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Assisted Living is "Heavenly" |
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I had the opportunity to attend the grand opening of the Sunset Bay project that we renovated in New Port Richey, Florida for Ken Assiran and Joe Callaghan at Capital Health Group, which is always enjoyable. In our tour, Dennis Robinson, Vice President of our Orlando office, asked a resident in a wheelchair how he liked his new home. "Heavenly" was his response, followed by "just like home -- I love it".
Being able to contribute to the quality of people's lives through the environments our clients let us help create is what being in the construction industry is all about. |
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Are Times Changing for Affordable Senior Construction |
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An interesting thing happened the middle of November -- developers started closing loans. And construction projects started. You'll notice I used the plural in both sentences. We are happy for this, and wondered if it was a blip or if the economy was changing for development and construction. We have started six projects with contract values of $60 million in the past ninety days, a record, but it is important to segment this. Four of the six projects were affordable housing projects. Of the other two which were senior housing, only one ws bank financed. We're glad to have the business, and excited about the year, but our sense is that it will be another six months or so for lending for senior housing to pick up. |
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Commoditization of Contractors in Senior Living? |
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Recently in Florida a developer picked a contractor to work with other than us. When the project was designed and that contractor gave firm prices, cost was over $11 million vs. the budget price of $7.5 million. Because of the disparity, the client decided to competitively bid the project with three contractors, including us, and with Value Engineering, we were able to get the project under $8 million, but at great expense due to significant required Value Engineering which required redesign and cost.
The question that was asked was whether this process had trained the customer to bid his projects in the future with commoditizing contractors. My opinion is that it is quite the opposite. The cost of the time for re-bidding, the cost and time of redesign, and the aggravation of going through this whole process most likely taught the client that the original process was the right one, but the wrong contractor was selected. We'll see if this is true. |
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Where is the Senior Housing Construction Going? |
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An observation from the NIC was interesting to me. Of all the new prospective clients met, most were interested in development of projects in the south and west. This is consistent with our market research that indicates the greatest growth in the senior market is in these areas, and is also consistent with our planned growth of opening new offices in these areas to serve these markets. |
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Senior Health Care Construction Market Changes |
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It's interesting to observe how our market has changed since the financial crisis and recession. Two years ago, average project sizes were upwards of $8 million, now it's below $4 million. New construction of facilities was the norm. Now it is additions and renovations. Though there is a need to enhance facilities, the lending environment only provides the opportunity for incremental changes as opposed to full replacement facilities. |
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Senior Health Care Financing at the NIC |
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Marty Larnhart and I attended the National Investment Conference (NIC) in late September, and were pleasantly surprised at how upbeat it was. We met over twenty new clients in addition to existing clients. All of the new clients met were upbeat, claim to have figured out the financing puzzle, and had multiple projects to discuss.
Most were talking about utilizing conventional financing, though several were talking to REITs. The HUD Lean program for new construction was a no-go. All of these new prospective clients seem generally interested in learning what we could do to help their programs, and our sense, despite the current environment, is that things are generally upbeat. |
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Quality in Senior Health Care Construction |
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Quality in Senior Health Care construction presents unique challenges. Is it residential construction? Or commercial? The answer, of course, is both. And it's important to recognize this. Purely residential contractors don't have the sophistication it takes for some of the complex systems in these facilities, but commercial contractors tend to be too expensive. In the end, it is judgment and understanding priorities and making subcontractor selections that are key to success. |
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