AUSTIN-It might seem as though senior housing would be a logical choice for commercial real estate investment. Baby boomers are aging, after all, and members of previous generations continue to live longer lives. As such, an argument can be made for investments in everything from adult-only communities to skilled nursing care facilities. Right?

Not so fast. When it comes to owning or investing in senior housing, "you need to be mindful of ongoing operations," explains Terrell F. Gates III, founder and CEO of Virtus Real Estate, based here. "Not only does senior housing have to do with traditional aspects such as tenants, revenue and delinquency rates, it has to do with other things as it relates to downside." That downside can include healthcare sector risks and regulatory requirements. As such, "we approach these assets as operating businesses with a little real estate attached, rather than buying a piece of real estate and operating it," Gates tells GlobeSt.com.

Part of the issue complicating senior housing investment is the sheer variety that's out there. Gates points out there are at least six different property types, and that within those property types there are even more classifications. On the one hand are active adult complexes; in other words, communities that are specifically geared toward older adults. These are closer to traditional apartment complexes, though Gates points out that even these "adult-only" properties aren't your average multi-housing complexes.

At the other end of the spectrum is skilled nursing care, requiring 24/7 care to residents. Though skilled nursing can vary in what it offers, the majority of it involves assisted daily living needs, along with healthcare and pharmaceutical care that takes place in these facilities. In between these two extremes are various levels of independent living and assisted living.  And within many facets of those classifications is the necessity for some kind of memory care component.

Gates remarks that, the higher the increase in continuum of care, the higher the operations and risk. But income and paid returns are also higher. "Skilled nursing properties can trade at a 12 to 14 cap rate," he says. "They trade higher because there is a higher operational and revenue risk. They're also the hardest hit by Medicare and Medicaid adjustments."

Because there are so many moving parts when it comes to owning senior housing, Virtus partners with operators skilled in that area. Gates says the company looks for stability – the operators need to be involved in the industry for a minimum of five years, preferably 10, and should have experience with a full industry cycle. Also important is the operator's cultural fit with Virtus. "The third area, as it relates to senior living specifically, is what type of systems and procedures there are in place from a property and business level, and what types of belts and suspenders are in place to minimize or downsize risk," Gates observes.

Finally, adaptability is important in an operator. "The organizations that are the most adept are those that are resident-focused," Gates says. "They're set up to have good systems and procedures in place, and they can flow and evolve as the environment around them flows and evolves."