Development Budget (Senior Living)

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In addition to the typical development budget line items that I discuss here, there are several budget line items specific to senior living projects that are worth discussing and that you want to ensure you have captured in your budget. 

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Furniture, Fixtures & Equipment

On most development projects, FF&E is something that is furnished and installed by the tenant.  But on a senior living project, you as the developer/owner have to select and pay for the FF&E that will go in your facility. 

 

As I previously mentioned, I like to include as much granular line item detail as I can in a development budget to make sure I am not forgetting to include anything in the budget.  Sub-line items that I also like to include under FF&E are the furnishing of model apartments and the furnishing of the marketing office.  These are sub-line items under FF&E that could easily be forgotten while you are establishing your initial budget and would later result in a change order. 

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Interior Design

On most development projects where their is a tenant improvement build-out, the project has an interior designer.  But that interior designer is usually hired by the tenant.  Or if the developer does use the services of an interior designer, it is usually just an add-on service of the architect.  

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For senior living projects, the interiors are so specific to the use, you will many times hire an interior designer, separate and independent from your architect, that focuses on senior living projects.  This interior designer also usually selects, furnishes and installs the FF&E. 

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Budget sub-line items you should keep in mind for interior design are: renderings and a marketing video fly-through. 

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Kitchen Consultant

Since most development projects do not have a commercial kitchen, designing and constructing a kitchen within your projects is another somewhat unique item to senior living developments that you need to budget for. 

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If you are going to do laundry onsite, be sure to also include a sub-budget line items for that laundry design.  The cost for the laundry room and laundry equipment will be under the construction costs from your GC.  

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Low Voltage

As I discuss in other sections of this website, low voltage is huge for senior living projects, and it is the responsibility of the development manager to manage it effectively.  Start this effective low voltage management by itemizing out every low voltage component going into your senior living project on the development budget.  For a list of those low voltage components, click here. 

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Signage

Senior living projects have unique and extensive signage requirements so be sure to budget for them properly.  Click here for the details of the signage package you should include in your budget. 

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Operator's Pre-Opening Budget

Work with your operator to budget for your operator's anticipated pre-opening costs.  These are costs that your operator is going to have to pay during the development process to get ready to lease up and run this facility once it's open.  These costs need to be captured with your development budget.  Examples of these costs are:

• payroll costs for staff members you hire before opening

• computers and phones for staff

• uniforms

• website creation

• advertising mailers

• brochures

• marketing signs

• marketing events

• small wares

• fitness equipment

 

Ask your operator to put together this pre-opening budget for your specific project and send to you for review.  Dig into the details and line items of this pre-opening budget to make sure there is no scope gap, or doubling up of scope, between what the developer/owner is providing and what the operator is providing.  A prime example of a cost that could be missed or double up between the operators pre-opening budget and your development budget is the leasing/marketing office.  This is a cost that maybe your operator is carrying in their pre-opening budget, or maybe it is a cost you are carrying in your development budget.  Wherever it is accounted for, make sure it is accounted for just once. 

 

Also, be sure to check the dollar amounts on the line items in your operator's pre-opening budget to make sure they make sense to you.  A seasoned operator should have the experience to know estimates of what stuff should costs, but if a dollar amount looks off to you, question the operator about it. 

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Operating Reserves

Operating reserves are funds to cover your negative cash flow after the senior living facility is open, but before you are receiving enough rental income to be cash flow positive.  Based upon your anticipated lease-up speed, you and your operator should be able to assemble a proforma that shows when you will be cash flow positive.  This proforma will also help you to estimate how much money you will be spending while you are cash flow negative.  Be sure your operating reserves are large enough to cover this negative cash flow period. 

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Next Page: Planning for Phase II Expansion

 

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