The National Association of Real Estate Investment Trusts recently held its annual All Things REIT convention. Unsurprisingly, one of the main topics of conservation at the event was the outlook for senior housing investments in 2015. Overall, the convention’s participants believe that investors will continue to be attracted to senior housing next year for a few different reasons.
The Attraction of Senior Housing
One of the reasons attendees at the convention are bullish on senior housing investments for next year is the nation’s changing demographics. The baby boomers started retiring a few years ago, and this trend is projected to continue for years to come. Because the number of baby boomers is so large, the aging of this generation is greatly increasing demand for senior housing, so much so that, despite increased construction of senior housing communities, demand is still projected to outpace supply for approximately the next 30 years or so. In addition to the baby boomers getting older, the fact that triple-net leases are the primary rental arrangement in senior housing also attracts investors because it is easier to project returns on this type of arrangement than on many other types. This lends an element of certainty to investors’ projections that they find beneficial as well.
In addition to these factors, low interest rates are also helping boost investments in senior housing. In response to the financial crisis that precipitated the last recession, the Federal Reserve undertook a series of stimulus measures to boost the economy, including lowering its benchmark federal funds rate to near zero and initiating a bond buying program to lower long-term interest rates. And although the Fed recently ended its bond buying program, it kept the federal funds rate at near zero to help lower borrowing costs and encourage investment activity. Because the economy and labor market both improved this year, most analysts expect the Federal Reserve to raise interest rates sometime during the middle of next year. However, until it does, analysts expect investors to continue using low interest rates to acquire senior housing assets for their portfolios.
Lastly, operators are becoming more sophisticated, and this is leading to greater returns for investors. For example, operators are increasing efforts to brand themselves so that their communities are recognizable and synonymous with the image they are trying to portray, regardless of where they are located. This is similar to how established retailers like Old Navy, Banana Republic, and Abercrombie and Fitch have branded themselves so that customers know what to expect whenever they enter one of these stores, regardless of which town or state it is in. Many senior housing operators picked up on this, and are doing the same thing to make their communities more recognizable, with the expectation that this will translate into greater occupancy for them, and higher returns for their investors. Investors are taking notice of this strategy and are showing that they agree with it by increasing their investments in high-quality, well-branded senior housing communities.
The aforementioned reasons help explain why the participants at NAREIT’s annual convention expect investment activity to remain strong in 2015. Accordingly, industry participants and others who are interested in obtaining capital to take advantage of the strong market for senior housing should contact the Chicago-based financing firm Cambridge Realty Capital to learn more about the different financing options that it offers for acquisitions and other purposes as well.
