As most people have experienced in the country, certain materials are tough to come by, whether in a personal or business realm. This is not a new development, but the scale of the issue has seemingly grown, and new challenges are presented in our industry every day. Some may ask, what is driving this? One of the primary factors driving this is a lot of the raw materials that we utilize come from overseas. In an article I read the other day, a record 65 ships were sitting in the ports along the West coast waiting to be unloaded, compounding an already challenging logistics industry. This is causing a lot of uncertainty for suppliers when these raw materials will be received to produce the needed components to build our projects. In the interim, demand continues to increase, resulting in the challenges upon us today.
Recently, several developer clients of ours have mentioned a multi-family product type called Build-to-Rent (BTR). The concept is to develop and build single-family home communities where the houses are rented to tenants in lieu of being sold to homebuyers. According to Northmarq’s March 2021 report, strong consumer trends support the growth of this type of multi-family development. Renters are growing more affluent, causing shifts in their desired types of rental homes, features, and amenities. People also have lasting scar tissue of the housing crash of the Great Recession, which negatively impacted so many. More recently, the COVID-19 pandemic has created a need at the top of people's shopping lists for more work-from-home space. Also, the desire to live in less dense apartment buildings has people moving towards the BTR solution.
BTR multi-family developments offer tenants the larger space of a traditional house to people who can’t afford the large down...Read More >
We continue to get buffeted by price increases, seemingly weekly, which puts pressure on our estimates and has a negative effect on feasibility for our clients. Though prices are being locked in for Fall starts up North, clients have repeatedly asked me what will happen to them for their Spring starts. It’s certainly understandable. I’d want to know too. Normally, I’d have a good sense of this, but I don’t feel that I have a good basis to know now. This summer, home building continued at a brisk pace, and lumber peaked at over $1,800 per mbf. Clients kept asking me what they should do at those prices, but this situation was unprecedented. Most locked in, and then lumber started to come down. Jeff Korzenic, Chief Investment Strategist of Fifth Third Bank, said earlier this summer that the best cure for high commodity prices is high commodity prices since it...Read More >
Last month we wrote about how The Senior Housing Evolution Continues, specifically discussing the Active Adult concept. Last week, The Douglas Company attended an Active Adult conference hosted by Interface, where we heard from pioneers and visionary leaders in this new product. Three major conceptual questions stood out through all the sessions:
How to Define Active Adult?
While there is huge excitement about the space, there isn't a clear-cut, one-size-fits-all definition of what an "Active Adult" community really is, or for that matter, if the term "Active Adult" is going to stick. While time will probably resolve these issues, there is consensus on the place in the market - Seniors in their early 70s want to take advantage of the equity in their homes and sell them to downsize in an effort to reduce maintenance and find a new social circle. This is want-based, not need-based like other senior housing...Read More >
The resilience of active adult communities during the pandemic and resulting recession has resulted in many developers, operators, lenders, and equity investors taking another look at the product and determining how it fits their strategy for future growth.
Many skeptics have become supporters after seeing the performance turned in by active adult communities through 2020. Active adult rental properties were already among the senior housing product types with the strongest performance prior to Covid-19. But the segment outperformed all other types of senior housing during the pandemic according to data from Senior Housing News. Active adult communities are outpacing Independent Living and attracting a younger and healthier demographic.
At a recent Active Adult Virtual Summit hosted by The National Investment Center for Seniors Housing (NIC), they shared the belief that active adult is taking over the role that Independent Living played in the continuum of care 20 years ago. While dining...Read More >
Government regulations have been loosening up lately, but some impacts resulting from them are increasing as construction keeps moving forward. One specific item that comes to mind is material lead times. Items that we were accustomed to being readily available now seem to carry a 2-3 week lead time, and items that were normally 4-5 weeks have jumped to 10-12 weeks. If anyone has tried to buy any furniture or appliances for your home lately, I am sure you can attest to that. This creates unique challenges for our project teams to overcome, but our company processes have been developed to help mitigate these issues for our clients and us.
Purchasing materials early is the essential first step, but that is just the beginning. We have come to learn in the past 18 months that there is a lot of uncertainty in the supply chain industry due to constraints of...Read More >
A little while back, I came across some extra marketing collateral of ours that was previously in circulation with the motto of “Make the Numbers Work.” Some of the collateral may or may not have had an expletive gesture mixed in of “!!@!%#!!@!!”. You get the point.
It was all good fun, and I thought it was great!
