Once a marginal niche, senior housing has become a well-established subsector that combines aspects of multifamily, medical care, and hospitality. Armed by investors, lenders, and equity partners, developers nationwide are racing to build independent-living communities, as well as assisted living and memory-care facilities.
“A tidal wave of seniors is here, and more seniors are coming,” says Paul Aase, CCIM, owner of Active Senior Concepts in Johns Creek, Ga. In 2013, he and a partner launched a firm specializing in senior housing.
“We had gone through the Great Recession and realized the U.S. didn't need another shopping center,” Aase says. “But we have a lot of older people that we need to take care of.”
The U.S. senior population is experiencing unprecedented growth. Those over 50 years old are projected to increase by 20 percent to 132 million by 2030, according to the Joint Center for Housing Studies of Harvard University. By 2030, in the U.S. one in five people will be at least 65 years old. Housing for these seniors has become more urgent not only for individuals and their families, but for the entire nation.
As people aged and needed steady healthcare, nursing homes, continuing-care retirement communities, or home healthcare workers used to be the only options. Now multiple types of independent living communities for owners or renters are being built, as well as assisted living and memory-care facilities.
“Overall, senior housing is being built with more amenities, and it has become a preferred asset type,” says Daniel Palmier, founder of UC Funds, a lender based in Boston and New York City. “The stigma about developing senior housing and assisted living has disappeared.”
Like resorts, many new senior housing units are luxurious inside and have amenities on-site such as pools and clubhouses, golf courses, and tennis courts, as well as providing entertainment, restaurants, salons, fitness centers, and banking. While not every senior migrates south upon retirement, states such as Florida, Texas, and North and South Carolina have higher numbers of seniors, with more arriving every day.
“Senior housing is setting its own trend; there's more demand in certain markets,” Palmier says.
In 2007, UC Funds purchased a condo facility in Gulf Shores, Ala., and is building it as a luxury resort-style project called ONE CLUB to appeal to seniors. It expects to build more in the next decade. In this beach community, the senior living complex is built for middle-class seniors who desire luxury at an affordable cost. In addition to one-, two-, and three-bedroom apartments, the complex provides a new pool, spin classes, poker nights, live bands four nights per week, and a few golf courses. Residents can hop onto shuttles to the beach, shopping, boating, and restaurants.
In certain markets, senior housing may be overbuilt, but many good opportunities for development still exist, according to John Q. Hunsicker, CCIM, partner and head of development and capital markets at The Waters in Minneapolis. Most of new senior housing in the Twin Cities is rental units with 12-month leases, not CCRCs.
“I believe more seniors are staying in their communities,” Hunsicker says. “Some move to Florida or Arizona after retirement for 10 years and then return to the Midwest because being close to their families - adult children and grandchildren - is more important than warm weather.”
Some 30 to 40 percent of the residents drawn to the senior housing his firm develops in the Midwest originally hail from outside the project's market area. In the Twin Cities, many senior communities are built with underground, heated parking lots, so the residents are shielded from the cold winter.
Coming out of the Great Recession, assisted living and memory-care facilities were easier to finance because they are based on need, according to Hunsicker. Now he is seeing the pendulum moving toward financing and building active adult communities, where a more convenient lifestyle than single-family home living attracts senior residents, who usually are 75 years old and above.
“We have an arms race of hospitality amenities in the independent-living communities being built,” Hunsicker says. Many senior facilities resemble high-end hotels and have a high level of service. The ongoing challenge for senior independent living is to balance the cost with the amenities and community-style living that seniors desire, he says.
Whether it's an independent-living community or assisted living and memory-care facilities, senior housing is an operation and a business at a high level, which separates it from multifamily and student housing.
“Senior housing is highly dependent on the property operator for its success,” says Kenneth Etterman, CCIM, a partner at Simmons-Lockard in Cedar Falls, Iowa. “The nature of senior housing is client-centric and does best in local and regional operations, not national. There's more risk if operations are too spread out.”
Simmons-Lockard's development team works in conjunction with regional operators from project conception to the ultimate sale of the property, which usually takes five to 10 years. “Senior housing properties take longer to stabilize than other commercial property types,” Etterman says. The life cycle for senior housing follows a pattern of build, open, and stabilize. In his experience, stabilization has the longest time frame.
