Senior Housing Investor Perspective
Date: 08/26/2015
Market Performance
The senior housing industry is an interesting niche sector for many investors. On a recent episode of the Commercial Real Estate Show we explored the sector with an analyst, an economist and investor. We looked at property level performance, headwinds, forecast, opportunities, technology and the expected growth in the industry. Ryan Severino, Senior Economist at REIS had a lot to say about sector performance. REIS tracks four distinct types of Senior Housing:
- Independent Senior Living
- Assisted Living
- Skilled Nursing Care
- Memory Care
2015 YTD: Thumbs Up
- Vacancy rate under 8.0%
- Vacancy declined +100 bps for each of the past 2 years
- Rent growth up 1.5-2.0% year over year
- Expected to remain strong over next few years
Pig in the Python
Is this market growth due to aging boomers, or the improving economy? Both, says Severino, who noted that while the Baby Boomer generation is aging into retirement, and plenty of these 60-somethings are wealthy enough to consider many options, they are only beginning to dip a toe into the Senior Housing market. In fact, to date their involvement has been as caregivers to their long-lived Silent Gen parents. With such a large population wave heading into the market, continued strong growth is expected. Rent growth will accelerate, and in the absence of recession, there’s no reason to expect this trend to reverse.
Cap Rates
Capital is finding its way into the sector, and at the high end is trading in the mid 5.0%. Compared to apartments, currently averaging in the high 5.0%s, there’s not much of a premium. Cap rates a year from now? REIS expects them to continue to compress. Although it’s difficult to see much more compression, fundamentals are really strong and appear solid for the long haul.
Which types of housing are attracting more attention?
Investors are more interested in independent and assisted living, and very cautious about the more intensive levels of care.
Headwinds
- Affordability – the nicest properties with all the amenities are the most expensive, with costs as high as $12-18k per month. For many, out of reach.
- Undersavers: large numbers of boomers unprepared for retirement costs
- Rising costs of personal and medical care
Looking Ahead
The level of service determines how well a center will perform: that’s what people pay for. A demographic tidal wave is coming, a substantial portion of whom are underfunded, and that is going to change things.
Where We’re Headed (If We’re Lucky)

Senior Housing types
- Assisted Living: includes Memory Care for Alzheimers
- Skilled Nursing about 50%
- Independent Living least intense
- 3 million units on aggregate
- About half skilled nursing
- $300b sector, about 20% the size of apartment sector
Projected Demographic Growth
- Sheer numbers 20 million 75+
- 6% of US pop
- Will swell to 28m, and 8% of US pop
- Faster growth in the 75+ cohort
Generational shifts
For another perspective, consider that today’s typical resident is about 80 years old and began their adult lives when a house cost $3,000 and a loaf of bread $.08. Their childhood in the Great Depression years left a lifelong impression, and these seniors have always been thrifty. In contrast, the boomers, children of current residents, who were raised in an abundant time, are far less thrifty. Boomers demand more of everything: services, amenities, and care for their parents. And the industry is responding. “Today’s resident plans ahead further, is more active, gets more exercise, uses more rehab,” explained Mace. “They will likely live longer, and spend more years in Senior Housing.”New Supply?
The most recent recession put a big dent in new construction. Finally we’re seeing uptick in new product. Texas in particular is building new facilities, specifically in high growth areas.Not Your Grandpa’s Senior Housing
Old school Senior Housing used more of a hospitality model –focused on food service and socialization. Today’s designs draw more on a healthcare model with a sophisticated multi-stage approach. Many centers offer a continuum of care, either in-house, or within strategic partnerships. From active senior living to end-of-life care, synergistic partnerships with hospitals and rehab centers provide a comprehensive web of services to support clients.Technology Revolution
Stay tuned for amazing tech products for senior centers. Examples under development include carpets that can respond to a fall and personal airbags worn on the belt, which could prevent falls and fall-related injury, saving millions each year. “Management is eager for anything that can free up staff to be more engaged in care,” assured Mace.”Smarter technology for Seniors, Providers and Investors
- Lead generation delivered over the internet
- Remote monitoring of residents
- Tele-health, virtual healthcare systems, instant video conference for interagency collaboration
- Smart phones, appliances linked with personalized Mobile apps to improve quality of life for seniors
- Tablets with medical applications that enhance management for staff
Investor Perspective: Cyclical Stability

Market Cycles
During the downturn, Senior Housing maintained NOI while the mainstream CRE market was falling. Occupancy remains very stable, as it’s not affected by employment ups and downs. And now we’re watching predictable steady growth. Senior Housing is a horse of a different color. Subsidized government loans keep the cost of debt very affordable. NOI growth is tied to inflation, which has its pros and cons, but stability in hard times is one benefit. The investment market has become frothy in some places, Anderson noted. A great deal of capital is chasing a small pool of available deals, which makes completing a project challenging. Apparently in the past 3 months more than one major player has taken a deal all the way to due diligence, attempted a major retrade, and then walked away. Anderson pointed out how unusual this is from experienced players. “Our industry is a small town where your reputation is important, and you need to do what you say you’re going to do.”Advice to Investors

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- Michael Bull, CCIM
- Show Host
- Bull Realty, Inc.
- Website
- 404-876-1640 x 101
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