Project Case Study (Febuary 2007)

Firm repositions, replaces dated asset

TRILOGY HEALTH SERVICES PLANS TO TAKE OHIO FACILITY FROM ‘WORST TO FIRST’

By Sonja Pedersen-Green

In the world of senior living facilities, there is no shortage of functionally obsolete real estate. But building a rival facility as a new venture can be daunting for a variety of competitive, financial and regulatory reasons. It can often be easier and faster to acquire an existing facility that can be modernized, expanded or replaced.

Trilogy Health Services LLC of Louisville, Ky., has made a business of transforming outdated senior living assets into modern facilities. One such property is Castle Knoll Health Campus in Springfield, Ohio, which will soon be replaced by a new $9.8 million, one-story, 71,000 square foot, 124-bed facility called Forest Glen Health Campus.

“As a company, we look for older (senior living) homes to renovate,” says Randy Bufford, president and CEO of the private, for-profit firm.

True to its name, Castle Knoll is an imposing, castle-like mansion built in 1880s by millionaire P.P. Mast, who operated a successful manufacturing firm. What happened to his company and subsequent generations of the Mast family isn’t quite clear. But it is known that the building later served as a boys’ home and, more recently, as a senior living facility.

Trilogy executives knew going in that Castle Knoll at 910 W. High St. in Springfield was outdated. So, rather then renovating the old space, they are building the new facility at 4100 Middle Urbana Rd. in a newer part of town, several miles to the northeast. A grand opening is scheduled for March 18.

The current mansion has been adopted by a local historical society. Part of Trilogy’s agreement when they purchased the facility was that the old Castle Knoll will be used for something other than a senior living facility.

‘Worst to first’

The process of purchasing outdated senior living assets in order to construct new facilities is part of what Trilogy’s Mr. Bufford calls its strategy of “worst to first.”

“(Castle Knoll is) a historical building built in 1880,” Mr. Bufford says, “It’s not up to current standards, so it’s obviously an easy decision to make, to move to a new location in the community and build a new project.”

So what makes Castle Knoll obsolete? Mr. Bufford says the answer is changing consumer preferences, more than anything else. Today’s senior care customer wants a facility with curb appeal, private rooms with more square footage, and higher-end amenities such as fine dining and concierge services seven days per week.

It was not practical to try to retrofit Castle Knoll to meet those expectations, Mr. Bufford says.

“We bought this property so we could build a new facility in its place – in order to obtain its Certificate of Need,” he says.

In many states, as in Ohio and two other states in which Trilogy operates, a Certificate of Need (CON) is required to develop a new long-term care facility or to make just about an kind of changes to an existing facility. In Ohio, the CON application must be filed with the Department of Health and the Health Systems Agency.

Trilogy acquired K.W. Hess Ohio Pythian Home – the operating company for Castle Knoll – in 2004. Trilogy filed a CON application to replace and relocate Castle Knoll on Dec. 29, 2004. The state granted its application on Aug. 3, 2005.

Trilogy closed on its acquisition of the Castle Knoll property and two adjacent properties – about 11.65 acres in all – in Aug. 11, 2006, according to the Clark County (Ohio) Auditor’s Office.

Real estate is key

On the seven-acre site, Trilogy is building the Forest Glen Campus, a facility that will house 26 assisted living beds and 98 skilled nursing beds. The real estate cost will be about $8.5 million, including the land, plus another $1.3 million for furniture, fixtures and equipment (FF&E).

The new Forest Glen facility will encompass all the new amenities desired by modern senior living consumers, such as private rooms and activities seven days a week. It will include restaurant-style dining in one of four dining rooms, two beauty salons, a library/reading room, a television room and a soft-serve ice cream machine. Outdoor amenities will include courtyards and activity areas with a putting green, gardening space and a dining/grilling area. There will also be five small meeting rooms that can be used by residents for family gatherings or rented out to community groups for meetings.

The local newspaper, the Springfield News-Sun, wrote in a recent article that the new facility “looks more like an upscale hotel than a nursing home.”

Forest Glen will incorporate Trilogy’s continuum of services that they incorporate into all of their senior living facilities, which includes adult day health, assisted living, skilled nursing, and a facility for Alzheimer’s and dementia patients.

In order to meet the demands of the modern consumer, Mr. Bufford believes that many older facilities, such as Castle Knoll, will not attract the consumers that a modern facility would.  Therefore, the facilities must either be drastically renovated or purchased in order to obtain the certificate of need to build a new facility in the market that will attract senior living consumers.

Mr. Bufford said Trilogy believes that the real estate is an important component of any senior living facility.

“Obviously we’re in a service sector,” he said, “We think the consumers today are looking for more amenities and it’s a wealthier population. This is a lot more consumer-driven healthcare market today and we think real estate plays a big piece in that.” q

Sonja Pedersen-Green is a business writer specializing on commercial real estate.

Forest Glen Health Campus

SPRINGFIELD, OHIO  

STATS

■ Cost: About $9.8 million, including about $8.5 million for the real estate (including land) and about $1.3 million for furniture, fixtures and equipment (FF&E)

■ Size: 71,000 square feet, 124 beds (26 assisted living, 98 skilled nursing) on about 7 acres

■ Project: Replacement of existing Castle Knoll facility

PLAYERS

■ Operator: Trilogy Health Services LLC

■ Owner: Trilogy Real Estate Ohio LLC, an affiliate