need to reposition themselves by adding
services to meet the needs of residents as they age in place. Also, the market for moderately
priced affordable senior housing is substantial, particularly for product that would offer suppo~c
and personal care services.
Page 16