The Wall Street Journal just came out with a story about the coming seniors housing shortage. Unfortunately, it started with misinformation, when it stated that “seniors housing has been one of the biggest disappointments for commercial real estate investors.” In some periods yes, but in other periods not at all, when it has had outsized returns and beat the other sectors. It is all about context, and the writer should have known better. The story may, however, generate some investment interest.
We are glad that occupancy has reached pre-pandemic levels, but we really need to get to 2017 levels to be happy. Remember, back in October 2020 we did the analysis and concluded it would take at least until 2024 to 2025 to get to pre-pandemic occupancy, and perhaps a few more years after that to get back to the highs. At the time, we were the only ones honest enough to conclude this, and maybe the only ones to do the hard analysis based on historical census trends for 10 years. But admittedly, we had no idea that development would grind almost to a halt for so long.
The one thing that still makes us nervous about forecasts of a major unit shortage is that the boomers just might seek alternatives, especially the wealthy ones. And newly developed communities are mostly targeting just the wealthy. At ASHA’s annual meeting last month, we toured a university-based not-for-profit CCRC in Phoenix, and the entrance fees ranged from $400,000 to more than $2 million. And to be honest, while it was okay, there was no “wow” effect like the previous year at Senior Resource Group’s new community in Phoenix, which is now doing a major expansion. That was a “WOW,” and we all wanted to move in that day. But, it was not for your average senior.
Until development picks up again, census will certainly continue to rise. But talking about 95% occupancy and the improving pricing power as a result may be misplaced. Remember, as unit prices go up, another cohort of seniors gets priced out. The value proposition really needs to be evident at that point, and the industry needs to do a better job of explaining it. That said, we would really like to be opening a new community in a few years. Anyone want to joint venture with us?
