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March 4, 2017

To understand what the future holds for seniors housing, look no further than the baby boomers. In 2015, there were approximately 46 million people age 65 and older in the United States. The U.S. Census Bureau predicts that number will reach 80 million by 2040, nearly doubling the need for seniors housing. This massive influx of senior citizens will lead to rapid growth in the seniors housing market over the next few decades.

“Many astute investors are aware of this, and are seeking to deploy capital in the seniors housing sector,” said Charles Bissell, Managing Director with JLL Valuation & Advisory Services.

Case in point? The average price per unit of seniors housing was around $160,000 in Q3 of 2016, a US$20,000 increase over the average price per unit just five years ago.

There’s lots of money available for these projects, both debt and equity, from private and publicly-traded REITs, institutional investors and even foreign entities. Banks, Freddie Mac, Fannie Mae, and HUD are all active lenders in the space.

“We’re seeing more institutional capital coming into the market, as well as increased interest from foreign investors from Canada, the Middle East and China,” noted Bissell.

At MBA’s CREF conference in February, Bissell explained that the biggest challenge facing seniors housing is the recent and current wave of new construction. There’s been a lot of new supply delivered to the market over the past few years, but baby boomers won’t require seniors housing for another 5-7 years.  Bissell explains “due to all the capital available, deliveries have outpaced absorption recently, especially in the memory care and assisted living segments.  We are still in a moderate demand growth period, but demand will begin to accelerate when the baby boomers start hitting 75.”

Some markets in particular – including Dallas, Houston, Denver, Atlanta and Chicago – could be more at risk for being overbuilt than others, in the short term. But markets where land is scarce or expensive, such as the major cities in New England and California, still have pockets of opportunity for new development.

“We might have a few years of low occupancy in some markets, but we predict that within five to seven years all of those units will be filled,” Bissell said. “Notwithstanding the short term new construction worries, seniors housing is a great space to be in right now.”

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Charles Bissell

Managing Director, JLL Valuation & Advisory Services

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