Where CCRC Thrives
In Florida, CCRC continues to be built, and remains the dominant type of senior housing. It provides for a continuum of care for its residents, beginning with independent living, and moving through other stages such as assisted living, memory care, and hospice care.
While building CCRCs has slowed down considerably since the Great Recession, about 1,900 of these communities exist in the U.S. for approximately 650,000 residents, according to the New York Times. About 80 percent are operated by nonprofits, and faith-based organizations affiliated with Catholic, Lutheran, Presbyterian, or Methodist churches run most them. But the costs run high, with entry fees ranging from $60,000 to $500,000, as well as monthly costs.
“So much of Florida is hinged on the senior demographic, and now senior housing in my market cannot be built fast enough,” says Adam Palmer, CCIM, principal and managing director of LandQwest Commercial in Fort Myers, Fla. “One of the operators that works with me has claimed if developers built one new project every year for the next five years, it is still unlikely to meet the baby boomers' demands here.”
In the Fort Myer's market, memory care is one of the fastest growing segments of senior housing, according to Palmer, 2018 Florida CCIM chapter president. Like many parts of the country, costs are rising for new buildings and per individual units. He compares the higher costs in senior housing to Class A multifamily, which have been rising consistently during the past five years.
Palmer is seeing more generations of families moving south, especially in high growth states like Florida, Texas, and California, which are logging about 48 percent of the U.S. population growth.
In Georgia, Aase and his team are building communities, not merely senior living buildings. He says some areas of Atlanta are overbuilt.
“Senior housing is no more than a 10-mile radius,” Aase says. “It's a neighborhood business.”
The firm is building complexes with two-story atriums complete with plenty of common spaces for restaurants, an art studio, a test kitchen for chef demos, a theater, a fitness center, and a full salon and spa, in addition to the 250 apartments built for residents.
“Eventually, residents will receive accessibility to the full continuum of care: independent living, assisted living, and memory care,” Aase says. Instead of a CCRC model, residents in these communities pay rental fees. So far, his team has opened two independent communities in the last six months and the first one already has received its assisted living license. The second has applied for but not yet received its license.
To finance these developments, a bank loaned 65 percent loan-to-cost for the first one, and 75 percent loan-to-cost for the second one. For the first development, an institutional equity partner invested 90 percent of the remaining 35 percent equity, with Aase's firm Active Senior Concepts contributing the 10 percent balance.
“The better this community does, the more IRR, and the more our firm receives in compensation,” Aase says.
Mind, Body, and Spirit
Some commercial real estate professionals create joint ventures and sell land to develop senior housing. “Senior housing is still evolving; baby boomers do not want their parents' senior housing options,” says Guy Joseph Roney III, CCIM, consultant at Guy Joseph Roney in Carlsbad, Calif. “They want a community that takes care of their mind, body, and spirit. The seniors market is transitioning from an institutional medical model to a social and hospitality model serving several niches.”
In California, Roney sees senior housing being built with amenities like a high-quality hotel rather than an apartment building. “Senior housing will be a growing business for many years to come, and it's a place that's very rewarding to assist people,” he says.
In several markets nationwide, large equity firms are investing significant capital to develop independent-living housing for seniors. “It's challenging to find the right sites to develop active adult communities for seniors,” says T. Sean Lance, CCIM, founder of Vertica Partners in Tampa, Fla. “The demand is very strong, and there's plenty of capital.”
He describes site selection as carving out a portion of the community for a new style of living for seniors, which is close to their adult children and grandchildren. “Baby boomers are active longer than previous generations and want multi-functional communities in Florida, with a continuum of care and a maintenance-free lifestyle.”
In the past two years, senior housing communities are being designed more thoughtfully for aging in place, such as showers and staircases with handrails, better lighting, and more accessibility for walkers and wheelchairs, according to Lance. More changes are on the horizon with the possible long-term effects from the 2017 tax act causing more seniors in northeastern states to head to Florida for better weather and favorable tax rates.
Senior housing is transitioning. As baby boomers move into this market, more changes are coming. The market is affected by trends in the U.S. commercial real estate industry to a limited extent, especially for construction.
But in many ways, senior housing is charting its own path. “The boomer generation is really the pig in the python, and the sheer volume would seem to indicate that it will set its own trend,” Lance says.