Pharmacy U

Pharmacy Finance: Ever thought of investing in a retirement residence?


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An aging Canadian population is fertile ground for seniors’ housing. This need offers a business opportunity for those willing and able to commit the time, effort and financial resources into investing in this specialized industry.

By Mike Jaczko, BSc. Phm, RPh, CIM® and Wit Lewandowski BSc.Phm.

It also presents a logical, specialized opportunity for partnership for pharmacy owners looking to accelerate the growth of their businesses.

Retirement residences represent one segment of a broader spectrum of accommodation and care providers to seniors. Some facilities are entirely or partially government-funded, some operate as not-for-profit, while others are predominantly for-profit and user-pay.

Begin by identifying which general area the builder expects to draw residents from – an entire community, a district within a larger city, or a suburb. On average, about 70% of residents will come from within the local surrounding catchment.

Also key is accessibility to quality medical services – hospitals, specialists, and GPs who are willing to accept new patients. Newly built retirement residences must establish a relationship with a local doctor willing to make scheduled visits.

The ideal development site should be at least an acre in size, though urban area footprints may be smaller. Finding an available location requires diligence, patience and most likely partnering with an experienced realtor.

Proper zoning likely requires the services of a zoning consultant to help navigate the process, so build a two to 12-month timeframe into your planning process and include conceptual plans prepared by an architect to support the zoning application.

Following zoning approval, you will need to provide timely detailed architectural plans, a site servicing plan, drainage plans, an environmental study and possibly traffic impact studies to obtain site plan approval.

You’ll also need a complete set of architectural and engineering (civil, structural, mechanical, electrical, landscape) drawings to obtain a building permit. Depending on the complexity of the construction and the jurisdiction, this process can take weeks to months.

Once all approvals are in place, construction typically takes 16-18 months, starting with the selection of an appropriate construction contractor.

Building multiples of 60 units (60, 120, 180) encourages efficient operational units reflecting optimal support levels for staffing and amenities. Widely varying levels of care will drive the cost to the end user.

Consider retaining a third-party management company (which typically charges 4-5% of gross revenue per month), with a fixed monthly minimum during the start-up phase. The need for on-site management and staff is driven by the services offered. For example, a retirement residence with 120 clients operating 24 hours a day/7 days a week typically requires a compliment of 40 full-time and 20 part-time staff.

Obtaining financing is often the most difficult aspect of developing a retirement residence, especially for new entrants to the market. Despite ample evidence of strong primary demand, lenders see significant risk and expect developers to provide 30-35% of the development and start-up costs.

Risk-averse institutional investors and chain operators seeking economies of scale are willing to pay a premium for quality facilities producing a steady return.

The primary measure in determining value is referred to as the capitalization rate (“cap rates”). Cap rates reflect the investor’s assessment of risk/return benchmarked to the Canada 10-year bond. For example, if the bond rate is 2%, and the appropriate cap rate is determined to be 7%, a retirement residence producing an annual net operating income (NOI) of $2.5 million will have an appraised value of $35,700,000 ($2,500,000/.07).

To read the complete white paper on Investing in a Retirement Residence, click here:

Mike Jaczko, a pharmacist by background, is a portfolio manager, partner and member of K. J. Harrison & Partners Inc., a Toronto-based private investment management firm servicing families across Canada.

Wit Lewandowski BSc.Phm. was a pharmacy owner in Ottawa for over 25 years, who successfully developed, operated and sold two retirement residences.