Sustainable Senior-Housing Properties are Attractive to Everyone Involved

By: Colin Edelstein

as published in Scotsman Guide Edition, March 2013.

The recent tough economic times have taken a toll on the incomes of Americans across the board, and seniors — those age 55 and older — are no exception. As many seniors have looked for ways to reduce housing costs, the demand for high-quality, affordable rental housing has grown, far exceeding the current supply. This increased need has attracted developers and builders who recognize how energy-efficient, sustainable developments can help conserve energy and reduce residents’ monthly utility costs — making them an attractive option for economy-minded senior renters and investors alike.

Commercial mortgage brokers may work with investors who are interested in exploring this niche and are curious as to how energy-efficient improvements — with all the likely costs — can help their projects. Brokers who are familiar with this market can help clients understand how to meet the growing demand and how to offset potential costs with utility savings, tax credits, and more.

Understanding the market

Looking at demographics and how they can impact demand for senior housing can help commercial mortgage brokers see the future potential of this niche. A 2011 study conducted by Harvard University’s Joint Center for Housing Studies found that nearly 20 percent of all renters are 55 or older, and 13 percent are over 65. As the baby boomers age, that number likely will increase significantly in the next decade, according to the study.

With mounting financial pressures, senior renters must stretch their retirement dollars as much as possible. That is where cost-saving options that don’t compromise quality of life become more attractive. Green-building practices lower utility costs and are likely to be well-received by renters.

In fact, constructing energy-efficient, sustainable multifamily communities for seniors creates a positive chain reaction. Green design and construction attracts and retains renters, and when occupancy rates increase and remain high, investor goals and return benchmarks are satisfied quickly. Energy efficiency is not only important to the residents, but also to their adult children who often participate in the decisionmaking process about where their parents will live and frequently subsidize their parents’ lifestyle.

Commercial mortgage brokers should consider these factors when they assess the feasibility of a senior-housing project that has a focus on sustainability. Although it may be difficult to quantify the benefits, lenders certainly are interested in seeing high occupancy rates and strong tenant retention — both are signs of a stable and thriving investment.

Costs and financing

The costs of green features still may be a concern for many developers. That is why commercial mortgage brokers and their clients should be aware that when properties are built in accordance with the standards of the more common sustainable programs, the improvements may be cost-neutral. These improvements can save residents an average of 15 percent on monthly utility costs.

Easy improvements that can make a big difference include:

• Window glazing and insulation
• Low-flow plumbing fixtures
• Energy Star appliances (often attractive to renters)
• Resource-efficient design and building materials

In addition, many developers, in partnership with lenders and investors, are choosing to develop properties that offer more than the typical sustainable features. For example, some of the environmental features that can be in senior multifamily developments include:

• Roof-mounted solar photovoltaic panels that can produce more than 50 kilowatts of electricity
• A rainwater harvest system to provide treated water for toilets and outdoor irrigation
• Electricity-conserving geothermal heat-pump systems to heat and cool the common areas

The benefits of green improvements aside, these projects also may qualify for tax credits, depending on the work being done and the location of the project. These tax credits often offset the additional funds necessary, and can make financing these developments easier. Unlike market-rate projects, green features in affordable projects are likely to qualify the project for state tax-credit programs. The savings achieved through these credits should be a significant incentive for borrowers, making their projects more financially viable.

Mixed-use developments

Selecting the right location for a senior- housing project — particularly if it is part of a mixed-use development — is essential. In fact, it makes sense to build senior-living communities in established neighborhoods where residents’ adult children are likely to live nearby, and where shops, restaurants, services and public transportation are within walking distance.

Green, energy-efficient options also can be introduced in the development phase. For example, a developer can keep these improvements in mind during the demolition of an existing property. For example, materials like hardwoods and bricks can be reclaimed and reused in common-area flooring, custom-made shelving and cabinetry. Altogether, the reuse of building materials can divert an untold volume of material from the landfill, and reduce the requirement for new construction materials on-site.