Build Less, Build Smarter: Middle Market Senior Living and Outpatient Growth via Adaptive Reuse

Adaptive reuse is an ever-increasing strategy with potential benefits for developers, operators and the community. It has become a viable plan for developing healthcare real estate, including senior housing and medical outpatient facilities. Certain historical commercial property uses are declining in popularity, while ground-up construction remains expensive and time-consuming with a limited availability of capital. As a result, owners and developers are increasingly converting underutilized assets—such as hotels, retail properties (including malls and big-box sites), offices, warehouses, and other commercial sites —into alternative uses, including senior housing and medical outpatient facilities.

Recent changes in lifestyle patterns, including a move to more work and shopping online, have accelerated market changes and, in certain areas, have led to underutilized, affordable and readily available commercial real estate assets, including retail and office space.  At the same time, many communities see a continuing need for growth of senior living and outpatient facilities due to a changing demographic. In response, forward-thinking developers and owners are re-purposing these assets rather than relying on traditional ground-up construction for healthcare projects. Although there are challenges, adaptive reuse of existing but obsolete buildings can allow for shorter construction periods, revitalization of existing neighborhoods and developments, presence in locations without otherwise developable land and potential tax incentives.

When evaluating potential sites for adaptive reuse, developers and owners must view standard due diligence considerations through a refined lens. Although code compliance, environmental considerations and entitlements are always a factor in development of healthcare and senior housing facilities, when repurposing an existing building, the analysis must shift. Careful attention must be paid to the prior use and age of the building and materials used in its construction to determine if any environmental remediation will be required, if the site can support potential increases in parking and building access and if the structure will allow for necessary health and safety changes, such as the introduction or enhancement of fire and life safety systems, retrofitting mechanical systems, HVAC and/or elevators, introduction of medical gasses, and development of clinical, living and recreational spaces.

Despite these challenges, adaptive reuse is gaining traction among owners, developers, investors, municipalities, community members, and design professionals as both a practical and forward-looking solution that aligns with preservation, sustainability and waste reduction initiatives and trends. By repurposing underutilized or vacant spaces within existing communities, senior living and healthcare facilities are able to establish themselves in otherwise inaccessible neighborhoods where innovative owners and developers can preserve historical features and add modern amenities to existing buildings with the potential for faster delivery timelines, a lower basis, municipal assistance with entitlements and potential tax credits or incentives than would have been possible with new construction.