Despite Headwinds, Skilled Nursing Renovations and Construction Plow Ahead in Certain Markets

Among properties in the senior housing and care space, skilled nursing facilities tend to be the oldest, with new construction largely constrained to higher-end rehab facilities — sometimes called “medical resorts.”

While rehab continues to drive new development in the nursing home space, Skilled Nursing News found a variety of unique projects across the country, from the renovation of a previously closed property to the addition of a brand-new SNF on a retirement campus in Florida.

At the heart of recent construction trends, providers are looking to adapt to the new expectations of nursing home residents and their families, even if it means downsizing bed counts.

“A lot of family members want to see loved ones be able to age in place, and more providers are frankly looking for a way to diversify their revenues and help mitigate the risk they see with the latest reimbursement pressures,” Robert Baxter, managing director at ORIX Real Estate Capital — a combined company of Lancaster Pollard and RED Mortgage Capital — told Skilled Nursing News.

In fiscal 2019, the lender completed seven new Department of Housing and Urban Development-backed construction loans for a total of $112 million. Those loans either took the form of Section 232 loans — which fund the development of new properties or substantial rehab projects — or 241(a) products, which are used for renovations on properties that already have HUD-backed financing.

Most nursing homes are more than 38 years old and in need of renovations, while consumers today are savvier with higher expectations, Baxter said. In addition, with persistent labor shortages plaguing operators in the space, some providers have embarked upon construction projects with the goal of making life easier for nursing home staff.

For instance, operators have changed layouts to more strategically place the locations of dining rooms and nursing stations, ensuring that communal areas needs are centrally located for residents and staff — which, in turn, will also improve first impressions on potential residents and families.

“Providers are paying attention to the quality of care and how nurses can more quickly get to residents. They are also competing for labor more now than ever,” Baxter said, stressing that having a pleasing environment and an accessible pathway to residents helps retain staff.

Having up-to-date shower rooms where nurse aides can bathe a resident without looking like they took a bath themselves, for example, is a factor for operators to think about, Baxter said.

“You want staff to look forward to coming to work and to have a good environment for working,” Baxter said.

One of ORIX’s recent HUD 232 loan deals was for Guardian Nursing & Rehabilitation in Orlando, Fla., which secured a $12.4 million fixed-rate financing over a 40-year term. Guardian’s operators will use the loan to completely replace the original facility, which was originally built in the late 1950s.

As part of the project, the facility is downsizing from 120 SNF beds to 80 — with more private units, better amenities, and a larger therapy space. Once built, the operator will transfer residents to the new facility and begin expanding the campus with additional assisted living and adult day care services.

ORIX also closed on two 241(a) loans in Ohio for Ohman Family Living, a family-run organization with three skilled nursing properties and a growing post-acute network in the region.

At one of its facilities, known as Holly Hill, Ohman plans to increase the number of SNF private units from 4 to 52 — along with a new memory care wing of 24 units, and the addition of 14 assisted living beds. Briar Hill, the second 241(a) project, went from 82 nursing beds to a total of 96, and from having 16 private units to 44 private units, with the goal of meeting local market demands.

“This case was a bit different because at Briar, they didn’t see a demand for more assisted living units — so they converted those beds into private units for the nursing home, and added a new 24-bed skilled nursing wing,” Baxter said.

Interest in the 241(a) program will continue to increase in the upcoming years, Baxter projected, noting that that particular portfolio has seen consistent increases since 2010.

“If you have a first mortgage, HUD typically doesn’t allow you to go to a local bank to build an addition on a facility,” he said, adding that a 241(a) loan allows providers to expand facilities as long as they have their first mortgage with HUD.

Larry Graeve, senior vice president of Weitz Construction, affirmed that although his senior living-focused firm doesn’t regularly deal with HUD loans, they are seeing an uptick in rehab projects.

Many older communities are in need of building upgrades because they don’t fit the current desires of the growing senior population. Older SNFs are often set up with semi-private rooms and shared bathrooms with a shower down the hall — the private rooms have become the new model.

