CHICAGO—As reported yesterday in GlobeSt.com, many experts at last week's National Investment Center's national conference were concerned that the coming demand for new seniors housing could eventually cause a glut in supply. To combat this possibility, an afternoon panel discussion tackled the difficulties providers may encounter when sizing up a market and making decisions on when and where to construct a facility.
Typically, developers calculate the net need for a product based on its penetration into a market and the number of potential customers, said Larry Rouvelas, principal of Senior Housing Analytics, a Washington, DC-based provider of development planning. However, some of the rules used to analyze other real estate sectors don't work for seniors housing. Many people, for example, expect that a market with low penetration by providers should also have high rates of occupancy. “But if you look at the data that's not what you see.”
Furthermore, “there are also plenty of markets with high penetration and high occupancy,” he added. The Portland metro area, for example, has nearly 30 units of seniors housing for every 100 income-qualified seniors, the highest rate of penetration in the nation. But the occupancy rate for this sector remains well above 90%.
The reasons for this can be complex and vary from market to market. Southeast Pennsylvania has a dense concentration of CCRCs yet also has a very high occupancy, Rouvelas said. He explained that this was partly the result of the region's Quaker religious traditions of caring for others, which built up “a very high product acceptance.”
Las Vegas, however, was precisely the opposite. And “the reason for that is Las Vegas doesn't have much of a tradition of anything.”
“In my view, net need is a very imprecise measure,” he said. “That crystal ball is cloudy.” He also echoed earlier comments by fellow panelist Susan B. Brecht, president of Brecht Associates, Inc. a Philadelphia-based consulting firm. She told attendees that her firm never uses a radius to define a market area. “You don't want to spend a lot of time agonizing over where a boundary is,” Rouvelas said.
However, he does feel that occupancy rates in a given area can provide a more useful measure than market penetration. “Occupancy is the first among equals,” he said. If you see rates above 90%, “it's telling you that the market could use some new supply.” The trouble comes from the fact that potential competitors are frequently reluctant to reveal these numbers. “They are good at masking that.”
Rouvelas recommends utilizing the NIC Map Data Service, an information clearinghouse run by the National Investment Center which tracks about 12,000 communities. It allows users to search for competitive properties in a market area, assess local conditions, view construction activity, sales transactions, analyze occupancy trends and other capabilities. “If there is any single tool that will help us avoid the bubble in the industry that we saw in the '90s, it's the NIC Map.”
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Brian J. Rogal
Brian J. Rogal is a Chicago-based freelance writer with years of experience as an investigative reporter and editor, most notably at The Chicago Reporter, where he concentrated on housing issues. He also has written extensively on alternative energy and the payments card industry for national trade publications.
