Senior Housing Construction Could Slow in 2018

Senior housing executives might be a little less likely to pursue construction projects this year than in 2017, according to the latest Seniors Housing and Care Survey from investment banking and advisory services firm Lancaster Pollard.

This year’s survey—the firm’s fourth—showed that 46% of execs said they are “extremely likely” to pursue a construction project this year. That’s down slightly from last year, when 53% of surveyed execs said it was extremely likely they’d pursue a construction project that year.

The Columbus, Ohio-based firm received survey responses from 386 people, most of whom identified themselves as CEOs, CFOs or owners of senior living companies. Of those respondents, 62% were associated with a for-profit provider.


The recent caution surrounding new senior housing construction is likely driven in part by new properties coming online and rising interest rates, according to Steve Kennedy, senior managing director for Lancaster Pollard. At the same time, senior housing construction costs are still rising and showing no signs of slowing down.

“A lot of markets are really in a wait-and-hold period as new product fills up and stabilizes,” Kennedy told Senior Housing News. “And, in the last few weeks, we’ve experienced a lot of volatility in the markets and we’ve seen longer-term rates turn upwards.”

Competition was also on many senior living providers’ minds, with 87% of respondents describing their local market as “competitive” or “extremely competitive.”


On the equity side, 39% of the surveyed providers said they would consider private domestic investors as a source of equity for construction or acquisition projects, which is up from last year’s total of 29%. Less than half (42%) of respondents said they’d consider internal equity, while another 30% said they weren’t considering equity at all.

Just 10% would look to real estate investment trusts (REITs), while 6% said they’d seek international investors for equity.

“We see on the private equity side, new investors [are] coming into this space,” Kennedy said. “They’re finding real value in a sector that… is getting closer and closer to a core food group of the commercial real estate sector. I think that’s good for the industry.”

Changing outlooks

One big takeaway from this year’s survey was the waning expectation of growth for affordable senior housing.

Though 62% of respondents in 2017 thought the property type would experience the most growth that year, only 47% said affordable senior housing would see the most growth in 2018. For context, just 8% of respondents said they planned to start an affordable senior construction project this year.

Most providers in this year’s survey (53%) saw the most potential for growth in Alzheimer’s and memory care communities. Additionally, 45% of respondents identified assisted living communities as likely to experience the most growth this year.

“We found that a little surprising because there is so much need for affordable senior housing,” Kennedy said. “We are very bullish on that product and that sector, especially over the next few years.”

A healthy 58% of the surveyed execs had a “good” economic outlook for standalone assisted living communities over the next three years. Likewise, 55% of them said CCRCs had good economic viability in the years ahead.

Far fewer senior living leaders had such confidence in standalone skilled nursing facilities (SNFs), with 34% reporting they held a “poor” economic outlook for the property type over the next three years. Another 33% said they only saw a “fair” outlook, and just 19% identified the economic outlook for SNFs as “good.”

That could have something to do with changing Medicare and Medicaid reimbursement trends—a challenge that many private pay senior living providers are not subject to, Kennedy said.

“Skilled nursing is subject to more challenged and tight reimbursement at the state level,” Kennedy said. “Skilled nursing giants on the operating side [are] encountering struggles, and each of them [are] referencing… changing reimbursement trends.”

Written by Tim Regan

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