Two weeks ago, I attended the National Investment Center for Seniors Housing & Care (NIC) in Washington, D.C. As always, it was good to see old friends and clients, and interesting to get a read on the industry. There were really no surprises, but it’s good to get intensive confirmation of what’s going on.
Senior living development is really a somewhat bifurcated proposition at this point. Though we are still building and have recently started a number of assisted living/memory care (AL/MC) projects, most of the developers are not bullish on this sector right now. Operating costs are up dramatically, interest rates and construction costs continue to rise, occupancies have not fully recovered, and rents have not yet risen to cover the increased expenses. There are some AL/MC developers that think that they just need to forge through, that it’s just a bump in the road and all will be good, but that’s not the majority.
The “active adult” group was a little different, and many of the AL/MC developers/operators are building active adult communities. There is much optimism around this sector at this point. The average entry age is reported to be between 70 and 72, hitting the baby boomers squarely in the eyes. The residents, being younger, tend to stay much longer. Also, staffing is limited, so those cost increases aren’t significant. Though there is concern about interest rates and construction cost increases, rents seem to have escalated enough in this sector to have projects move forward. Yet some worry that the housing market which is impacted by rising mortgage rates may make it difficult for people to sell homes at prices they think are satisfactory, which will impact their willingness and ability to move into active adult and independent living communities.
Many of the more experienced and well-capitalized developers are pursuing acquisitions and can find funding for these. This is a normal cycle that we see in every senior living downturn, so it wasn’t a surprise. Lenders continue to be nervous about senior living development. Many continue to have distressed or otherwise concerning assets in their portfolio that they are watching closely, and are reluctant to expand in this area.
Perhaps one of our clients, a respected developer, said it best. In his words, “The next year or so in senior living may be challenging, but the future is bright with the ongoing demographic trends.”
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