01/01/2021

Senior Housing and Assisted Living Investors

Are senior housing, assisted living properties, and senior care businesses a great investment?


  • In 2021, there are an estimated 23 million Americans over the age of 75 and 8.9 million over 83, a common move-in age of a resident to seniors housing.
  • It’s not until the end of this upcoming decade in 2029 that the oldest baby boomer will have turned 83—effectively opening the proverbial floodgates for seniors housing investments.
  • 2 million Americans will live in senior care communities by 2030, doubling from 2016.
  • By 2050, it is estimated that over a fifth of the population in the United States will be 65 years or older, compared to only 15.6 percent today.

For the senior care investor the Senior Housing and assisted living space benefits from a massive demographic groundswell. As the Baby Boomers begin their retirement years, the generation will reach the 75+ age range in the year 2021. As this occurs, they will be moving into an existing building stock that is currently undersupplied and increasingly out of step with evolving consumer demands and caregiving frameworks. For instance, according to CBRE, 40,325 new units must be delivered per year to meet peak demand (2020 – 2025). This can be compared to the current construction rate of 16,440 units per year as of 2014. Despite the overwhelming growth in the senior population, new supply growth has remained well below the highs of 2006 and early 2008, while stabilized occupancy has continued to increase.

As such, we believe that the acquisition, renovation, and development of Senior Housing and assisted living facilities comprise one of the very best risk-adjusted opportunities in both commercial real estate and general domestic investment. That said, it is not an easy space for passive investment. While the coming years will see many new entrants into the space, senior housing is unique compared to more conventional forms of real estate by being far more operationally complex and demanding from a regulatory purview. In sum, despite the favorable population momentum that underpins the senior living sector, the successful execution of the strategy requires an experienced and dedicated investment team.

Life expectancies have risen sharply, from a global average of 49 years in 1955 to 72 years today. By 2040, the global population of those aged 65-and-older will reach 1.3 billion, double what it is today.

Senior housing and assisted living real estate is one of five major investment opportunities created by aging populations, with demand for new senior housing units in the United States set to surge through 2035. In fact, the U.S. senior housing industry is poised for “unprecedented” growth.

The demand for new senior housing in the United States is projected to increase by about 850,000 units between 2010 and 2030, according to Senior Housing Analytics figures cited by PGIM. Attractive investment opportunities exist for independent living, RCFE, assisted living, and memory care communities states PGIM’s report “A Silver Lining: The Investment Implications of an Aging World.”

The senior housing and care industry provide both housing and an array of services to seniors, generally to those over the age of 75. Care segments are commonly divided into four categories: Independent Living, Assisted Living, Memory Care, and Skilled Nursing Care. Nursing care has traditionally been provided in an institutional-style setting, though there is a growing movement toward a more homelike setting. The other care segments are typically provided in a multi-family setting. Seniors housing and care properties all include continuing care retirement facilities (CRCCs), which typically offer all care segments including independent living, assisted living and skilled nursing at a single community.

For investors who want a piece of the action in the large, institutional nursing and assisted living business models, they can participate as passive investors, buying shares in the many real estate investment trusts that specialize in multimillion-dollar health care facilities. We can help direct you to the seniors housing investment firms that participate in this space.

SENIOR HOUSING IS A RECESSION RESILIENT ASSET CLASS

A major benefit for investors in the senior housing space is the resiliency of this sector of the commercial market. A key component of the senior housing market’s success is its lack of reliance on an economic or real estate environment. Senior housing has been the number one performing commercial real estate sector for the last ten years. This includes the period encompassing the 2007 capital market collapse, in-which returns among other commercial sectors fell as much as 20%.

WHY IS SENIOR HOUSING REAL ESTATE THE MOST RECESSION RESISTANT ASSET CLASS?

High Demand

The growth in the American senior populations is truly staggering. The number of Americans 65 and older will increase from 47.8 million in 2015 to 79.2 million by 2035, as to the Baby Boomer generation ages. This enormous increase continues to create greater demand for Senior Living Facilities.

