[+] Co-Location of Aged Care Multi-Year Trend

The sale of Stockland’s $987-million retirement living portfolio to Sweden’s EQT Infrastructure in February was part of a major reshuffle of two commercial property subsectors—retirement living and aged care. RetireAustralia’s $1-billion portfolio of retirement village assets is also on the block. Experts predict a shake-up of these markets in the years ahead. A major shift driving aged care accommodation and retirement living is the transition to a “living in place” model that brings together these presently disparate parts of the commercial property market. The idea is for people to stay in the one spot as they age. But combining aged care and retirement living is easier said than done, as aged care is a federal responsibility, while retirement living is managed by the states. Working through this will take years to resolve. “The increasing emphasis on ageing in place will drive new types of retirement villages and significant change in the fabric of our suburbs,” says PRD chief economist Diaswati Mardiasmo. Mardiasmo says Australian communities need to become increasingly age-equitable and inclusive. So, multi-disciplinary design teams including urban planners, public realm and placemaking specialists and architects need to work together to achieve good outcomes. Australian Unity’s Better Together model is designed around the living in place concept and supports seniors as they transition from independent retirement accommodation through to assisted living and then into age care. ▲ Inside Rathdowne Place in Melbourne's Carlton. One of its flagship developments is its Rathdowne Place precinct, which has a 162-bed aged care facility and 92 vertical retirement living apartments in the inner city suburb of Carlton in Melbourne. David Bruce-Clarke is JLL’s Australian senior director for alternative investments. He says property owners in retirement living and aged care are working out the best ways to transition to a living in place model. “Some will maximise existing facilities or find ways to move obsolete stock by selling or redeveloping,” he says. Mardiasmo says two models are likely to become popular as the aging in place strategy gains traction. Join The Urban Developer's Developing For An Ageing Demographic vSummit on April 28. Click here to secure your ticket. The rural model combines retirement living and aged care accommodation located in affordable suburbs outside city areas. Examples include Aveo’s The Parks property in Cairns in Queensland and Lend Lease’s Woodvale property in Western Australia. The other, city-based model co-locates aged care and retirement living in high rise and other buildings in urban centres. “This is ideal for those who would like to stay within the community in which they have lived for many years,” Mardiasmo says. Examples include Aveo Newstead in Brisbane, Australian Unity’s Drummond Place in Melbourne and Adventist Care’s Australis at Rossmoyne in Perth. ▲ Aveo’s The Parks property in Cairns. An international trend yet to be adopted in Australia are developments where adult children can reside with elderly parents. “This will become more popular as multi-generational living becomes more accepted in Australia,” says Mardiasmo. University or school-based retirement communities where elderly residents are connected with and share facilities with learning institutions, sometimes even working for them, are another possibility. Making the figures work One of the challenges in this sector is to strike a balance between property investors’ and developers’ requirement to generate a return from a highly regulated market, with the community’s need to care for people at the end of their lives whatever their means. “Operators are looking at how best to manage their existing property portfolios in light of this and how to work with what they've got in the interim period,” says Bruce-Clarke. “At the same time, they are exploring how to deliver the correct accommodation product for the next generation of retirees and seniors. “Developing aged care has always been tricky to get right financially. Bigger groups have been more successful but this is tougher for the smaller end of the market.” The financial drivers within the aged care sector are changing, further complicating an already complex area. Market intel suggests fewer people want to pay a refundable accommodation deposit (RAD), which has been the preferred approach for residents entering new aged care facilities. ▲ Adventist Care’s Australis at Rossmoyne in Perth. Aged care developers may need to re-think the business model if each bed costs $300,000 to build, but they can’t underwrite the investment with RADs. In terms of financing, Australian Unity often co-invests alongside private third-party capital. Its general manager of social infrastructure Ryan Banting says the challenge is how to repay investors when aged care beds are empty, and therefore not generating a return, because operations are going to be discontinued at the facility or it’s going to be renovated. “RADs are the most obvious choice to repay any significant capital investment the group has made for a new asset, but they are not the only way,” says Banting. “If residents pay a combination of both a RAD and daily accommodation payments, we can securitise those ongoing payments to cover the capital cost of the investment.” But, refundable accommodation deposits are expected to be phased out as part of the new Australian National Aged Care Classification. Banting expects aged care sector funding to increase as part of this evolution. Australian Unity finances construction of some new facilities through development funds, which are bespoke investment vehicles that pay for the construction and delivery of new assets. “We look to raise equity from wholesale investors to partner with the Australian Unity group and build brand new assets,” says Banting. “And the majority of those assets have been co-located assets.” Case in point is the Rathdowne Place retirement village and aged care facility. ▲ Australian Unity’s Drummond Place in Melbourne. An obvious question is why investors would remain exposed to the highly-regulated aged care sector if they can get the same level of return in another sector, without having to meet stringent regulatory requirements, which have only become more onerous following the Royal Commission into Aged Care Quality and Safety in 2018. “Governments and stakeholders need to work together to encourage private industry and developers to continue to develop,” says Bruce-Clarke. But it’s worth noting investors can see aged care versus other property sub-sectors as having very different risk-reward propositions, with both having a place in a property portfolio. Plus, returns from aged care and retirement living are attractive, another reason investors remain exposed to the sector. Of course, some assets won’t lend themselves to the co-location of retirement living and aged care accommodation. Other properties built long ago may not be suitable to remain as senior accommodation and will be knocked down or repurposed into another property type. What is certain is demand for both retirement and aged care accommodation will only grow as the population continues to age, which will keep developers and investors exposed to these sectors for decades to come. You are currently experiencing The Urban Developer Plus (TUD+), our premium membership for property professionals. Click here to learn more.

[+] Co-Location of Aged Care Multi-Year Trend

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