The Business of Campus Retirement Communities
Leon Pastalan of the University of Michigan calls the upcoming sweeping demographic shift in America "mass longevity." Pastalan, who is director of the National Center for Housing and Living Arrangements for Older Adults, is talking about the tsunami of our population age 65 and over that will surge from 35 million today to a whopping 80 million by 2030. And here's the kicker--six out of 10 boomers age 48 to 52 are likely to move to a new home for retirement, according to the annual "Baby Boomer Report," conducted by the Del Web company. Pastalan, who authored University-Linked Retirement Communities (Haworth Press, 1994), says his book garnered only a ripple of sales when it was released, but in the last five years, the book has received renewed interest.
Given the data--and the potential revenue--it is no surprise that more IHEs are now considering or planning to build retirement communities on or near their campuses, either independently or in partnership with developers.
University-linked retirement communities (ULRCs) are not new. There are some 50 such communities scattered throughout the country, at both small and large institutions, attracting retired faculty and alumni, parents of faculty members, or the population at large, who desire a lifestyle that is tied to both a college community and academic environment.
And ULRCs come in all shapes and sizes, from large country club for-profit single-family housing developments that cater to the active and the affluent, to small nonprofit austere apartments or condominiums that provide continuing care for the lifetime of the residents.
So what is the incentive to consider a ULRC? Revenue. Whether you earn revenue by selling or leasing vacant land, or form a partnership with a developer, or even license your school name to a developer, the bottom line is that such investments can add significant and recurring sources of revenue.
In addition, there are ancillary revenue benefits. Campus retirees spend money on campus events and activities. They are a welcome addition to the community because they pay taxes and do not burden the school system. They also are a reliable source for fundraising and bequests. And, the URLCs can provide employment opportunities for students.
But revenue aside, Pastalan, who is a semi-retired professor of architecture and a principal with Collegiate Retirement Community Consultants, asserts that it is "critical" that IHEs recognize changing demographics and providing services to older Americans should be "first and foremost and extension of their mission," he says. Moreover, Pastalan observes that because alumni who have a presence on campus are IHEs staunchest supporters, "a lot of development officers are missing the boat and don't realize what a goldmine they are." He cites Iowa State University, which has received some $3 million in support from the residents of a URLC that has only 100 units.
Robert Chellis, senior advisor and principal of Chellis-Silva Associates Senior Housing, in Wellesley Hills, Mass., points out the one resource that many IHEs have at their disposal is land.
"Most schools have empty land, and you can build a several-story retirement complex on as little as 13 acres, depending upon your zoning requirements," says Chellis. He mentions Lasell College (Mass.) as an example, where a 107-unit facility was built on 13 acres.
Chellis notes that retirement complexes can be very profitable, generating long-term income in the millions of dollars, depending on the size of the complex. IHEs can make money from the outright sale of the land, leasing land, or setting independent partnerships with developers that can contribute long-term income. He also notes that many CFOs are looking more at real estate opportunities as a way to expand their school's investment portfolio.
"If you lease land for a complex, for example, you earn annual income, and at the end of the lease term, say 50 years, you can decide to continue the arrangement, or use the building, which you now own, for other purposes," Chellis explains. He mentions that IHEs can also earn income from reselling the units, depending on the terms of the contract with the developer and the complex management.
a welcome addition
to the community
because they pay taxes
and do not burden
the school system.
Gerald Badler, managing director of Campus Continuum, a research, consulting and real estate developer focused solely on campus-affiliated retirement communities, says IHEs should focus on the age 55-plus age group for a number of reasons.
"This group is more likely to participate in community life," he says, "and they can provide some non-financial benefits to the school and community, such as volunteering at area hospitals and elementary schools, or museum guides and library aides, or mentoring."
The Kendal Corp., based in Kennett Square (Pa.), is one of the largest non-profit developers of continuing care retirement communities (CCRCs), and has proven success in establishing CCRCs on or near colleges and universities. Kendal has established CCRCs at Ithaca College and Cornell University in New York, and Oberlin College and Denison University in Ohio, for example.
Steeped in the Quaker tradition of respect for the individual, social responsibility and fiscal integrity, Kendal President and CEO John Diffey sums up the difference between for profits this way: "Some IHEs want elitist projects; some egalitarian... We happen to be egalitarian and target our communities first to the ex-faculty and staff members, then to such retirees as secondary-school teacher librarians, for example, who want to be able to reside and afford to live in a college environment."
