Prominent figures in senior living development and operations see a growing opportunity for hotel conversions, including in the highly competitive New York City market.
“I think … looking to buy defaulted hotel notes and turning hotels into CCRCs will clearly come to the Upper West Side, the East Side, and into Manhattan,” Senior Care Development CEO David Reis said Thursday, on a webinar organized by the Urban Land Institute (ULI) Westchester/Fairfield.
Atria Senior Living CEO John Moore agrees with Reis on the opportunity for hotel conversions. Large hotels might be well-suited to become CCRCs, but there are also highly amenitized hotels with 200 rooms or less that could be adapted for assisted living, he said on the webinar. Louisville, Kentucky-based Atria is one of the largest senior living operating companies in the United States, with a total portfolio of 216 communities.
They are not alone in their assessment. The hotel industry has been rocked by the Covid-19 pandemic, with luxury hotel occupancy under 15% for luxury hotels and around 40% for economy hotels as of early May, according to a McKinsey report. The consultancy projected that recovery to pre-pandemic levels might not happen until 2023 or later. These market conditions have prompted speculation about the potential to convert hotels to other uses, including senior housing.
The New York City market in particular could theoretically hold promise for these conversions. The metro area is undersupplied for senior living, despite high-profile projects that are drawing close to opening.
And, a moratorium on converting Big Apple hotel rooms to residential units expired about a year ago, Moore noted. Under that law, hotels with 150 or more rooms were not allowed to convert more than 20% of units to non-hotel use.
Moore and Reis both are well-versed on the intricacies of urban senior living development generally, and in the particulars of the New York market.
Reis owns CCRCs in the Tri-State area, as well as other urban communities such as The Clare, a highrise CCRC in downtown Chicago.
Atria operates 28 buildings within about a 25-mile radius of Times Square, including a community on the Upper West Side of Manhattan. Atria also is collaborating with New York City-based real estate development giant Related Cos. on a pipeline or urban projects, including a building near Hudson Yards in Manhattan.
There are “a lot of CCRCs” looking to enter New York City, Reis said — and he believes that this will come to pass.
“I think that’s really going to be the wave of the future, irrespective of where this pandemic goes,” he said.
The impediments to developing a CCRC are steep, including obtaining a certificate of need (CON) for the skilled nursing component, and long project timelines that can stretch to seven or eight years, Reis noted. And, New York has additional burdens in the form of regulations that govern monthly rental rates.
These barriers have prevented widespread CCRC development in New York, but intrepid developers can and will seize opportunities, including those presented by failing hotels, in Reis’ view.
“If I were looking just in Westchester [County], New York City, I’d be looking more toward defaulted hotel deals — I think there’s something to be said for that,” he said.
Converting a hotel to senior living is “a great idea” but could be a hard proposition for capital providers in the current environment, cautioned Yasamin Al-Askari, SVP Senior Care Finance at Truist, the entity formed from the merger of SunTrust Bank and BB&T.
“There’s not much appetite to finance the conversion of hotels to senior living,” she said on Thursday’s webinar.
Generally, banks are wary of ground-up construction given the uncertainties caused by Covid-19, and hotel conversion projects are viewed as similar endeavors. Fannie Mae and Freddie Mac also typically have “a bit of aversion” to financing properties that are not purpose-built for senior living, she said.