Despite the many challenges facing seniors housing owners and operators stemming from an unprecedented housing slump and credit crunch, the long-term future of the industry remains bright, according to Penny Pritzker, chairman and founder of Classic Residence by Hyatt.
Pritzker gave her assessment of the industry during a keynote speech last Thursday in Chicago at the annual convention of the National Investment Center for the Seniors Housing and Care Industry (NIC).
“Seniors housing is a service that people will want in the future," said Pritzker in her remarks. She noted that by the year 2030, nearly 20% of the population will be age 65 or older, translating into about 71 million potential customers for the industry.
Also, the increase in the number of two-income households means adult children have less time to care for an elder, which boosts the need for seniors housing. "We are still a young industry, but we are heading toward a time of real opportunity," she said.
Pritzker cautioned that the ongoing residential housing crisis will affect seniors housing for several years since many seniors must sell a house as a prerequisite to moving into an age-restricted building.
"We have to be very realistic about the size of the [housing] problem," said Pritzker. Chicago-based Classic Residence by Hyatt has 19 projects, including a new continuing care community in Highlands Ranch near Denver.
The loss of housing wealth since its peak in 2006 is now about $5 trillion. At the same time, about 4.1 million homes are for sale, double the normal amount, and as many as 5.5 million U.S. families are headed toward foreclosure.
Pritzker currently serves on the President's Economic Recovery Advisory Board, a group of 17 advisors led by former Federal Reserve Chairman Paul Volcker. "We must manage the housing crisis," said Pritzker.
The tight credit markets are an ongoing concern, too. Conventional sources of debt are gone. The sector has been buoyed by lending from the government-sponsored entities (GSEs), such as Fannie Mae and Freddie Mac, though even these sources are lending less than they were two years ago.
Pritzker expects seniors housing to gain traction with investors. "Senior living may not yet be a core asset group, but we can become one if we convince investors that we are not too far out on the risk curve."
Increased transparency of market data, such as that supplied by NIC, will help, emphasizes Pritzker. NIC recently expanded its research coverage to the top 100 markets to attract more investors.
At the same time, seniors housing seems to be holding up better than other commercial real estate classes. Not all the empty seniors housing units have been absorbed, but no new product is being built. And the stock prices of the sector's public companies are moving up, showing investor interest.
For operators, the time is right to focus on value and providing a good product at a good price, Pritzker said. The economic crisis has taken a toll on customers and their savings. “People are choosing carefully and will spend less rather than more."
Another focus should be on the quality of care. "It's all about execution," said Pritzker. "If we are not making our residents and families happy, we will not thrive."