By Michael Bull, CCIM
What’s up with seniors housing? Consumer demand, investor interest and sales prices — that’s what. With more than 10,000 baby boomers turning 65 years old on a daily basis and the ranks of the newly insured growing, the seniors housing industry is certainly poised for growth.
Those were a few of the points made on a recent “Commercial Real Estate Show” episode about seniors housing. I interviewed a few industry icons about the current and future performance of this property sector.
Something for Everyone
“When you consider the main types of seniors housing products, assisted living has had the most investor demand,” said Rob Whitmire, president of the national seniors living group at brokerage firm Bull Realty Inc.
You can break down the four basic types of seniors housing based on care delivery. With its community-oriented feel, independent living offers housing for seniors that are mostly able to take care of themselves.
Assisted living is a state-licensed facility with 24-hour medical care that varies based on the needs of the individual. These properties focus heavily on the social aspect as well.
Skilled nursing offers state-licensed, 24-hour medical care. Finally, continuing care retirement communities allow a person to move throughout the property from independent living to a situation requiring more care.
Demographics Are Destiny
During the next 10 to 20 years, a large number of baby boomers will be moving into these various types of seniors housing properties, according to seniors housing experts. Assisted living is one of the service types growing at a fast pace and adding more dementia and Alzheimer’s care.
When it comes to location analysis, most seniors housing customers live within five miles of the property. So, there are opportunities for development across the country.
Investment Sales Insight
Whitmire of Bull Realty highlighted an interesting trend in Real Capital Analytics’ seniors housing market data. In 2011, investment sales totaled more than $85 billion. Sales volume was $58 billion in 2012 and $50 billion in 2013.
“This might look like sales are tapering off, but what’s actually happening is that there’s significant demand and not enough supply to go around,” he said.
The strong performance of the seniors housing sector is attracting more capital, said Dave Hegarty, president and CEO of Senior Housing Properties Trust based in Newton, Mass. REITs, private equity and investors that have traditionally purchased multifamily properties are actively pursuing investment opportunities.
Cap rates are low across the board, but really vary based on the type and location of the property. “For a truly Class A product in an urban setting, cap rates are as low as a high 5 percent to mid-6 percent,” Hegarty points out. “Outside of an urban setting, you are looking at a 7 to 7.5 percent cap rate. Class B properties in a non-urban setting have cap rates of 7.5 to 8.5 percent.”
Debt and equity capital for development and acquisition is readily available, said David Boitano, senior investment officer at Chicago-based Ventas Inc., the giant healthcare REIT.
“When I first started as an operator in the mid 1990s, it was difficult to get capital to develop or acquire a seniors housing asset. Today, there’s a growing menu of capital providers that have come into the market,” emphasized Boitano.
Ripple Effects of Affordable Care Act
Of course, a real estate market tied to healthcare is not merely supply and demand. Government policy has been front and center during the past five years.
“Overall, the Affordable Care Act (ACA) will have an impact on what products and services are offered within the seniors housing continuum,” said Boitano.
“The ACA shouldn’t have a strong impact on the brick-and-mortar location itself in the coming years, but it will have [an impact] over time as housing becomes more integrated into the care delivery aspect,” added Boitano.
Independent living facilities have started bringing in more products through programs associated with home- and community-based services as part of the Affordable Care Act, say industry experts.
Nursing homes that are aligned with hospitals are poised to see the biggest change, according to Boitano.
“Hospital systems and nursing homes are working together to find a suitable environment for patients that are ready to leave the hospital, but not ready to go home. However, this will not eclipse the demographic growth that’s pushing the sector in general,” he says.
Seniors housing as a real estate sector is highly affected by the business side of the required services. Knowledge of the delivery of care is important when investing in seniors housing. While the majority of REITs own the real estate only, they fully understand how the business side operates.
For more on seniors housing, the original show audio is available at the show website CREshow.com.
Michael Bull, CCIM, is the host of the nationally syndicated “Commercial Real Estate Show” and founder of Bull Realty Inc. a U.S. commercial real estate sales, leasing and advisory firm headquartered in Atlanta.