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Senior life has long been a real estate piece somewhat under the radar, with a somewhat attractive reputation. But it is on the verge of a boom – a baby boom to be exact.
More than 4 million baby boomers will reach 80 in the next five years, and the occupation of adult and active and assisted assistant communities already increases quickly. This occurs while the annual growth in stocks in senior housing which has just dropped below 1%, the first time that has happened from the National Investment Center for Seniors Housing and Care began to follow the metric in 2006.
Ventas, a senior living real estate trust with a market capitalization of 31 billion dollars, bets big on what CEO Deb Cafaro calls the economy of longevity.
“We buy billions of dollars a year in senior life, and we see yields in the seven, with irr irrs in mid-adolescents [internal rates of return]There is therefore significant growth in assets, and we buy lower replacement costs, “said Cafaro, who has been at the head of the company for over 25 years.” I have never seen this combination of investment characteristics in my long career in real estate, and we therefore take full advantage of all this. “”
Cafaro said there was a planned growth of 28% in the Senior Life Request pool over the next five years. She described the “incredibly strong and durable” demand winds.
“Think of 2000 in the activity of the real estate investment trust-the office represented more than 20%of the whole of the FPI pie, and health care was 2%. Now, when you look at the pie, the office is 5%, and what is it? These are health care, senior life. These are data centers. These are cells. Why is it.
Cafaro said that Ventas, who buys properties but who does not develop them, benefits from the deep lack of supply in the senior life sector, from active adult to assisted life through memory care establishments.
The sunrise of Lincoln Park Senior Living Community, belonging to Ventas, in Chicago, Illinois.
With the kind authorization of Ventas
“As a owner with one of the largest fingerprints of housing for the elderly, existing actions in the United States, we benefit from the higher development cost, because we have an installed base and we active as active below the replacement cost and, right now, that is part of our strategy,” said Cafaro. “We feel really well in our base of 850 communities of higher life, where the occupations are increasing. And we also feel good about the several billion dollars that we invest each year in existing assets”.
Why no supply?
Aegis Living is a developer and operator of senior life establishments in Washington, California and Nevada. The massive imbalance of demand on demand weighs heavily on its founder and CEO, Dwayne Clark.
“There is a brewing problem, and the only metaphor I can think of is like putting a party ball at the end of a fire hose and watching it increase with high speed. Velocity without being able to do anything until it appears,” said Clark.
According to NIC data, there will be about 4,000 new life units for the elderly this year and next year, but the growth in demand would require 100,000 new beds each year until 2040.
“This is the lowest quantity of units we have seen since 2009, the lowest. And, once again, I have done so for 40 years. I have never seen such a lack of construction starting,” said Clark.
Average rents at AEGIS are about $ 12,000 per month, but this includes public services, transport, food, activities and different care levels. Clark said most of the residents partly cover the costs using the product of the sale of their homes, which have appreciated considerably in the past five years.
Higher interest rates, he said, are the main obstacle to new development.
“We have six buildings awaiting refinancing. We have never, in our 28-year history, more than two. We have six, and we are soon seven years old, and everything is on a floating debt. It is therefore a catastrophic problem for industry. And once again, we do not catch up,” he added.
Interest of investors
Harrison Street is an alternative real estate investment management company with $ 55 billion in management. According to a company spokesperson, its Housing Strategy for US elderly people has increased more than 30% of net operating profit of the same location. Harris Street argued that with a new limited and demanding supply, this could be the strongest entry point for alternative real estate investment in its 20 years of history.
“Frankly, in the past 20 years, I cannot identify another period when we were more enthusiastic about the current configuration of the sector,” said Mike Gordon, a world CIO of Harrison Street, who invests in independent and assisted life segments, as well as memory care.
Gordon said the serious uncertainty during the first years of the pandemic – when there were horror stories of infections and deaths in life facilities for the elderly – was largely resolved. He now said that there were more elderly people living in these communities than pre-cake.
Harrison Street acquired around twenty communities higher in 2020-2021, at the start of the pandemic, when there was practically no liquidity in the sector. In recent years, growing demand and tight supply has led to an annual average rent increase of almost 5% in the sector and a single figure in certain markets, according to Harrison Street.
Despite high interest rates overall, Gordon said private investors had a new interest in the sector, thanks to this strong rent growth.
“What we see at the moment is a very rapid return of liquidity in the sector,” said Gordon.