“Today 95% of newer construction is made for private rooms,” Graeve said. If doing renovations, an owner will look to affiliate with a hospital to take in short-rehab patients to increase revenue.”

In addition, living and memory care communities are investing in a higher level of acuity than in the past, and “pushing the envelope to see how much they can get by,” he added — clarifying that construction demand for rehabilitation varies by state.

New construction for skilled nursing facilities has decreased for Weitz, with assisted living and memory care taking over that population for construction, Graeve said, adding that Weitz has not constructed a free-standing nursing building “in a long time.”

“Total inventory is down unless it is rehabbed,” Graeve said.

That said, Weitz has seen some volume in replacement skilled nursing construction, or raising a new building and then tearing down the old one. The company is currently in the middle of several such projects in Florida, a more expensive market for new builds due to strict building codes stemming from frequent hurricanes.

Those projects include a brand new property for the Shell Point Retirement Community in Fort Myers, Fla., with a total price tag of $60 million.

Once complete, the facility will feature about 2,400 units in total of assisted living, independent living, memory care, and skilled nursing. The building itself will measure about 200,000 square feet, with 180 skilled nursing beds spread across six levels of 30 units each.

Instead of traditional long institutional hallways with units on each side, the units will be built in more of a neighborhood cluster, which works well with staffing ratios, according to Graeve.

“The staff gets to know residents more personally in a cluster,” Graeve said.

The amenities for the Shell Point property include private rooms, therapy pools, a health clinic, a salon and day spa, and an outdoor garden. This particular nursing home includes a worship room — although many do not.

Another new Weitz renovation in the skilled nursing sector is still in the works in Florida — this time involving a reduction in overall nursing beds. An older building will be renovated for a new purpose, with 32 skilled nursing units, 24 memory care units, and additional assisted living units as part of a larger deal on an existing campus.

Back in Ohio, Foundations Health Solutions — which operates 57 properties across the state — recently launched an upgrade project on a shuttered nursing home in Marietta.

Marietta Center of Ohio was recently closed by Genesis HealthCare (NYSE: GEN) after a 50-year partnership. Foundations then spent $2 million to purchase and rehab the facility, which will see its total bed count reduced from 150 to 67 when the work concludes in the spring of 2020.

Twenty to 25 Medicare residents and a remaining Medicaid population — for a total of 67 — will live in these rooms “for dignity, privacy, and more space for Medicare and Medicaid patients,” Levi Lunsford, Foundations’ director of operations, told SNN.

Foundations has also embarked on a completely new construction project in Belpre, Ohio, about 30 minutes away from Marietta. The $8 million facility will also feature 67 beds, with a dementia unit designed to fill an unmet niche in the area.

“We’ve identified a need for quality providers in the Belpre area,” said Lunsford.

The projects will involve vent and dialysis units at Marietta headed by nephrologists and pulmonologists; memory care units at Marietta and Belpre, which will include a sensory healing garden to help with dementia daily living; and chapels at both buildings including a partnership with local churches. Exterior and interior renovations including landscaping, new floors, and common areas.

Both facilities will focus on respiratory needs, including residents with chronic obstructive pulmonary disease (COPD), as well as ventilator and tracheostomy care. Foundations will additionally supply inpatient dialysis services in collaboration with a third-party provider, the Akron Kidney Group.

A third facility — this one $13 million, with 140 beds — will be a brand new build in Westerville, Ohio about a year from now. This property will cater to higher acuity residents, with in-house dialysis, ventilator units, and physical, occupational, and speech therapy — with a goal of 50 to 60 skilled nursing beds.

The three facilities will bring at least 80 jobs and $2.5 million in annual payroll to each community.

The key to Foundations’ ability to continue construction in a challenging market is a focus on employee retention, Lunsford said.

“We have to run a business, but we believe that you have to have happy employees first. The bottom line doesn’t drive our vision, and that approach is where other providers fail,” Lunsford said — adding that if buildings are fully staffed with happy employees, the company will do well financially.