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2018 U.S. Seniors Housing Development Costs Report
December 2018
U.S. SENIORS HOUSING DEVELOPMENT COSTS REPORT
In This Issue:
•ExecutiveSummary..................................................................................................2
•Introduction............................................................................................................3
•SiteAcquisitionCosts.............................................................................................4
•HardCosts...............................................................................................................5
•SoftCosts.................................................................................................................5
•FF&ECosts...............................................................................................................6
•ReturnsonCost........................................................................................................7
•DevelopmentActivity&2019CostsForecast...........................................................8
U.S. SENIORS HOUSING DEVELOPMENT COSTS REPORT December 2018
• Totalcostforaseniorshousingdevelopmentin
2018increasedby5.3%year-over-yeartoan
averageof$298persq.ft.or$270,200perunit.
• Hardcostsrepresentedthelargestportionoftotal
developmentcostat66.6%,followedbysoftcosts
at19.7%andsiteacquisitioncostsat10.1%.
• Thehighestcostincreasewasforsiteacquisition,
whichrose16.2%onaveragepersquarefoot.
Hardcostsrose7.1%andFF&Ecosts(furniture,
fixtures&equipment)climbed7.9%.
• Returnsoncostgenerallyrangedfrom7.7%to
9.9%in2018.Whiletheaverageof8.9%was
unchangedfrom2017,achievingthesereturns
isbecomingmorechallenging.
• Seniorshousingdevelopmentprojectsin2018
werelargerinsizethanayearago.Theaverage
unitcountwas128,up5%.Totalgrossbuilding
areaincreasedby4%.
Executive Summary• Buildingdesignscontinuetoincorporatemore
lifestyleoptions,withthepercentageof
independentlivingunitsupby17%.The
percentageofnetrentableareaincreased
slightly,indicatingdevelopersarebuilding
largerunitsorreducingtheamountofcommon
areatohelpoffsetcosts.
• Constructionstartshavebeendecliningsince
the2016peakandareattheirlowestlevelsince
2014.TheNationalInvestmentCenterforthe
SeniorsHousing&CareIndustry(NIC)reported
Q3rolling12-monthstartsat28,013units,
down14%fromthe12monthstrailingQ32017.
• Risingconstructioncostscoupledwith
developers’focusonmaintainingcurrentyields
areexpectedtokeepconstructionstartsatmore
moderatelevels.
CBRE Valuation & Advisory Services | CBRE Research © 2018 CBRE, Inc. | 3
December 2018U.S. SENIORS HOUSING DEVELOPMENT COSTS REPORT
Figure 2: Development Cost Breakout (%)
Source: CBRE Valuation & Advisory Services and CBRE Research, Q4 2018.
Developmentcostmetricsarevitallyimportantforpartiesinvolvedinthedevelopmentprocess,forconstruction
lendersandforbuyersandsellersofseniorshousingassets.Costsdeterminereplacementvalueandprovide
intelligenceforinvestmentdecisions.Thisreportisprimarilyfocusedonmeasuringtheannualchangein
seniorshousingdevelopmentcostsandtheirimpactondevelopers’returnoncosts.
CBREValuation&AdvisoryServices’SeniorsHousingPracticecompletedvaluationsofmorethan2,000seniors
housingpropertiesacrosstheU.S.in2018.Thedataandanalysisinthisreportwerederivedfromthevaluations
of330seniorshousingdevelopmentsthatwerescheduledfordeliveryin2018and2019.
Introduction
CHARACTERISTICS SUMMARY
Cost ($) Average Year-over-Year Change (%) First Quartile Median Third Quartile
Total 35,750,000 23,200,000 30,975,000 43,525,000Per Revenue Unit 270,200 5.5 227,200 261,500 316,000
Per Sq. Ft. 298 5.3 226 298 346
Property Characteristics Average
Year of Construction 2018-2019
Total Revenue Units 128
Independent Living 41
Assisted Living 50
Memory Care 37
Site Area (Acres) 7.74
Gross Building Area (Sq. Ft.) 129,000
Net Rentable Area (Sq. Ft.) 75,100
Figure 1: Seniors Housing Development Costs Summary
Source: CBRE Valuation & Advisory Services and CBRE Research, Q4 2018. Note: The first quartile is the median of the values below the complete set median; the third quartile is the median of the values which are greater than the complete set median. % change reflects variation from 2017 data.
