CREJ - Healthcare Properties - June 2016
Real estate housing in senior living attracts more investor interest than it ever has. With life expectancy, and quality, increasing every year and demographic trends pushing plans, it seems more and more capital arrives in senior living every day. However, that trend brings challenges as well. First, many real estate developers and investors do not understand the market as well as long time providers. While many investors are accustomed to investing in property, developing the buildings and structures, and then reaping the rewards that follow, there is an additional stage involved in senior living. Specifically, staffing concerns at a senior-living community introduce a new level of complexity most real estate developers are unfamiliar with. While apartment complexes can be managed with minimal staff and commercial developments lease out space wherein the lessee brings in staff, the staff at senior-living communities are a critical part of the equation. The staff must be well trained and large enough to provide the services required by residents. That is precisely why seniors living in these communities, because of the services they receive. Additionally, the continuity of staff is critical as regular turnover is a proven detriment to the care provided by staff. Consequently, the staff is inextricably linked with the development. Such a circumstance creates an environment most developers have not needed to deal with until now. Second, the demand for new projects and new beds has led to a mass influx in both over recent years. Projects race one another from across the street to open their doors. At a recent Denver senior living real estate symposium, attendees learned that 2,490 new units in independent living, assisted living and memory care had been constructed in 2015 alone. And even when communities do open, many struggle to fill their occupancies to a stabilization rate within the scheduled timelines previously planned. Operators typically need to provide rent concessions to help speed the stagnant occupancies. Combined with a shortage in skilled staff capable of providing the necessary care, the added expenditures and increased timelines eat into the return on income for many developers. However, despite these issues – and a whole host left undiscussed here – it seems that the number of real estate developers looking to involved in senior living has not slowed. And it is unlikely to as demographics continue to apply demand side pressure.