Front Porch Set To Break Ground In Mexico In October
No one will argue with the fact that retirement housing is a capital-intensive business. One way that not-for-profit organizations can generate and maintain enough financial resources to continue to reinvest in their campuses is to pursue active-adult communities in overseas locations through a for-profit subsidiary or entity.
Front Porch, California’s largest not-for-profit provider of senior living communities, currently has 13 full-service retirement communities located in California, Louisiana, and Florida that offer continuing or multiple levels of on-site care. In 2006, the company created Front Porch Development Company as a wholly owned subsidiary for the purpose of providing real estate development services to the corporation and to Front Porch Active Adult Communities LLC (AAC), another wholly owned sub-sidiary created for the purpose of developing, owning, and operating age-restricted (55 and up) active-adult communities. Both the development company and AAC are for-profit entities.
Front Porch Development Company is embarking on an active-adult community project in Mexico. Called Luma, the 400-unit property will be the first American-developed, full-ownership, active-adult beachfront community in Nuevo Vallarta. The Luma property is located within an American enclave called Paradise Village, which is on the Bay of Banderas just north of the popular resort town of Puerto Vallarta. The company will break ground in October 2007, and the first 40 units will be completed by October 2008.
“In the United States, we cannot accept anybody under age 62 into our senior housing communities without jeopardizing our tax-exempt status,” says Bill Jennings, president of Front Porch Development Company. “There are a few minor exceptions, but that’s a general rule. The age is 55 and above for an active-adult community, but that is a taxable activity. In any case, according to EEOC regulations, you can discriminate only at age 55 or 62.”
Those age limits don’t apply in Mexico, of course, and Front Porch has actually dropped its age target down to age 50 for the Luma property. “We’re targeting the boomer,” says Jennings, “because that’s the fastest growing population segment in the United States.”
Why Mexico?
While estimates vary, it’s generally accepted that more than a million full-time retired Americans and Canadians are already living in Mexico. That number is expected to grow tremendously with the coming wave of baby boomers — folks who were born in the United States or Canada, have lived here all their lives, and are looking for second-home ownership or even a primary retirement residence that is exotic and culturally interesting.
“When we first started looking at Mexico a few years ago,” explains Jennings, “we tended to find little enclaves of North Americans throughout Mexico that were very much integrated into the local communities. From 2002 through 2005, we noted both a tremendous explosion in second-home ownership and the fact that people were seeking homes in exotic locations. Mexico, in fact, has become fairly mainstream. We’re now seeing people retiring to Panama, Nicaragua, and other Central American countries. Of course, a lot of that has to do with people looking for good value in beachfront property.”
The wave of people moving to Mexico really got started in the 1970s, as retirees were looking for a place where they could live inexpensively on social security. Mexico offered a very inexpensive lifestyle, but the more interesting locations – the coastal cities, for example – have seen a tremendous escalation in home values in the last six or seven years. Nevertheless, beachfront property in and around Puerto Vallarta is still considerably cheaper than, say, Florida or Hawaii. So now, the primary target for second-home or retirement home ownership in Mexico is the affluent market.
“Our conclusion,” says Jennings, “was that Mexico offered a really strong opportunity for a specific facility or community geared to the North American retiree market. And if we could offer American-style services and amenities and an exotic lifestyle for a less expensive price than a comparable setting at home, then we felt that was a good combination. Luma is not what you’d call inexpensive, but it is a beachfront community. And because wages are so much less in Mexico, we can put together a high-level concierge service package and still have very affordable rates. In Florida or Hawaii, a similar package would probably be double the cost.”
Initial offering prices for Luma, for example, range from $446,000 for a one-bedroom unit to $779,000 for a three-bedroom home and $1,775,000 for a penthouse. The concept combines home ownership with a host of personal lifestyle amenities and services that include concierge, chef, and housekeeping services and access to amenities available at Paradise Village, such as the spa, restaurants, shops, conference center, and its 18-hole championship golf course.