Totalcostforaseniorshousingdevelopmentin2018
increasedby5.3%year-over-yeartoanaverageof$298
persq.ft.or$270,200perunit.Hardcosts
representedthelargestportionoftotaldevelopment
costat66.6%,followedbysoftcostsat19.7%andsite
costsat10.1%.
Returnsoncost,whenmeasuredasstabilizednet
operatingincomeasapercentageofoverall
developmentcosts,generallyrangedfrom7.7%to
9.9%in2018.Theaverageof8.9%wasunchanged
from2017.
Thepropertiesinthedatasetincludeeitherstand-
aloneoracombinationofindependentliving,
assistedlivingandmemorycarecommunities.
10.1
66.6
19.7
3.6Site
Hard
Soft
FF&E
CBRE Valuation & Advisory Services | CBRE Research © 2018 CBRE, Inc. | 4
December 2018U.S. SENIORS HOUSING DEVELOPMENT COSTS REPORT
Siteacquisitioncostsforfullypermittedlandrepresentasignificantcomponentoftotaldevelopmentcost—an
averageof$32.25persq.ft.ofthegrossbuildingarea.Sitecostsrangefrom$16,900to$33,100perrevenueunitfor
anaverageof$28,100.
Whiletheaveragelandcostincreasedby15.2%perrevenueunitand16.2%persq.ft.ofgrossbuildingareathis
year,itspercentageoftotalconstructioncostroseto10.1%from9.5%.
Siteacquisitioncostsrangesignificantlybasedonmetropolitanmarketandtheproject’slocationwithinthemetro
area,density,regulatoryclimateanddemographictrends.
AnexampleatthelowerendoftherangeisSyracuse,N.Y.withlandcostaccountingfor6%oftotalconstruction
cost($10,000perunit),whileahigh-endexampleisSouthernCaliforniawithlandcostaccountingfor18%of
totalconstructioncost($50,000perunit).
Site Acquisition Costs
Figure 3: Site Acquisition Costs
Source: CBRE Valuation & Advisory Services and CBRE Research, Q4 2018.
Note: The first quartile is the median of the values below the complete set median; the third quartile is the median of the values which are greater than the complete set median. % change reflects variation from 2017 data.
Site Acquisition Costs Average Year-over-Year Change (%) First Quartile Median Third Quartile
Site Area (Acres) 7.74 23.9 4.90 6.23 7.86
Nominal Site Cost ($) 3,575,000 23.3 1,775,000 2,550,000 4,025,000
Cost Per ($)
Site Area Sq. Ft. 18.30 17.3 5.50 10.00 15.00
Revenue Unit 28,100 15.2 16,900 23,500 33,100
Gross Building Area (Sq. Ft.) 32.25 16.2 18.50 24.25 41.00
% of Total Development Cost 10.1 6.3 6.6 9.5 11.5
CBRE Valuation & Advisory Services | CBRE Research © 2018 CBRE, Inc. | 5
December 2018U.S. SENIORS HOUSING DEVELOPMENT COSTS REPORT
Averagehardcostspersq.ft.ofgrossbuildingareaincreased7.1%onayear-over-yearbasisto$197persq.ft.
Hardcostsrangedfrom$154to$220persq.ft.ofgrossbuildingareaand63%to72%oftotaldevelopmentcost.
Hardcostsrepresentthelargestcomponentofthedevelopmentexpenditure.Theyincludesitework,foundation,
buildingshellconstruction,roofing,interiorfinishes,landscaping,signageandlabor.
Theprimaryvariationinthiscostcategoryisattributabletosub-assetclass,amenitiesofferedandfinish,
buildingqualityandmaterials.
Laborisanotherfactorinhardcostsvariation—bothitsavailabilityandwhetheritisunionized.
Softcostsaveraged$59persq.ft.ofgrossbuildingarea,representinganaverage19.7%oftotaldevelopmentcost.
Thiswastheonlycomponentofdevelopmentcoststodecrease,downyear-over-yearto19.7%from21.5%.Softcosts
generallycovertheunseenportionofcosts,suchasinspectionfees,constructionloan-relatedcosts,architectural
anddesigncosts,projectmanagementandanyothercarrycostduringtheconstructionphasesandlease-up.
Hard Costs
Soft Costs
Figure 4: Hard Costs
Figure 5: Soft Costs
Source: CBRE Valuation & Advisory Services and CBRE Research, Q4 2018.
