Opportunities and Forecasts in Senior Housing

ORLANDO, FL—Even with a healthy dose of optimism within seniors housing, post-acute, and skilled nursing sectors, 2018 was filled with some challenges as new supply growth in seniors housing slowed down occupancies and the skilled nursing sector changed its reimbursement system. The year, however, ended with promising news as the industry continued to face levels of supply growth which exceeded absorption (occupied unit growth).

SILVER TSUNAMI

In 2019, seniors housing is now one of the most attractive segments in the U.S. commercial real estate market for several reasons starting with the unprecedented demographic “imperative affectionately described as the “Silver Tsunami” which are the 73 million plus baby boomers coursing through America,” says Robb Chapin, Chief Executive Officer-Seniors Housing and Medical Properties, Bridge Investment Group.

With the “silver tsunami,” large number of seniors are living longer and thus, driving the need for high quality living and care creating a long-term demand cycle. Because demand is “needs and demographic driven,” seniors housing incorporates very durable fundamentals providing more stable occupancy and rent growth that are not as correlated to the broader economic markets. Occupancy variance is comparable to multifamily, which is traditionally viewed as a “defensive” real estate class, Chapin tells GlobeSt.com.

SUPPLY AND DEMAND

Overall, there is a stable balance of supply and demand with the exception of some oversupply in certain markets which ultimately will be absorbed even though it may take longer and create challenges for some owners.

“Looking forward, the first baby boomers will begin turning 75 years old in 2021 and grow at an unprecedented rate over the next two decades. In order to meet this demand without increasing the market penetration rate, the sector needs to deliver about 74,000 new units annually,” explains Chapin. “There is room for new growth in the right markets where there are very strong market fundamentals and barriers for entry.”

INVESTMENT CRITERIA INSIGHT

Since seniors housing is such an attractive investment vehicle, potential investors are constantly revising their funding criteria. Chapin and his team usually invests in “stabilized, value-add properties, and development opportunities with a clear investment criteria. Generally speaking, we focus on market quality, building quality, plus operator quality and alignment. Our platform is setup to drive value for our investors so we are comfortable with the risk of repositioning, capital improvements and lease-up. Lastly, we invest primarily in independent, assisted living, and memory care community types. The vast majority of our properties have combinations of two, if not all three, levels of care. We believe this is the most attractive product which allows residents to age in place as their need for care grows creating a longer term more stable economic model,” reveals Chapin.

FORECASTING SENIOR HOUSING

The biggest differentiated value that seniors housing provides to it’s residents is socialization more specifically, “whole person wellness.” The dimensions not only includes social wellness but also incorporate emotional, intellectual, physical and spiritual wellness.

“Those in our industry who can effectively define and deliver an intergenerational environment will be the biggest winners in how the sector evolves as the societal standard for high quality experiential age-in-place living,” observes Chapin. “As an industry if we put our focus around this core infrastructure, we will have a very bright and fulfilling future.”