Many senior housing facilities that have been built recently are equipped with large living quarters and spacious common areas. In addition to having a lot of space, they also have numerous amenities such as fitness centers, bistros, physical therapy rooms, game rooms, libraries, theater rooms, and many other features as well. Senior housing providers have been incentivized to build these types of facilities because of the higher rents they can charge residents for them. At the same time, it’s also important to remember that there are other opportunities in the market that can benefit senior housing providers as well.
Additional Opportunities in Seniors Housing
At a recent conference held by the National Investment Center for the Seniors Housing and Care Industry (NIC), one of its subgroups, the Future Leader’s Council (FLC) hosted a session where they talked about affordability in senior housing and the opportunities that the current market presents. Specifically, the FLC noted that even with the success of many higher end communities, senior living providers should not discount the demand for lower priced housing that can attract middle income seniors and generate consistent profits for them as well.
Even though the economy has been growing steadily for the past few years, the last recession still wiped out substantial amounts of wealth for many seniors that they have had a difficult time recapturing since they are no longer in the workforce. Because of losses in home and other asset values, many seniors refrained from moving into a senior living community when they normally would have. Instead, these individuals either stayed home if they were able to or moved in with their adult children if they had care needs. As their acuity levels increased and the economy began to recover, these seniors then began to transition into independent living and assisted living facilities. As demand for seniors housing grew, providers built large facilities with spacious rooms and numerous amenities to differentiate themselves and to take advantage of the higher rents that they can charge residents to live in these properties. While this strategy has been successful for many industry participants, it has also left an opening in the market for moderately priced communities that want to attract seniors who cannot afford higher rent properties. For example, according to data from the Census Bureau, roughly a third of households with residents who are 75 or older have annual incomes in the $20,000 to $40,000 range. This is significantly less than the median rent for independent and assisted living facilities which runs between $33,000 and $49,000. These numbers support FLC’s assertion that there is demand in the market for moderately priced senior housing that providers can take advantage of. Furthermore, demand in this area will most likely increase because the population continues to grow older and many older individuals who are getting ready to transition into seniors housing haven’t saved enough to be able to afford facilities with higher rents.
Before entering this space, senior housing providers that are interested in targeting this segment of the market should make sure that they have a strategy in place that will allow them to be profitable while charging lower rents than higher end facilities. Such a strategy could include building on cheaper land, using lower cost financing which is currently available because of today’s low interest rates, being careful not to offer too many amenities, having less space in the common areas, and making sure resident expectations are in line with what the facility offers. If their strategy aligns well with moderately priced facilities, the next step would be to conduct a thorough cost-benefit analysis to confirm that entering this space would be profitable for them. Similarly, investors and others who wish to enter this market through an acquisition, joint venture or other means should continue to look to the successful financing firm Cambridge Realty Capital and the many different programs that it offers for assistance in financing these transactions.
