Retirement Home Development - anyone?

Hi,

Has anyone looked at doing a retirement home development ? There is an off market opportunity presented to me in a middle ring Melbourne suburb with approx 10,000 sqm of Low Density Zone (LDZ, over 4 titles) which can potentially be rezoned to GRZ2 (allowing for 300-500 sqm sub division).

Currently, subdivision will allow blocks of 2000sqm only however after speaking to the council and planners, whilst this can be rezoned and then subdivided and built (4-5 year time frame), council is very keen for retirement home to be built on the site and this could shortcut the timeframe as an approval could be had within months. The site is at the intersection of a main arterial (corner) with a large shopping centre (500m away), medical centre (300m away) and connected to services.

This site had an offer by an aged-care developer in 2015 which was declined by the owners (one owner out of 4 wanted lot more) and I have an option to pay 45% less than the last offer and keen to do a feasibility for a 55+ retirement home (not assisted / nursing home).

Would be very keen to get any feedback from forumites or anything to watch out for ... I have a 7 day window to make an offer before its put on the market.

Regards,
Harris

 

Hi Harris,

This is a very niche and very lucrative type of development - I have a client that does this in Sydney and they have been very successful.

From a finance perspective though - its one of the, if not the most difficult type if finance to get across the line. Retirement homes are slightly easier than nursing homes but nevertheless still difficult to get funding.

 

Thanks Shahin - I am self funding the land acquisition bit and would be looking at financing options to develop/ build on the block. I assume by the time, I have all relevant permits and ready to build, that I could put it in the market for a large aged-care developer or get build-finance on a clear title?
Thanks

 

It doesn't really matter if its a clear title per se as that relates to more the equity side of the application - the biggest hurdle is going to be the servicing side of the proposal and other aspects such as prior development experience, etc.

 

@Harris

I met up with a retirement home developer a couple of weeks ago, he just sold a 150 unit development that he finished, and had just bought a site for a 250 unit development.

His structure was based on a single title with 150 leases. The retirees would purchase a unit/dwelling which was relocated onto the land that they leased off the retirement developer. The retirees owned the dwelling/unit only. There were yearly lease fees to cover maintainance, shared services etc and development profit.

It was a very profitable business, and involved a permit for the development, and as they were leased no subdivision was required, this meant no public open space 5% contribution.

What was your plan for the structure? If you want to chat offline i would be happy to.

 

Its an area I am currently studying up on and networking with other successful developers in this niche area and plan to get involved in a JV soon. I think if you can start with a smaller complex than it may be more manageable to start.

 

Like Lixas4 we have been having a look for a developer doing much the same thing. Purchasing the land conditional of a planning permit for a "Manufactured Home Estate" or a "Residential Village" in planning terms. Where the land would be held in a single ownership, and small 1 and 2 bedroom houses would be constructed (Either UMD's or actually house on slab) with ancillary community centre/healthrooms/pool/gym type facilities.
Once the planning permits have been received he onsells to a retirement home management company. Same lease structure Lixas outlined. Sometimes on sells with contracts to undertake the civil works and housing construction. Creating value and a market and flog off type arrangement. I don't know any numbers but it seems like it is quite profitable.

 

The developer i met up with gave me a run down of his numbers for the 150 unit, and showed me his Info Memorandum for the 250 he is doing, and wow, i almost fell off my chair. Its 'retirement' type numbers

 

Thanks everyone - I didn't realise there have been quite a few messages. Thought any response would generate an auto-email... I would love to discuss this more with you @lixas4 , @James Cavill & @Sackie . Pls drop me a PM if its ok.

This is a fairly new space for me and one that is currently off-market so any opportunity to get more info (even in paid capacity) will be good. I would like to do some high level DD and assess numbers.

My town planner and the architect I use have spoken to the council planners and received very positive feedback, so hoping I get enough info to be able to acquire the land prior to it being advertised.

Regards
Harris

 

I have been involved in mid-high density in this space, the devt profit we have are similar to resi apartments, slightly lower realisable values per unit but the 0.5 FSR bonus in NSW offset this. Some small but important differences in design and build such as common areas were a little larger than a normal straight resi build, as I mentioned the profit worked out to be about the same.

Retirement living is a pretty simple leap if you are already across resi devt and have capital to move forward. Aged care has added complexity/considerations to get the operating business profitable post devt.

 

Thank you for the response.

My plan at this stage is to get the project designed and council approved and then assess if I would build and offload or best to handover to a specialist developer at a good margin prior to build stage.

Assuming a $1000 psm going rate for land (in the vicinity) for blocks of up to 500 sqm in the current market, would the retirement home feasibility assume a certain discount when assessing margin?- say $800psm since the end-product has limited demographic (age restricted) to sell to ?

Given the total area is 10,900sqm, is there a general rule of thumb to assess density/ product mix for high level feasibility? Understand all of these questions are location-specific and 'how long is the piece of string' but appreciate any feedback from those who have either done this themselves or might have access to that info.

Regards
Harris