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Retirement-Home Builders Scale Back

Lingering real estate woes have played havoc with many baby boomers’ retirement plans. They’ve also forced some changes in what’s being offered by developers of retirement communities.

Companies such as Senior Resource Group, based in Solana Beach, have had to adjust by scaling back on projects in development.

While long-term demand trends are strong, says Chief Executive Officer Michael Grust, demand since the start of the recession has been weakened by owners’ difficulties in selling their homes — which hampers retirees’ ability to move into the company’s upscale community offerings.

While the privately held Senior Resource Group remains well-capitalized, it has still had to respond to a toughened construction financing climate brought about by the real estate downturn. One result, says Grust, is that the company’s development activity in the past two years has been cut by about 50 percent compared with pre-recession levels.

The company, which does not report revenues, was still able to complete The Village at Northridge, just outside of Los Angeles, this year and is nearing completion on Maravilla Scottsdale in Arizona.

Independent and Assisted Living

It operates 18 communities, including La Vida Del Mar in Solana Beach and La Vida Real in San Diego, in four states. It employs more than 1,500, and its amenities and services are geared toward independent living (about 75 percent) and assisted living (about 25 percent).

Grust says the company aims for livable, non-institutional-feeling communities. Along with well-appointed living spaces and full slates of recreational and social programs, the company’s high-end offerings include meals prepared by specially trained chefs in 12-hour restaurants.

In California, Senior Resource Group’s largest competitors include retirement home operators Emeritus Senior Living, Sunrise Senior Living Inc. and Atria Senior Living Group Inc.

Despite the poor economy, the Los Angeles research firm IBISWorld Inc. notes that the U.S. retirement community industry has seen sales gradually improve the past two years, from $36.6 billion in 2008 to $36.9 billion in 2009, with an expected $37.9 billion in 2010.

However, growth prospects are down considerably from a decade ago, largely because of housing woes. IBISWorld projects average annual sales growth of 2.6 percent in the next five years, compared with the 11.8 percent growth seen in 2000.

Sophia Snyder, a health care industry analyst with IBISWorld, says some community operators are responding to the housing sales slowdown by deferring entry fees — which can be up to $250,000 at some properties — and letting residents come aboard while the sale of their home is pending.

Snyder says the industry, however, will continue to face construction financing issues, which will slow development, although many of the industry players who were carrying too much debt before the recession have fallen by the wayside. Many of their properties have been acquired by better capitalized companies, and a general pre-recession oversupply of retirement community residential units has subsided.

Focusing on Affordability

Wade Adler, executive director of the American Association of Retirement Communities, a nationwide trade group based in North Carolina, says much of the industry is focused on making entry more affordable by delivering a smaller housing product, which can be offered at lower cost while allowing communities to avoid cuts in service and health care offerings.

Grust says Senior Resource Group faces numerous challenges from being involved in an industry that incorporates real estate development, hospitality and health care, all of which have been buffeted by the economy.

Some aspects of the real estate crunch have been beneficial. For instance, Grust says the company in recent months was able to acquire some well-located properties at favorable prices in Phoenix and Tucson, after they fell into foreclosure amid Arizona’s severe real estate problems.

Grust projects 2011 will be similar to 2010 for the industry, with the economy in a continuing “thawing out” mode. With his company’s average resident age now in the mid-80s, more retirees — looking to “age in place” starting in their 60s — will likely decide not to base their retirement plans solely on their current home value or retirement account balances.

“People are realizing, I can’t wait for the value of my home to go back up before I sell, or my 401(k) account is not going back to where it was,” Grust said. “They decide they need to make a decision now about the quality of their lives, because they’re not getting any younger.”

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