Unlike others in the DST industry, we have been anticipating good things for commercial real estate investors and senior housing for some time.
We believe this will be arriving very soon and have positioned our investors to attempt to take full advantage of it. Call it our ‘long game’ a grand strategy to displace office, retail and other archaic property types in portfolios.
Quoting from the WSJ, “The oldest baby boomers turn 80 in less than a year. And by 2030, the U.S. population 80 years and older is expected to increase by more than four million people to 18.8 million.”
History suggests that a growing number of people conclude at that milestone age they can no longer live comfortably or safely at home and seek a senior facility.
Fortunately, for our investors, many of these folks will end up on a waiting list. We have been telling CRE investors ad nauseam that senior housing development pretty much ground to a halt during the pandemic.
Legacy media wrongfully conflated nursing homes with senior living facilities. The former provides end of life health care services while demand for the latter is primarily driven by socialization needs.
Be that as it may, development stopped and hasn’t picked back up much. There is already a shortage of units. More than 560,000 new units are needed to meet demand by 2030, but only 191,000 will be added at current development rates. (WSJ 2/12/2-25)
Quoting Arick Morten, CEO of data service NIC MAP, “We’ve never had a population pyramid that looks like this. The senior housing industry would need to develop twice as many units as it has ever developed in any single calendar year, every year, to keep up.” (WSJ 2/12/2025)
This supply imbalance hugely favors landlords/investors and is not likely to change any time soon. High interest rates and inflated building costs are leading most senior housing developers to avoid new construction.
“Despite the attractive growth prospects of this industry, most developers have thrown in the towel due to a lack of development economics,” said Shankh Mitra, CEO of Well Tower, a publicly traded real estate investment trust that invests in healthcare infrastructure. It currently has investments in over 3000 properties.
In light of this, Well Tower went on a buying spree. The largest senior housing owner in the U.S. spent $6.2 billion on acquisitions during the first three quarters of 2024, up from $5.9 billion it spent in all of 2023.
Ventas, another large senior living owner, said on an earnings call last year that its “overarching capital allocation priority” is buying existing communities. We can think of few other CRE types where landlords are so favored.
Acquisitions are so attractive because senior housing communities today can be purchased for less than it costs to build them. Prices are rising; however, many investment sources maintain they are still 20-30% below what they were in 2019.
Again, few other CRE types currently provide similar discounted valuations and outsized demand.
Baby boomers are the wealthiest generation in the nation. Many have paid off mortgages on homes that have soared in value.
We believe they will spend as much on their senior living arrangements as on their Air Jordans, BMWs, and McMansions.
With inflation ticking back up to 3%, CRE investors should also appreciate senior living’s monthly lease intervals.
Along with self-storage, it is the only CRE type so blessed. This gives landlords as much freedom as possible to raise rents. If inflation remains ‘sticky’ this may be critical to striving to maintain the integrity of your cash flow. With the Fed Chairman, Jerome Powell, now 0 for 3, this may be more important than you think.
