Like almost every category in commercial real estate, seniorhousing providers have been affected by the pandemic with mostreporting a decrease in occupancy as people stay away due to fearsof infection and an increase in COVID-related costs. It remainsunclear whether these factors will remain in play for the longterm, although almost certainly they will be part of the landscapeuntil a vaccine or effective treatment is discovered.

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As these companies navigate uncharted territory one surprisingguide may be a look at the sector before the pandemic struck. Ashas been previously noted many times, commercial real estate'sfundamentals were relatively sound pre-COVID and it is hoped thatat least some of these characteristics will help carry companiesthrough this current crisis.

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One source of new data comes from a JLL market research reportcompleted before the COVID-19 pandemic, which found that theseniors housing sector posted its highest transaction volume infour years during the first quarter of 2020.

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A total of 27% of respondents in the US Spring 2020 SeniorsHouston and Care Investor Survey and Trends Outlook identifiedassisted living as the best investment opportunity for 2020, but45% identified either active adult or independent living as the topopportunity, which also indicates high interest in those areas.

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JLL also noted that construction labor and material shortageswould affect supply. On the other hand, these shortages would alsoallow the market to soak up surplus product.

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Over the last five years, occupancy trends declined due tooverbuilding as investors and developers prepared for the agingbaby boom population. But baby boomers will begin to turn 74 in2020, meaning that the group is within 10 years of moving intosenior living,

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While the seniors housing market is currently oversupplied by40,000 units, beginning in 2020 an additional 33,000 units per yearwould need to be added to meet peak demand, according to thereport. That's nearly double the current construction levels, whichshows much opportunity for developers and investors.

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Despite that, two factors conditions pose high potential fordisrupting the market — the middle-income market and the activeadult concept.

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Citing a study by NIC Map Data Service, JLL reports that thenumber of middle-income seniors will double by 2029, growing to asmany as 14.4 million people over age 75, and 60% may have mobilityissues and 20% have high healthcare needs. While more than 700,000housing units will be needed for that sector by 2029, according tothe report, more than half of the middle-income seniors may not be able to pay for private housing.

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"This demand poses a huge opportunity for developers able tocrack the affordability code," JLL wrote in the report.

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While 24% of investors who participated in the survey said theyview the active adult sector as the biggest opportunity over thenext 12 months, it is an "evolving product type," because itprovides amenities on an a-la-carte basis, rather thanall-inclusive as in independent living. While many of the existingactive adult developments target affluent seniors, investors seeopportunity to build developments that are more affordable.

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A total of 41% of investor respondents said increases inproperty-specific operating costs — wage growth continuesto outpace rent increases — pose the biggest marketchallenge over the next year, followed by construction activity for27% of respondents. They report continued confidence in currenteconomic conditions, with only 14% identifying interest rates orother negative changes in the economic climate as a topconcern.

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Brenda Sapino Jeffreys

Senior reporter Brenda Sapino Jeffreys covers the business of law in Texas. Contact her at [email protected] On Twitter: @BrendaSJeffreys