Financing memory care

Ready to expand your memory care offerings? The decision of whether to build new spaces or retrofit existing ones—and how you’re going to acquire the investment funding to do it—is all about understanding your local market and demonstrating your ability to provide the care needed by residents with cognitive decline, investment experts say.

These days, senior care providers applying for investment funding for memory care need to bring a lot more to the table than a design sketch and a community impact statement. Financers are looking for evidence of programming expertise and a deep understanding of what it takes to deliver quality memory care services, says Bob Kramer, founder and strategic adviser, National Investment Center for Seniors Housing & Care (NIC), in a recent I Advance Senior Care webinar on financing for memory care.

Market trends

In 2014 and 2015, many skilled nursing facilities found some financial relief by relicensing some of their poorly performing or vacant skilled nursing beds into assisted living and/or memory care. Then, in early 2015, the building boom of stand-alone memory care centers began. Meanwhile, some continuing care retirement communities (CCRCs or Life Plan Communities) began to focus on memory care and wellness units while even historically independent living providers started to add memory care units. Combined, these separate efforts created a sizable spike in available memory care units in 2015 and early 2016.

As of 3Q 2017, the inventory of available memory care units has grown ahead of demand in many of the 31 primary markets as defined by NIC, but perhaps only for now. In just the past six months, the occupancy rates and absorption have both risen, and no one sees the need for memory care units ending any time soon.

Still, senior care organizations that plan to seek financing for memory care construction or retrofitting need to be aware of the nuances in the now-competitive memory care market and be prepared to show why their program expertise adds up to a good financial risk for investors, Kramer says.

Banking on memory care

Memory care-only sites were barely on the market radar before 2014. As of 3Q 2017, some of the primary senior care markets are currently experiencing some overbuilding (including Chicago, Detroit and St. Louis) while other primary markets (Seattle, Tampa and Baltimore) are currently experiencing strong, competitive growth. Yet, memory care is still a relatively young market, and financers are currently cautious about investing in it unless the applicant brings a good risk story to the table.

For any senior care organization, the investment story must begin with a deep understanding of the local market, says Dan Baker, vice president of senior housing for Avison Young. “More so than in other levels of senior care, in memory care there’s a difference between the ‘customer’ and the ‘resident.’ The customer is often the family members, and they’re savvy and ready to shop around.  And they’ll become tougher to please.”

Seeing where your opportunities fit within the local market includes examining the price differentials of memory care units, which can be vast even across smaller metropolitan markets. Other factors include the local nuances for room size, private vs. double and state-specific licensing issues.

The decision of whether to build or revamp depends on the potential of the existing spaces, says Christopher Fenton, managing director of senior housing at Berkadia. “Can you provide the appropriate programming in the existing space? If so, a retrofit might work best for you. If not, you may need to build.”

The cost of materials and labor shortages have driven financing needs up, for both new construction and retrofits, Kramer says. “In the last five years, costs have gone up 20-25 percent and we expect another 3-6 percent increase in the next six to 12 months.”

Care excellence matters

Memory care programming excellence matters to investors, and it’s getting much more difficult for providers to acquire funding for stand-alone memory care centers unless they have a strong track record of experience in quality care, Kramer says. That includes everything from operator experience to programming excellence backed by the emerging care best practices. “Investors are looking for operators with experience specifically in memory care or a partner who has that experience,” Kramer says. “It’s not just about door locks against egress anymore. There’s a lot more to providing memory care than that. We’re learning that lighting, outdoor spaces, textures of carpets and many other things are very different for memory care settings than other care settings. And some find they need more programming spaces that can serve residents at different levels of [cognitive] ability.”

What investors really look for

Those planning to apply for memory care financing can improve their play at the competitive financing table by knowing what investors want to see from applicants:

  • Be the best operator in town, or else partner with someone who is
  • In memory care, programming is everything. Be prepared to show why your memory care service delivery is worth the financer’s investment
  • Tell your community-specific story. Financers want to hear why your memory care project is valuable and needed on the local level
  • Be prepared to bring equity into the transaction
  • Your use of technology—for the benefit of residents and the caregiving staff—is important in the memory care project discussion
  • Memory care is an operations-intensive business. Be ready to demonstrate your experience and your focus, both locally and in terms of national best practices


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