That’s the foundation of getting a new project out of the starting blocks. Make the Numbers Work! Of course, a project has to pencil for it to make sense for the developer and investors. An easy way to do that is to start cutting finishes and amenities, but that will not help you compete in the market or get the rents you need. Sometimes, it is needed to get you there, but it often doesn’t even get you a good bang for your buck.
You should first try to attack what’s “behind the walls” to...Read More >
It has been a little over a year since the COVID 19 pandemic began and we are still feeling the after-effects of its impacts over the past year. With more of the population getting vaccinated and some states loosening restrictions, it feels as though we are getting back to normal but there are still many challenges upon us in the construction industry.
Material supply chain and volatile pricing continue to impact new starts with our Clients as many are eager to get shovels in the ground but we are challenged to hold pricing for extended periods of time like we could pre-pandemic. Then, if we are able to get the project going there are extended lead times that we are dealing with to hold our schedules, timely purchasing to mitigate further price increases and expedited submittal procurement are extremely important in our current...Read More >
I am hearing different stories from clients in my discussions. There is no doubt that occupancies in Senior Living are down. There is no doubt that projects are requiring more equity, and equity demands a higher return. There is no doubt that staffing is more difficult to find and more expensive. There is also no doubt that construction prices have risen dramatically in the past six to eight months due to supply issues caused by a myriad of factors.
A client said to Bob Ritter, our Director of Business Development, the other day that he couldn’t look at new construction projects because construction costs were too high. I wonder if that is accurate. My experience in owning Senior Living projects is that capital costs are a minor part of the total operating budget. Operating costs are the vast majority. So if construction costs go up 10%, as an example, it...Read More >
Lumber - It has been the word in construction this year that we simultaneously hate talking about and can't stop talking about. At this point, anyone who has speculated on what's going to happen with pricing has been wrong at least once. While no one can predict what's going to happen, there may be some answers to find by looking at how we ended up here.
First, let's assess the current state of lumber. This information is taken from pricing and supply from several large providers we work with across multiple states:
- The commodity index has been posting new record highs nearly every day so far this month (NASDAQ: LBS), until mid-week this week. The pace is the most startling thing here - On April 8th it passed 1100 for the first time in history then, only 7 market days later on April 19th it passed an astonishing 1300.
- Futures are very... Read More >
A somewhat new segment of rental active adult housing is showing signs of leading the way for senior living development post COVID. Our estimating department is currently budgeting and pricing several active adult projects for multiple clients. The product targets baby boomers in early retirement, looking to downsize, but who are years away from needing independent living or assisted living services.
Many seniors no longer want the maintenance and overhead of a large house, like the idea of increased socialization, but don’t require assistance with activities of daily living. Active adult communities tend to command a premium over standard multi-family products, and because the residents are primarily retired, their incomes are somewhat insulated to swings in the job market and economy. Another plus for developers, residents of active adult communities typically stay for five years or longer.
While the pandemic has impacted occupancy in all senior living sectors, several owners and operators...Read More >
While many of us in the construction industry have been focused on dealing with the steep rise in lumber costs over the past year, a new threat is upon us: PVC. In February, Texas-based petrochemical plants were forced to shut down unexpectedly due to a winter storm that caused vast power outages. S&P Global reports that 75% of the 40 million metric tons of ethylene production were taken offline during the height of the deep freeze. Bloomberg reports that 60% of the U.S. PVC capacity remains offline still. According to the Wall Street Journal, prices for polyethylene and polypropylene have reached the highest prices in years. The problem affects far more than the construction industry; reports of supply chain disruptions are coming out from industries like automotive, food and consumer packaging, medical device and supply production, and more. Honda and Toyota have recently announced they will halt production...Read More >
This past weekend I was listening to a presentation on a book many of you have heard and read, The 7 Habits of Highly Effective People by Stephen Covey; I was drawn towards a reference to an old fable by Aesop, The Goose & The Golden Egg.
The story goes like this for those who aren't familiar: A poor farmer discovers that his prized goose has begun to lay golden eggs each day. Excitedly, the farmer takes the eggs to the market and begins to get rich. With his newfound success, the farmer starts growing impatient by only receiving one egg a day from his goose and isn't getting rich fast enough. One day after counting his money, he realizes that he could get all the golden eggs at once if he kills the goose and cuts...Read More >
We always advocate for getting a contractor involved early in your project to help with constructability input, provide conceptual budget estimates and other milestone pricing feedback, and control costs as the design develops. There are also three key areas that your development team needs to make decisions that significantly impact project costs.
