A Bloomberg article suggests we are heading toward a glut of senior living communities. If true this could be a good thing.
Maybe you saw the recent Bloomberg article titled Senior Housing Surplus Seen as Boomers Spur Building Boom. The article would seem to confirm my worry (which if you look at the NIC data is unfounded) that we are heading for the troubled waters of too many units and too few residents who can afford and want what the industry is building.
Why This is Happening
The answer is pretty simple. First there is a ton of capital available for both purchase and development of senior living properties. This is true because other real estate assets have lost huge amounts of value or for a lucky few, values have remained flat. While in the last year the real estate market has gotten a lot healthier, that really means it has gotten beyond the category of terrible, but the upside is still modest at best. The second factor is a compounding of the first. There are a whole bunch of developers of non-senior living properties who were losing money or stalled out. They went looking for a bright spot to focus their efforts. What they found was senior housing and that market segment looked more like a blazing sun than a mere a bright spot.
The Good News
There are 6 reasons a glut will ultimately be good news: 1. There are more seniors entering the market each week which will help to fill these new units.. . over time. 2. Experienced developers and operators are taking their operating knowledge and getting smarter about creating a more perfect product in terms of both physical plant and program (even though there is still a long way to go.) 3. There is still way to much sameness from community to community and corporation to corporation. While on the surface this is bad and will ultimately result in some financial failures, it means there is a lot of opportunity to innovate and be successful for operators who are convinced that good enough is not good enough. I believe that in most markets there is so much sameness that any given operator who is willing to think out of the box can substantially beat the market. 4. Failures will create tremendous opportunities for the new post-bankruptcy owners, allowing them to provide lower price point senior living options as a function of a reduced real estate cost basis. 5. Failures will force smart, creative developers and operators to figure out how to create massively different, new and better products or series of products that will actually expand the senior living market penetration. 6. Depending on your point of view it will create huge opportunities for Senior Housing Forum partners such as Caring.com, Caremerge, Sage Age Strategies and ServiceTrac to have an edge over the competition. What are your thoughts about this article or my view of the Bloomberg proposition? Steve Moran
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Hey Steve, There may be a bit of overbuilding over the next several years. I sometimes ask people what percentage of seniors over 75 live in a senior housing community of some kind. They usually answer at least 40%. The data says 8% max, and it has been that way for years. With all the “big box” properties being built, it seems like we are gobbling up seniors to live in our communities. When I am asked about my competition in the market, it really isn’t other senior housing providers, its the challenge to get seniors out of their homes when it is time for them to do something big to save their life (sometimes literally). I would be fine if someone built across the street from us – heightens awareness that we are here, heightens our need to get better at what we do. When we built Aegis of Carmichael, the market showed that seniors wanted to live in studio apartments, so we built very few one bedrooms. When the project was finally built 3-4 years later, the market had changed…so we knocked out some walls to in effect create one bedrooms. At Keystone, we built just 17 IL two bedroom apartments, but at about 1200sq ft. Because of an unwavering demand, I just raised the market rate on them $500. People don’t flinch. There is simply nothing like them at least in the north Denver market. I could almost bid for them (but won’t as that is cheesy). We are developing a major shift in what we do at Keystone – called Elevating Life. We offer 150 fitness opportunities a month on our campus, FT fitness instructor, new rehab provider, now member of International Council on Active Aging. We have a great campus for that, but I am always dreaming and developing our future. Honestly, as successful as we are I am sometimes terrified of being passed by in this industry – new ideas, architecture, programs, pricing, et al are amazing in our industry. Kent