Covid-19 has disrupted commercial real estate for the past year, but few asset classes have been hit as hard as the hospitality industry. From the early days of the pandemic, some senior living developers, investors and operators have said they anticipate opportunities to acquire and reposition hotel assets.

Although the availability of Covid-19 vaccines is raising hopes for a rebound in travel and tourism, when hotel business rebounds is a question no one has an answer for; some analysts expect a recovery to be similar to the “elongated recovery” predicted for senior living.

The uncertainty of a rebound in hospitality is leading some owners to weigh their options for redevelopment opportunities including senior housing. In Farmington Hills, Michigan, the owner of the Holiday Inn & Suites Farmington Hills – NW Detroit announced that it is repositioning the hotel into independent living after being shut down for nearly a year.

And in Bloomington, the owners and management of the Crowne Plaza Aire Hotel are preaching patience in a recovery before weighing redevelopment options which could include senior housing.

Senior living investors and developers are watching the distress in hotels with keen eyes. But due diligence will be essential, lest stakeholders rushing to reposition assets dig deeper holes, Canopy Lifestyles Partner and Chief Development Officer Dennis Stamey told Senior Housing News. The Marietta, Georgia-based company manages senior housing properties, and provides expertise for its clients on a range of issues, including repositionings.

“Someone really has to have an appetite for this,” he said. “They have to understand the timing that’s going to be required.”

Signs of distress emerge

A year into the pandemic, there are signs of distress in the hotel industry that could accelerate — especially if the vaccination effort does not build confidence that business and vacation travel will rebound quickly.

Among the emerging signs of distress: The owners of 43 hotels in the New York City metropolitan area were delinquent on a cumulative $1.5 billion in bonds as of October 2020. Lodging tax revenue for hotels in Bloomington, Minnesota, plummeted 33% in 2020, and are expected to remain below pre-pandemic levels this year.

Hotels across the country are laying off massive numbers of workers. Last week, the Four Seasons Silicon Valley in East Palo Alto, California permanently laid off 119 employees, San Francisco Business Times reported.

The pressure is building, as hotels require travel to generate revenues, which in turn allows owners to service the debt on their properties. Investors in commercial mortgage-backed securities (CMBS) loans backed by hotels are poised to see losses on their investments if hotels in a post-pandemic environment experience an elongated recovery.

Covid-19 is impacting luxury, full-service hotels especially hard. New York City’s legendary Roosevelt Hotel shut down last October. The owner of Chicago’s iconic Palmer House Hilton, the second-largest hotel in the city, is facing a foreclosure lawsuit claiming the firm defaulted on a $333.2 million mortgage.

Research from business management consultancy McKinsey suggests that a hotel recovery to pre-pandemic levels will not occur until 2023, if not later. Real estate investment trusts (REITs) specializing in hotels and hospitality are expected to underperform until business and vacation travel rebounds, which will not happen until vaccination efforts gain significant momentum.

So far, lenders have exercised patience with hotel owners, understanding the extreme circumstances that have befallen everyone, Lloyd Jones Capital Chairman and CEO Chris Finlay told SHN. Lloyd Jones is expanding in the senior living space with its Aviva brand, and Finlay is bullish on the opportunity to acquire and convert hotel — but, he notes that a wave of bank foreclosures is not likely in the near term.

Bank lenders have ample liquidity on their balance sheets, as a result of the Federal Reserve’s efforts to tighten lending regulations well in the years prior to the pandemic.

When the first wave of Covid-19 cases swept across the country last year, lenders were quick to retreat to the sidelines and let the market settle before gradually returning to the space. But tighter loan underwriting remains in place, along with an imbalance between the debt and equity markets — bridge debt, in particular, is hard to close. And most banks are only servicing existing clients with proven track records of success.

Finlay credits this to the Fed’s proactive efforts to shield the economy from extreme distress during the pandemic’s early weeks. It has signaled to banks that it will support them through Covid-19’s end, and will not suddenly change course.

“It’s not like it was in past downturns, where banks were on shaky footing to start with,” he said. “All of the major banks and even most of the regional banks are very well-capitalized now.”

CMBS markets have been relatively patient, as well, but ratings agencies are maintaining a close watch for any signs of loans turning over to special servicers, which would mainly impact the futures of full-service hotels such as the Palmer House. But there is volatility: the delinquency rate among hotels with CMBS loans last September was a record 33.5%, compared to just 2.5% in April 2020, according to data from real estate research firm Trepp, reported by the law firm Levenfield Pearlstein.

What happens to hotels with delinquent CMBS debt will depend on several factors including legal options on the part of owners, the patience of lenders, and the pace of recovery. Smaller hotels saddled with CMBS loans may become solid repositioning opportunities, if distress gains momentum.

“The question [for CMBS servicers] is, how aggressive do they want to be?” Finlay said. “If the hotel is closed, there is not much for them to do. They have to start the process.”