One of the big three is structure type. Multiple factors will go into your decision to go with a wood structure, block, plank, block structure with wood floor trusses, steel framing, or a hybrid. Some of these factors are building code for your particular project, your project's location, which will affect wind load requirements, maintenance of the building in the future, long or short-term hold strategy, etc.
The second of the big three is the mechanical system you choose. There are many factors to consider, such as cost, future maintenance costs, what your target client may prefer, the system's life...Read More >
COVID-19 has brought forth many challenges in the last year, and it has pushed our slowly evolving industry into adopting many new ways of conducting business, one of which being virtual inspections from our local inspecting authorities. Many of the counties that we work with have put in place some stringent requirements as it relates to social distancing and minimizing exposure to their staff on the job site. With the advancements in technology, many counties have moved to conducting virtual inspections through Facetime or a similar video call in an effort to keep the workflow moving while accommodating their new standards for employee safety. We have found that our inspections have been rather unimpeded going through this new process while it has required some additional record keeping from ourselves and our subcontractors, it has provided some efficiencies for our inspector’s where they are able...Read More >
Eleven of us (with me being by far the oldest) are taking Darren Hardy’s new leadership course, which will take all year. The first session talked about the differences between generations. None of it was disparaging. We were all raised with different circumstances, so we are different. I remember coming into the industry over 40 years ago (!!!) and hearing the older men talking about how the younger generation had changed and wasn’t worth much. And I have heard similar things from my peers about the next generation.
But as I look at our company, I can reflect on how we have changed generationally. My peers in the company are mostly gone for various reasons. Burnout, death, or just losing the will to fight for our clients every day. And the next generation has mostly taken over, with amazing results. We had our second-best year last year. And I’m...Read More >
Last week we authored a blog post looking back on pricing in 2020 and why the reduced pricing many of us were anticipating to come just never did. The question lingering for everyone in the industry now is: What's going to happen in 2021 for pricing? Many developments were put on hold last year in hopes of better pricing this year, but will that happen? To forecast this, we're looking at the state of 3 current events: The COVID-19 Vaccine, Material Supply and Demand, and Government Intervention.
While we cannot be a source of information on the status and timing of individuals being vaccinated, we know that at some point this year, all those who want to receive immunity from the vaccine will have that opportunity. Market information sources like NIC and Senior Care Investor all agree the outlook for senior housing is positive, and the decreases in censuses...Read More >
“Earlier this year, our President, Peter Douglas, posted a Blog pondering the question of how much construction prices would go down as a result of the impacts of COVID on our industry. At the time of the Blog (May 27, 2020), we were beginning to witness the relaxation of construction material prices, particularly lumber and subcontractors cutting their prices to book work for the unknown times that lie ahead. It was thought that this trend would continue during the pandemic and that overall construction prices could retreat 3-5%, a welcomed projection for many developers. Unfortunately, prices have not gone down the 3-5% as originally speculated. So what happened?
In the months following the posting of that blog, prices for construction materials and manufactured commercial building products increased due to the impact COVID had on production and transportation, compounded by demand, which remained relatively high throughout the pandemic. An unexpected rise in...Read More >
There is no question that every segment of the senior living industry, including skilled nursing, short-term rehab, assisted living, memory care, independent living, and active adult communities, have all been impacted by the current pandemic. Safety and infection prevention are at the forefront of design decisions for new communities that are currently being planned and adapting existing communities to limit the spread of contagious diseases.
The Douglas Company has been working hard to identify common-sense solutions to help control the spread of diseases without significantly impacting costs.
- Utilizing antimicrobial finishes on high touch surfaces
- Reducing the amount of seams, where germs can spread, with sheet goods for flooring
- Touch-free fixtures and motion-activated sensors
- Automated doors
- Infrared fever screening systems
- Selecting materials that can withstand rigorous cleaning protocols
- Bipolar ionization and or higher HVAC filtration
COVID-19 is transforming senior living design and construction. Future designs will seek safe solutions and create ways for providers to incorporate and support new technologies...Read More >
Due to the ongoing impacts of COVID-19, some new projects struggle to secure the necessary capital stack to move forward. This has been more of an issue in the senior living segment than the multi-family segment; the multi-family space has remained resilient during this challenging year in regards to financial backing for new construction. In speaking with our friends in the debt and equity circles, the money to fund new ground-up senior living projects is getting much more selective, but I am still being told “the good deals/projects find a way to get done,” that is positive to hear.
In this environment, now more than ever, developers need to have the best teams possible in place to support a successful project. This of course, includes their general contractor, architect, and operator. Debt and equity sources need to feel confident that the project has the best possible chance of success. The whole...Read More >