Tina Lichens

In the last few year, investors have leaped into the senior housing market with both feet. An aging population and longer lifespans has been a winning combination for this multifamily niche; however, in the beginning of the year, investment activity and new construction slowed. According to research from Real Capital Markets, investment activity in the first two months of the year totaled $2.8 billion, down $3 billion from the same time in 2018.

“It really is a matter of the sector finding its new normal. The pace of activity as we have known it isn't sustainable—because properties don't trade that quickly. Additionally, a number of years ago significant portfolio sales were more prevalent,” Tina Lichens, COO at RCM, tells GlobeSt.com. “Today certain investors, most notably REITs, which acquired some very substantial portfolios, are still in acquisition mode, but are also focused on absorbing what they've acquired and integrating them into existing operations.”

In addition, construction activity has also slowed. In 2018, new senior housing construction deliveries decreased 14.8% year-over-year. “The construction slowdown in the senior housing sector can be attributed to the steady level of the 'new generation' of product that has been developed and offered for sale over the better part of the last decade,” says Lichens. “In general, this latest generation of new developments with hospitality-oriented features has been well received, but the volume of new deliveries has created a very competitive marketplace. Further, the latest generation of seniors has been more reserved about making the change to senior housing due to the availability of in-home care or other multifamily options. As a result, in the last couple of years, occupancy rates have declined to just under 90%, and the delivery of new product has slowed to allow the market to catch up.”

Despite the decrease in investment, investors continue to be bullish on the asset class, particularly in the long-term. According to the same research, 66% of investors believe that investment volumes will match 2018 this year. One reason for this dichotomy is that the popularity of the asset class and investor demand has driven up pricing. “It's a numbers game, and we are on the cusp of seeing the impact the Baby Boomer generation will have on the sector,” adds Lichens. “This may mean further refinement of the services offered on the premises or even honed site selection to have a variety of entertainment and service-oriented amenities in close proximity to the senior housing developments.”

Overall, senior housing is a long-term play, and the industry will likely change tremendously over the next decade. “These changes are expected to have a significant impact on the industry over the next 10 years or so, prompting developers, owners, and investors to evolve and rethink their approaches,” says Lichens.