Note: The first quartile is the median of the values below the complete set median; the third quartile is the median of the values which are greater than the complete set median. % change reflects variation from 2017 data.
Source: CBRE Valuation & Advisory Services and CBRE Research, Q4 2018. Note: The first quartile is the median of the values below the complete set median; the third quartile is the median of the values which are greater than the complete set median. % change reflects variation from 2017 data.
Hard Costs Average Year-over-Year Change (%) First Quartile Median Third Quartile
Nominal Hard Cost ($) 24,025,000 16.5 15,000,000 20,575,000 30,250,000
Cost Per ($)
Revenue Unit 179,800 6.9 149,900 172,700 204,100
Gross Building Area (Sq. Ft.) 197.00 7.1 153.50 191.50 220.00
% of Total Development Cost 66.6 1.5 62.7 67.5 71.6
Soft Costs Average Year-over-Year Change (%) First Quartile Median Third Quartile
Nominal Soft Cost ($) 6,975,000 3.0 4,225,000 6,375,000 7,225,000
Cost Per ($)
Revenue Unit 53,300 -2.9 37,500 53,500 66,100
Gross Building Area (Sq. Ft.) 59.00 -4.1 41.75 52.00 72.75
% of Total Development Cost 19.7 -8.4 15.8 19.9 22.3
CBRE Valuation & Advisory Services | CBRE Research © 2018 CBRE, Inc. | 6
December 2018U.S. SENIORS HOUSING DEVELOPMENT COSTS REPORT
Figure 6: FF&E Costs
Source: CBRE Valuation & Advisory Services and CBRE Research, Q4 2018.
Note: The first quartile is the median of the values below the complete set median; the third quartile is the median of the values which are greater than the complete set median. % change reflects variation from 2017 data.
Furniture,fixtures&equipment(FF&E)costsrepresentedanaverageof3.6%ofthetotaldevelopmentcostand
$9,000perrevenueunit,upby4.7%year-over-year.
FF&Ecostsgenerallycoveritemsthatcanbemovedandhavenopermanentconnectiontothestructureof
thebuilding.
Thiscostcanbeconsiderableforseniorshousingdevelopmentduetothesignificantamountofamenityspace
andsupportareas,suchascommerciallaundryandkitchenfacilities.
FF&E Costs
FF&E Costs Average Year-over-Year Change (%) First Quartile Median Third Quartile
Nominal FF&E Cost ($) 1,150,000 7.0 750,000 975,000 1,475,000
Cost Per ($)
Revenue Unit 9,000 4.7 7,000 9,800 11,900
Gross Building Area (Sq. Ft.) 10.25 7.9 7.25 10.50 13.50
% of Total Development Cost 3.6 5.9 2.9 3.7 4.4
CBRE Valuation & Advisory Services | CBRE Research © 2018 CBRE, Inc. | 7
December 2018U.S. SENIORS HOUSING DEVELOPMENT COSTS REPORT
Figure 7: Returns on Cost
Source: CBRE Valuation & Advisory Services and CBRE Research, Q4 2018. Note: The first quartile is the median of the values below the complete set median; the third quartile is the median of the values which are greater than the complete set median. % change reflects variation from 2017 data.
Returnsoncostgenerallyrangedfrom7.7%to9.9%withnoidentifiablegeographic,cost(buildingquality)or
care-levelpattern.Theaveragereturnoncostremainedunchangedonayear-over-yearbasisat8.9%.
Thismetricisdeal-specificandisdeterminedprincipallybysupply-and-demandfactorsintheprimarymarket
areaofeachdevelopment.
ReturnoncoststatisticsfromCBRE’saggregatedatasetaremeasuredasstabilizednetoperatingincomeasa
percentageoftotaldevelopmentcosts.Thestabilizedvaluemetricsarebasedontheoperator’sstabilized
proforma.Theconstructioncostsincludeoperatingshortfallsduringlease-up.Thestabilizedcapitalizationrates
usedarefromCBRE’s2018U.S.SeniorsHousing&CareInvestorsSurveyandTrends.
