PHILADELPHIA — The investment market for seniors housing is in a favorable position heading into the new year thanks to a confluence of factors, says Scott Corbin, director at Boston-based AEW Capital Management. The firm has roughly $3 billion in assets under management within this niche property type.
“We’ve seen a full rebound in recovery. We’re not necessarily back to pre-pandemic [profit] margins, but we are getting close. We are seeing outsized NOI growth and outsized rent growth when you compare it to other asset classes. We have the demographic tailwinds. In addition, you have muted supply [growth],” explained Corbin, a panelist at InterFace Seniors Housing Northeast conference, which took place Dec. 4-5 in Philadelphia.
Joining Corbin on stage at Live! Casino & Hotel Philadelphia were moderator Kory Buzin, director, Blueprint Healthcare Real Estate Advisors; and panelists Curtis King, executive vice president, HJ Sims; Dennis Murphy, chief investment officer, Priority Life Care; Rick Swartz, senior managing director, JLL; and Shani Walter, managing director, Omega Healthcare Investors.
The daylong conference, which attracted approximately 230 industry professionals, featured six panel sessions, plus a special presentation on value-based care and a keynote address by Andrew Carle — president of Carle Consulting — on university retirement communities as an emerging niche.
An investor in the sector since 1997, AEW believes seniors housing will be one of the best asset classes to invest in throughout the next real estate cycle. “We continue to be incredibly bullish on it,” said an enthusiastic Corbin.
AEW seeks acquisition, development and select repositioning opportunities primarily in the memory care, assisted living, independent living and age-restricted segments. The general focus is on properties in major national metropolitan markets that exhibit strong underlying income demographics for both seniors and their adult children, as well as favorable supply-demand characteristics.
Positive trendlines
According to the National Council on Aging, older adults are one of the fastest-growing groups in the country. By 2030, all baby boomers will be age 65 or older. And by 2040, roughly 78.3 million Americans will fall within that age group. The oldest baby boomers turned 78 this year. A surge in demand for seniors housing appears inevitable.
The senior housing occupancy rate for the 31 NIC MAP primary markets increased from 85.8 percent in the second quarter to 86.5 percent in the third quarter, according to the National Investment Center for Seniors Housing & Care (NIC). It was the 13th consecutive quarterly increase in occupancy.
Although the independent living occupancy rate still exceeds the assisted living occupancy rate (87.9 percent versus 85.1 percent), the gap between the two continues to narrow, according to NIC.
REITs Flex Their Muscles
Swartz of JLL noted a shift in strategy among certain investment groups over the past five years, with REITs assuming a higher profile today than they have previously.
“Four or five years ago, we did have a lot of the traditional, specialized funds in seniors housing that were active in leading the pack. At that point, the REITs were not as dominant as they have become in more recent years,” said Swartz, who is based in JLL’s Boston office.
In the wake of the COVID-19 pandemic and the capital markets volatility, some specialized funds encountered a tough fundraising period, he pointed out.
“What we’re seeing is groups like AEW pivoting and going to their broader funds, which is actually unlocking a much larger basis of capital. We’ve seen the same thing at PGIM Real Estate and some of the other major groups.”
Meanwhile, the REITs have come back with a flourish. Their soaring stock prices have helped keep their cost of capital relatively low, said Swartz.
Welltower (NYSE: WELL) saw its stock price rise from $87.13 per share on Dec. 11, 2023, to $129.27 on Dec. 10, 2024, a 48 percent increase. Ventas (NYSE: VTR) also experienced a big jump in its share price during the same period, rising from $46.92 to $61.15, a 30 percent increase.
In general, the flow of investment capital into seniors housing is starting to pick up, observed Swartz. “We’re seeing a lot of new entries, whether it be existing investment management companies that are creating alternative investment funds or specific seniors housing funds, or just new groups forming to do seniors housing. So, we’re very bullish in terms of what we think the capital is going to look like for 2025.”
Growth Mode
Priority Life Care, a third-party operator of 64 senior living communities nationwide, in August announced the hiring of Murphy as the company’s first-ever chief investment officer, in conjunction with the launch of a new growth fund aimed at expanding its footprint. Murphy will lead capital raise initiatives, oversee underwriting, manage investor relations and direct asset management and the execution of all new joint ventures.
Murphy touched on the status of the “programmatic joint venture” that Fort Wayne, Indiana-based Priority Life Care is undertaking. “We’ve touched most of the capital partners out there for preliminary conversations to get the ball rolling, and I would say [this initiative] was met with increased optimism.”
There’s a lack of new supply stemming from the increase in construction costs while operator performance is improving at the same time, Murphy emphasized.
“The demographic tailwinds of this next buy cycle will start to tap into the baby boomers who are [approaching] 80 today. There’s a lot at our back that’s helping push this through. We are over COVID, and performance has rebounded. So, I feel like the operators are feeling a lot better about operating results, and that’s going to be able to drive a lot of capital into the space and hopefully make for a heavy transaction [volume] in 2025,” said Murphy.
Seizing the moment
Omega Healthcare Investors (NYSE: OHI) — a triple-net, equity REIT that supports operators of skilled nursing and assisted living facilities with financing and capital — worked diligently to strengthen its balance sheet from 2021 through 2024, Walter noted.
Omega reported net income of $115 million for the third quarter, a year-over-year increase of $21 million. This improvement was attributed to the $34 million increase in total revenue and a $31.2 million decrease in total expenses.
“We took the opportunity over the last four years to sell into a market on the skilled nursing side at rates that, quite frankly, we ourselves wouldn’t even buy at.” That savviness has enabled the Hunt Valley, Maryland-based company to be in good financial shape, said Walter.
“As we think about where we deploy that capital, we’re still going to be very bullish within the skilled nursing sector at the right price, but it certainly has opened up the opportunity to do more on the senior living side,” Walter pointed out.
More specifically, there are opportunities to undertake more value-add deals through joint ventures with either new operators or long-term operators that are picking up deals off-market, according to Walter.
As of Sept. 30, Omega’s portfolio included 962 properties with 90,044 operating beds. Those facilities were in 42 states and the United Kingdom. The company partners with 81 third-party operators across the portfolio.
“As we think about our portfolio being more 20 percent on the senior living side and 80 percent on the skilled nursing side — where we sit there are these opportunities that are coming up, and we see more of those coming in 2025,” concluded Walter.
— Matt Valley