Overbuilding? The Right Place and Right Time for Assisted Living

You may be concerned about the potential of “overbuilding” in your area, so let’s go through what it really means for you. When the recession hit the market changed in regards to commercial investments and assisted living. The big builders finished the projects they were currently working on and then stopped all new building. That stoppage lasted for years, lets say from 2008 on. However the need for assisted living didn’t stop. People were still aging and moving in and needed it. Those large facilities filled up as no new facilities were being built.

So what happened to the market? 

Billions of dollars were being poured into hedge funds as people wanted their piece of the pie, and the rate of return they were earning was in the teens, up to 15 percent annual rates of return. Fast forward 10 years, here in 2018 the same group is pouring billions of dollars in and there is a mass of big projects being built, and those beds are being filled. Big corporations have a different criteria regarding money. They get paid when they raise the money, when they deploy the capital, and they get paid to manage the asset. When they are managing billions of dollars, three to six percent is wonderful. But you and I as individuals with a few hundred or a few million, that will not work. We need to make a higher rate of return, teens up to 50 percent if we can get it. And that is what we can get because we have the opportunity to leverage, be in the best positions and locations. So when we are talking about overbuilding, let’s think about it differently. These big box companies have done their research. They know that where they are building is the perfect location based on the number of people there, the amount of money they have, their age, the demographics and the ability for them to pay. If you see a big box facility coming to your town, that is a good sign. 

Where should you locate your assisted living home?

If you can do it at the end of their driveway that is awesome, but within a few miles would be ideal. They have already done the market research for you, so you know the area is good. You know the people are there and if they know you are there, you become the alternative, the boutique home with 10 to 12 beds, versus the large institutional building with 212 beds. You have the better product in the right location. So let them overbuild. They are in the right place at the right time, and so are you when you do it there. By the way, if you are in a smaller community, there is still a need for assisted living. The big box models may never locate there and you would then be the only alternative for someone to stay in that area versus relocating to another city or even state to get the care they need. The education process is going to take more effort. So overbuilding isn’t a problem, it is an opportunity. 

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