Senior Housing Wanes Slightly In Eyes of Investors, Developers

Senior housing is still one of the most attractive investment and development prospects in real estate for the year ahead. But, there are some lingering questions about how the industry will overcome its current headwinds, at least in the short-term, according to the latest Emerging Trends in Real Estate report from PricewaterhouseCoopers (PwC) and the Urban Land Institute (ULI).

For this year’s report, researchers with PwC and ULI personally interviewed around 750 people, and weighed survey results from more than 1,450 respondents. Just over half of the people surveyed worked with either a private property owner, commercial real estate developer, real estate advisory or service firm.

This year, senior housing ranked the third-best development prospect and the fourth-best investment prospect for the commercial and multifamily subsectors in 2020. For residential property types, senior housing was the second-best prospect for both investment and development in 2020.

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The latest numbers may indicate a slight waning in interest from developers and investors compared to last year’s results, when senior housing was the No. 1 investment and development prospect for residential property types and the No. 2 and No. 3 prospect for investment and development in the commercial and multifamily subsectors, respectively.

While investors and developers are still bullish on senior housing due to the incoming wave of baby boomer demand, persistent challenges related to low occupancy, labor shortages and new openings in some markets continue to give them pause, according to Byron Carlock, who leads PwC’s U.S. real estate practice.

“The age wave continues to support the product type,” Carlock told Senior Housing News. “But I think the developer response to that age wave may be putting us into an overbuilding situation in the current time frame.”

Another challenge is the fact that many baby boomers may wait longer than their predecessors to move into senior housing.

“They view the assisted living of today like the nursing home of yesterday,” Carlock said. “They’re working longer and trying to be as self sufficient for as long as possible, and … there is an increase of technology to support aging in place.”

The report also made mention of the ongoing middle-market challenge, and the need for more innovative financial structures and operating models to serve the millions of older adults who, by 2029, may not be able to afford private-pay senior housing as it is today.

Overall, while it’s a time for short-term caution, the industry’s longer-term prospects look strong, the report noted.

“For those who are not yet seeing these returns, they can perhaps draw comfort from the prospects of the demographics coming, although perhaps not immediately,” the report reads. “For those investors with capital, holding money on the sidelines may be a good near-term strategy, as a growing number of distressed deals need capital infusion, recapitalizations, and new partners.”

As in previous years, the report also listed the top 10 markets for overall real estate prospects in the year ahead:

1. Austin, Texas

2. Raleigh-Durham, North Carolina

3. Nashville, Tennessee

4. Charlotte, North Carolina

5. Boston

6. Dallas/Fort Worth

7. Orlando

8. Atlanta

9. Los Angeles

10. Seattle

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