As the seniors housing sector continues to evolve, investors and developers are keenly observing trends that promise robust returns and growth opportunities. Recent insights from industry discussions highlight several key themes that are shaping the future of this dynamic market.
Investment & Growth Outlook
Seniors housing is poised to deliver strong risk-adjusted returns, second only to data centers, according to a recent ULI poll. This asset class demonstrated resilience during the 2008 financial crisis, supported by a stable demand base. The net worth of residents aged 75+ has surged by 35% over the past decade, while rent increases have remained modest.
Despite macroeconomic uncertainties, the demographic foundation of seniors housing remains solid, attracting investors seeking alternatives to traditional assets like multifamily and office spaces. With occupancy rates in the high 80s and potential for growth, investors anticipate reaching mid-90s occupancy levels alongside continued rent increases.
Debt Markets
The lending landscape is shifting, with banks cautious due to poor office loan performance. However, seniors housing shows promise, with GSE delinquency rates improving from 6% in 2023 to 4.2% in 2024. Debt terms are becoming more favorable, with leverage increasing to 60-70%. Private equity lending is stepping in to fill gaps left by traditional banks, and CMBS loans are on the rise.
Capital Markets & Valuations
Valuations in seniors housing are rising, driven by improved property performance. Stabilized core and core-plus deals are easier to underwrite, with consistent exit cap rates. NOI growth is fueled by legacy lease burn-offs, rental increases, and occupancy gains.
Despite inflationary pressures, rising insurance premiums and property taxes pose challenges. Secondary markets offer competitive revenue per occupied room (REVPOR) and lower staffing expenses, making acquisitions more attractive than new developments. All-cash deals provide certainty, and light value-add projects are gaining appeal.
Construction & Development Outlook
Construction costs are expected to rise by 4 to 6% this year, prompting developers to focus on predevelopment spending. Expansion projects are favored over new ground-up developments due to in-place cash flow during construction.
Developers face challenges in predicting baby boomers’ preferences for amenities and floorplans, with early indications suggesting a shift away from studio units and single-use spaces. Innovative revenue models, such as ground-floor retail and partnerships with local businesses, are crucial for early cash flow. The right operational partner is essential for successful project execution.
– Senior Research Analyst Ezekiel Duprey
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