The National Investment Center for Seniors Housing & Care (NIC) recently held its fall conference, “Investing in Seniors Housing & Care Properties,” in Chicago last month. The event brought together several thousand attendees in the seniors housing industry for three days of networking and panel discussions about the unique challenges and opportunities facing the industry. Here are five key takeaways from this year’s conference.
Active Adult is attracting a lot of new investors and developers.
The breakout panel session on Active Adult (aka age-restricted or 55+) was by far one of the most crowded sessions and was literally standing room only. The size of the audience for this panel is indicative of investors’ interest in this asset class. In addition to established players in the market, Active Adult has seen many new developers, lenders, and investors enter into the space in the last several years. Many of these new players come from a traditional, market rate multifamily background, but industry experts warned that there are real differences between the two asset classes that merit serious consideration before venturing into new Active Adult projects. Additionally, several institutional investors noted that they are looking to new and continued investments in the seniors housing market, including Active Adult, to build up or add recession-resistant and counter-cyclical assets to their portfolios. As a result, there is a lot of capital, in both debt and equity, competing to participate in Active Adult and other seniors housing.
Active Adult is still an evolving product type.
Active Adult is a relatively new asset class in the seniors housing space. Developers and operators are still trying to figure out ways to build and operate these properties most efficiently. For example, many are still trying to dial in their service levels at these properties to meet market demand and expectations while still keeping costs down. Developers noted what works in one market does not necessarily translate to other markets (or even submarkets in the same metro area). Since Active Adult projects are typically much smaller than traditional multifamily communities, dialing in the correct service and amenity levels is a key component of a project’s success. Developers will continue to experiment with new product types and services in order to set their projects apart from the competition.
Seniors drive stability and rent growth.
Most people in the industry understand that the initial lease-up and stabilization of a seniors housing project takes much longer than a traditional multifamily asset. You may have dozens of touches with a prospective tenant before s/he signs a lease. That makes sense if you think about it since many prospective tenants entering the seniors housing market are typically downsizing and/or may be selling their primary residence and entering a multifamily rental community for the first time in decades. But, industry experts were quick to point out that what you lose in initial lease-up, you gain in leasing stability. Owners and operators noted that their seniors tenants can stay as long as six to ten years on average. That kind of “stickiness” and tenant stability also helps to drive rent growth. As a result, several institutional investors noted that rent growth in their seniors housing assets outperforms most, if not all, other asset classes in their portfolios.
Operators are key to profitability.
The importance of selecting the best operator for a seniors housing project came up in multiple settings. As one industry insider put it: project amenities may get a signature on a lease, but service levels keep tenants. Many noted that choosing the right operating partner and property manager is critical to the success of any senior housing project. As the industry grows to meet increased demand, however, experts warned owners and investors to continue to do their due diligence and find solid operators with the best and most breadth of experience to run assets.
The Silver Tsunami has yet to crest.
A lot of attention has been given to the entrance of the Baby Boomer generation into the seniors housing market. Demographic research presented at the conference, however, indicated that we have yet to see the full impact of the Baby Boomer generation on the industry. The oldest Baby Boomer is currently 73, which is roughly ten years younger than the average age of residents in seniors housing. As Baby Boomers age, industry experts expect that the seniors population will double in the next ten years and continue to drive increased demand for seniors housing. That large demographic shift has many in the seniors housing industry preparing to meet the challenge of housing so many new entrants to the market.