Senior Housing Investment Outlook Positive Despite Slowdowns

Michael Tucker mtucker@mba.org

April 25, 2019


Senior housing investment and construction slowed in early 2019, but investors remain confident in the sector's long-term outlook, said Real Capital Markets, New York.

Following several years of robust sales and construction activity, the senior housing market is redefining itself, adjusting to shifts in investor activity and a focus by many investors on a long-term horizon, RCM Chief Operating Officer Tina Lichens said.

"Perspective is an important attribute for all commercial real estate investors, including those focused on the senior housing sector," Lichens said. "The sector as we know it today is vastly different from five years ago and rapidly changing. There remains considerable demand and capital in the market, yet investors need to look at the long-term as the market redefines its ‘new normal'."

Investment sales in the sector totaled $2.8 billion in January and February, down from $3 billion in the same period in 2018. Sales totaled $15.2 billion in 2018. RCM said two-thirds of investors, developers and real estate brokers surveyed believe 2019 senior housing investment activity levels will finish the year very similar to 2018's figure.

Lichens noted the sector's investor profile has shifted--private investors now lead the charge, followed by institutional investors. Real estate investment trusts have pulled back significantly.

Real Capital Analytics, New York, said private investment in the sector has ranged from $5.4 billion to $6.9 billion annually since 2014. Private investors have been the largest investor group for the past three years. Publicly listed REITs accounted for as much as 55 percent of annual activity in 2014 and 2015 but that investment has been cut dramatically to just over 25 percent. Foreign investment activity also has fallen off dramatically, RCA said.

In addition, senior housing construction is down significantly--newly constructed senior housing unit deliveries fell nearly 15 percent from 2017 to 2018. But some sector analysts consider this a needed slowdown as demand catches up to the strong supply cycle.

Real Capital Markets Executive Managing Director Steve Shanahan said investor concerns reflect the "tremendous" activity that has taken place in the U.S. over the last decade and the bidding up of prices that resulted. "With so much product changing hands and so much demand, investors are concerned about the quality of product that remains and whether sellers have an inflated impression of what properties can command," he said.

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