Regency Palms – The Adaptive Reuse Gamble
Seniors Housing Business
July 20, 2020
Despite the significant challenges of converting old buildings into seniors housing, developers roll the dice and build a more inviting product.
Because of the special needs of the sector, seniors housing developers nearly always say they prefer ground-up development rather than redevelopment projects. It allows them to build a property exactly how they want in order to meet the needs of modern seniors.
But sometimes an opportunity presents itself to convert an old building into something new, often restoring a historic property to new glory. Because of the variety of original uses, each project becomes unique.
In the Boston suburb of Brookline, Welltower recently paid $34 million for the entire campus of Newbury College, which held its last classes in 2019. Welltower, which plans to turn the 7.8-acre property into a seniors housing community, declined to comment on specifics of the plan.
The Masonic Hall and Asylum Fund took a similar approach in the New York City suburbs by acquiring the former campus of College of New Rochelle, located just north of The Bronx, for $32 million. The buyer, which has remained silent on the details, is a nonprofit seniors housing operator, leading many observers to speculate about the possibility of a seniors housing conversion.
Alliant Capital is turning a 1915-vintage bakery in Terre-Haute, Indiana, into an affordable seniors housing property near Indiana State University. In Traverse City, Michigan, Cypress Partners is converting part of a former mental hospital built in 1885 into 110 units of independent living and assisted living.
Irreplaceable real estate
One of the reasons some developers opt for these unique adaptive reuse projects is that the buildings themselves are impossible to replace.
Watermark Retirement Communities currently has two of these types of projects under development:
• In Los Angeles, the company is converting a 14-story former UCLA dormitory into independent living apartments called The Watermark at Westwood Village. The project is scheduled to open in late summer this year.
• In Brooklyn, the company is repurposing a historic hotel — later used as the headquarters and dormitory for a religious order — and creating 275 units of independent living, assisted living and memory care. The property is also scheduled to open later this summer.
Both are urban infill sites in walkable locations surrounded by countless businesses and amenities.
The two projects share another advantage: The urban buildings were grandfathered in before height restrictions went into effect. So, if either of the existing buildings were ever to be knocked down, they’d have to be replaced by something much smaller in height.
“We have 315,000 square feet of space for the Brooklyn project,” says Bryan Schachter, chief investment officer of Watermark. “If we built from the ground up, the zoning would restrict us to 75,000 square feet. If you’re seeking
high-barrier-to-entry, irreplaceable assets, this is the epitome. You literally could not do this again.”
Seniors housing being the chosen use was almost serendipitous. The location was perfect for condos or apartments, but it would’ve been impossible to convert much of the common areas into units. Seniors housing, on the other hand, requires an ample amount of common space to use for amenities such as dining venues. In this particular instance, the condo and office developers weren’t willing to spend as much on the acquisitions, knowing there were limitations to the number of units they could build and lower ceiling heights than desired.
“There was an abundance of amenity space,” says Schachter. “In New York City, developers try to fill every square inch with rooms. We, on the other hand, have three full floors of common area plus a rooftop sky room with indoor and outdoor space featuring unobstructed views of the Manhattan skyline, Brooklyn Bridge and Statue of Liberty.”
In the northwest Chicago suburb of Palatine, Illinois, F&F Realty found a similar leg up on a hotel acquisition. Nearly 40 percent of the former Hotel Indigo was made up of common areas that couldn’t be converted to rentable space.
For most property types, developers would never consider purchasing something with so much amenity space. As a result, despite an excellent location — next to a park and golf course and across the street from a stop on the Chicago Transit Authority’s Yellow Line — the hotel sat vacant for years.
However, F&F Realty was able to obtain a prime property at a discount and then offer even more amenities than it likely would have been able to with a ground-up development. The property is now called The Grand at Twin Lakes, which features 118 units of independent living along with 10,000 square feet of indoor amenities. Residents can utilize the community’s partnership with a home health services firm, which provides à la carte healthcare services.
“There’s a swimming pool and courtyard already built in. It has a large dining room/restaurant, larger than we would’ve built,” says Dave Pokorny, director of operations for F&F Realty. “There are three common-area living room spaces — a movie theater, craft room and puzzle room — and then we have a couple spaces that still will be adjusted as more people move in and express different interests.”
Taking on an adaptive reuse project requires some bravery. Steadfast Cos., a California-based real estate investment manager, already had experience with adaptive reuse projects for other commercial real estate sectors, so the firm was not afraid of taking a calculated risk. The company bought a 51,585-square-foot office building in the coastal Southern California town of Carpinteria for $10.7 million in 2015, then converted the property to a 70-unit seniors housing community named Gran Vida.
Again, the company saw advantages through redevelopment instead of demolition. An unused grassy area, useless for the office building, was repurposed as a courtyard, garden and bocce ball court. An equally unused overhang was turned into a second-floor outdoor deck.
An office property also generally requires much more parking than a seniors housing community. As a result, Steadfast was able to build 50 additional assisted living units in the parking lot.
“The reason we didn’t knock it down and replace it is that the entitlement process would change. We’d have to start over with environmental reviews,” explains James Palda, senior director of real estate development for Steadfast. “By reusing the exterior look of it all, the path to entitlement approval was streamlined. We were able to utilize almost all the existing entitlements from the office building to get both phases of the development approved.”
Art Deco inspiration
Seniors housing can have, at times, a bit of a cookie-cutter approach to design. A truly unique building converted to seniors housing allows the developer to break that mold.
