The Current and Future State of the Senior Housing Market in America
- Jan 18, 2016
By Russell Dey, Vice President, Walker & Dunlop
The senior housing market today is robust and growing.
Today’s senior housing market across the United States can be characterized by robust growth, opportunity and innovation spurred by the changing demographics and evolving needs of the target resident. Today, there is an abundance of capital, both debt and equity, chasing a limited amount of stabilized, quality product across the industry. This has produced a fiercely competitive environment in which newer entrants to the industry are starting to play a more prominent role. These new investors include predominately multifamily developers and private equity investors who have historically preferred more traditional core commercial real estate assets, and they are now becoming more and more comfortable with the asset class.
These dynamics have driven cap rates down and have forced many market players to seek alternative routes to entry, such as through new development. New development in the right markets and for the right operators has been increasingly accommodated by yield-hungry banks. While there are certainly specific pockets around the country where new supply is outpacing demand, particularly in the assisted living and memory care sector, overall the market remains healthy. Fears of over-supply on a macro level are ultimately tempered by the fact that the real significant demographic wave that people are quick to point out, is still actually about 10 years away.
Key influences and trends to watch—‘Senior Housing 2.0’ approaches
While the recent growth, expansion and overall frenzy that have become synonymous with the senior housing market has given some investors reason to pause, there are still plenty of participants charging forward on both acquisitions and new development. Several predictors underscore these assumptions, including:
- Recent rate increases by the Fed. On December 16, 2015, rates were raised for the first time in seven years, accompanied by plans for subsequent increases to come in the near future, with impacts on several areas of the Senior Housing market, such as the REITs, remaining to be seen.
- Long runway for the changing demographics. Given that the baby boomers are only in their early 70s, they still have about 10 years to go before they reach the average age of today’s senior housing residents.
- Changing needs bringing new challenges to new development, largely stemming from cultural and generational adaptations, will be necessary as the senior housing industry transitions from serving the “grandparent’s generation” to the “parents” as baby boomers continue to age. Such adjustments will require renovation and new development to meet changing demands, such as:
- larger common areas for increased socialization;
- expanded amenity offerings; and
- an increase in dining options.
Additionally, as the average age of residents continues to increase, the industry is faced with having to adapt their care delivery models, both from a programmatic and physical asset standpoint, in order to meet the higher acuity needs of these residents. Examples include providing updated facilities and programs for memory care, given that people are living longer and our understanding of Alzheimer’s and dementia continues to improve.
Challenges and opportunities: the senior housing market in 2016
One of the biggest opportunities for the senior housing market going forward will be to meet inevitable demand for “affordable” assisted living options, a challenge that requires figuring how to offer affordable rents while still providing the necessary quality of care. While developing properties with smaller units, less expensive building components and fewer flashy amenities certainly helps to bring down costs (and subsequently rents), there is still work to be done before a truly affordable private pay product is available on a level that can scaled to meet the demand.
All things considered, the senior housing market is well-positioned for growth, robust evolution and continued activity—in 2016 and for years to come.
Russell Dey is a vice president, responsible for the origination of new seniors housing loans at Walker & Dunlop. For more information about Russell and Walker & Dunlop, please visit www.walkerdunlop.com.