Three Ways Opportunity Zones May Impact Seniors Housing Investments

Tax incentives could increase investment, entice developers.

By Adam Hooper, Co-Founder and CEO, RealCrowd

By 2030, 75.5 million baby boomers will be 65 and older.

This expansive generation is increasingly retiring, downsizing and living on a fixed income, and investors are aware of the windfall that may become available.

In fact, seniors housing topped the list of all residential segments in this year’s Urban Land Emerging Trends in Real Estate report in terms of its development and investment prospects.

As investment in this sector climbs, many are wondering how the new Opportunity Zones tax policy will impact investment in seniors housing.

As an online direct real estate investment platform, this is how we believe this new tax policy will impact seniors housing investment over the next several years:

Influx of Investors Shift Focus to Seniors Housing

The new tax policy allows investors to reinvest capital gains into designated Opportunity Zones across the country. These zones were selected by state governments and the Treasury Department, and typically encompass lower-income areas where rents are affordable — a primary attraction for senior renters living on fixed incomes.

The ability for investors to reinvest gains may result in an influx of investment activity within the seniors housing space, both from seasoned and new investors. 

Further, as the aging baby boomer population drives increased rental demand, investors will increasingly shift their focus to seniors housing, realizing the tax benefits of Opportunity Zones as well as the growing long-term demand and value within this space. 

Increased Redevelopment in Urban Areas

Many of today’s seniors are seeking urban, walkable living environments where they can be close to transit and retail offerings, as well as friends and family. 

There are more than 8,700 designated Opportunity Zones in the U.S., many of which are located in, near or surrounding thriving urban core markets such as Los Angeles, New York and the Bay Area.

This provides a tremendous opportunity for seniors housing investors to acquire properties in Opportunity Zones and benefit from a strong renter base while planning for the law’s required 100 percent basis reinvestment in project improvements or redevelopments.

One important item to note is that in order to qualify, investors must only reinvest 100 percent of the value of the building— not the land.

For example, if an investor acquires a property where the land is worth $7 million and the building is worth $500,000, only the $500,000 will need to be reinvested in order to be eligible for the tax benefit.

This is an important distinction for seniors housing investors and developers, and will result in increased redevelopment of existing buildings into seniors housing properties in urban cores where demand is strong.

Tax Benefits Could Counteract Rising Labor Costs

Rising labor and development costs are a major concern throughout the industry. It is anticipated that these costs will continue to rise over the next few years. 

The potential tax benefits realized through investment in Opportunity Zones could counteract the increased costs associated with developing a project today. This may result in increased development of seniors housing properties throughout the U.S.

Overall, investment in the seniors housing space remains attractive given the wave of baby boomers set to enter the market over the next decade. This growing demand, coupled with the tax benefits of investing in Opportunity Zones, presents investors with a tremendous opportunity and a positive landscape for investment in seniors housing throughout 2019 and beyond. 

Adam Hooper is co-founder & CEO of RealCrowd, an online, crowdfunded real estate investment platform.