Posts Tagged ‘Market Study’

Primary Market Areas

Tuesday, July 26th, 2011

Historically, market areas in the seniors’ housing industry in Canada have been defined for the service enriched segment of the market. Primary market areas (PMAs) are considered to be those areas from which 75-80% of the residents of a project will come. Sometimes radiuses are used, 10 miles being a popular one as in “This is a 10 mile business”. Occasionally the 10 mile rule even works but it is a risky thing to hang your financing on. Bridges, municipal boundaries, socio-economic neighborhood characteristics, competing projects—any of these, plus dozens of other factors, can and do affect the determination of primary and secondary market areas.

And of course there is the big one, the location of children. From the perspective of market analysis it would be comforting to think that the location of children is a neutral factor when it comes to estimating demand from primary and secondary market areas because it is a difficult factor to estimate. But it is far from neutral. It may even be as important as the presence of seniors themselves in a market area. Job-generating market areas will attract more seniors than they lose, which is why Alberta attracts and retains more people over the age of 65 than BC (strange but true).

As is almost always the case in Canada, there is very little hard data indicating whether the definition of primary market areas has any basis in fact at all, beyond the research Lumina has done with the BC Senior Living Association. Operators know where their residents come from of course but there has been no systematic collection and analysis of data that shows how reliable the 75-80% estimate really is.

But things are different in the US, where the industry sees the value of research and actually spends money on it! Wow – what a concept. The most recent NIC Insider Newsletter references a 2003 study that found that 22.5% of a large sample of new residents moving to CCRCs (Continuing Care Retirement Communities) had moved from farther than 15 miles away. Results of this study have been supported, in a way, by a just-published Reuters/University of Michigan survey. Of respondents to that survey aged 70+, 20.4% said that where they live was not convenient from the perspective of where their children live. NIC sees this as supporting the results of the 2003 survey and I suppose in a very indirect way it does.

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What do the Golden Ears Bridge and the Olympic Village Have to do with seniors’ housing?

Tuesday, April 12th, 2011

Market studies, that’s what. As I have mentioned numerous times in this blog, companies that produce realistic and well-documented market studies are at a terrible disadvantage in the seniors’ housing industry and probably in every other industry too. Many people who commission market studies want them written to order. We regularly lose business to competitors who are more than willing to do just that. Well you might ask, won’t the chickens come home to roost at some point? Of course they will. In our local market area a large retirement community has just gone into receivership. It was built on the strength of a positive market study and a positive appraisal.

So what does all this have to do with the Golden Ears Bridge and the Olympic Village? For those of you who don’t live in south western British Columbia, the Golden Ears Bridge is a new toll bridge that crosses the Fraser River. It opened a year or so ago. Last week the local papers contained this headline: “Golden Ears toll reduced 30%” That’s because traffic has been considerably lower than forecast . No doubt a market study was commissioned before the bridge was built that concluded planned tolls would result in sufficient revenue.
Same thing with the Olympic Village, which is now going to cost Vancouver taxpayers $50 million. I know the recession got in the way, probably with the bridge too, but I am sure rose-coloured glasses were in plentiful supply when both these projects were approved.

It is not reasonable to object to MY objections on the grounds of honest mistakes. I don’t know anything about feasibility studies for bridges but I know a lot about feasibility studies for seniors housing projects. Industry players know exactly which companies to hire if they want a foreordained answer as opposed to the truth.

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Is ethnicity a factor in the seniors housing market?

Wednesday, February 16th, 2011

We always say that it is but we would certainly be interested in generating some dialogue around this subject.
The issue arises in respect to multi-generational cultures where it is common for seniors to live with their families until they are so frail they require residential care. That is, they skip the intermediate stage of supportive housing or independent living call it what you like. This may also partly be a function of a lack of options—if you are a Chinese senior living in Burnaby, BC, which has a very high Chinese population, you would be hard pressed to find a retirement community that catered to your language and food preferences. In fact, it would be impossible.

So when are doing market studies in areas with large populations of multi-generational cultures we are always very cognizant of this factor. We are doing some work right now in an area of Vancouver where the proportion of visible minorities is 77% and who are predominantly Chinese. As it stands now this would mean that a huge segment of the market would typically not be interested in any mid-level care. Will this always be the case? How can it be changed?

