MIAMI—Thousands of people are becoming official senior citizens every day. According to the US census, the 65-plus population is projected to grow to 71 million seniors by 2030, up from about 40 million seniors in 2010. This growth represents a striking 78% increase and is a true predictor of the impact baby boomers are beginning to have on the real estate industry.

GlobeSt.com caught up with Al Rabil, CEO of Kayne Anderson Real Estate Advisors, one of the most active private buyers of healthcare real estate, to get his take on that impact in part one of this exclusive interview. Rabil believes massive growth and the inevitable construction boom in the healthcare real estate industry is due to a traditional supply and demand story—the surging population of seniors (demand) paired with a significant lack of units (supply).

GlobeSt.com: What are the latest trends in healthcare related real estate?

Rabil: The trends in healthcare real estate support the overall trend in healthcare, which is that demand is dramatically increasing and, by 2020, healthcare expenditures will account for 20% of the US GDP. Since demand for healthcare services is so high due to an aging population, so too is the demand for real estate that houses such services.

GlobeSt.com: Where are the opportunities in this sector?

Rabil: We see tremendous opportunity in the senior housing and medical office sectors. In medical office, the changing delivery model of healthcare has taken more and more procedures that were traditionally done in the hospital to outpatient facilities such as doctors' offices and surgery centers.

Furthermore, with 11,000 Americans turning 65 every day through 2030, and the increase in doctors' office visits from four per year to seven per year for those age 65 and above, more facilities are needed to accommodate demand. Finally, the healthcare industry was one of the only segments of the US economy that experienced job growth from 2008 to 2010 with approximately 830,000 jobs created—all of these statistics indicate that the sector is recession resistant and therefore very attractive.

Senior housing has also experienced massive growth,with the surging population of aging seniors in the US.  The 65-plus population is projected to grow from about 40 million in 2010 to about 71 million by 2030, which represents a 78% increase and is a true predictor of the impact this segment of the population will have on real estate.

GlobeSt.com: How is the changing delivery model—the shift from inpatient services of outpatient services—impacting healthcare related real estate?

Rabil: There has been a changing delivery model of healthcare for some time, driven primarily by insurance companies, which is to take anything that is not acute care out of the hospital. Just a few years ago, you may have had your routine colonoscopy or maybe a knee scope done in a hospital.

Today, these procedures can be done in a doctors' office or outpatient surgery center, which is not only more efficient for the patient and the physician, but also less costly for insurance companies. Unlike hospitals, these facilities are not open 24 hours a day, year-round, so the cost of operating outpatient facilities is much less.  This ends up giving insurance companies significant savings and creates a huge opportunity for the sector.

GlobeSt.com: What demographic trends support that senior housing will transform from a specialized niche sector to a mainstream asset class?

Rabil: The aging of the baby boomer generation, combined with the acceptance of senior housing as an attractive option for the senior population, are propelling the industry forward. The existing stock of senior housing units totals only around 3.5 million units. This equates to about 9% “penetration rate” currently among seniors. 

To simply keep up with populationgrowth, for example, the industry will need to add 2.5 million beds by 2030, and that assumes a 9% penetration rate holds. Assuming penetration rates continue to trend upwards as more seniors are introduced to the asset class—which it has the last two decades—it's easy to envision a scenario where the existing supply would need to double by 2030. 

For example, a 0.5% increase in penetration among seniors—every five years, through 2030—would require a 113% increase in supply during this period, reflecting a 3.9% compound annual growth rate. This traditional supply-demand story, coupled with cap rates compressing within the space, low volatility and high growth returns, shows that the senior housing market is well poised to become a more mainstream asset class.