Developers Have Some Great Ideas—If They Can Find Financing
 As the senior population grows exponentially over the next few decades, starting in 2011, the need for affordable housing options for seniors will also grow—at least proportionately. Right now, many communities are saturated with luxury housing due to the collapse of home values, market volatility, and overbuilding. Yet comparatively few reasonably priced senior housing options are available, and few projects are on the drawing board—primarily because financing sources are less available than before, although that is beginning to improve.
 Given that scenario, it is quite likely that low- and middle-income housing facilities will be developed at a more rapid rate in coming years, while the development of high-income housing will experience a significant decrease, according to David Stembel, Senior Project Manager at BartonPartners, an architectural firm in Norristown, Pennsylvania. “And independent living facilities that depend on a high-income clientele may have to reconsider their basic business model in order
to survive and remain solvent,” he added.
 It’s fair to say, however, that most developers built all those high-end entrance-fee CCRCs to meet the demand of seniors who were benefiting from rather inflated housing values. And, the entrance-fee model was easier to finance with tax-exempt bonds.  This year, Stembel’s office has about the same number of low-income senior living facilities in design and documentation as in the past—not more, despite the need.
Low-income housing financing environment
The concept of affordable housing, whether age-restricted or not, is to create an option for those who don’t have the income to pay market rates—for the most part, people who had low or moderate income before the financial problems of the last couple of years. Rents are typically set at about 30% of affordable income limits for the geographic area.
 The government has made money available for low-income housing through HUD and through the purchase of tax credits, although HUD has become less viable recently because of its difficulty fulfilling financing obligations on a timely basis. Other financing sources, such as tax credits, have also become less favorable; for example, Fannie Mae and Freddie Mac, which were two of the largest buyers of low-income housing tax credits (representing perhaps 40% of the equity markets), are now in a form of government receivership and no longer buying tax credits.
 “One of the main ways that we financed projects in the past was through tax credits,” indicated Blair Minton, President of Blair Minton & Associates in Bradley, Illinois, which has successfully built affordable senior living facilities with state program involvement in Illinois and elsewhere. “We would get either 9% credits or 4% credits from the state and then finance the projects using those tax credits as equity,” he said
 Blair Minton & Co. currently has 34 senior housing projects in Illinois that the company has developed, nearly all from the ground up, and that are either owned or managed through its affiliate, BMA Management, Ltd. Half of the projects were financed through tax credits, several were HUD projects, and a couple involved bond issuances. Two additional projects currently in progress in rural southern Illinois have USDA-guaranteed loans.
 Tax credits were predominantly purchased by banks that earned community redevelopment points for investing in low-income housing and, in turn, avoided taxes on that investment. Well, the banks don’t have money to buy the credits anymore, according to Minton. And other groups that were huge buyers of the credits, such as National Equity Fund and National Development Council, are also unable to buy nearly as many credits as in the past. Minton estimates that the percentage of tax credits being purchased today is about 20% of the rate three years ago.
 Another common financing method for senior housing is tax-exempt bonds, although the bond market hasn’t been particularly favorable to financing low-income housing projects for the last couple of years. USDA-guaranteed loans, however, continue to be a good way of financing projects that are located in rural areas. “Frankly, right now it’s easier to do a rural project than an urban or suburban project, because the USDA option has not been severely affected by the economy,” said Minton.
 Overall, it’s just harder to get a low-income project underway in this economic environment. Three or four years ago, Blair Minton & Co. was doing eight projects a year; that has slowed to two or three projects simply because of the difficulty in finding financing. “Other firms are having the same problem,” Minton noted. “We’ve all lost the ability to sell tax credits and to do tax-exempt bonds, and HUD is backed up. And you certainly can’t go to the bank to borrow money for a low-income project. Getting a project financed was never fast, but now it’s very, very slow—like pulling teeth.” 
 Most communities, particularly in suburban areas, want the product and appear willing to work with the developer to get it done. In an urban area, though, a low-income project is much more likely to happen when the developer is able to work with the city through tax increment financing, enterprise zones, or similar programs.
Addressing middle-income housing
The middle-income market segment of senior housing hasn’t been addressed very well over the years, according to Jerome Finis, CEO of Pathway Senior Living in Des Plaines, Illinois. Middle-income housing is targeted to people positioned above the low-income status required for an affordable housing program and below the high incomes required to move into the entrance-fee CCRCs. “That middle-income market is the sweet spot that we’re all trying to address,” he said.
 Pathway Senior Living has developed about 20 senior living projects, half of which are affordable assisted-living (known as “supportive living” in Illinois) communities called Victory Centres. The communities provide well-appointed, reasonably priced, rental units and support services for low- and moderate-income seniors. Pathway’s model has served as a prototype for affordable assisted living projects throughout Illinois and in nearby states. 

 “The other 10 projects that we’ve developed have been typical affordable rental units for seniors, with few support services included,” said Finis. “What makes them different from other types of affordable rental housing, though, is that the vast majority of these projects were developed adjacent to one of our supportive living communities. So we are able to make some services available to the residents living in the affordable housing units.”
 Pathway and other developers have integrated supportive living projects into many urban, suburban, and rural Illinois neighborhoods at a relatively steady pace over the last several years, although not always at a sufficient rate to meet the need. So far, the industry has built 10,000 units of that type of product in Illinois. Then, the turmoil in the capital markets over the last year or two has significantly slowed down the pace.  
  “Getting financing is definitely more difficult today,” Finis agreed. “More than that, it’s harder to get the projects to make financial sense. Rents must be affordable, and for that, we need lots of subsidies.” Sometimes, the state will have special funds set aside to encourage affordable housing. For example, the Illinois housing trust fund (comprised, in part, of the local transfer taxes paid when a house is sold) makes grants and low-interest loans to encourage low-income housing.
 “We’ve used all kinds of financing for our proprietary affordable senior housing projects—the low-income tax-credit program, various grants, state low-interest housing loans, home loans, and so forth,” he added. In addition to accessing all those same financing sources, not-for-profit organizations should also explore the possibility of issuing tax-exempt bonds.
 Everyone is interested in finding ways to meet resident desire to be independent as long as possible. Finis expects more CCRCs to bring in services, such as home health care, that allow residents to remain independent longer—sort of assisted living “lite.”
 In the meantime, the acuity in assisted living facilities will continue to increase. He expects to see a lot more of those facilities providing hospice, physical therapy, rehabilitation, and other kinds of care that might otherwise have happened in a nursing home setting. “Patients might be happier in an assisted living environment,” he said, “but it may be difficult for regulators to ensure that the care—and the quality of care—is sufficient.”