The most troublesome issue facing the senior housing industry is the upward trend of incoming residents’ ages, said Aaron Conley, president of healthcare real estate development and capital advisory firm Third Act Solutions, during an Urban Land Institute webinar on the 65+ housing industry.
Currently at 85, the incoming age is increasing at an average of 80 basis points a year, he says.
“It’s indicative of a major shift of consumer preference,” Conley says.
The national penetration rate of senior housing has historically hovered around 7%, he said, citing data from the National Investment Center (NIC) for the Seniors Housing & Care Industry, but the current occupancy rate dropped steeply from its 92.3% peak in the first quarter of 2007 following the economic downturn. Several quarters into the recovery, it stands at about 89%.
Many in the industry blame a decrease in occupancy on the housing market crash and the resulting loss in home equity and increased difficulty in selling home, says Conley, but there’s more at stake: the consumers are not attracted to the current product.
“The underlying problem is that the product, as it’s currently being offered, forces them to come to grips with their mortality rather than providing a clear picture of value,” he says. “I strongly believe to ignore these implications is to do so at one’s peril.”
That’s why it’s important to do a better job of reaching and attracting the target market.
“Opportunities for developers really have to do with getting into that glimmering, uncharted blue ocean comprising 93% of target consumers who wouldn’t otherwise consider the product,” Conley says. “The proverbial bricks and mortar [models] that we’ve been building are no longer going to attract the market.”
Location is a key issue. Many senior living communities are located in distant suburban areas that aren’t very accessible to the community at large. Developers should instead consider building in walkable communities that allow for intergenerational activity.
Additionally, value and affordability are “very key issues” in the industry, Conley says. Housing is now more of a necessity play than purely an investment play, he continued in reference to the entrance fee model of continuing care retirement communities. But these days, liquidity is the “key to survival” in the era of spiraling healthcare costs.
“We’ve expected the consumer to fork over large, all-cash entrance fees comprising upwards of 75% of their savings,” he says. “I don’t think it’s a reliable business model going forward.”
Written by Alyssa Gerace