Low Supply

As the elderly population grows, the rate of senior housing new construction is not keeping pace. Units under construction began a significant decline in 2008 and continued to fall through 2011 with only modest growth through 2014. From 2014 through 2019 units increased dramatically. In 2020, occupancy rates are increasing and development is slowing. The seniors housing middle-market is still yet to be addressed.

WHERE ARE SENIOR HOUSING INVESTMENTS HEADED?

The senior housing and care sector is generating buzz, with more real estate investors hopping on board. According to the PwC’s Emerging Trends in Real Estate 2021 Report, investing in senior housing is, once again, one of the best bets for real estate investment and development for years to come. According to the survey, investors are now more interested in independent living units, assisted living facilities, nursing homes, and long-term care facilities. These senior housing real estate properties present profitable investment opportunities for investors in 2020.

A 2019 CBRE U.S. Seniors Housing & Care Investor Survey and Trends Report further support this, providing data that indicates that 19% of survey respondents said they already had some type of investment in this sector. In addition, another 20% of respondents said they were interested in investing in senior housing in the future. The fact the almost two-thirds of property investors surveyed have an interest in the senior housing and care sector says a lot about the current and future market. There are several key factors and trends that have contributed to this increased interest. Moreover, several forecasters predict that the senior housing market will continue to grow and expand.

What are the top reasons why you too should start investing in senior housing?

#1 Baby Boomers Driving the Demand

It’s no secret that senior housing properties are in high demand as the number of Baby Boomers entering retirement is growing daily. As the largest demographic of Americans, these Baby Boomers will be in need of care and housing supply in the decades to come. The number of Americans 65 and older will hit 79.2 million by 2035 as the Baby Boomer generation ages. This massive demographic continues to drive great demand for senior real estate properties.

A typical senior housing resident is estimated to be 83+ years of age. And while the oldest Baby Boomer today is 73, recent estimates from the US Census Bureau show there are over 8.5 million Americans of age 83 or more. In addition, the US Census Bureau estimates that this population will comprise 10.2 million people by 2025. As you can see, all signs indicate the demand will only go up in the decade ahead, making investing in senior housing a great long-term investment strategy for savvy property investors.

The demand for senior housing is not only secular, that is driven by demographics, but it is also (except for active adult communities) need-influenced or need-driven, that is, not discretionary and required by the chronic care issues of aging. It is hard to make the same objective case for the growing demand for office, retail and industrial properties.

Demand for senior housing is also much less impacted by “technology risk”. This very real risk will impact retail, commercial, and industrial property types to a much greater extent over the foreseeable future and cause the investment analysis to be much less certain regarding understanding and measuring demand.

Like all property types, senior housing has its own business cycle. However, the demand for senior housing is much less affected by the rise and fall in employment and the expansion and contraction of GNP. Today’s seniors are better equipped financially to live out their senior years with the support of retirement plans, stock portfolios, insurance benefits, and 401K programs.

While demand is moderately impacted by severe inflation and an inability to sell residential real estate, social security payments received by seniors and the need-driven element of the product are two substantial cushions to the traditional economic dislocations that affect yearly demand for other property types.

Even in markets that have reached temporary saturation for assisted living, many of the national operators have maintained 88% occupancy rates or better.

#2 New Senior Housing Development and Supply

The inventory of senior real estate properties is relatively old – 58% of the stock is more than 17 years old and 32% is older than 25 years. As these real estate properties age, they often become outdated as care amenities improve, tastes change, and new regulations advance. Moreover, despite the growth in the senior population, new supply and construction of senior housing properties have not been keeping pace over the last ten years, which represent challenges for real estate investors thinking of investing in senior housing.

However, reports suggest that new senior housing development is on the rise. In fact, according to the Emerging Trends Report, senior housing is the top prospect for the development of residential properties and the 3rd prospect for development in the commercial and multifamily properties for 2020!

