Demographics and politics tend to be working in favor of seniors housing operators, a panel tells the association. However, investors must be aware they are buying not only a real estate deal, but in most cases a health-care operation as well. And those same demographics, including a growing population with longer life expectancies, can cut the other way, too.

"It's a challenge for guys who come out of the real estate side," says seniors housing consultant David Citron, who recently left his post as director of the Illinois Department of Public Aid. "You're dealing with the hospitality side, you're dealing with the medical side and you're dealing with the social services side."

But then, Citron's former agency writes checks to nursing homes totaling $1.5 billion under the Medicaid program. "I don't know about you, but that's more than chump change to me," he says. "Nursing home care has gotten to be an entitlement under Medicaid."

Lobbying the 177 members of the General Assembly has gotten easier, Citron says. "Now when you deal with this as a political issue…they all have somebody intimately involved who's in a nursing home," he adds. "Because of that, this program gets a lot of attention in Springfield."

The sector may start getting attention from institutional investors, KMF principal Nick Ryan, now that the seniors housing industry's net operating income is 75% that of the hotel business and already 50% of multifamily rental's. "It's a fairly new industry from the investment perspective, just as apartments were in the '90s for the pension funds," he says, citing figures that indicate another 12 million people will turn 60 in the next decade. "There's a need for this business."

Not that running a nursing home is getting any less challenging. Four years ago, the federal Balanced Budget Act eliminated the cost-plus-small-profit basis of reimbursement to a fixed cost, says Boulevard Health Care chief investment officer Steven Van Camp, effectively slashing 25% of Medicaid revenues. Industry lobbying has helped restore about 80% of the cuts, Van Camp says, but the cash-flow shortfall has only widened.

"There's not a lot of expense-side cutting you can do anymore," says Jerrold H. Frumm, executive vice president of Senior Lifestyles, which has developed the 476-unit Breakers of Edgewater Beach in the city's Edgewater neighborhood and 282-unit Breakers of Golf Mill in north suburban Niles. Both are independent living facilities.

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Seniors Housing Deals Balance Risk, Reward

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