Nancy Myers is managing director for Colliers International in Chicago, serving as U.S. national practice leader and senior housing valuation advisor. Her extensive experience includes a specialty in senior housing and health care properties, including independent living, assisted living, memory care, skilled nursing care and continuum of care facilities. In the Valley region, Colliers has offices in Valencia and Encino. Question: What is the demand for nursing homes in Southern California? Answer: I would say the need has decreased. What’s happening is, we’re living longer, and assisted living, which is a lower acuity of care and, frankly, lower cost of care, has become increasingly popular. They’ve been able to provide services that allow seniors to reside in those facilities longer, rather than having to go to a nursing home. A lot of states have placed moratoriums against new skilled nursing home development because they are suffering from high vacancies. So where are the growth sectors? There is one area that is atypical with respect to the demand for nursing homes, and that would be the short-term rehabilitation product, which has increased in popularity. It is being developed new these days, and it is a high-end product. It usually benefits from being able to get Medicare, short-term rehab revenues, which can be very high. But those aren’t your typical nursing homes. Those are facilities that take people for 40 to 60 days and then they go back home, or they go back to assisted living. What are typical prices for care? For those who pay by private insurance out of their own pockets, it ranges somewhere between $300 to $400 a day. When you get into the other types of pay, like Medicare for the short-term rehab, it can go as high as $500 per day. That’s based on what kind of care you’re getting on a daily basis. How is nursing home development different? It is a heavily regulated industry, so when it comes to the planning and development stages, you’re factoring in not only what the market is demanding in terms of modernity and design, but you’re also having to factor in requirements that come from the state, department of health or the department of senior services. How about red tape and pitfalls? There are some things, such as how much square feet per bed you have to have in a given room. Privacy is a big issue. Provision of privacy, privacy gauze, privacy curtains, are regulated and mandated. Then obviously, things come into play with oxygen, soiled linen storage and care. They are all part of the building standard, and how you have to build the venting and HVAC systems; it’s definitely a higher burden. Can you give an example? I was brought in as a consultant on a situation where a non-profit property owner, in a very highly sought-after piece of land, had an existing care home, and had decided to expand it to include a nursing home and assisted living facility. The only way they were going to be able to add the nursing home was that a nearby facility and its owner had decided to close the home and relocate those licensed beds from the facility that was closing to this new facility. He was coming in as a joint venture partner with those beds in his hand, and then he reneged on the deal and backed out when they were mid-construction. They essentially had a half-built facility that they didn’t have any licensing to serve beds in that facility. It was tragic, and there was litigation that ensued. That’s why it really takes expertise to get into that particular product. (Now) they have completed the assisted living facility section of it and gotten it off the ground, because that doesn’t have the same moratoriums or denials on it that higher acuity does. What factors determine the design of the property? With nursing homes, modern ones are single story. Because of the ambulatory issue with residents and the issue you get into with staff circulation when using elevators, you want a level and fairly expansive site so you can use that single-story design model. Are certain neighborhoods preferable? It all comes down to demand for the product according to the demographics. Proximity to a major medical center is always a plus. Proximity to public transportation for your workers, because most of those nursing assistants are not highly paid positions and they use public transportation more often than not. What is the best size for a home? Generally speaking, it’s not square footage; it’s going to be a bed. In the current environment, you’re going to want to fall in the 50 to 90 bed range at most. You have certain economies that you achieve with your operation when you have a certain size. Regulations will require that you have X number of nurses on staff, at a minimum. If you have a small bed count, you may be having to pay wages for more staff than you need. If you get to a certain tipping point on your economies, between how many beds you have and how many nurses you have, then you benefit. How does that affect development? A nursing home developer, even though it is a piece of real estate, they are in the game because they know those operational eccentricities. They’re not going to develop something that doesn’t make room for those economies. I suspect that’s why California has smaller facilities. It is such a large state, and the population centers are spread out, so my guess is they are building smaller facilities in markets that have a higher demand. That means that they can capture that demand well in terms of their operating costs. What’s next for development? A lot of the existing nursing home stock is aging. Most of the nursing homes were put on their sites in the ’60s, ’70s, maybe a few in the ’80s. The physical plants are aging, certainly in terms of having an appeal in the marketplace and being able to maintain the quality of the real estate and the operation inside it is deteriorating by the day. I think probably what will happen is that there will be a call for redevelopment, taking some of these older facilities offline and out of the mix, and replacing them with modern facilities.