KTGY Architecture + Planning designed Regency Palms, a project that converted a historic 1920s gem in Long Beach, California, into 102 units of assisted living and memory care. Built in the Moderne style — a predecessor to Art Deco architecture — it is one of few buildings to survive a 1933 earthquake and became the architectural template for much of the area’s rebuilding afterward.
The property served as medical offices for decades. But as the medical corridor moved farther away during the early 2000s, the building fell vacant. The location was perfect for seniors housing, with easy public train transportation to downtown Los Angeles. The ground floor features medical and retail uses, inviting the public in to see the beautiful historic touches.
“In terms of location, it’s great for seniors housing,” says Ben Seager, associate principal at KTGY. “There’s plenty of public transit, walkable amenities and restaurants where a caregiver could take someone. It’s in a neighborhood without a lot of seniors housing, so now those residents of Long Beach have an option without having to move out of the area.”
The developer on the project is Global Premier.
In Aurora, Illinois, about 40 miles west of Chicago, Evergreen Real Estate Group saved the Art Deco classic St. Charles Hospital. The property was originally built in 1932, but had become a home for vagrants and drug use after falling vacant in 2010. Historic tax credits and support from the City of Aurora helped make a seniors housing conversion possible.
“One of the things that convinced us it was a strong project was a new State of Illinois financing tool, the River Edge Redevelopment Zone Program,” says David Block, director of development for Evergreen. “We knew there was a significant additional source of financing to help make the project work.”
The new type of financing provided almost $4 million of the total project cost of $20 million. Other funding came from historic tax credits, as well as Low-Income Housing Tax Credits. The property now offers affordable seniors housing under the banner Aurora St. Charles Senior Living. (For more on combining affordable housing with adaptive reuse projects, see page 15.)
“In terms of reuse, seniors housing just made sense,” says Block. “There were two elevators right at the center, and it’s an L-shaped building so accessibility was manageable. We combined two or three former hospital rooms to make studio and one-bedroom apartments. All the pieces kind of came together.”
Windy City adaptations
Just down the road, Chicago has become a hotbed of seniors housing adaptive reuse projects. On the city’s North Side, Evergreen and the Chicago Housing Authority are underway on an $81 million repurposing of the former 11-story Ravenswood Hospital.
The property, built in 1974 and vacant since 2002, will feature 74 independent living apartments for low-income residents and 119 units under the Supportive Living Program, which allows Medicaid reimbursement for assisted living services.
“Jeff Rappin, the founder of Evergreen, had a financial interest in a Supportive Living license in a site that was not actively being used,” says Block. “You can take an inactive license and move it to another site, and we thought this building had a great location, with high home values, demand for housing and demographics for seniors housing.”
Just three miles away on the other side of Wrigley Field, Belmont Village recently completed Belmont Village Lincoln Park.
The property replaces the Nellie Black building, which was built in 1932 and housed nurses and interns.
The project doesn’t meet the technical definition of adaptive reuse because the building was demolished.
However, in the interest of preserving the history and reflecting the look of the neighborhood, Belmont Village kept and reused the bricks from the demolition. The façade is almost identical to the original building, but it’s brand new construction.
“The complexity of creating what is needed for today’s building in the envelope we had — much as we tried — simply would not work,” says Patricia Will, Belmont Village founder and CEO. “That led us to the idea that we could create the likeness of the building, not only architecturally but also by taking the fascia of the building and the terrific stonework.”
The 120,500-square-foot, seven-story community is built adjacent to the new Lincoln Common, a mixed-use development on the former site of Children’s Memorial Hospital.
Theaters, parks, public transportation, dining, shopping and entertainment uses surround the property.
“The hospital was originally founded to take care of indigent children who had diseases, and the nurses that took care of the children in the hospital were housed in that building,” says Will. “We wanted to preserve the symbolic heritage of the building as a place to nurture care.”
A tough hill to climb
So, if adaptive reuse is so great, why isn’t there more of it?
In short, it’s difficult to undertake and unpredictable.
“You start to open up walls of an 80-year-old building and you get concerned about what you might find,” says Watermark’s Schachter. “Plus, you give up the ability to design exactly what you would like. You might have certain site constraints because you’re fitting within the building envelope.”
With regard to the Gran Vida project, Palda of Steadfast Cos. admits that it might have been cheaper to demolish the existing building and build anew. In particular, he pointed to the challenges in reworking the infrastructure to suit the needs of a seniors housing facility.
“We were fortunate we could use the space over the basement for our commercial kitchen, and to use the existing plumbing in an efficient way. We had to get pretty creative with the layout,” says Palda.
At The Grand at Twin Lakes, F&F Realty had to completely renovate the interior and rework the plumbing to work for apartments instead of hotel rooms.
“We brought the building down to its studs and had to create a lot of internal pieces to accommodate a single bathroom and a kitchen, as opposed to back-to-back bathrooms,” says Pokorny. “There’s a lot of behind-the-walls work that had to go into it.”
KTGY’s Seager says the Regency Palms project was extremely fun and rewarding, but he admits “the burden is on you to do the building justice when you find out about the history.”
He also emphasizes the unpredictability of working with an old building. “You can do all the due diligence you want, but there are a lot of times you’ll get surprises during construction. You need to be willing to take a little more risk. The span of best-case scenario to worst-case scenario is wide.”