Senior Housing Investors Net Healthy Returns

Financially, the senior housing market is in good shape, with return on investment eclipsing other major real estate property types.

Over a seven-year period, senior housing returns have outperformed the National Property Index (NPI) and multi-family housing in total returns, income returns and appreciation.

These and other findings were reported in the CBRE National Senior Housing 2015 Mid-Year Market Insight Report, released Monday. The report delved into several topics related to the senior housing industry, including capitalization rates and investment returns.


Specifically, the seven-year total return for senior housing — 10.5% — is 83.22% and 94.32% higher than the seven-year multifamily and NPI total returns, respectively.

In terms of ROI, the senior housing total return for the second quarter of 2015 added up to 2.47%, composed of a 1.06% capital appreciation return and a 1.42% income return.

Over the last four quarters, senior housing returned 15.18%, up from a five-year total return of 15.11%. This led to a total return for senior housing that is 232 basis points higher than the National Property Index (NPI) return of 12.79% and 181 basis points higher than the multi-family total return of 13.31%.


“Our demand is stable and increasing because no matter what, people are getting older,” Lisa Widmier, and executive vice president at CBRE, told Senior Housing News.

Widmier told SHN that investors “can do so much more” to increase their returns in senior housing than in industrial buildings, for example. Senior housing investors have meals, staff, equipment and other expenses to take into account; there are more opportunities to turn a profit. As such, investors have begun to see an opportunity in senior housing.

Carl Mittendorf, chief investment officer at The Freshwater Group, echoed Widmier’s point, telling SHN that there is more operational risk in senior housing, and with that risk comes reward. The Freshwater Group is the finance, acquisition, design and development arm of Tucson, Arizona-based Watermark Retirement Communities, which currently manages 40 properties in 21 states.

According to CBRE’s report, the strong performance seen in the senior housing sector may reflect the fact that senior housing has experienced continuous rent growth, despite significant fluctuations in the general economy.

Seniors are rather accepting of the fact that the rent at senior communities has to go up every year, and they have budgeted for these increases, Widmier told SHN. “It’s not that people are trying to raise rates to gouge residents, they’re trying to raise rates to keep the quality of care in line year after year,” she said.

Screen Shot 2015 10 20 at 4 39 20 PM

The CBRE report also showed that assisted living and independent living capitalization rates have declined in recent years, and occupancy rates in stabilized senior living communities have declined in the last few quarters—reflecting concerns about oversupply that are casting a least a partial shadow on senior housing prospects.

Screen Shot 2015 10 20 at 4 44 16 PM

CBRE National Senior Housing provides services within the senior housing industry such as capital raising, investment property sales, structured debt, valuation, general consulting and investment banking. The group is the industry leader in the national senior housing marketplace, having completed more than $21 billion in sales and debt sourcing transactions.

Written by Mary Kate Nelson

Companies featured in this article:

, ,