Southern California proves that supply-demand dynamics should be observed on a market-by-market basis.
By Bryan Lewitt and Chris Isola, JLL
The seniors housing industry continues to evolve. With change comes opportunities for growth and challenges associated with this growth. Today’s market is not what it was five year ago and tomorrow’s market look different than today.
According to a national JLL investor survey, seniors housing occupancy reached 88.8 percent at the end of 2017. Demand is continuing with a healthy clip, but increasing new supply will continue to challenge occupancy rates.
According to the survey, one of the biggest risk factors for seniors housing investors is overbuilding. Nationally, since 2014, there were 79,000 units added to the current inventory, accounting for approximately 8 percent of the total inventory. Of these, one-third (or 26,000) of these new units were delivered in eight metro areas: Dallas, Minneapolis, Chicago, Atlanta, Houston, Phoenix, Boston and New York. This accounts for more than 11 percent of the total combined inventory in these metros.
Strong occupancy and overbuilding are all important national trends but understanding the local market could be the difference between success and foreclosure for an investor.
LA bucks the trends
While overbuilding is a concern nationally, it is the opposite in Los Angeles with a current supply of approximately 24,000 units in 220 facilities. Los Angeles County, with more than 1.3 million people over the age of 65, has added a mere 380 units since 2016. This accounts for just 1.6 percent of the total inventory. And since 2014, only 1,219 units have been added, equating to just 5 percent of the total inventory.
Furthermore, Los Angeles’ current seniors housing inventory averages 36 years old with very few properties being classified as premium and new. These older facilities do not align with the expectations and demands of the area’s affluent aging population. And with only 339 units currently under construction, there is no immediate relief in sight.
Often called “the sleeping giant,” now is the time to shine for Los Angeles.
The county’s median home price is $615,000 and many seniors have built-up significant home equity. With several high-end neighborhoods, much of the senior population is accustomed to living in a home valued above or near $1 million. When those homeowners consider a move to a seniors housing community, they desire new, amenity-rich, premium facilities.
Los Angeles residents have the best weather in the United States and they want the best accommodations during their later years. As an example of one of the few luxury seniors housing communities delivered in recent years, Fountainview at Gonda Westside is a 175-unit CCRC for independent seniors located in the Playa Vista area and run by the Los Angeles Jewish Home. It features premium amenities typically found in a four-star resort, such as a rooftop pool area, fitness center and multiple dining venues.
But it also offers programs specifically targeted to the senior community. This includes stimulating intellectual, cultural and educational programs and events; dynamic recreational activity program; and certified personal trainers and fitness classes.
Other premium properties added in recent years (but nowhere near what the demand warrants) include Sunrise at Palos Verde, Belmont Village Westwood and MonteCedro which each offer luxury living and first-class care.
More growth is needed
While traditional local developers, investors and operators have long been aware of an undersupplied Los Angeles market for new seniors housing, they haven’t been able to keep up with demand.
With the booming multifamily market, many prime residential sites have been developed without the specific needs of the elderly in mind. With minimal new seniors housing development since 2008, most believe the market can absorb between 1,500 and 3,000 new units over the next five years without any talk of oversupply.
This has prompted non-traditional multifamily developers, out-of-state developers and new companies to look to acquire entitled land, begin the planning process for new development and find operator partners or employees to run their facilities. With the advent of technology and a data-driven economy, developers can pick the most in-demand location by analyzing where the seniors and their adult children live and work.
The adult children, in many cases, are the decision makers and they want to return the favor by providing the best living environment for their parents. Also, the good news is that local city planners favor seniors housing because of its low parking requirement, and therefore its limited effect on traffic.
The opportunity is now for growth in the Los Angeles seniors housing market. If you have undeveloped land or a desirable in-fill location, now is the time to evaluate a seniors housing use. If you are a developer, now is the time to capitalize on pent-up leasing demand. And if you are an operator, now is the time to grow your business by partnering with non-seniors housing developers and investors eager to enter the Los Angeles market.
Bryan Lewitt serves as managing director and Southern California practice leader for JLL’s Healthcare Services Group in Greater Los Angeles and Orange County where he leads a team of professionals with over 50 years of combined real estate experience. Chris Isola serves as executive vice president with JLL and is a member of the Healthcare Services Group.