Kendal will purchase or lease land from an IHE, or buy property in the open market, to build a CCRC. The company then will establish informal ties to the IHE for its residents to take classes and utilize campus facilities, and participate in other school activities. Since many of the residents are ex-faculty members, there is a natural continuing relationship with the school. At Oberlin College about 37 percent of the residents are alumni or former faculty and staff.
"Our values and the college's values have to resonate," says Diffey. "Our mission is to make something good happen for the school and the community," he adds.
Although the extent of the Kendal business model is the land transaction with an IHE, the secondary benefits are closer ties with alumni, which helps fundraising, and fosters interaction and life enrichment between the two communities.
There is a growing surge of for-profit private real estate developers--and even major hotel chains--that see opportunity in the URLC market. The Melrose Company, based in Hilton Head, S.C., is one such developer that is currently constructing two high-end golf-centric, single-family home developments: The Georgia Tech Club and Traditions at Texas A&M.
The business relationship between Melrose and both Georgia Tech and Texas A&M centers on licensing agreements of the respective school names and access to their alumni mailing lists. In return, the schools receive 5 percent of golf club membership sales and 10 percent of annual gross operating revenue from the club. The Georgia Tech Club is estimated to generate $1 million annually for the athletic and alumni association. In addition, Melrose built at no cost two state-of-the-art golf facilities for the Tech and A&M golf teams, which helps recruiting top players and enhances the caliber of both programs.
The Georgia Tech club is located about 12 miles from the Tech campus. The A&M development is about two miles from campus.
Unlike the non profits, Melrose is marketing their developments to alums of all ages who want to live in an upscale community, enjoy golf and the amenities of a country club setting, and have an infinity for the institution.
According to Jeff Quinn, executive vice president of Melrose, the company has 30-year licensing agreements with each school. The Tech and A&M developments are the company's first ventures into the ULRC market but Quinn adds that "trust" is key to developing a successful relations with a university.
"We've been in the resort development business for 21 years and our communities are always centered around golf," Quinn says, noting that the swelling numbers of retirees makes such developments attractive to people who want upscale communities and also closer ties to the alma mater.
Quinn also notes that at Georgia Tech's request, golf club memberships were substantially reduced for residents age 32 and under in an effort to have young alums intermix with older alums. For example, a "junior membership" costs $5,000, while a "founders" membership runs $60,000 and "charter" membership cost $30,000.
In addition to the direct revenue each school will earn from the licensing agreements, the bet is that these alums will be a boon to fundraising campaigns and bestow gifts and bequests to the institutions.
Because there is risk in any real estate development project, the last thing an IHE needs is to partner with a developer that could cause headaches for the university if there are problems with the development, lawsuits over shoddy construction, or any problems that could tarnish the reputation of the university. "Obviously the institution has to protect its reputation, so there are clauses in the contracts that allow for either party to terminate the relationship. The key is to partner with reputable companies to create a comfort level for both parties," he says.
The Hyatt Corp., under its Classic Residences division, has been developing and managing continuing care retirement communities since 1987. The company leased 22.4 acres from Stanford University (Calif.) and announced plans in 2001 to construct a 388-apartment center, which includes a community center, cafe, spa, art studio, pool, underground parking, and biking and walking trails. The facility will also include 106 units offering assisted living, nursing care, Alzheimer's, and skilled nursing care.
The complex, which is set to open next year, is first being offered to some 300 leaseholders who own houses on land leased from the university. In addition, some 5,000 faculty and staff members who are age 60 and over were targeted as potential residents of the complex. Units will be offered to the general public after the initial offering to the university community.
The complex offers apartments that range in size from 900 square feet to more than 2,000 square feet. There is an entrance fee that ranges from $600,000 to $1.7 million. Ninety percent of the entrance fee is refundable if residents leave the facility, or it will be refunded to their estate. Hyatt charges a monthly fee ranging from $2,700 to more than $5,000 per month, depending on the number of individuals in an apartment. The fee includes a variety of services, including meals.
There are many options that IHEs have today to consider when thinking about entering the retirement business. Whether it is just a straight-up land sale or leasing deal, or an actual partnership, there are more choices than ever before. And as Pastalan at U Michigan notes, there are numerous secondary benefits to bringing alums and retirees back to campus that can help enrich both campus and community life.