We are rolling up our sleeves at ABHOW. In the next two years, the company will build a new affordable housing community in Bremerton, Wash., and complete significant capital projects at four California continuing care communities—Valle Verde, The Terraces of Los Gatos, The Terraces at San Joaquin Gardens, and The Terraces at Los Altos.
Undertaking $150 million in capital projects in so short a time will no doubt be a challenge, but most of these projects have been in the development pipeline for five years or more. The fact that ABHOW can move forward with these projects even during a difficult economy provides confidence that our management and financial strategies have been effective.
These capital improvements are part of a long-term strategy, one made possible by an approach to financial planning that specifies three goals—to meet the expectations of our residents, to address the future needs of a growing population of older adults, and to ensure that the company stays financially sound for many years to come.
Keeping our communities up-to-date and creating new communities that meet our high standards are essential if the company is to fulfill its promise to current residents and attract a new generation of seniors. And because campus improvements and expansions can boost occupancy, these capital projects help ensure the company’s future and protect the investment of ABHOW residents. Financing these projects has not been easy, but difficult times can actually force better thinking and improve creativity.
For many years, ABHOW’s core philosophy has been to build its reserves and create operating margins while keeping rate increases consistent and competitive. In troubled economic times, we have held to this approach and been especially prudent with expenditures. Our efforts have paid off. We have been able to maintain an investment grade credit rating that lets us finance capital projects at very favorable rates. The projects will, in turn, ensure that ABHOW remains solid in the years ahead.
But even as we have held to proven strategies, we have come to recognize that financial flexibility is equally essential. We may have secured funding for a redevelopment, only to find that achieving local planning approval is unpredictable and time consuming. The housing market may soften and make it difficult for prospective new residents to sell their homes. Or we may discover—as we did a few years ago at The Terraces at San Joaquin Gardens—that when we have completed the first phase of a redevelopment, it was readily apparent that the unrenovated portion of the campus needed attention immediately. We found ways to renovate those other buildings at the Fresno, Calif., community much sooner than we had originally planned for the benefit of both current and future residents.
To pay for the expanded project, we employed a strategy we have adopted successfully in other communities—using the same dollars multiple times. When the first phase at The Terraces at San Joaquin Gardens was complete, we collected over $10 million in entrance fees from new residents. From these funds, we borrowed $3.5 million to completely transform the oldest apartments on campus. New residents have moved into these renovated apartments, and their entrance fees have covered the cost of the renovation, which makes the same funds available again for the current phase—building new commons areas and a new Grove memory care community.
This is just one example of how ABHOW is finding innovative ways to continue to grow, even when funds are tight. The surge of expansion ahead of us now is similar to the remarkable period of growth the company experienced in the 1960s. ABHOW came through that period stronger, more focused in its mission and better able to serve older adults. I believe that in the future, we will look back on today in much the same way.
