Senior Housing Development Boom is More Talk than Action

Fears of overdevelopment in senior housing—to tweak the words of Elvis Presley—appear to be a little more conversation and a lot less action, according to analysts following a senior housing conference in Miami this week.

While many investors in the senior housing space might be concerned by the threat of new development, a current balance of funding and construction levels may help those overbuilding fears subside, according to analysts following the 8th annual Stifel Seniors Housing and Healthcare Real Estate Conference on January 28.

“Investors are concerned by the threat of new development, as several people noted that if all the projects seeking financing are funded, an overbuild situation would occur,” wrote Stifel in a published note. “However, funding appears limited to more experienced developers and, overall construction levels remain currently in balance with demand.”


On the topic of overbuilding as a key concern in 2014, one private operator even remarked to Stifel that he is “hearing more talk than shovels in the ground.”

Although some markets contain the potential for over-development, such as Dallas and Houston, providers need not worry.

“While a longer-term construction threat remains, operators noted that new facilities lack the market presence that well-regarded existing residences enjoy, and new development does not automatically mean loss of market share for established operators,” Stifel wrote.


Development interest seems to be focused mostly toward new assisted living and memory care construction, rather than independent living, analysts observed.

But while independent living might not have as broad development interest as assisted living or memory care, Stifel suggests it remains a positive factor for some providers, such as Brookdale Senior Living (NYSE: BKD) and Capital Senior Living (NYSE: CSU).

Capital Senior Living, which was predominantly independent three years ago, will be more than 50% assisted by the end of 2014, according to comments made by the company’s CEO Larry Cohen as referenced Stifel’s note.

Concerns of “reputational risk” to the senior living industry also stirred discussion regarding the entries of new market players without healthcare backgrounds.

“When these multifamily, retail, or self-storage developers talk about getting into seniors housing, I hope lenders are asking them, ‘When’s the last time you defended a wrongful death suit?'” said one senior housing executive to Stifel during the conference.

Written by Jason Oliva