Senior Living Gains Investor Appeal, But Best is Yet to Come

For many years, senior housing real estate was viewed as a niche investment that appealed more to experienced real estate professionals and those who understood well the health care operations involved in such an investment type.

But of late, Health Care REIT (NYSE: HCN), Ventas (NYSE: VTR), HCP (NYSE: HCP) and large institutional investors have brought senior housing into the household realm. In fact, a U.S. News and World article this week posed the investment type to the mainstream in an article titled “Real Estate Investing Opportunities in Assisted Living.”

The article details investments in smaller assisted living homes, but also touches on opportunities for retail investors via mechanisms like real estate investment trusts (REITs).

Retail investors may be catching on to the opportunities, but so are experienced investors in other areas of real estate. Last month, Prudential Real Estate Investors announced the completion of a $629 million senior housing investment fund—the fifth in a series of such funds—and it did so ahead of its $500 million target, and with four new investors, including U.S. public and corporate pension plans.

“Over the years, there have always been new investors,” says Noah Levy, who leads PREI’s senior housing business. “And we are grateful that a lot of investors re-up. But we are seeing more and more interest in the space. Some of it is more awareness, some is more comfort.”

There are some external factors that help as well. More data has helped new investors gain comfort in the product type, with organizations like the National Invesment Center for Seniors Housing and Care (NIC) leading to that end. The “Big Three” REITs, with their ongoing successes in the public investing space have also helped from a credibility standpoint.

Having reported strong earnings and positive returns for investors on an ongoing basis, the Big Three—Ventas, HCP and Health Care REIT—have paved the way for investors on the retail front.

“I’m sure that has helped, but a number of smaller REITs in our space have developed their own good reputations, which has helped,” Sabra Health Care REIT CEO Rick Matros recently told SHN. “The non-traded REITs raise their equity from the retail sector so to that extent, the space has become more mainstream.”

But the industry’s performance also has spoken for itself, Levy says, in the context of the broader economy.

“The industry acquitted itself very well during the worst economic cycle of our lifetime,” he says.

A third factor is demographics. Investors have access to statistics showing the magnitude of the Baby Boom, including housing data around the aging demographic. AARP says 10,000 baby boomers are reaching retirement age each day. Generational qualities of baby boomers show they are seeking more options for retirement living, which has led some senior living operators to build for the “new” senior living consumer.

That leap, though relevant, may still be premature when it comes to the demographic influence, Levy says.

“People are misunderstanding the demographic play in a way,” he says. “The oldest baby boomers still aren’t 70 years old. But we are at the foothills of real demographic expansion of the 75+, 80+, 85+ age cohorts that are driving demand for senior housing. The demographic boom people expect hasn’t actually landed, but over the life of these funds, it will create tailwinds [for investors]. While the story may be getting out, we still haven’t seen the industry get the full bang for its buck.”

Overall, the breadth and depth of interest from investors has expanded, he says.

“Real estate has become an accepted asset class, and senior housing is becoming an accepted property type within the asset class. It is a numbers game,” he says. If a higher percentage of broadly allocated real estate assets are willing to accept senior housing, there could be a huge upward shift in capital flows to the sector.”

Written by Elizabeth Ecker