This piece was originally published on The DI Wire.
One of the most exciting aspects of the investment industry is that the “next big thing” is always just around the corner. All it takes is a savvy businessman and a few well-placed dollars to create a market where there used to be none.
For many in my field, it’s easy to find value in new opportunities. Those that have been around for a while, however, seem to lose their appeal — all of a sudden subject to rumors of failure and poor performance projections. Senior housing is one of these opportunities.
What was once considered a safe fountain of wealth for early investors is now the subject of industry hearsay. At 22,000 properties and 2.9 million units, several investors believe that we are surely approaching an inundated market. But we’re not.
In fact, according to an annual report released by PwC and the Urban Land Institute (ULI), senior housing is once again at the apex for both development and investment of residential property types this year. Which begs the question, what is everyone worried about?
Many elderly individuals are incapable of living on their own. For some, failing joints, vision, and motor skills turn traditional homes into dangerous obstacle courses. For others, long-time residences provoke painful memories of loved ones that have passed, deepening feelings of isolation that may prove hazardous to their mental health.
Individuals over the age of 52 are prone to increased mortality rates, dementia, and depression when subjected to the isolation that so often plagues the aging population. Thus it is for safety and sanity that a large percentage of senior citizens choose to move out of their long-time residences.
At the same time, traditional senior living arrangements are decreasing in popularity. Trends indicate that delaying entry to a skilled nursing facility is preferable for most adults. Some choose to live with family members while others opt to downsize or pursue single-story spaces. Some will even take on roommates if they are no longer able to manage their living situation on their own.
One study, conducted by America’s Research Group, found that 72 percent of those surveyed “would do everything possible to avoid staying in a traditional nursing home.” As a result, occupancy rates are declining in facilities across the country.
I can understand how these statistics might induce trepidation for investors in the senior housing sector. Fear of overbuilding and fluctuating interest rates leads to concern about excess supply and diminished long-term returns, and that’s entirely justifiable if skilled nursing facilities were the only investment opportunities available within the domain.
In reality, the industry has evolved to better reflect the human desire for independence and options. Traditional skilled nursing facilities may be a thing of the past, but modern senior living is all about the future.
Nowadays there are five different types of senior housing. The antiquated notions and preconceived perceptions in your head only apply to two of them: memory care and skilled nursing. If the market consisted entirely of these two sectors, then I’d echo the concern circulating in the industry. As it stands, however, the remaining three sectors continue to experience healthy levels of growth.
Assisted living, independent living, and community campuses are proving that senior housing has the potential to be both relevant and resilient. Together, they create an effective pathway that both empowers seniors to maintain their autonomy for as long as possible and feeds the housing sales funnel.
Individuals begin by moving to a 55+ community for ease and peace of mind. Their needs change as they age, however, and they naturally progress to independent living and, eventually, to assisted living, creating demand in each of the three senior housing types.
Most retirees are aware of the progression and plan ahead for their senior housing journey. The result is often an extensive waitlist for space in any of the many facilities that already exist and some that have yet to be built.
Combine that with a senior citizen population that is expected to double over the next 25 years, and you’re left with the opportunity to control the supply for a market that will continue to create its own demand for the foreseeable future.
Senior housing, like self-storage, is one of only a few asset classes that operate as a business but identify as real estate. Unlike self-storage, however, senior living residences must be updated on a regular basis in order to maintain their business interests.
Younger generations in search of homes for their parents and grandparents are mindful of contemporary conveniences and perceptions, searching for accommodations that feel more like a home and less like an institution. Modern technology, inclusive cultural spaces, and facilities that better reflect the aesthetics of the times will define the senior housing investment space of 2020 and beyond.
With more than 58 percent of senior living facilities over 17 years of age and nearly 90 million humans reaching retirement age by 2040, remodeling projects and new construction sites are inevitable. In fact, some of the more recent research suggests that “100,000 units will need to be built every year through 2040 to keep up with rising demand.”
What’s more, that anticipated demand is not dependent upon the state of the economy. Things like employment and GNP have very little effect on a retired population living on a fixed income. Occupancy swings are also less of a concern thanks to the irrelevance of financial viability. We’ll all continue to age at the same rate whether we can afford to or not, ensuring that the demand remains constant no matter what is happening on Wall Street.
There’s a lot of information out there about the senior housing market. Some of it is positive; some of it is not. In my experience, though, it remains one of the easiest investments to sell. It’s an intuitive venture for those operating without the knowledge circulating in our industry. It’s a smart one for those with access to the facts.
The so-called “silver tsunami” heading for the market will create enough demand to waylay even the most well-supported rumors of overcrowding. Rapidly evolving technology and a push for better conditions secure the sector even further. There are some investment markets that will mature and expire in a quick and cyclical fashion but, for right now, senior housing definitely isn’t one of them.
Disclosure: Destry Witt is an investment advisor representative with RELiANCE Investing, Inc.
RELiANCE Investing, Inc. is a registered investment advisor only. This information is not intended to be personalized. RELiANCE Investing, Inc. is licensed with the states of Washington, California and Utah and will ensure proper licensing or exemption from licensing before conducting business in any other state. Nothing contained here should be construed by anyone as an invitation or solicitation to buy or sell any investment.