Seniors Housing: Opportunity in Plain Sight?

by | 12 August 2021

  • Seniors housing sales volume has steadied north of $3 billion.
  • Opportunities are likely to appear over the next 12 months.
  • Occupancy losses have affected operations of both seniors housing and nursing care facilities. Meanwhile, technology is making it easier for people to stay in their homes.
  • Long-term demographics point to a rebound in the asset type, but specialized expertise in operations is important.
  • Harrison Street, Omega Healthcare, The Portopiccolo Group, AEW, and Brookfield Asset Management have been the biggest buyers over the past 12 months.

The seniors housing sector has faced challenges of late from increased operating costs, negative headlines, and lower occupancy. Fundamentals still remain stressed, and a recent survey from the American Health Care Association and National Center for Assisted Living reported that more than half of nursing homes and just under half of assisted living communities are operating at a loss, and that only 25% of them are confident they can survive one year. Occupancy challenges are a contributor, as NIC MAP data have shown that seniors housing occupancy rates — pre-pandemic in the mid-to-upper 80% range — have fallen into the upper 70% range of late. Nursing care facilities’ occupancy has declined slightly more rapidly, into the mid-70% range. Whether this occupancy loss is cyclical or structural is still to be determined.

Investment is showing signs of improvement in Q2. Overall volumes are up year-over-year, at more than $3 billion in three straight quarters. Cap rates are higher than in other asset classes, with Real Capital Analytics reporting yields in the high-6% range per its hedonic pricing series. Over the past year Healthpeak Properties has been the largest seller, for more than $4 billion. Welltower has been a net seller as well, parting with $1.4 billion in assets (though it has acquired roughly half that amount during the same time). The biggest buyers have been Harrison Street, Omega Healthcare, The Portopiccolo Group, AEW, and Brookfield Asset Management.

Opportunities will appear. While many owners are not willing to sell at discounts, given the above-mentioned survey results, the next 12 months will likely provide chances for new investors to buy. It is important to note that seniors housing requires expertise, and new investors should expect a learning curve because of numerous regulations in-place. A recovery of fundamentals is due, as long-term demographics are favorable for an occupancy rebound. Outdated facilities could also be ripe for repositioning as covered land plays.