American demographic trends have made senior housing an attractive real estate investment option.
Senior housing is an intriguing investment prospect due to the perfect storm of rising demand and inadequate supply. American demographic trends are the fuel driving this demand. An aging population creates challenges and opportunities for many elements of society, from construction to health care service to financial investment. Here’s some background information on senior housing for you to consider whether or not it makes sense for you as an investment.
Senior Housing Landscape
Senior housing is a somewhat loose term that covers a wide range of facilities that attend to the needs of older people. The broadest types of senior housing are continuing care facilities, which may range from a single structure to an entire life-care retirement community. The purpose of a continuing care facility is to provide a full spectrum of living arrangements for a population ranging from healthy and active to disabled and dying. Many, if not most, of the residents in a continuing care community plan to live out their lives there, perhaps moving to different quarters within the community as their health care requirements change. The facility may require residents to sign a life-care contract or a fee-for-service contract that spells out services and costs.
The components of a continuing care facility can include:
- Independent living facilities: Regular apartments, cottages, townhomes, rooming houses and attached/detached homes. Facilities may consist of a single unit, a low-rise multi-unit apartment house, a cluster of structures or a campus-like setting with nearby shopping, exercise facilities and recreation. Special amenities are often included in these abodes, such as easy access for wheelchairs, no stairs, walk-in tubs, low counters, etc. Normally, residents must attain a minimum age such as 50 to live in these facilities, and raising children or grandchildren may be banned or discouraged.
- Assisted living facilities: Designed for those who need some help with their daily activities. This may be one or more structures where residents receive some care from nurses and/or home health care aides. Meals, social activities and physical assistance may be provided.
- Skilled nursing facilities: A nursing home, convalescent home or similar arrangement where residents live in a communal setting, attended to by skilled nurses and caregivers. Physicians are usually associated with these facilities, which provide residents with all necessary accommodations, including meals, medicines, medical/nursing care, and if necessary, bathing, dressing and other daily activities. Special wards may be setup for patients with dementia or Alzheimer’s.
- Hospice facilities: Often housed within a skilled nursing facility but may exist as a separate structure. Hospice facilities provide palliative rather than remedial care for patients with a life expectancy of six months or less.
The growing need for senior housing can be illustrated with a few facts:
- In 2009, 13 percent of the U.S. population was age 65 and older. By 2050, that number is expected to rise to over 20 percent, or more than 83.7 million people, thanks mostly to the aging of the “Baby Boomer” generation.
- With improvements in health care and better lifestyles (including a decline in tobacco use), seniors are living and staying active longer.
- 54% percent of seniors living in nursing homes will remain for more than one year.
- Senior housing construction declined from 2008 through 2011, and only began modest growth in 2014.
- 10,000 Baby Boomers turn 65 each day and approximately 60,000 new senior housing units are required each year. That’s a 173% annual increase in senior housing units in order to satisfy the demand.
- Senior housing has been the best performing commercial real estate sector over the last decade, which includes the debacle of 2007-08.
All the facts suggest that demand for senior housing outstrips supply. It also suggests investments in related properties, such as hospitals, clinics and physician housing will also see higher demand.
Too Good to Be True?
“Investors never leave any money on the table.” Translation: the unfilled demand for senior housing will stimulate more development, and at some point, enough new units will have been built to satisfy the demand. We are not close to that point yet but the earlier one invests, the better the chances for the maximum return on investment.
Not all senior housing investments are equal. There will always be developers who put up shoddy structures that prove to be poor long-term investments. That’s why PeerRealty performs due diligence on all project sponsors to ensure that only quality developers have access to our portal. We vet each sponsor’s financials, history of performance, investment structure and the personal backgrounds of the individual sponsors.
Senior housing has been one of the leading commercial realty sectors for some time, and most likely will continue to be for the intermediate future. The gap between supply and demand is wide, but over time, that gap will inevitably narrow. Crowdfunding provides a unique way for investors to handpick senior housing investments without assuming any management responsibilities. While no one can guarantee results, real estate crowdfunding portals such as PeerRealty are thorough in their reviews of each and every sponsor in order to avoid some of the risk associated with senior housing investments.