close
close

Arguments for investing in retirement homes

How do you identify a good CRE investment type? Look for one that many people need, but there isn't enough of for everyone.

This is the fundamental statement from Arick Morton, CEO of NIC MAP Vision, a company that provides geospatial and market selection analytics for the senior living and care sector.

According to his firm's data, the current pace of senior housing development suggests there will be a shortage of 550,000 housing units by 2030, representing an investment gap of $275 billion.

“There is a huge generational opportunity for investors in the development and acquisition of senior living,” Morton tells GlobeSt.com. “As demand for senior living grows, investing in this sector will result in significant returns and long-term growth.”

“Demand is exploding,” says Morton. “These are the first signs of a demographic earthquake that will occur in the next 25 years as the baby boomers age.” In 2025, the first baby boomers will turn 80, which is considered the minimum age for needing senior housing. “Demand really explodes in the next few years.”

Over time, the country has seen average senior housing take-up 2 to 2.5 times higher than pre-Covid. “The velocity size has changed in leaps and bounds,” he adds. “If you look at the penetration rate and the customer occupancy rate, it's gone back to pre-Covid levels.”

He says most of the occupancy loss of about 10% was quickly recouped. “I think the logical conclusion from that is that we're not seeing these historic absorption gains because of the Covid recovery,” he says. Rather, the driver is likely the population growth of people of the right age. “The population of people over 80 will grow by about 35 to 40% by 2030. In 2027 alone, it will grow by almost 7%.”

Capital markets are the other force. “Capital availability has been challenging,” says Morton — no surprise to anyone who follows the CRE market in general. There have been some significant distress as loans have had to be refinanced at higher rates than owners and lenders originally expected. They have to “refinance a 4% loan at about 6.5% or 7%,” says Morton. “If you look at the fundamentals for senior housing, we have one of the best fundamentals of any asset class. It's really a valuation question. At 5% federal funds rate, anything works, but the 2017 valuation doesn't hold up.”

The financial situation of the ageing population is also attractive. On average, households aged over 75 “can afford a senior citizen’s apartment for 40 to 50 years” and statistically speaking, they are unlikely to need it for a few years.

You may also like...