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The Highest Return on Investment in Seniors’ Housing

Tuesday, September 28th, 2010

According  to a recent report from NIC (the National Investment Center for the Seniors Housing and  Care Industry) overall occupancy in US seniors housing projects is about 88%, with no signs on the horizon of any significant improvement any time soon. The housing market is still very weak and interest rates on popular savings vehicles like Certificates of Deposit are very low, meaning seniors are not feeling remotely rosy about their financial prospects.

On the bright side, 33% of stabilized properties were at 95% occupancy or higher. What is it about these properties that makes the difference in occupancy levels? One thing for sure is the importance they place on trained and effective sales staff. NIC statistics show that an astonishing 85% of people in sales positions are not sales professionals. To quote NIC:

“They are not purposely selected, trained, compensated or managed as such. Professional selling is both science and art. An average property (location, pricing, etc.), with the right sales professionals can and should be at or above 95% occupancy today. But many owners are not willing to invest in or don’t understand what professional selling is and thus are under 88% occupancy today. Investing in sales professionals produces the highest return on investment under any capital budgeting analysis. Thus, if an owner has capital, there is no more productive use.”

That’s interesting isn’t it? Compelling even.

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What’s the Housing Market Going to Do?

Friday, September 3rd, 2010

Over the last couple of years, slumping housing markets in Canada and the US have most definitely affected occupancy levels in seniors’ housing projects.  We have posted about this issue before. One of my concerns has always been that even after housing markets recover it will take older people even longer to forget the reversals experienced in the market. To use some technical jargon, they may well be spooked and continue to delay taking any kind of action on moving to more supportive environments.

Housing markets in the US looked a bit more robust for a while, but the expiration of special incentive programs has resulted in more gloom. New home sales in the US recently hit a 40 year low while sales of existing houses hit a 15 year low. That is not good news for the seniors housing industry. Past posts have discussed the very close correlation between the state of the housing market and occupancy levels in seniors housing projects.

In Canada, the housing market has also definitely slowed down, although we are light years away from the debacle in the US. Nevertheless, the roller coaster-like movements in Canadian housing markets over the last couple of years will not be comforting to seniors contemplating a move.

What’s going to happen over the next 6-12 months? Who knows, but I always think back to the last significant “adjustment” in BC housing markets. It seems like a very long time ago, but the last half of the 90s was a very slow period in terms of starts, sales, and prices.

Players in the industry would be well-advised to factor a relatively long-lasting “relaxation” in provincial housing markets into their business plans.

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Why it Would be Wonderful to be a Seniors’ Housing Market Analyst in the USA

Wednesday, September 1st, 2010

I have made this point before several times (about the vastly superior information on the US seniors housing industry) but I was struck anew by the disparities between our two countries earlier this week. The wonderful National Investment Center is celebrating its 20th anniversary. It also has a new Research Director. In a recent newsletter, the Research Director talked about some of the directions he wants to pursue over the next few years. Here are some of the things he said:

Given the ever-increasing interest in our sector, we’re working to stay ahead of the curve, so to speak, by anticipating the research needs of our industry’s participants and prospective participants. Therefore, our top research priority remains the product enhancements associated with NIC MAP. That includes not only a forthcoming tool for portfolio benchmarking but also thereafter reports providing local trends analyses. In addition, NIC MAP reports soon will incorporate detailed sales transactions metrics, and we look forward to regularly reporting market effective rents, which incorporate any leasing promotional discounts. Later this year, in our ongoing effort to disseminate insightful and timely industry research, we’ll publish the inaugural edition of the NIC Investment Guide 2010 that will serve as a primer on our property sector and has been proclaimed by a number of the draft document’s reviewers as an unprecedented comprehensive overview of our industry.

[NIC Map is a quarterly data and analysis service that collects and disseminates a broad range of information on the seniors housing industry in the top 100 metro areas in the US.]

From a Canadian perspective, that is just an incredible goal. We are so far behind the curve we have no idea if it even exists or if we are in danger of driving off the road.

Here’s what I mean. Over the last few weeks it has become apparent that one of the sub-regional markets we track in the metro Vancouver area is very soft—much softer than any of the operators will admit to and much softer than the CMHC Seniors’ Housing Report indicates. The CMHC report indicates that the vacancy rate in this area is well under 10%. Legitimate people (ie real people, not mystery shoppers) seeking accommodation in this area have been led to believe that there are very few vacant units available and that anyone wanting a unit needs to act fast. If we were mystery shopping the area we would be told the same thing, although we are a lot more sceptical about what marketing people tell us.  We look for other signs confirming the official story but often it is very hard to tell what the true vacancy situation is.

