July 5, 2019 Developers Shift into Senior Housing

Baby boomers are reaching retirement age, and that’s driving up demand for senior housing — and interest from investors.

In a recent survey, CBRE Group Inc. found that 62% of investors were planning to add more senior housing to their portfolios. In part, that’s because the returns are strong. Over the last five years, senior housing gave investors a 14% return on investment, compared with a 9.2% return on multifamily investments over the same period.

“We felt like we could get some higher returns than were available in multifamily without taking additional risk,” said Shlomi Ronen, principal at Century City-based Dekel Capital.

In Los Angeles, demand for senior housing is especially strong due to the large aging population, a relative lack of existing stock and a particularly lengthy process for zoning the projects.

“The demand is unbridled,” said Patricia Will, chief executive of Belmont Village, which owns seven senior living facilities in L.A.

“Unfortunately, we aren’t able to satisfy the immediate demand. While that may be a good problem as a businessperson, it’s indicative of the demand we as an industry and a city just can’t keep up with.”

Investors grow into senior living

Bennett Johnson, a vice president at CBRE, said the senior housing segment is heating up. “In the last five years, I’ve seen a shift in terms of not only the amount of money but the type of investors coming into the space who historically viewed it as a niche market and are now seeing it as a major food group,” he said.

Johnson added that there has been more interest from real estate investment trusts, or REITs, and private equity the last few years.

Downtown-based Colony Capital Inc. in June refinanced $1.73 billion of consolidated debt in its health care segment, which included senior housing properties. As of March 31, the group’s health care portfolio had 192 senior housing properties.

In March, White Oak Healthcare Finance announced a new REIT that’s looking to invest $500 million in senior living and skilled nursing assets.

Century City-based Kayne Anderson Real Estate Advisors is also betting on senior housing. Since 2013, the group has invested in 74 private-pay senior housing communities. The group touts itself as the 20th largest owner of senior housing in the United States.

CBRE reports there are currently 23,500 professionally managed senior housing and nursing care communities in the United States.

L.A.’s tight market

Senior living is also becoming increasingly urban — a trend developers attribute to Baby Boomers being interested in things like access to transit, museums, concerts and volunteer opportunities.