The senior living sector is experiencing a boom on the heels of the housing downturn and recovery, with assisted living and memory care leading the charge. While independent living isn’t expected to meet the pace of its counterparts, it’s still expected to gain ground.
Last year’s sales of portions of the Holiday Retirement portfolio and the recent acquisition of an $150 million portfolio of eight independent living communities by a joint venture between Interwest Capital and Angelo, Gordon & Co. may signal growing investor interest in the sector.
“We have seen the housing marketing continue to improve, and it seems like the backlog of residents waiting for homes to sell has certainly dwindled if not disappeared,” says Bradley Clousing, managing director at Senior Living Investment Brokerage. “A few years ago, you would hear of communities waiting for homes to sell for 10-12 residents. That has helped from a census standpoint.”
Independent living averaged occupancy rates of 90% by the fourth quarter of 2013, compared to assisted living’s 89.2%, according to the National Investment Center for the Seniors Housing & Care Industry (NIC).
The independent living sector will likely be attractive to investors in 2014 on a market-by-market basis, Clousing says, depending on the rate of recovery and overall stability of the region.
Throughout all of last year, home prices rose 11.3%, said real estate data provider Clear Capital in a Home Data Index Market Report, with some metros seeing much higher home price rebounds, including Chicago, San Francisco, and Las Vegas. And through November 2013, the pace of home sales had picked up 10% from 2012 to an estimated annual pace of nearly 5.15 million, according to housing data source RealtyTrac.
The real estate market impacts all forms of independent living, whether standalone or as part of a continuing care retirement community, says Paul Rundell, managing director of Chicago-based Alvarez and Marsal’s Healthcare Industry Group.
The average person in a CCRC, for example, needs money from the sale of their house in order to pay the entrance fee, he says.
“The bulk of most people’s money is tied up in their house, and just as 2013 was better than 2012, 2014 by all stretches looks like it’ll be better than 2013 [in terms of the housing market recovery],” Rundell says. “We think the real estate market will continue to do as well as or better than 2013. It will be nothing but positive for the entire senior living industry, including independent living.”
California-based real estate owner, operator, and developer USA Properties Fund’s 7,000 senior living units—a mixture of 55+ or 62+ age restricted housing—don’t have many vacancies, according to president Geoff Brown.
The company has an independent living project slated to start this summer in Sacramento and is keeping an eye out for other opportunities.
“Given the demand and our low vacancies, we have a huge interest in trying to acquire more properties,” says Brown. “Right now, we don’t have a lot of other projects on the drawing board we’re ready to start that are senior housing.”
Not everyone’s view on the sector is so rosy.
“Independent living is still going to be rough [in 2014],” says Jeremy Stroiman, CEO of Evans Senior Investments. “Almost every standalone independent living property we valuate is not doing well financially. Housing market improvements have not translated to the independent living market yet, and folks are staying at home longer because of the market.”
However, independent living communities that are doing well are the ones that are either converting units to assisted living or have what Stroiman calls a “quasi assisted living model” that’s essentially independent living with services that either they or a third party provide.
That’s what USA Properties Fund is looking into for its existing portfolio. The company is doing research on introducing an aging in place component—potentially home care—for frail, elderly residents.
The average age of seniors living in USA Properties Fund’s senior units is around 72, Brown estimates, and many stay for as long as they can, because it’s less expensive than an assisted living community.
“We’re worried that’s going to be a big issue,” he says. “[The question is,] who’s going to pay for it? What kind of amenities do you need? It’s clear to us that that’s going to be an issue for the industry as a whole, and given the size of our portfolio we’re convinced there are solutions. We’re trying to be ahead of the curve in figuring it out.”
For independent living without any assisted living components, the key to attracting new residents—and in turn attracting investors—may be rooted in psychology.
“The challenge with independent living, in my opinion, is not the real estate market: it’s changing the mental thoughts of people [who are eligible for independent living],” says Rundell. “Providers have to show them how it’s a safer environment, more of a collegial environment. It has to do with their mindset.”
Written by Alyssa Gerace