Senior Housing Construction Makes Comeback, Will it Overheat?

New construction among senior housing developers has reemerged across some property types, including assisted living and free standing memory care, following the recession. 

For assisted living, there were 7,743 units under construction in the second quarter of 2013, according to data from the National Investment Center for the Seniors Housing and Care Industry—that figure is up from from a pre-recession peak of 6,231 units under construction in late 2008. 

Similarly, freestanding memory care has seen a construction reemergence to 1,603 units under construction in the second quarter, more than twice the activity level of its pre-recession peak. 

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But some metros could be approaching a point of “overheating,” with certain areas showing heavy construction relative to demand. . 

“There are a number of examples where nearby projects are competing to get the shovel in the ground first,” Christopher Callaghan, group vice president of healthcare banking with M&T Bank told NIC Insider in a recent interview. “The construction lending market has rebounded. …M&T likes the AL/memory care space, but we’re cautious around the potential for development to overheat.”

NIC points to Texas metros including Houston and Dallas as well as Denver and Phoenix as current areas of concentration for construction, while Callaghan says M&T Bank is seeing development in the Northeast and Mid-Atlantic regions that among some property types is beginning to cause pent-up demand. 

“We are seeing a large number of developments in several Northeastern and Mid-Atlantic metro areas,” he told SHN in an email. “The aging demographic and increasing need for Alzheimer’s care has caused pent-up demand. We are currently seeing experienced operators expand, renovate and reposition facilities. We are also seeing a number of CCRCs expanding their AL capabilities primarily focused on memory care. There are also are new entrants into this space.”

Whether the construction landscape for memory care and assisted living is beginning to over heat depends on several factors, Callaghan says. Several indicators may signal an area is approaching the point of overdevelopment.  

“M&T becomes concerned when we see several projects in the same or contiguous PMAs, discounted rents, or inexperienced operators entering markets,” he says. “Each market has a limited number of income qualified residents, so demographic analysis becomes more important as inventory increases.”

Written by Elizabeth Ecker

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