Senior projects booming

By Andrew Gomes
Advertiser Staff Writer

As sales and development of homes boom in Hawai'i, a distinct mini-boom is taking place in a niche aimed at seniors looking for simpler housing that offers hotel-like services and care options in a community setting.

Nick Vero, a resident of the Hawai'i Kai Retirement Community, climbs the lobby staircase in the project's Phase II with manager Marilyn Cintron, who also lives on the property. Richard Ambo • The Honolulu Advertiser

Six more projects, including a massive 850-unit retirement campus in Kapolei and two smaller projects on the Neighbor Islands, are in the permitting or planning stages.

The dramatic pickup in senior-living projects will make a long-overdue dent in an overwhelming need and generate momentum for a largely nonprofit industry that has had a slow and rocky start in Hawai'i, according to experts on Hawai'i's aging population.

"The market just seems to be unfolding," said Jon Tapner, an executive with The Fountains, a large senior-housing operator on the Mainland that initially managed Hawai'i's first assisted-living rental project six years ago and is managing one project under construction.

Mike Klein, founder of the nonprofit Hawaii Intergenerational Community Development Association, agreed: "It is now starting to open up. We are very behind schedule. ... We need every one of these facilities and a lot more."

The projects in development provide a range of living options — from rentals to fee-simple ownership, affordable to luxury price ranges, and care levels from independent living to nursing and Alzheimer's disease care.

Projects under construction are in Waikiki, Punchbowl, Kahala and Hawai'i Kai, while others in planning are in Nanakuli, Kapolei, Waikiki, Hawai'i Kai, and Honoka'a and Waimea on the Big Island. Developers include private for-profit and nonprofit groups as well as one government agency.

What's encouraging the mini-boom is a mix of market timing and a breakdown of barriers that inhibit large-scale senior-living projects here.

Among the factors are the brisk pace of home sales at rising prices, low interest rates, improving public understanding of senior living, a better grasp by local developers on how to operate such facilities, and reduced reluctance by lenders to provide financing.

Klein said financing has been particularly difficult for the industry in Hawai'i because land costs are high and the local real estate market is not understood by Mainland lenders familiar with funding senior-living projects.

The situation got worse after Hawai'i's first large-scale senior-living rental, The Ponds at Punalu'u, which opened in 1997, went into foreclosure. The Seattle-based developer couldn't pay its mortgage a year after opening the hotel-like low-rise, with its 127 assisted-living and independent-living units plus a 26-bed dementia unit.

Wall Street capital also dried up for senior-living projects a few years ago after developers overbuilt on the Mainland.

But recently investors and guarantors such as banks, insurance companies, and the federal Department of Housing and Urban Development — which backs loans to lower borrowing costs for developers and reduce risks for lenders — are warming to the industry in Hawai'i. Kahala Nui, the largest of the four projects under construction, two weeks ago received $183 million in revenue-bond financing — a record for continuing care retirement community projects in the United States.

Joyce Timpson, vice president of Kahala Senior Living Community Inc., the nonprofit owner of Kahala Nui, said it took many years to arrange financing. "There was such a huge education," she said, explaining that nonprofit officials had to drive Mainland bankers around O'ahu to look at property and meet real estate brokers. "Most developers don't have the time to go through that."

Artist's rendering

Gregory Yamamoto • The Honolulu Advertiser

Advertiser library image

Upcoming senior-living projects include, from top: Kahala Nui, which is expected to open in 2005; Kaluanui, which is under construction in Hawai'i Kai; and The Plaza at Punchbowl, scheduled to be built by December.

Another part of education involves consumers. Klein said there is a perception that senior-living projects would be misplaced here because of Hawai'i's predominant Asian population and cultures where people often live with and care for aging parents.

He said this notion is a misconception, and that the public as a whole is not prepared for the tremendous financial, emotional and time commitments placed on families with parents who change from being independent to needing daily assistance or advanced care. "Our households, they don't understand the business," Klein said.

Timpson said people who have reserved independent-living units at Kahala Nui over the past year are educated about aging. "These are smart people who have friends or family members who have had healthcare needs, and they don't want to burden their children with that," she said.