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Trailblazers in the active adult space have their sights set on capturing multiple consumer segments for the product.
One possible scenario involves building a continuum within the active adult sector where residents can transition from single family cottages to apartments, en route to an eventual transition to full-service independent living. This continuum would be all rental, with a la carte services added by residents as needed. Real estate firm Lloyd Jones is already working on this model, and expects it to be mutually beneficial for owners and residents over time.
Other developers — such as Newport Beach, California-based Avenida Partners — are targeting markets with active adult rentals at different price points, in order to capture the growing demographic of baby boomers expected to flood the space over the next 10 to 25 years.
Active adult represents the biggest real estate opportunity that Lloyd Jones Founder, Chairman and CEO Chris Finlay has seen in his 40-year career, but it is also a challenging sector to enter.
Notably, operators find themselves having to convince seniors to make the move from a single family home to a smaller space, as well as educating prospects on the benefits of a move. This requires a lot of footwork by sales and marketing teams, months and even a year before a building opens, Avenida Partners Managing Partner Robert May said Wednesday during Senior Housing News’ Virtual Active Adult Summit.
It also requires correctly identifying the right markets to build active adult, deducing demographic trends for growth, and predicting what residents will need in order to comfortably age in place for the next five to ten years.
“You need to hit the bullseye on all those,” May said.

Building an active adult continuum

Lloyd Jones is a prominent name in multifamily development and has long been involved in the age-restricted sector as well, Finlay said. More recently, the firm launched its Aviva-branded active adult model.
The Aviva portfolio is being build with three distinct models. Aviva Cottages are a for-lease cottage product which Finlay envisions as an entry point for the first wave of boomers transitioning to active adult. Aviva 55 is three- to four-story buildings, and the firm is building a more traditional independent living product, with the first building set to open in Port St. Lucie, Florida later this year. It will include two wings and a central clubhouse, enabling Lloyd Jones to lease up one half of the building while the other half is under construction.
An obstacle to building more cottages is a lack of available land to build a horizontal development at a scale necessary to generate adequate returns for investors. But Finlay believes that the model would be especially popular with seniors in suburban markets making their initial transitions from single-family homes. Conversely, the Aviva 55 concept is better suited to urban environments where lot sizes are smaller, and will appeal to consumers looking for the lifestyle afforded by these locations.
Finlay believes that an all-rental model holds untapped potential for developers and residents. As seniors age in place, they can use home health care services and technology to maintain an elevated quality of life for an extended period of time. The rental model will allow residents to manage their retirement nest eggs better.
“We feel that there will be amazing demand for people to sell their homes and retain equity to help with retirement,” Finlay said.
Active adult communities tend to be slow to lease-up, but once occupancy levels reach stabilization, they tend to remain constant. For new buildings, Lloyd Jones pencils lease-up pro formas at around six new move-ins per month, but the average length of stay among residents is over 10 years, and the oldest resident in an Aviva community is 103, Finlay said.
He noted that occupancy across the Aviva portfolio is at around 99%, while operating margins are comparable to independent living’s average of 35%. Resident satisfaction, meanwhile, is high.

A localized sales approach

Newport Beach, California-based Avenida has two active adult lines: an affordable model with rents averaging $1,850 per month; and a market-rate line with average rents between $2,100 and $2,200 per month.
Avenida’s move to create an active adult product that can flex between different price points depending on a building’s location and other factors is similar to what senior living providers are doing in other parts of the continuum. For instance, Eclipse Senior Living, Atria Senior Living and Merrill Gardens all have ambitions to create different operating models to serve various parts of the market.
Nearly all of Avenida’s buildings range between 140 and 160 units, which puts pressure on the developer to be correct on locations, programming, activities and demographic trends, because active adult is not a needs-based move, compared to the rest of the senior housing care continuum.
Avenida’s target markets are very localized, with around 50% of its residents coming from within 10 miles of its communities, May said during Wednesday’s virtual summit. About two-thirds of its residents sell their homes in order to move into a building.
Because active adult is a newer segment of senior living, developers in the space hit the ground early to educate the target demographic on the benefits of the product. Avenida keeps track of housing sales in its markets to identify potential customers and generate leads. Additionally, its sales teams spend up to 12 months before a community welcomes new residents educating prospects on its offerings and services.
The firm also reaches out to senior housing providers in its markets. This alleviates fears that they are going after the same customer, as well as establishes mutual referral networks to send referrals who would, for example, be better suited for independent living to a competitor, and vice versa.
May sees the biggest obstacle to a move as the family that does not want to sell its home. Once Avenida is able to overcome that objection, however, it has move-in coordinators on staff to assist families with closing escrows and downsizing their belongings to prepare for the transition.
“We think that people want to move, but they don’t need to move. It eventually morphs into a need as they fight isolation and depression, and they discover a sense of community in our buildings,” he said.

