Investors Plan to Buy More Seniors Housing

Michael Tucker mtucker@mba.org

September 17, 2018


The appetite for seniors housing remains strong, with nearly two-thirds of investors planning to increase their portfolios over the next 12 months, said CBRE, Los Angeles.

Only one-third of investors expect no change to their level of acquisitions, CBRE said. These percentages held steady from last year's survey.

"Seniors housing acquisitions momentum will continue in the second half of 2018 and will likely increase, especially if the sentiment reflected in the survey materializes," CBRE Head of Multifamily Research Jeanette Rice said. "Despite the increased capital market and operational headwinds, investor interest remains robust and a lack of available product to buy should keep pricing strong."

Reis, New York, reported the national vacancy rate for seniors housing remained flat at 9 percent between April and June for the second quarter in a row. The firm's Seniors Housing Quarterly View report noted seniors housing vacancy rates rose steadily from an 8 percent two-year low in mid-2016 before flattening more recently.

"Of all the sectors, senior housing is the most closely tied with demographic shifts," Reis said. "On one hand, one might expect our growing aging population to increase demand for senior housing facilities. On the other hand, people are also living longer, healthier lives and this would restrain demand for at least some subsectors of this property type such as skilled nursing...It will be interesting to see how these various effects interact and play out in the coming quarters and years."

The sector saw minimal rent growth during the second quarter, Reis said. "Given regulatory influences on this sector, asking rents typically see large adjustments at the beginning of the year and only show nominal changes in quarters two through four."

Rice noted investors are most interested in lifestyle-focused seniors housing. They called independent living properties the best opportunity for investment, followed by assisted living and active-adult properties. Memory care properties continue to lose ground, with investors now seeing the least opportunity for this property type in part due to overbuilding in recent years, CBRE said.

Capitalization rates rose in nearly all categories, reversing a trend from prior surveys, CBRE said. Class B and C and memory care properties saw greater increases while cap rate pricing held up best for Class A, core and independent living. Most investors--55 percent--remain confident seniors housing cap rates will hold firm over the next 12 months.

Looking ahead, CBRE Senior Managing Director of Valuation and Advisory Services Zach Bowyer said seniors housing valuations could be challenged in the near term by the "trifecta" of new supply outpacing demand, rising operating/development costs and rising interest rates. "These challenges will be relatively short-lived as the sector prepares for the next wave," he said. "As market participants search for innovative ways to differentiate through innovative design trends, operations, services and technology, sound property-level operations remain critical to maintaining valuations."

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