Before the latest recession, investment in senior housing was going gangbusters as inventory grew at a 5% clip in 2008. With the impending retirement of baby boomers, investing in independent living, assisted living and other senior-focused communities seemed like a no-brainer. But as the economy and the housing market soured, senior housing became a less attractive investment as seniors found it difficult to sell their homes and transition to senior housing facilities. Many opted to move in with their children to help them pay their housing costs.
Without the influx of seniors, occupancy rates dropped, and so did profitability and investor interest. Development of new facilities slowed to a standstill and existing facilities struggled to remain profitable. Today, however, as the economy and home sales are starting to improve, so are the occupancy rates and profitability of senior housing communities. Once again, investors and developers are excited about opportunities in senior housing.
A recent article in Senior Housing News stated that in 2013, for the first time ever, senior housing has outpaced all other investment property categories (including recent investment favorite, multifamily housing) with $2.9 billion in transactions during the third quarter alone. Of course, with that level of interest comes greater competition for deals.
One of our clients has supplemented their strategy of making acquisitions in larger metropolitan areas with investments in smaller facilities located in or near mid-sized cities in the Midwest and Northwest. They realized that these markets are often underserved and have high demand, resulting in high occupancies and strong profit margins.
Similarly, as existing facilities fill up or become obsolete, development of new senior housing facilities is on the rise. However, the days of cookie-cutter facilities are over as investors and developers are looking at properties with a critical eye towards projects that will appeal to the demands of current retirees.
Gone are the large, monolithic senior housing facilities rising high into the sky with multiple floors, long hallways and a central dining area serving an entire building. Recognizing that seniors are living longer and are often less mobile in their golden years, new community prototypes focus on activity clusters where residents dine and enjoy activities close to their rooms.
Also, with the changes being brought by the Affordable Care Act, there is a belief that there will be a shift away from long hospital stays toward residence-based treatment, that would allow senior living facilities to provide more care to residents. In particular, facilities catering to residents suffering from memory issues such as Alzheimer's are becoming more common as seniors live longer. Facilities with this type of focus can greatly improve the quality of life for residents and ease the burdens on families.
This is an exciting time for the senior housing industry, with explosive growth and real changes and advances in the products available to senior consumers. As many of us will eventually opt for the ease of living that senior housing provides, it is good to know that the industry is focused on providing high-quality, innovative care and that we here at Lowndes, Drosdick, Doster, Kantor & Reed are helping to make that happen.
For more information on the firm's Senior Housing Group, please visit: http://bit.ly/15cZN0F
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