By Jack Cumming

A recent senior living symposium asked panelists whether they favor building or buying as the better alternative for investing. The response went overwhelmingly toward buying. From a pure investment perspective, the choice is economic. Which approach provides the greater return on a fully risk-adjusted basis?

Developer Hassles

That economic analysis can be good theory, but there are other factors that come into play. Think of the situation in which you contemplate developing a plot of land, perhaps on the edge of town, or a teardown opportunity closer to the town center. Developing a CCRC can be especially challenging. First, you have to buy the available property. Then, the hassles start. Zoning approvals, licensing, market survey risks, construction and capital costs, delays, inflation: it’s not a short list, and it can take many years … Five years is common.

It’s little wonder that most investors prefer to buy a known property, perhaps at a discount, bring it up to standards, and get that return on capital much sooner. Moreover, buying an existing property may offer a better location since older properties often have a prime location. It’s clearly easier to upgrade an existing CCRC than to buy a hotel or, more challenging, an office building, and try to convert it to senior residences.

The biggest difficulty, though, is dealing with the existing residents. If the property came on the market because pricing failed to keep up with costs, it may prove impossible to meet the residents’ expectations. That takes extraordinary talents of communication and inclusion on the part of the executive charged with implementing the transition. It’s not hard to conclude that there must be a better way.

An Intriguing Parallel

These factors came to mind recently while contemplating the business model that Mikael Petterson, the founder/owner of Villa Vie Residences, seems to be pursuing with his lifestyle innovation. Mr. Petterson initiated the first successful residential cruise ship targeting the middle market. Since pursuing the middle market is an often-expressed aspiration for senior living, it caught my attention.

Here’s what Petterson, who calls himself a Cruise Start-Up Entrepreneur, has done. First, he tried to lease a cruise ship that was up for discard. When that failed, he raised funding and bought a similar ship that had been laid up for four years due to the pandemic. That’s when all hell broke loose, and Petterson had to work his way through challenges that might have crippled a lesser entrepreneur. Just Google “trouble for the Villa Vie Odyssey,” and you’ll conclude that senior living is a cakewalk.

Entrepreneurial Truisms

The long and the short of it is that there is no easy way to make money, and if you dream of oodles and oodles of money, the struggle will get tougher. There are some truths, though.

  • The shorter the time to cash positive and profitability, the less risky the investment.
  • The less capital needed upfront, the more likely that the venture will succeed.
  • Being an entrepreneur requires patience, resilience, determination, and energy. All that assumes that you start with sound judgment and a valid breakthrough vision for which there will be demand.
  • Successful entrepreneurs are often exceptionally analytical and prescient. Before taking on entrepreneurial risk, Mikael Petterson was the financial planning & analysis manager for Norwegian Cruise Line Holdings Ltd. FP&A is a critical function in any well-run business.

Mikael Petterson appears to be successfully serving the elusive middle market with an innovative concept. The economies that he realized by buying an aging vessel, instead of trying to purpose-build a modern residential ship, are central to his concept. His gamble appears to be paying off. His watchword is “Villa Vie Residences is For the Residents, By the Residents.”

Transforming Senior Housing

What is the counterpart for senior living? John Erickson started out to serve middle-income retirees when he bought St. Charles College, a former seminary, and converted it to Charlestown Retirement Community. That model has met success, though the parent, Erickson Senior Living, fell into bankruptcy and was succeeded by Redwood Capital Investments, LLC. Risk is the entrepreneur’s constant companion.

What will be the next big idea to try to appeal to America’s aging population? Maybe it will be you who comes up with a successful transformative idea. Will Mikael Petterson cash out by selling Villa Vie Residences to one of the giants, Royal Caribbean, Carnival, or Norwegian, or will he continue to grow with new ships and new residents? That’s a question that confronts any entrepreneur, whether in cruising or senior housing. Build or buy is the first question. Sell or grow is another.