It is well known that the aging of the population is driving demand for senior housing services. What is less well known is that a significant number of those seniors do not have the financial resources necessary to transition into many senior housing units available today. This provides an opportunity for senior housing providers to engage a burgeoning segment of the market and, if they succeed, to improve their occupancy rates and generate additional revenue. Those providers able to manage their expenses while increasing their revenue will improve their credit ratings and access to capital from senior housing financing firms like Cambridge Realty Capital. The Chicago based firm offers attractive financing options for sale/leasebacks, acquisitions, and debt refinancing. Industry participants and investors seeking capital for senior housing transactions should look to Cambridge Realty Capital for their financing needs.
Providers React to Changing Demographics
Across the country, senior housing communities are rapidly being built in an effort to satisfy the growing demand for their services. Unfortunately, many low- to moderate-income seniors do not have the financial resources necessary to move into one of these communities. For them, the cost of staying in a nursing home, which can reach as high as $15,000 a month, or an assisted living facility, which can reach as high as $6,000 a month, is prohibitively expense. Some providers are taking advantage of opportunities in this area by building communities for this segment of the market. Although demand for less expensive units is growing, providers find they need to keep their financing and operating costs low while still providing a high quality of care for their residents.
Profit Potential in the Affordable Housing Market
Many states offer tax credits to encourage the development of senior housing communities, and the federal government offers developers a low-income housing tax credit through the Department of Housing and Urban Development. Once a provider receives these credits, they can sell them to investors to generate funds for the project. In doing so, they can reduce the amount of capital they need to borrow to build the facility. This increases the facility’s profit potential because it reduces the provider’s debt expense, and also allows them to charge lower rents. This can help increase occupancy and revenues.
Providers in the low- to moderate-income space have also found it important to reduce their operating costs to generate profits in this market. This can be done by limiting the types of amenities offered and by building properties in areas with tax advantages, such as cities that offer tax credits for building in historical districts or renovating historical properties. Another way providers can reduce operating costs is by building environmentally friendly buildings that use less gas and electricity than older, less efficient buildings.
As the demand for low- to moderate-income properties increases, senior housing providers seeking to establish a foothold in this market should effectively manage debt and operating expenses to generate attractive returns on their investments.
