Search
 

Senior Housing Entering a Steady Period

CHICAGO—Investors have been putting a good deal of money into the sector for several years, but with REITs pulling back, the coming year probably won't see the big gains of 2014 and 2015, according to CBRE.

By Brian J. Rogal | brianjrogal | | Updated on February 11, 2016

 

chi-clarendalemokena The recent opening of Clarendale in Mokena, IL, a seniors housing community near Chicago.
CHICAGO—Direct investment into US commercial real estate hit $553 billion last year, the most since 2007, and the seniors housing sector got its share. There were 514 institutional transactions closed and $18.7 billion in sales, a record-setting year and 4.5% higher than 2014, according to a new survey of professionals in seniors housing just published by CBRE. But there was a noticeable pullback in the fourth quarter, especially by REITs, and experts say that even though the sector will remain robust in the coming year, it will probably not see a big increase in investor activity. “We are going to see a lot of new units come online in 2016,” Bennett Johnson, a CBRE vice president for seniors housing and care, tells GlobeSt.com, and some investors may adopt a wait-and-see attitude. The National Investment Center says that at the end of 2015, developers had 48,903 units under construction, more than double the number under construction three years earlier. “Compared to the momentum we’ve seen in the last few years, there may be some slowdown.”   Johnson and other CBRE researchers say the sector is entering what they call a “rational period” that will be characterized by steady prices. “We don’t feel that the market has necessarily peaked,” he says, “but we also don’t believe that cap rates will continue to go down like they did in the recent past.”       CBRE sent its survey to more than 250 transaction professionals who specialize in the seniors housing sector. Of the respondents, 48% expect no change in cap rates in 2016. Of the remainder, 21% still expect to see some compression and 31% expect an increase. Part of the increased caution comes from some demographic challenges. Although the overall demographics in the US are very favorable to the long-term expansion of seniors housing, the average age of current residents is somewhere in the mid-80s, Johnson says. And with most of the giant baby boom generation still in their 60s, there are a number of years to go before many in this group will consider this type of housing as an option.                 Still, survey respondents express little doubt that seniors housing will stay robust in 2016 and beyond. Johnson points out that occupancy is at about 90%. And unlike the 1990s, when a building boom in the sector got out of hand, this time financial institutions and developers have proceeded in a disciplined manner and are making sure that experienced operators run the new properties. “The message of this report is not a negative one,” Johnson says. “We will continue to see strong interest in the sector.”

Want to continue reading?
Become a Free ALM Digital Reader.

Once you are an ALM digital member, you’ll receive:

  • Unlimited access to GlobeSt and other free ALM publications
  • Access to 15 years of GlobeSt archives
  • Your choice of GlobeSt digital newsletters and over 70 others from popular sister publications
  • 1 free article* every 30 days across the ALM subscription network
  • Exclusive discounts on ALM events and publications

*May exclude premium content
Already have an account?

NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.

GlobeSt

Join GlobeSt

Don't miss crucial news and insights you need to make informed commercial real estate decisions. Join GlobeSt.com now!

  • Free unlimited access to GlobeSt.com's trusted and independent team of experts who provide commercial real estate owners, investors, developers, brokers and finance professionals with comprehensive coverage, analysis and best practices necessary to innovate and build business.
  • Exclusive discounts on ALM and GlobeSt events.
  • Access to other award-winning ALM websites including ThinkAdvisor.com and Law.com.

Already have an account? Sign In Now
Join GlobeSt

Copyright © 2024 ALM Global, LLC. All Rights Reserved.