Senior Housing Oversupply Fears Gain Sharper Focus

Concerns about senior housing oversupply have been swirling, with some saying that the issue is of genuine concern while others have been largely dismissive. But recent remarks from a high-profile executive with Ventas Inc. (NYSE: VTR), along with a new industry report, may serve as a wake-up call for anyone who denies there is a problem.

“It is real,” said Ventas CFO and Executive Vice President Robert Probst, referring to oversupply while speaking at the J.P. Morgan 34th Annual Health Care Conference in San Francisco.

Indeed, concerns about overbuilding may cause some senior housing markets to experience declines in pricing and sales activity in 2016, as fresh supply seems to be outpacing near-term demand, according to a recently released report from Integra Realty Resources.


The Integra report and the Ventas comments come on the heels of the latest industry data coming from the National Investment Center for Seniors Housing & Care (NIC).

Ventas CEO and Chairman Debra Cafaro referenced end-of-year data that revealed a sustained uptick in construction across the industry, while addressing the J.P Morgan conference. Still, the Chicago-based company is bullish on its senior housing portfolio going forward.

“We really believe in the senior housing business,” Cafaro said while presenting at the conference. “We think we have advantaged assets. That being said, the data on new construction and development has been increasing.”


Over the past year, Cafaro has strongly and repeatedly asserted that the “demographic tailwinds” are promising for senior housing, telling NAREIT in a video interview in November that overdevelopment in certain pocket markets is likely “to be absorbed by that coming demand” of seniors.

Probst reiterated the REIT’s methodology to calculate its exposure risk within oversupplied markets. He again noted that roughly 30% of the company’s senior housing portfolio is exposed to markets that may be showing indications over overdevelopment. While the REIT has played down this risk in previous earnings calls, Probst acknowledged oversupply concerns were valid during the conference.

“The exposure [to our portfolio] on this conservative view is less than 10% of our overall net operating income,” Probst said during the presentation. “That said, it is real. It is concentrated in documented markets by the industry, in places like Atlanta, for example.”

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There are several other geographic markets at a high risk for overbuilding, Charles Bissell, the national practice leader for Integra’s Seniors Housing & Health Care Specialty Practice, told Senior Housing News. The markets at the greatest risk include all of the major markets in Texas—Houston, Austin, San Antonio and Dallas/Ft. Worth. Beyond Texas, the next riskiest markets include Atlanta, Chicago and Florida.

Different levels of care may be at a greater risk for overbuilding than others. Bissell predicts there will be an uptick in independent living supply being built, for instance, but he doesn’t believe the increase will impact occupancy levels.

“I would say that my overall take on it is that there is opportunity in the independent living sector,” Bissell said. “It is performing the strongest, in terms of occupancy, and the volume of new construction, while it has risen, is still relatively low.”

Independent living is the sector that will benefit first from the baby boomer generation when they start turning 75, Bissell added.

And while it has always been the case that the majority of seniors will age in their homes, Bissell explained, baby boomers are going to be open to independent living.

Written by Amy Baxter and Mary Kate Nelson

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