There are several factors currently drawing new investors into the U.S. senior housing space—but there are plenty of others, like a shortage of quality operating partners, that make investing in the sector a bit of a risk.
That was one of the takeaways of a recent webinar featuring National Investment Center for Senior Housing & Care (NIC) Chief Economist Beth Burnham Mace and Chief of Research & Analytics Chuck Harry.
The U.S. senior housing sector has a current market value of $409 billion, Mace noted during the webinar. Year-to-date, approximately $4.4 billion worth of senior housing properties has traded hands.
From the perspective of an investor, senior housing real estate is attractive for many reasons.
First off, there’s a larger understanding of the senior housing space now more than ever before, and some investors even think of senior housing as a “core” real estate asset class. From an economic standpoint, there’s the potential of “compelling and relatively steady private sector investment returns,” as well as “growing liquidity in the sector and significant transaction volumes,” Mace said.
All the while, there are numerous deal structures available to senior housing investors, and social and government health care policy changes are benefitting the space.
Still, there are obstacles to succeeding in senior housing real estate.
One of the most pressing challenges facing the industry is new competition. About 69% of respondents to the NIC/NREI 2018 Investor Sentiment Survey said that new competing properties were a key factor that’s impacted seniors housing occupancy in past 6 months, Mace noted.
Senior housing occupancy has been declining for about 10 quarters, Harry added. In the second quarter of 2018, occupancy at U.S. seniors housing communities averaged 87.9%.
Of the markets NIC tracks, San Jose, California, currently has the highest senior housing occupancy, and San Antonio currently has the lowest.
From the standpoint of an investor, there’s also a shortage of great senior housing operators.
“There’s a lack of quality operators in which to invest,” Mace said, adding that many quality operators already have investment partners.
At the same time, plenty of the existing senior housing inventory is simply unattractive to new investors due to its age. After all, the majority of today’s senior housing communities are more than 17 years old.
“There’s a need out there right now for new products, new design, new features,” Mace said.
Other challenges for the industry include labor costs and scarcity, changes in care coordination, affordability and technology, Mace said.
Written by Mary Kate Nelson