If you follow daily senior housing investment news, you may find yourself confused at times. One day occupancy is up and the next the sector is overbuilt. Senior housing has been commended as a best-buy alternative asset, while simultaneously large senior housing/healthcare REIT’s make headlines as an investment “bust.” The question investors want to know is: “Is senior housing a good investment?” The headlines, unfortunately, do not offer a definitive answer.
In this piece, I’ll discuss how to sort through the mass amounts of senior housing news available to find the information most relevant to you and your investment.
Understand the Difference Between Healthcare Real Estate and Senior Housing
First, it’s essential to understand that the bulk of news presented about senior housing investing relates to healthcare REITs, rather than investments in senior housing via private equity funds. Healthcare REITs, such as Welltower (WELL), Ventas (VTR), and Senior Housing Properties Trust (SNH), are publicly-traded companies that invest in numerous different types of healthcare real estate, including senior housing, medical office buildings, hospitals, and laboratories. For instance, despite its name, senior housing makes up about half of Senior Housing Properties Trust’s portfolio. That’s why a dip in fund performance can be so misleading for the senior housing market overall. On the other hand, certain private equity funds, such as Senior Living Fund, heavily focus their portfolios on senior housing investment. That means much of the senior housing news published each day does not relate as closely to these private funds.
“Average” Market Data is Not Absolute
Companies like The National Investment Center for Seniors Housing & Care (NIC) focus on providing national trends for major U.S. markets – and the performance of each market varies widely. In a recent study of U.S. markets, senior housing occupancy rates varied 17 percentage points between the highest (94.1 percent in San Jose) to the lowest (77.1 percent in Houston). Additionally, occupancy rates within these specific markets vary further due to care type, facility quality, operator quality, and more. When choosing an investment, know that every deal in every market is different.
Consider Your Timing & Know How Overall Market Trends Will Impact Senior Housing
There is a lot of hype in headlines. Overall, the senior housing investment market is anticipated to remain strong for the next decade or more. Still, many things can happen in that time frame—recessions, changes in funding for Medicare, political uncertainties, etc. As of May 2019, the current U.S. economic expansion period reached the 119-month mark, continuing the second-longest business cycle expansion since the beginning of the free banking era. Longer expansion periods historically have correlated with longer recessionary periods. One of senior housing’s biggest benefits is that it is a recession resistant asset class – It was the top performing sector during the Great Recession of 2007-2009. Within the senior housing sector, independent living is the most volatile sub-segment because it is tied more closely to the housing market. When a recession occurs, independent living will likely be affected more significantly that assisted living and memory care.
If you’re an investor and still have questions about the state of the senior housing market, take a moment to download our senior housing investment White Paper, updated in Spring 2019. Or, contact us at [email protected].
Quinn Brewer is a communications expert for Senior Living Fund, a private equity company that invests in quality senior housing opportunities nationwide. He lives in Kansas City and can be reached at [email protected]
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