Succeeding in the world of the small developer

I used to be one of those seniors housing corporate jockeys who spent most of his life on an airplane until, in 1999, I decided to start Premiera Care. One of the founding principles of Premiera Care was to never build a project that I couldn’t drive to. Beyond that, if you are leaving a relatively good-size corporation and you have all these grandiose ideas about building your own assisted living community, you will find yourself performing a very complex set of processes, including finding a site, doing a feasibility study, and finding construction expertise and architects who know what they’re doing.

With a small company, we’ve employed a very careful and disciplined approach to developing new facilities. One is to be very definite about the type of property we’re seeking—and to take our time finding it. There are several specific features that we look for, ideally:

Is the property a potential infill site? That is to say, is it on the border of development with the potential of a lot of rooftops going up around it? We seek such boundary areas. In our area of California, these tend to be communities like Modesto, which is growing northward toward Manteca and Stockton. Once we have secured a property, our ideal development process takes about 35 months from groundbreaking to stabilization. So, at about the time we are ready to open, residential housing is opening or about to open and we’re considered to be an infill site.

Which brings up the second factor we look for: Are there (or will there be) high barriers to entry? On an infill site, with development going on around you, you’re less likely to see one of the big companies jump in with a competing property next door. Sometimes it can take a while for our own company to surmount such a barrier, which is why it is a good thing that we can take our time doing this, without feeling the pressure that public corporations face of meeting fixed growth goals or achieving quarterly income increases. As long as we’re paying our bills and doing well running our buildings, there isn’t that much pressure on us, and the growth of equity is good.

As an example, our first building, completed in 2002, cost $10 million; our second, $12 million; and our third, $15 million. That’s $37 million but, when filled, these buildings have substantial equity. We still owe about $8 million on the first building, but at today’s cap rates it’s valued at about $15 million. For us this makes more sense than to have twice the facilities at half the net operating income.

Factor number three: What is the competition doing, or not doing, that we can do better? Often we’ll find providers in the area who are doing a good basic job, but they’re 30 years old and have ended up charging more than we charge for a brand-new building. That means we can offer “affordable elegance,” with state-of-the-art design and high-quality services for as much as $200 to $400 a month less. In a free market, this can work very well for everyone. It spurs the competition to change their services and acuity level or to become more creative and lower-priced. The customer wins in any case and, hopefully, we’ve identified our demographics well enough not to destroy other businesses but to nudge them to change in positive ways.

Another facet of this is that we’ll offer unit types that the market wants but isn’t receiving—for example, we build very few studio apartments, favoring instead larger one- and two-bedroom, two-bath apartments. Older properties might have a ton of studios and, even though they can upgrade their common areas, it’s pretty hard for them to change the basic structure of the facility from its studio base.

This is having an interesting impact on the market. These days we’re seeing a stratification of assisted living from “assisted living–light” to a higher-acuity form of assisted living than we’ve ever seen before. Some of the properties that have difficulty appealing to more independent clientele with smaller apartments are going toward higher-acuity, with round-the-clock nursing—the old intermediate care facility model. We offer clinical services, as well—for example, a memory care program for Alzheimer’s and dementia—but we try to make the care element as invisible as possible. Our communities still tend to be more independent in feeling.

Another facet of this is that we’ll offer unit types that the market wants but isn’t receiving—for example, we build very few studio apartments, favoring instead larger one- and two-bedroom, two-bath apartments

Of course, we’re experiencing aging in place. Our oldest building is five years old and, where there were once four walkers lined up outside the dining area the first year, a couple of days ago (I did a count) there were 37. In general, you have to be flexible and adjust staffing up or down as residents’ needs change. We also draw the line on acuity, and we have developed a collaborative relationship with area skilled nursing facilities for when our residents can no longer self-manage their basic care needs, such as insulin management.

Another important principle we follow is that, once we’ve identified a desirable property, we pay close attention to the entitlement process. I’m blessed in having wonderful partners, Brigid Flanagan and Garth Brandaw, because with them, the management company, the architect, and the builder share a common vision from day one, and that expedites the entitlement process a great deal. Another plus for us is Brandaw, on the architectural side one of the best communicators and problem-solvers I’ve ever worked with. We’re all in constant communication throughout the entitlement process. When the planning department wants a 10-foot sound wall, we try to find a compromise that won’t damage the integrity of the project or cost too much. Rather than come in with a sense of arrogance—as sometimes can happen with outsiders—I tell my partners to remember that mayors, commissioners, and councilmen have parents who may be coming into our facility one day, and I ask, wouldn’t it be nice to be friends at the grand opening rather than counting scars and stitch marks?

Usually the planning commissions are willing to negotiate. Yes, there’s always someone who has to feel more important than the rest and can seem overdemanding. But you have to hang in there and try, within reason, to “give the people what they want.” Otherwise you could end up with a project that just sits there for two years and goes nowhere.

Obviously, in the last scenario, three years is a very long time for property development from conception to stabilization, especially if you are the management company. You face a risk if something happens during construction or in the fill-up process and you exhaust your reserves. But that is probably the most serious risk you’ll encounter until stabilization or at least breakeven occurs.

It’s worth it for us if we succeed in our mission of providing quality personal care, and do so in a way that promotes resident independence, privacy, and dignity; respect for our customers and staff; and goodwill within the communities we serve.

Don Petersen is President/CEO of Premiera Care, LLC, a Modesto, California–based senior care facility development firm.

For more infor-mation, phone (209) 848-4500 or e-mail

Topics: Articles , Finance , Housing