The Case for Senior Housing Investment

How do you spot a good CRE asset type? Find one in which many people need it but there isn’t enough to go around.

That’s the basic pitch of Arick Morton, chief executive officer of NIC MAP Vision, a company that provides geospatial and market selection analytics for the senior housing and care sector.

His firm’s data says that the current senior housing development pace indicates a 550,000-unit shortfall by 2030, representing a $275 billion investment shortage.

“There’s a significant generational opportunity for investors in senior housing development and acquisition,” Morton told GlobeSt.com. “As the demand for senior housing grows, investing in this sector will result in substantial returns and long-term growth.”

“Demand is exploding,” Morton said. “It’s the early foreshocks of what is going to be a demographic earthquake over the next 25 years, as the boomers age.” In 2025, the first boomers turn 80, which is considered a starting age for needing senior housing. “It really explodes over the next few years.

Over time, the country has seen between two and two-and-a-half times the pre-Covid average absorption of senior housing. “There has been a step change function in the velocity magnitude of that,” he added. “When you look at the penetration rate, the customer utilization rate, it’s returned to its pre-Covid levels.”

He said that most or so of the 10% occupancy rate loss was quickly brought back. “I believe the logical conclusion to be drawn from that is we’re not seeing these historical gains of absorption because of the covid rebound,” he said. Instead, the driver is probably the population growth of people the right age. “The 80-plus population is set to grow by approximately 35% to 40% by 2030. It’s going to grow almost 7% in 2027 alone.”

The capital markets side is the other force. “Capital availability has been a challenge,” said Morton — no surprise to anyone following the CRE market in general. There have been some significant distress opportunities because of loans coming up for refinancing under higher interest rates than owners and lenders originally expected. They have to “refinance a 4% loan at like 6.5% or 7%,” Morton says. “For senior housing, if you look at the fundamentals, we have one of the best fundamentals of any asset class. It’s really a valuation question. Everything works at 5% federal fund rates, but the valuation from 2017 isn’t holding.”

Also attractive is the financial status of the aging population. At the median level, the 75-plus household “can afford 40 to 50 years of senior housing,” and, by statistics, they probably won’t need it beyond a few years.