These days, senior housing is as enticing as a pie cooling on a windowsill—every one wants a piece of its hefty returns and promising long-term prospects. Yet, one of the most in-demand products—affordable housing—is still one of the industry’s biggest puzzles.
To fill housing needs for low-income seniors, senior living players are finding that the right recipe to finance affordable projects requires a few extra ingredients with a mix of public and private funds.
Such is the case in Chicago, where plans are underway for multiple mixed-used developments to build affordable senior housing in combination with important community resources. In Dallas, a city well-known for major senior housing development, new affordable facilities are coming on line thanks to creative financing that blends public and private capital from multiple sources.
To get affordable senior living projects off the ground, creativity in financing and function is the name of the innovation game.
Financing to Fit Function
On the North Side of Chicago, a new affordable senior housing development is in the works to kill two birds with one stone.
Not only will the project—which is likely to enter the request for qualifications/request for proposal phase (RFQ/RFP) by the end of the year—house low-income seniors in roughly 30 residential units, it will also be home to a new public library. In a time when funding for new libraries may be low on the financial totem pole for the nation’s Second City, the mixed-use intentions of the building enable both needs to be met.
“The idea grew out of the need for both—the need to provide more affordable housing for seniors on the city’s North Side, where there is a demand for this housing, and the need to provide new and modern, 21st century libraries,” say Eugene Jones, Jr., CEO of the Chicago Housing Authority (CHA). “Urban planners and policy folks have been talking about this idea for many years. What’s different in Chicago is that rather than talk about it, we’re doing it.”
The first North Side development is one of three mixed-use properties of this type planned in the city of Chicago, Mayor Rahm Emanuel announced in late October. CHA, the second-largest city housing group in North America and the largest land owner and developer in Illinois, will hold a two-stage design competition for each site to attract architects to the projects.
In the first stage, RFQs will be sent to design firms. Up to three pre-qualified architectural firms will be chosen by an evaluation committee to develop a conceptual design, budget and schedule, with each firm receiving a stipend for their work, according to CHA. The committee will select the winner from these submissions.
The winners will work with CHA, along with the City of Chicago’s Department of Planning and Development and Chicago Public Library (CPL), in a design workshop with the communities where the developments are located. The process is expected to take 10 weeks.
“Mayor Emanuel challenged CHA to reshape the way we think about public housing,” Jones said. “As we strive to build vibrant, mixed-income communities, it made sense to pair libraries with housing as a community benefit, and the mayor wanted to hold a design competition. A key component of this project is that the Mayor is rebuilding the idea of the government building itself. We are giving architecture firms the opportunity to use their creativity and leave a lasting legacy of public art in neighborhoods across Chicago.”
Without combining the housing and library components of the developments, the projects may never have been funded separately. The public library will be located on the first floor of the 16,000-square-foot building, with one-bedroom apartments on upper floors for seniors 62 and older. The building will be between two and three stories.
“Co-location is a smart financial decision because we are able to more cost-effectively build the resources communities want and need,” Jones said. “By co-locating libraries with affordable housing, we not only provide housing and learning centers where they are needed, but make communities more resilient and sustainable. …It helps us provide housing in ‘opportunity areas’ where housing is not as plentiful as in other areas, a key goal at CHA. We know that housing is vital to our neighborhoods, but strong, healthy communities also require community anchors like libraries that provide resources for lifelong learning.”
Each project is expected to take between 18 and 24 months to complete, according to CHA. While it’s too early on in the development process to determine specific financing sources, CHA says the project will be funded by both public and private financing. The financing will likely include capital from CHA, state tax credits and other potential sources, local news outlet DNAInfo reported.
“All funding options will be on the table as they always are when CHA develops housing,” Jones said.
While blended financing of public and private funding is commonplace for CHA projects, other players in senior living are starting to harness alternative financing options for projects that may not otherwise be built.
Public and Private Partnership
In another corner of the country, one capital group in Dallas is taking an open-minded approach to funding much-needed projects.
Civitas Capital Group, an independent specialty asset management and financial services firm, has helped finance two affordable senior housing developments in Dallas with both public and private financing sources.
“There’s a need for senior housing everywhere,” said Drexel Owusu, managing director and chief of staff for Civitas Capital Group. “Our job is to bring capital to people who are looking to do things that aren’t the lay-up investment. It instead requires some creativity and flexibility to get it done. Those are the projects we are excited and energized to see to fruition—ones that need a little kitchen grease to get the job done.”
One such project is the newly-opened Simpson Place, a $15 million affordable assisted living facility with 150 units. The facility opened in November and was financed through multiple public and private sources, including EB-5 funding from the City of Dallas Regional Center (CDRC), which has been managed by Civitas since 2009.
EB-5 funding is an alternative capital source that attracts foreign investors by giving them the opportunity to receive U.S. permanent residency if they provide a minimum of $500,000 for a U.S. business or project. The capital helps builds projects in targeted employment areas (TEAs) and create local jobs. While EB-5 funding is frequently used for senior housing projects, the Dallas projects harness multiple sources of financing together.
In addition to $6 million in EB-5 funding from Civitas, Simpson Place was also funded through an affordable housing grant and senior bank debt through a public-private partnership that included Dallas Housing Authority, City of Dallas, Federal Home Loan Bank, Amegy Bank, Stonegate Senior Living and CDRC. The facility was built on land contributed by Dallas Housing Authority.
Civitas’ other Dallas project, Village at Lakewest, was also financed with the same senior living operator as Simpson Place. Stonegate Senior Living will operate both facilities. Civitas financed $4 million for the development of Village at Lakewest. Rates at Simpson Place and Lakewest range from $1,500 to $2,400 per month, depending on patient needs and Medicare/Medicaid benefits.
“There’s about $10 million invested in EB-5 capital across the two developments,” Owusu said. “We’re proud of the fact that we’re able to work through the complexities to bring affordable senior living to Dallas.”
EB-5 funding can be more complex because a project must be nailed down before it is financed, according to Owusu. Compared to traditional financing, this process of piecing together all the funding sources can also be more time-consuming.
“There are no bounds to utilizing EB-5 capital if you’re willing to put in the time and creativity to do it,” Owusu said. “EB-5 capital has to be raised project by project. There’s not a pool of capital waiting—you have to find it. It can can take a little bit of extra time to go through that process.”
However, getting investors on board with senior living projects is an easy sell. Civitas has invested more than $320 million of EB-5 capital in 18 Dallas projects through CDRC, the EB-5 regional center that partners with the City of Dallas Office of Economic Development. Roughly 10%-12% of that funding has been directed toward senior living projects, according to Owusu.
“We find that when explaining this to prospective investors and clients, senior living is something that resonates everywhere,” he said. “We’ve found that in all the countries we’ve attracted capital from—over 30 now—senior living resonants and people understand it. While the process takes a little longer, the sale is not so arduous.”
In a city like Dallas, getting affordable senior living projects off the ground makes all the hard work and creative financing worth it.
“We were really attracted to these projects because they were filling this gigantic need for senior housing options in the southern half of the city,” Owusu said. “It was important to the city to have affordable options for residents. …EB-5 has allowed cities to engage in projects that are specific to their goals without waiting for market dynamics to blow in the right direction.”
Written by Amy Baxter