Lloyd Jones is a real estate investment, development and management platform that has operated in the multifamily space since the 1980s, doing more than $750 million in projects in total. Now, the Miami-based firm is pursuing a senior living pipeline, developing “independent living-light” properties under the Aviva 55 brand.
“In general, what we feel is that technology is going to rapidly allow people to age in place and not have to end up going to an assisted living, which as we know is getting more and more medically acute,” Lloyd Jones Chairman and CEO Chris Finlay told Senior Housing News.
Finlay’s perspective appears to be widely shared among senior living professionals. In a recent survey of industry pros conducted by architecture firm Perkins Eastman, respondents identified “aging in the community — decentralized care and services” as the No. 1 disruptor of the standard senior living business model.
In particular, respondents said that new technologies are enabling aging in place and decreasing older adults’ reliance on professional caregivers in settings such as assisted living.

Lloyd Jones is aiming to create middle-market, 55-plus age-restricted properties with these trends in mind.
“We’re not looking to do super high-end, we’re looking to do it as cost effectively as possible and do it where we provide services on an a la carte basis through relationships with food vendors, health care agencies, transportation and other services that these folks will need and use,” Finlay said.

The Aviva 55 model

Lloyd Jones is not a total newcomer to the senior living sector. The firm first developed an independent living/assisted living building in New Hampshire about 20 years ago. Currently, Lloyd Jones owns between more than 700 age-restricted units with no additional services, all located in Florida.

The idea for Aviva 55 came, in part, from observing the dynamics at these current 55-plus properties.

“We see how people really want to stay there and age in place,” Finlay said. “In one property, in Jacksonville, we have a lady who is 103 years old. She is completely independent. [The residents] make friends with their neighbors and they’re taking care of this lady … They become like little mini-families.”

For Aviva 55, the idea is that by layering on some services, Lloyd Jones can further facilitate aging in place in a middle-market product that should appeal to aging boomers who want to maintain their independence for as long as possible.

The plan is for Aviva 55 buildings to have a health and wellness coordinator and an activities coordinator on staff, to facilitate socialization and residents’ wellbeing. Lloyd Jones also intends to forge partnerships with local organizations to provide support services on an as-needed basis.

Already, older adults are increasingly embracing the on-demand economy to meet needs such as grocery delivery and transportation. To support this, Aviva 55 buildings will have robust internet infrastructure, Finlay said. Strong WiFi will also enable health care-related technology that might be put in common areas.

For example, Finlay is interested in facilitating telehealth by creating spaces equipped with tech for virtual doctor visits. It’s possible these spaces could also be used for onsite exams or treatment through partnerships with area providers.

From a physical plant perspective, expect Aviva 55 buildings to be three to four stories, with surface or podium parking, and between 100 and 200 units. It’s a 100% rental model, and Finlay is estimating development costs of about $250,000 per unit.
“You can provide a very nice amenity package and common area packages without getting crazy,” he said. “Most of what I see is over the top … We’re going to try to be as efficient as possible in the design … we’ll try to keep the interiors, while very nice, not ridiculous.”
In multifamily, Lloyd Jones has carved out a niche in workforce housing, and the firm plans to target a similar demographic with Aviva 55. This strategy also should insulate the properties from oversupply pressures currently hitting assisted living and more high-end independent living communities, Finlay said.

“I think there’s certainly some softness and a lot of competition in the high end space, in independent living and assisted living,” he said. “I think in most cases … when you start charging $7,000, $8,000, $10,000 a month, that’s a very small demographic that can afford that. Those properties are meeting with some resistance.”

The rollout

Lloyd Jones currently has three Aviva 55 projects on the books, and would like to eventually be developing 10 or more a year, Finlay said.
“We’ve got a big team out looking for sites,” he said. “We’re really hoping to scale this part of our business pretty rapidly.”
Last December, the firm closed on a deal to build a 150-unit building in Sunrise, west of Fort Lauderdale. The other projects are in Port St. Lucie and Naples. In Port St. Lucie, Finlay hopes to break ground before the end of the second quarter of this year, and in Naples, the timeline is to start development on the site within 6 months.
Lloyd Jones is also exploring acquisitions of existing independent living or assisted living buildings, to scale them back to the “IL-light” model of Aviva 55. Going the other way — acquiring a multifamily building and layering on services — is more complex from a regulatory perspective. In some cases, it could involve emptying the building of residents for 90 days before reopening as an age-restricted property, Finlay said.

Lloyd Jones has a number of capital partners for Aviva 55 projets, Finlay said, although he declined to disclose their names.
“There’s a ton of capital going after this space right now, because I think everybody realizes that the demographics are certainly overwhelming, and there’s a lot of need,” he said, adding that “capital is not a concern” in terms of scaling up Aviva 55.
Going forward, Lloyd Jones is looking to expand the Aviva 55 footprint beyond Florida. Texas is the next state being targeted, followed by Georgia, South Carolina and North Carolina.
Finlay has demonstrated good timing not only in his real estate career but prior to that. He was a pilot for Eastern Airlines for 15 years but took early retirement and got out of that company two years before it went bankrupt in 1989. Finlay describes that as “fortuitous timing”; it’s possible that the timing is also fortuitous for Lloyd Jones to be early mover in this emerging independent living-light product, if demand and competition ramp up as Finlay anticipates.
“I think there’s going to be a big move to this asset class,” he said.

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