Partnering with a local developer
To facilitate the development in Mexico, Front Porch has partnered with local developer Grupo Krone. Obviously, Mexican business practices and customs are different from those in the United States. As an American development company, Front Porch felt it prudent to have a Mexican partner to help navigate through the local business environment. Grupo Krone is also a very strong equity contributor to the project and helped bring capital into the project.
“I would recommend that any company expanding internationally seek out a similar partnership,” says Jennings. “We’re trying to bring the best of what we do here in America down there, but not everything works the same way. By having a local partner, we’re able to ‘tropicalize’ our project.”
It’s not simply having the language skills, because Front Porch does have Spanish-speaking people on its staff. Rather, it’s a matter of knowing how to conduct business locally. “Our business practices are more pragmatic,” Jennings adds. “In Mexico, they’re based more on relationships. You need doors opened and calls placed to the right person. Grupo Krone helps to facilitate that.”
Addressing health care
While a tremendous number of people are moving to Mexico — whether full-time or part-time — who don’t appear too concerned about health care, Front Porch wants to make sure it has covered that piece and is addressing the availability of health care services in a couple of ways.
“First,” explains Jennings, “we spent a fair amount of time sourcing reputable health care in and around the project. Fortunately, an AmeriMed hospital is located nearby in Puerto Vallarta.” Founded by the chief of staff at one of the largest hospitals in Phoenix to provide health care services to people on cruises, AmeriMed continues to have contracts with most large cruise lines and also operates hospitals in many of the large ports where the ships call. It has also expanded to provide American-style medicine to the vast number of Americans living in Mexico. The AmeriMed hospital is about 10 minutes away from Luma’s location.
“Then,” he continues, “we’re planning on providing the onsite services of a physician, as well as nurses, for limited hours — probably three days a week at the onset and later, perhaps, expanded beyond that. The doctor will mainly help integrate the health and wellness program in our community, as well as serve as an advocate for any resident who needs to access the local health system.” The doctor and nurses will speak the language, interpret the health situation, and make sure there are no misunderstandings or questions about available health care.
The cost of this health and wellness advocacy program will be part of Luma’s monthly fees, but any medical procedure done in Mexico, while less costly than back home, would be an out-of-pocket cost for the resident. Those would most likely be emergencies, because anything elective or that could be delayed would more than likely be done back in the United States or Canada. “We’ll certainly encourage all of our residents to maintain their U.S. or Canadian health programs, whether that’s Medicare or a private insurance plan, just for that eventuality,” Jennings says.
A number of insurance companies are beginning to look at overseas coverage, recognizing the opportunity to provide health care across the border, according to Jennings. The issue to the insurer becomes one of ensuring quality. “While I think they’re coming, we haven’t seen those policies yet,” he says. “We do know, though, that Medicare has commissioned a study to look at covering care beyond U.S. borders due to the significant number of Americans retiring abroad.”
Supporting the mission
For its Luma project, Front Porch will pay taxes in Mexico and also in the United States. “We’ve looked at this pretty closely,” says Jennings, “and certainly wouldn’t do anything that would jeopardize the tax-exempt status of our parent company and our existing not-for-profit retirement communities.” Front Porch clearly separates the for-profit and not-for-profit parts of the company.
“If we’re successful,,” he adds, “our active-adult community projects will create financial surpluses that we can reinvest in the not-for-profit side of the business to support our affordable housing and our market-rate retirement communities.”
Front Porch just began accepting reservations and is already experiencing very strong interest. With only 400 units in total and 40 units opening in the first phase, 1,200 people are already on an “interested” list.
Some of the active adults who move to Mexico also may want to remain there if or when they need to move to an assisted living environment. “We’ll have to see how that market evolves,” he says. “In any case, we definitely want to be at the forefront as opportunities become reasonable. This is our first venture outside the country. We want to see how the market ultimately receives it. Then, we’ll consider doing more – there and elsewhere.”
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