#3 A Recession-Resilient Investment

A major benefit of investing in senior housing real estate is the resiliency of this sector. Like all property types, senior housing investments have their own business cycle. Nonetheless, the demand for senior housing properties is far less affected by the rise and fall in employment or the expansion and contraction of gross national income (GNP).

Furthermore, other market trends may come and go, but there will always be a need for long-term medical and health care facilities for the aging population, regardless of what’s going on with the economy. In other words, its needs-based demand characteristics allow senior housing investments to endure many of the downwind recession pressures faced by other real estate sectors.

The senior housing sector continues to prove to be a strong asset class regardless of the overall economic condition. This means that you can thrive while investing in senior housing properties, even if your investment is not in the best location! As a result, savvy real estate investors are capitalizing on this sector as a low-risk investment that generates great returns.

#4 Historic Investment Performance

Another reason why real estate investors are currently motivated to start investing in senior housing properties is the fact that this type of investment has returns higher than most other major real estate asset types. In fact, this sector has already outpaced the rest of the housing market in terms of an income stream, appreciation, and total return on investment.

According to the National Council of Real Estate Investment Fiduciaries (NCREIF) 2018 property index results, the total return for senior housing real estate on a ten-year basis was 10.52% – far outpacing the overall property index of 6.09% and apartment total returns of 6.10%.

In terms of real estate appreciation, senior real estate investments generated 3.73% of total returns, versus the 0.54% for the overall property index and 1.03% for apartments.

Investing in senior housing also yields higher total income returns (6.61%) than both the property index (5.53%) and apartments (5.20%). All these numbers prove that a seniors housing investment is your best bet for making money in real estate for 2021!

SENIORS HOUSING AS AN ALTERNATIVE INVESTMENT

Over the last five years, annual investment volume in specialty properties has accounted for 12% of all CRE investments, representing about $59 billion in annual transactions.

These are the eight main alternative investment sectors, listed by market share of all alternative investments and the annual average investment volume from 2014 to mid-year 2019:

  • Seniors housing and care – 31.3% share of all alternative investments / $17.2B annual average transaction volume
  • Medical office – 22.1% / $12.2B
  • Student housing – 13.3% / $7.3B
  • Life sciences – 11.8% / $6.5B
  • Self-storage – 9.0% / $5.0B
  • Manufactured housing communities – 6.3% / $3.5B
  • 55+/Active adult communities – 3.2% / $1.7B
  • Data centers – 3.1% / $1.7B

The lure of alternative investments

There are five main reasons why investment in alternative CRE assets is growing so rapidly:

  1. Yield premium and higher cap rates offered by specialty property helps to offset the effect of cap rate compression from traditional mainstream assets.
  2. Rising market demand, due to fundamental structural changes in business, technology, demographics, tenant experience, and ESG criteria (environment, social, governance).
  3. Expanded product availability as developers meet investment demand from both national and international capital markets.
  4. Portfolio diversification for investors currently holding traditional mainstream assets, such as multifamily, office and retail, and industrial.
  5. Transparency in pricing, operations, and overall market performance continues to improve in 2020, helping to make nontraditional CRE investment more appealing to a wider-range of investors.

The Bottom Line

Whether you’re looking for ways to diversify your investment portfolio or you’re just getting started with real estate investing in the coming year, consider investing in senior housing. There will always be demand for senior real estate properties as American Baby Boomers age and there’s room for growth and new development due to the shortage in supply. Not only that but it’s also a low-risk investment that you can always count on to yield high returns.

Senior Housing Cap Rates 2020


Haven Senior Investments provides a skilled analysis of potential senior housing investments for investors. Using investment analysis technology, coupled with market expertise and investment experience, we help investors assess the viability of an investment, as well as evaluate value-add opportunities to enhance returns. This successful combination gives us and our clients a strategic edge.


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