Tapner, of the Fountains, which manages about 20 senior-housing communities in 14 states, said joining such a community is also a lifestyle choice.

"Many people are looking to downsize," he said. "They have us to take care of the cooking and cleaning, and free themselves up to do some of the things they wanted to do in retirement."

The real estate market also is helping make senior-living projects attractive, especially for fee-simple projects and continuing care retirement communities, which collect monthly service fees plus a refundable one-time entry fee.

At Kahala Nui, a resident pays monthly for an apartment and services, but also pays a one-time fee of $364,000 to $784,000, 90 percent of which is refundable should they move out or die.

Timpson said entrance fees are typically paid for by seniors selling their homes, and the strong home-resale market is encouraging business.

The real estate market also is helping fee-simple condominium senior-living projects. One example is the one in Waikiki being created by converting the 600-room Ohana Hobron Hotel to 165 fee-simple units for seniors.

"If you're selling condominiums, you certainly have to be in a good market," said Tapner, managing director for the project. "We just hit the market at the right time."

All the positive factors, if they continue, suggest that upcoming senior-living facilities will achieve good to phenomenal success, in Klein's view. If that proves true, it would be a departure from serious difficulties several earlier projects encountered.

One of those troubled projects is actually the predecessor to Kahala Nui, known as Hale o Malia.

The project originally had the backing of the Episcopal Church in Hawai'i, which guaranteed $4 million of a $5 million loan. Developer Episcopal Homes of Hawaii defaulted on the loan and declared bankruptcy, leaving creditors, including the Episcopal Church and the Catholic Church in Hawai'i, with financial losses.

Another prospective senior-living developer, Sheldon Zane, who planned six senior-living projects totaling 700 units, last year placed his advanced projects into Chapter 11 bankruptcy protection.

The 600 rooms in the Ohana Hobron Hotel in Waikiki are being converted into 165 fee-simple units for seniors. Gregory Yamamoto • The Honolulu Advertiser

The Ponds at Punalu'u, acquired by a bank in August, has made some progress, raising occupancy to almost 70 residents, a 40 percent increase from a year ago, according to Joe Kalani, general manager.

Kalani said the Ponds, which has room for 153 residents, last month obtained a license to provide extended care and is seeking a partnership with Brigham Young University-Hawai'i to boost facility use.

Cullen Hayashida, president of Assisted Living Options Hawaii, said a few other senior-living projects, most in the affordable price range like the Ponds, struggle with low occupancy.

Hayashida said the more affordable projects tend to have a tougher time because seniors with lower incomes can find it a challenge to afford moving to such a community compared with state-run nursing homes or small care homes in residential neighborhoods. "Even if the demand in terms of the number of people is (there), the question is whether or not the seniors will have that kind of disposable cash available to pay the monthly fee," he said.

Medicare and supplemental security income from Social Security generally fall short of covering senior-living expenses in Hawai'i, Hayashida said.

Because of this, the majority of senior-living projects under way now are luxury projects. "They're like the really upscale hotels," Hayashida said. "Everybody's doing that to make the projects pencil. That's not going to serve the vast bulk of Hawai'i's seniors."

The Kapolei project aims to change that. With 800 units planned, Luana Koa targets middle to upper-middle income seniors.

"We feel the gap group is where the most need it," said Nancy Schoocraft, chief executive officer of Luana Koa developer Hawai'i Village Associates.

Klein predicts that if the crop of projects in development do well, others will be encouraged. That should ease demand, but only a little, according to Klein, who figures Hawai'i is eight years behind the Mainland in senior-living projects, yet has one of the greatest needs.

According to Census Bureau estimates, Hawai'i had one of the highest ratios of residents 65 years or older: 13.3 percent of the population, or 157,596 people, last year.

"We'll be like a rubber inner tube on top of a tidal wave, barely being able to handle what's coming up," he said. "There are huge needs."

Reach Andrew Gomes at agomes@honoluluadvertiser.com or 525-8065.