Investors Bullish on Senior Housing in 2017

Investors’ senior housing portfolios are likely to grow in size this year, despite rising interest rates and widespread overbuilding concerns.

In fact, 59% of U.S. senior housing investors anticipate increasing the size of their portfolios in 2017, according to the latest CBRE U.S. Seniors Housing & Care Investor Survey, released today by the commercial real estate services and investment firm. That’s up from 47% in 2016.

The percentage of investors who anticipate no change in the size of their portfolios, meanwhile, fell to 34% in 2017 from 44% in 2016.

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Q: Where do you see the biggest opportunity for investment?

“We’ve got a lot of new investors who are continuing to be more and more interested in the senior space, and we have a lot of people who’ve been involved in the senior space for a while now looking to find new ways to innovate and grow their activity,” Zach Bowyer, senior managing director and seniors housing and care practice leader at CBRE, told Senior Housing News.

For the survey, CBRE Group, Inc. (NYSE: CBG) polled 74 influential senior housing developers, investors, brokers and lenders throughout the United States.

A lot has changed in these investors’ eyes over the past year, survey results indicate.

‘Lifestyle options’ get the thumbs-up

About 40% of respondents agreed that independent living is the biggest opportunity for investment in 2017. Last year, just 31% of respondents held that opinion.

Additionally, only 18% of respondents indicated assisted living is the biggest opportunity for investment in 2017, down from 27% of respondents in 2016.

Q: Where do you see the biggest opportunity for investment?

“We’re seeing people a little bit more interested in the lifestyle option, in the independent living and age-restricted sub-segments, than we’ve seen in the past,” Bowyer said. “Developers are starting to get a lot more comfortable focusing on that lifestyle option.”

Investors also believe that memory care currently has the least opportunity for investment—an opinion that can likely be traced to recent overbuilding in this segment, according to CBRE.

Worries galore

Despite an air of relative optimism, senior housing investors aren’t worry-free. Mainly, investors are concerned about increased construction activity that may negatively affect the industry over the next 12 months, with 38% of survey respondents indicating that this worried them.

Q: What are your top concerns in relation to market changes that would negatively impact the seniors housing & care market over the next 12 months?

Rising interest rates and property-level operation also weighed on investors, with 22% and 21% of respondents concerned about these things, respectively.

Still, the survey results indicated that pricing stability may continue this year—52% of investors anticipate senior housing capitalization rates will remain stable over the next year.

However, the number of people who foresee higher cap rates rose to 44% from 33% in 2016, with just 4% expecting to see a drop.

Written by Mary Kate Nelson

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