LOS ANGELES—Changing demographics are finally making it possible to finance senior housing projects. The US senior population is booming. By 2030, there will be approximately 72.1 million people over the age of 65, according to the Administration on Aging.
To commercial real estate finance professionals, this means increasing opportunity.
Senior housing is in demand more than ever before, and developers, lenders and investors are moving quickly toward this product type as a vehicle for profit.
Historically, lenders have been hesitant to fund senior multifamily projects. Age restrictions are intrinsic in this product type. Because age restriction was seen as a challenge that decreased the pool of prospects, there was a perception that these apartment communities would be more difficult to rent, and in turn, less likely to deliver strong NOI.
Today, however, changing demographics in the senior population are beginning to fuel an increased confidence among lenders. It is evident that demand is not only here to stay, but will grow tremendously. A report from the National Housing Conference revealed that the population surge of adults over 65 will reshape the demand for suitable housing for the next 40 years.
Developers and investors are well aware of the depth of this demand, and have already begun taking strides toward meeting it.
Developers are, for example, delivering new projects that are aligned with new lifestyle preferences demonstrated by today's seniors. Senior communities filled with amenities that encourage socialization and engagement are emerging throughout the country.
Investors, too, have recognized the potential in the industry, and are already beginning to identify new opportunities. Public REITs in particular, are beginning to more deeply invest in senior housing—a trend that will likely continue as this sector of the market strengthens.
With equity available and developers poised to begin new projects, the ability to attract debt in this sector will complete the circle in order to bring more senior housing projects to fruition.
Today, that debt is becoming increasingly available. George Smith Partners works with a number of senior housing developers and owners in need of financing. We are finding that, after we articulate the strength and unique dynamic of this market sector, lenders are increasingly willing to lend on this product type. We anticipate that this trend will grow tremendously over the next few years.
As lenders continue to gain confidence, the financeability of senior housing will continue to improve. The momentum of senior housing will grow, and ultimately, this will become one of the most powerful sectors in the commercial real estate market.
Malcolm Davies is a principal at George Smith Partners. Contact him at [email protected]. The views expressed in this column are the author's own.
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