Senior Living Boom Draws New, Non-Traditional Investors

Investors are taking note of favorable conditions in the senior living industry as the housing and jobs market recovery continues, occupancy levels improve, and rents increase, says real estate brokerage firm Marcus & Millichap in a new research report. 

Continuing care retirement communities (CCRCs) in particular are being aided by a “resurgent” housing market fueled by low interest rates, with home price appreciation primarily responsible for boosting occupancy in 2013, says the firm in the 2014 outlook.

“Seniors able to unlock home equity are more likely to sell in the current market, which helps overcome the high costs to move into an entrance-fee CCRC,” it says. Occupancy is expected to reach 90% by the end of 2014, up 60 basis points year-over-year.


For independent living communities, operators are expected for forego rent hikes in favor of maintaining strong occupancy, the report says, with census expected to grow 80 basis points from 2013 to 91.5% by year’s end.

While the senior living sector is attractive on its own, cap rate compression in other commercial real estate sectors is also elevating interest in the industry among nontraditional investors, says Marcus & Millichap.

Average cap rates for newer independent living properties are ranging in the high-6s, but there’s still a significant spread between market-rate multifamily and independent living assets that can be more than 100 basis points. 


“Multifamily buyers now realize that purchasing an IL facility and putting an operator with a proven history in place can generate healthy returns despite the elevated management fees,” the report says. “The spillover demand from high-net-worth individuals has not trickled into the AL sector, however, due to the complicated nature of the business.” 

In January, private equity investors Interwest Capital Corp. and Angelo, Gordon & Co. purchased a Las Vegas portfolio of 55+ communities out of foreclosure for $150 million with plans for capex upgrades, retaining CompassRock Real Estate as operator. A couple months prior, Newcastle Investment Corp. made a huge independent living buy with a $1 billion acquisition from Holiday Retirement. 

Investors without a senior living track record are more likely to put funds into publicly traded real estate investment trusts (REITs) specializing in higher-acuity properties, Marcus & Millichap notes. 

For seasoned operators, on the other hand, there are upside opportunities in senior living properties that need capex. Those types of assets are the most prevalent value-add deals on the market, the report says.

“Savvy buyers will target Class B/C AL facilities in Class A locations to reposition and add dementia care units,” the firm says. This is especially true, it continues, as more states look to care for skilled nursing patients in home settings and shift dementia care into assisted living communities as a way to manage costs.

Assisted living construction and demand for the product is expected to accelerate in 2014. Occupancy is predicted to grow 30 basis points to 91%. 

Written by Alyssa Gerace

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