Sponsored by NIC
By Beth Burnham Mace
Location, location, location. Whether its retail, office, industrial or seniors housing, location matters—and it matters a lot. In seniors housing, one size does not fit all. One broad characterization does not apply. Performance varies. Operators matter. Assumptions count…about potential resident demand, about participation by adult children in move-in decisions, about lease-up rates, and about labor availability.
In the year ahead, proformas will be met, but not all the time. Expectations from two years ago may or may not be panning out. Development pipelines may be fuller than planned or may be emptying out. Occupancy rates are near record highs in some locations, at record lows in others. Regardless, NOI pressures continue to mount, as wage growth is pushed higher due to 50-year record low national unemployment rates and as rent growth is often decelerating.
Capital will be available—in active deal-making and as dry powder waiting on the sidelines for distressed deal opportunity. Investor surveys place seniors housing among the top commercial real estate property types for both development and acquisition prospects. Interest from REITs, private equity, institutions and private funds remains keen. While not yet generally considered a core investment, increasingly seniors housing is fitting into core funds, offering diversification as well as steady and consistent income and appreciation returns. And, in a time of rising interest rates, investor attention toward the sector may act as a hedge against upward pressure on cap rates to keep the risk premium at or near today’s levels and valuations more stable.
The integration of the health care and housing for seniors will continue to alter the landscape for both seniors housing operators, developers, and capital providers. The recognition of seniors housing as a lower-cost and efficient service setting will allow operators to bend the nation’s health care cost curve by providing care offerings to their residents that allow them to remain in place healthier and longer with less likelihood for the need to move to a higher-cost and more intense care setting.
And the elderly consumer is morphing. No longer content to simply retire into a setting that provides safety, security and comfort, tomorrow’s seniors housing residents are demanding engagement, enrichment, and connection. Program content for seniors is becoming more “purpose-full,” where volunteerism and making a difference are increasingly part of the daily activity offerings from which residents can choose.
And the demand pool of potential residents for seniors housing is growing. First, it is increasing from our nation’s evolving demographics as seniors shift from being part of the Greatest Generation to the Silent Generation and toward the baby boomer generation. Second, the demand pool is increasing as operators begin to serve the burgeoning pool of middle-income seniors.
Property design features are changing too, with distinct dining options, greater access to light, and the repositioning of a single space for multiple purposes. And location—there’s that word again—is being reconsidered too. Two words (well technically, maybe three words) will increasingly be part of the vernacular for seniors housing in 2019: cross-generational interaction and walkability. Increasingly, developers of new seniors housing properties are selecting sites that have high walkability scores, sites that are often on Main and Main, near retail, and fully integrated into a community.
Taken in its entirety, the seniors housing sector will remain an intriguing and compelling—albeit potentially challenging—property type for capital providers and seekers in 2019. And equally important, the seniors housing sector allows these groups to do well by doing good for our elderly population.
Beth Burnham Mace is chief economist and D\director of outreach for National Investment Center for Seniors Housing & Care.
Learn more at www.nic.org.