As an unprecedented number of Baby Boomers approach their golden years, the demand for senior housing is set to reach similarly unprecedented heights. That peak is expected to come in 2030 with approximately 106.8 million Americans reaching the age of 65 or older. To put that in context, in 1995 there were just 33.5 million Americans in that age range. If the projection plays out, we will see a 318.8% jump in the span of one generation. As a result, developers and operators have rushed to build housing facilities in anticipation of what looks like a golden years “gold rush”.
But is it all too much too soon?
Just like the great gold rush of 1849, what we’re seeing is an exaggerated response to a measured opportunity. As history showed us, a promise to find gold in California simply by dunking a pan in a river caused more than 300,000 people to head out west in search of a fortune, yet few struck it rich. And records show that many of the legions of explorers who went in search of the mythical gold city of El Dorado were instead met with an untimely death.
In much the same way, developing senior housing facilities as a “guaranteed” way to profit from the aging Baby Boomer population hasn’t quite materialized as quickly as many expected. Some facility owners are opening their doors, ready to welcome residents…and finding that tenants aren’t moving in as quickly as projected. Per a November 2019 GlobeSt.com article by Erika Morphy, this is partially due to “overbuilding, as developers overestimated current demand.” Given that, many operators are finding that it is taking 2-3 years to fully stabilize a newly opened facility, which is significantly longer than it took less than a decade ago. As additional new projects come online faster than the population is absorbing them, occupancy rates are under growing pressure.
According to the National Investment Center for Senior Housing & Care, occupancy for senior housing fell in the third quarter of 2019 to 88% compared with 90.2% in the fourth quarter of 2014.
Why the reluctance to move in? One observation is that seniors don’t think they’re ready for that stage of their lives. The big reason being that modern medicine has produced healthier, hardier senior citizens. Since the mid-1960s, life expectancy has risen from age 74 to 86. What that means is that it’s pushing the age at which people begin to seek senior housing back by about a decade, to 77. That, in turn, means Boomers (those born in 1947 or later) won’t start turning 77 until 2024. So here we are in 2019 with already-built facilities that won’t have the full predicted revenue source for perhaps another 4-5 years.
Another reason for this delay in migration is the rise in technologies that help seniors stay in their home for years longer than expected. From the installation of walk-in bathtubs to chairs that allow the elderly to go up a flight of stairs, to security cameras that allow monitoring of all areas of a home without leaving a recliner, seniors are asking themselves, “Why move?”
Owners and investors have also tended to focus primarily on the property side of development projects, with an insufficient grasp of operational components. The three types of senior housing—independent living, assisted living and acute care—have followed different viability trajectories in recent years. What has been sidestepped is a thorough comprehension of what senior citizens want and why, and the rising costs of labor, in favor of quick, opportunistic development.
Additionally, treating the aging population as a potential “gold rush”, where it is thought that one merely need to be present to benefit, misses the point. “It takes time to build a reputation in smaller communities where the best advertising is word-of-mouth,” Donald E. McKinney, president of Coldwell Banker Commercial Marshall, told CIRE Magazine. Senior citizens are not commodities, but human beings in search of dignified, amenity-rich dwellings.
With more facilities built than can accommodate the number of seniors who currently need them, even more coming online every day, and a market whose nuances present more complexity than meets the eye, developers need engaged, responsive capital partners to help them stay the course. At Bloomfield Capital, we pride ourselves on rigorous, efficient evaluation of how each individual proposition fits into market conditions, and where our capital could be most helpful for a successful outcome. We thrive in complicated, time-constrained circumstances and leave no stone unturned.
