NIC Cares Blog, “Seniors Housing Returns Moderate, but Continue to Outpace Broader Property Index”, provides a fascinating snapshot of how senior living investment returns compare with other types of investment properties.

By Steve Moran

The Friday, June 9, 2017, NIC Cares Blog, by Beth Burnham Mace is titled “Seniors Housing Returns Moderate, but Continue to Outpace Broader Property Index”. It provides a fascinating snapshot of how senior living investment returns compare with other types of investment properties. My immediate response was . . .

  • Interesting

  • Dropping Returns . . . hmm . . .

  • What Does It Mean?

The Article Highlights

  • Investment returns for senior living properties have historically outpaced those of other commercial investment property types — this pattern continues to hold true

  • Since mid 2014 the Senior Living total annual return (income and appreciation) has been slowly trending down

  • For the first quarter, the total senior living investment return was 3.62% (2.25% capital return and 1.37% income return) or an annualized rate of 12.05%

  • The annualized Property Index rate was 7.27% and the apartment rate was 6.73%

  • The other bright spot was industrial real estate with an annualized return of 12.18%

  • The peak for senior living was in mid 2014 when the annualized return was 20.37%

  • There is also a slight downward trend for other property types

https://lh3.googleusercontent.com/9tRJavdE_t_8oC70KGbQfPOx_hD2CmD0dtGvpppV-8gaJ0RtlUefZEOT9nMxaZZXIKb_z6-Acc7oIg9Pur-Ykz8KUwZidVuDicOv3ghKihb87OYdfQmSWQybO9ZjQLk

What It Means — As Per Beth

I reached out to Beth to ask this question. Here are her thoughts:

  • Investment returns for all property types in the NCREIF index are slowing and this is just a part of the maturing real estate cycle.

  • Appreciation has led the downward return trend.

  • For senior living investors the message is that while returns have decelerated, seniors living remains a great place to be investing.

  • I also asked if this represented the kind of dip in the market that investors should jump in; she said there are many considerations investors need to make in entering the market, including market fundamentals such as supply and demand conditions.  

What It Means — As Per Steve

In my view, the diminishing returns suggest three things:

  1. There is more development and more pressure in the marketplace; in other words, more supply competition for what is today a fixed, but growing, pool of residents (I am not so sure the pool is that static, which will be the subject of another article).

  2. Averages are just that, averages. That means there are organizations that are beating those averages by doing a bunch of things that are above average.

  3. Even though returns are decelerating for senior housing, it still represents a great investment opportunity, which means a continuous supply of capital for our sector. 

What meaning do you see in these numbers?

What am I missing?

You can hear more from Beth at the NIC Fall Conference.