It’s all about supply and demand. When it comes to seniors housing, supply is decreasing as demand steadily rises, meaning prices will go up, sparking a modest recovery for the sector in 2011. In fact, a seniors housing research report recently released by Marcus & Millichap says that despite the buoyancy of the multifamily sector, independent living (IL) facilities and continuing care retirement communities (CCRCs) are finally beginning to stabilize and will rise 80 and 40 basis points (bps) this year, respectively. The seniors housing sector has seen limited construction over the past few years, with only 14,546 units breaking ground in 2010, according to the NIC MAP Data & Analysis Service. What’s more, the recent financial meltdown hasn’t made consumers eager to buy. Now, though, says senior Marcus & Millichap broker Chris Hyldahl, “People are slowly but surely getting back to making needs-driven financial decisions.”
Consider that assisted living (AL) facilities made a comeback in 2010, prior to a recovery in other seniors sectors. Because AL is more needs-driven, it was less affected during the housing downturn. Meanwhile, the IL sector has been showing signs of recovery for most of this year, with two consecutive quarters of occupancy gains. And skilled-nursing facilities will see a 50 bps increase in occupancy due to renewed job growth, reaching 88.9 percent by year’s end. CCRC occupancy will hit 89.5 percent thanks to a decrease in new supply and moderating home prices, which will allow more seniors to sell their homes.
“It’s imperative for owners and operators to continue to focus on giving great care to the elderly population, as well as deploying capital back into the assets themselves,” Hyldahl says.
Indeed, owners of seniors housing are quick to point out the investment benefits of the sector. “The real estate investment trends for our space are strong and will continue to improve as the capital markets solidify,” says Mel Gamzon, president of Fort Lauderdale, Fla.–based Seniors Housing Investment Advisors, an advisory firm that has worked on more than $1.8 million worth of seniors asset dispositions and acquisitions. “The volume of transactions handled by our business has increased by more than 60 percent over the past year and further indicates this is a viable industry for astute investors.”
Ultimately, Hyldahl says, these choices will give seniors more flexibility in housing choices. “Innovation is going to be the biggest competition. Technology and pharmaceutical companies are spending billions of dollars a year to find cures for many ailments impacting seniors … [which] will allow seniors to stay at home longer. This will alter our industry.”
Gamzon agrees, adding, “Health care reform will also play an important role in the growth of service-oriented seniors housing as the public sector continues to deal with severe fiscal issues and consumers seek the lowest-cost residential models for our aging population. Significant investment opportunities are emerging for acquisitions and select new development over the coming 12 months.”