Returns on Cost
Return on Cost Average Year-over-Year Change (%) First Quartile Median Third Quartile
Stabilized Value ($) 47,700,000 19.8 29,775,000 40,925,000 59,575,000
Per Revenue Unit ($) 366,000 6.8 302,900 365,900 414,600
Stabilized Capitalization Rate (%) 6.6 0.0 6.5 6.5 6.8
Lease Up Period (Months) 22 14.3 18 24 24
Returns on Cost (NOI/Cost) (%) 8.9 0.0 7.7 8.5 9.9
CBRE Valuation & Advisory Services | CBRE Research © 2018 CBRE, Inc. | 8
December 2018U.S. SENIORS HOUSING DEVELOPMENT COSTS REPORT
Development Activity & 2019 Costs ForecastTwogovernmentstatisticsportrayarisingcost
environment.Theconstructionindustryinputsof
theProducerPriceIndexwereup6.6%year-over-year
inOctober(theinputsrepresentallthegoodsand
servicesusedinconstruction).TheU.S.Bureauof
LaborStatisticsalsoreporteda3.9%year-over-year
increaseinweeklyhourlyearningsforall
constructionworkersinOctober.
Constructioncostsarerisinginallcommercialreal
estatesectorsduetoincreasedland,laborand
materialscosts.Forconventionalmultifamilyassets
(mid-rise:fourtosevenstories),FannieMaereports
thattheaverageconstructioncost(excludingland)
roseby6.3%to$211persq.ft.thisyearfrom$199
persq.ft.in2017.
Atotalof55,462unitsin498seniorshousing
developmentprojectsacrosstheU.S.wereunder
constructionasofQ32018,accordingtotheNational
InvestmentCenterfortheSeniorsHousing&Care
Industry(NIC).Thetotalexcludesmajoritynursing
careprojects.
Constructionstartshavebeendecliningsincethe
2016peakandareattheirlowestlevelsince2014.
NICreportedQ3rolling12-monthstartsat28,013
units,down14%fromtheyearendingQ32017.
Continuedmoderationindevelopmentactivityis
healthyfortheseniorshousingmarketbecause
demandhasnotkeptpacewithnewsupply,resulting
indipsinoccupancyaswellassloweryear-over-year
rentgrowth.
Yet,evenwithlowerlevelsofseniorshousing
constructiondevelopmentandlesscompetitionfor
sites,laborandmaterials,developmentcostslikely
willrisein2019.
Laborandmaterialswillremainthechiefdriversof
highercosts.Whileseniorshousingdevelopmentis
slowing,thesectorcompeteswithothertypesof
construction—particularlymultifamily,whichis
expectedtoremainatahighlevelin2019.Therefore,
thepressureonlaborcostsshouldremain.Materials
costswillalsocontinuetoclimb,especiallyiftrade
tariffsremain.
CBREexpectsseniorshousingdevelopmentcoststo
risemodestlyin2019,astheydidthisyear.
Risingconstructioncosts,coupledwithdevelopers’
focusonmaintainingcurrentyields,areexpectedto
keepconstructionstartsatmoderatelevels.
December 2018U.S. SENIORS HOUSING DEVELOPMENT COSTS REPORT
Disclaimer: Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE.
TolearnmoreaboutCBREResearch,ortoaccessadditionalresearchreports,pleasevisittheGlobalResearchGatewayatwww.cbre.com/researchgateway.
AdditionalU.S.researchfromCBREcanbefoundhere.
SpencerG.Levy Chairman of Americas Research and Senior Economic Advisor +16179125236spencer.levy@cbre.comFollowSpenceronTwitter:@SpencerGLevy
JamesA.Graber,MAI Managing Director Seniors Housing &Healthcare | Practice Leader +13477220225james.graber@cbre.com
DanielLincoln,MAIDirector Seniors Housing & Healthcare +12055825733daniel.lincoln@cbre.com
CBREValuation&AdvisoryServices’seniorshousing&carespecialtypracticeisdedicatedtoassistingourclientstobetterunderstandthedynamicsofathrivingseniorshousingandhealthcaremarket.CBREofferscorporate-wideaccesstothemostadvancedinformationsystemsandanalyticaltoolsintherealestateindustry.Thisallowsforaccurateandreliablevaluationsthatarecriticaltothehealthofeveryrealestateinvestmentandloan.
Contactourteamtoarrangeacustomizedpresentationoftheseresultsorformoredetailedinformationonaspecificmarketorpropertytype.
www.cbre.com/SHVAS
JeanetteI.RiceCRE®Americas Head of Multifamily Research +12149796169jeanette.rice@cbre.comFollowJeanetteonTwitter:@RiceJeanette
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