Rather disconcertingly, reliable information indicates a vacancy rate in this area that is approaching 20%. I can understand the motivation of the marketers: telling people you have a vacancy rate of 15% can be discouraging to prospective residents.

But the enormous difficulty of trying to truly understand the market means the signals to operators, developers, lenders, and analysts are confusing or contradictory or both. Not to mentions disingenuous to the consumer.

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Sarah Palin School of Public Policy: Stephen Harper, Tony Clement and the 2011 Census

Thursday, July 22nd, 2010

The furor over the 2011 Census reminds me of Sarah Palin claiming she understood international relations because she could see Russia from her front door. That is how all of us will have to operate in the future—without benefit of actual facts guiding our decisions.

I have noted in past posts how we rely on data from the long form to analyze seniors’ housing markets, including data on income and housing. I haven’t noted though how often we rely on mobility data to understand demographic patterns affecting markets and communities. Data from the long form tells us how many people of various age groups lived at the same address five years earlier, how many lived in another community in the same province, and how many lived in another province.

Well that is just downright intrusive, Tony Clement and Stephen Harper would no doubt say. But of course it isn’t intrusive and the data helps us to avoid mistakes. In my forthcoming book I mention the case of a former client of ours who was planning to build a big seniors’ housing project in the interior of British Columba. He was sure that people from all over Canada would flock to the community, partly because his site was in BC, an assumed magnet for seniors, and partly because it was a good site, right behind the Tim Horton’s. We were able to show him, based on long form data, that his assumption was mistaken and that the prospects for his site were not good.

Normally it is a delicate matter to tell someone that their plan isn’t a sound one but this client was far from perturbed. “You have saved me millions of dollars”, he said, and that is true.

The lack of long form data in so many areas of the Canadian economy and Canadian society is going to be an extremely costly, as well as a futile, exercise.

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2011 Census (Reprise)

Wednesday, July 14th, 2010

As the government is still persisting in its wrong-headed plans to ruin the 2011 Census, I thought it would be useful to explain in a little more depth why the Census information is so critical for seniors’ housing analysis.

Here is an example of a table we always use when we are doing a market study or a community housing needs assessment.  Here are just a few of the things this table tells us:

  • 83% of the 55+ households in this community are homeowners.
  • The average income of the renters is $38,509 compared to $73,094 for the owners.
  • Single (non-family) renters over the age of 85 have the lowest average incomes.
  • Although not shown in the table, the detailed data indicate that there are 565 renter households aged 65+ in this community with an income lower than $14,999. These are the households facing serious challenges in terms of meeting their housing needs.

Owners

Renters

Family Hshlds

Non-Family

Family Hshlds

Non-Family

Total

Avg Inc

Total

Avg Inc

Total

Avg Inc

Total

Avg Inc

55-64

4,880

$101,729

1,030

$47,153

600

$61,629

510

$30,613

65-74

2,450

$67,633

815

$36,961

220

$41,969

405

$28,178

75-84

1,140

$63,158

1,030

$32,375

125

$35,366

265

$26,375

85+

200

$50,621

255

$24,358

60

$47,584

235

$24,220

Sadly, we will never have this level of knowledge about seniors’ housing markets in future years because all of this information comes from the long form.

For-profit and not-for-profit developers, communities, governments, market analysts—we will all be forced to guess what is going on. Tragic.

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Good Market Studies for Seniors’ Housing Projects can Save you Millions of Dollars; Bad ones can Cost you Millions of Dollars

Thursday, May 20th, 2010

Since one of Lumina’s business lines is market studies, it may sound self-serving for me to say that it is false economy of the worst kind to launch a real estate development project of any kind without doing a market study first. But very often, developers have great difficulty grasping the fundamental truth of this observation, partly because of personality. Lack of confidence is not a trait shared by many developers but it is easy to tip over the line from confidence to hubris. Even granting a solid understanding of a market on the part of a developer, a third party study is invaluable in terms of reducing risk and maximizing profitability. Lenders know this, which is why they are usually more likely to require a market study than a developer.

To make the matter more complicated, there are numerous ways for market studies to go off the rails, many of them not especially obvious to casual or uninformed observers, OR, it must be said, to unethical market analysts who write “market studies to order”.  Firms like this certainly exist and in most cases, knowledgeable industry participants know exactly who these companies are.

In future posts (interrupted by posts from Phoenix, where I am headed to the ALFA conference on Sunday) I will address some of the ways market studies can go off the rails and what you should watch for. This is assuming of course, that you are interested in a market study that tells you the truth.

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