americas senior housing opportunity

America’s Senior Housing Opportunity

May 2016

© 2016 Residential Assisted Living Academy / All Right Reserved

R A L R e s e a r c h™

©2016 Residential Assisted Living Academy 2/25

America’s Senior Housing Opportunity The number of seniors is expected to double to 41 million by 2035.1 By 2050, 81 million people are projected to be aged 65 and older.2 This is causing an unprecedented number of seniors, who are expected to live well into their 80s. 3 This increased population will cause stress on the so called “sandwich generation” who will have to balance taking care of their children and their elderly parents. 4 At least 70% of people over the age of 65 will require some form of long term care services and support during their lives. 5 However, the caregiver support ratio will shrink to 4 to 1 by 2030, leaving a gap in care that needs to be addressed for this growing population of seniors. 6 All of these factors will cause accelerated growth for the senior housing industry over the next two decades. The occupancy rate for senior housing is currently around 90%, and has held above 85% for over five years.7 Because of this accelerated growth, consolidation is a trend within the industry, as well as contributing to a rise of REITs within the space. Assisted living facilities, long being a preferred type from residents, are on the rise. Private-‐pay senior housing is expected to rise well into 2020.8 The largest threats to this industry include sensitivity from being private-‐pay, the lack of public knowledge, high levels of new construction, normal real estate risks, and the lack of skilled workers. However, the investor demand for these properties is increasing as their cap rates dip into the low-‐8 percent area. 9 There is a strong investor demand within this rapidly expanding niche because of is strong portfolio diversification and high returns. 10 This is a booming market, one that will continue to increase for many years, and will provide the opportunity for significant profits.

1 Mace, Beth Burnham. "Aging Well." The Letter-‐ America (2014). Web. 2 Passel, Jeffrey S., and D’Vera Cohn. "U.S. Population Projections: 2005-‐2050." Pew Research Centers Hispanic Trends Project RSS. 11 Feb. 2008. Web. 3 "Retirement Communities in the US: Market Research Report." IBIS World, Dec. 2015. Web. 4 Families and elder care in the twenty-‐first century.: Future Child 2011 ;21(2):117-‐40: Ann Bookman, Delia Kimbrel. 5Genworth 2015 Cost of Care Survey. Genworth, 20 Mar. 2015. Web. 6"Housing Market Drivers." NCREIF Conference 2013, 14 Nov. 2013. Web. 7 "Seniors Housing Occupancy Rises to 90.1% as Strong Demand Surpasses Inventory Growth for Second Consecutive Quarter -‐ National Investment Center." National Investment Center. 2016. Web. 8 The State of Seniors Housing 2004. Washington, DC: American Seniors Housing Association, 2015. IRR -‐ Seniors Housing & Health Care. Web. 9 "Better Market Spurs Seniors to Sell Homes, Move to Senior Housing by Marcus & Millichap." NAIOP. 2013. Web. 10 Mace, Beth Burnham. "Aging Well." The Letter-‐ America (2014). Web.

R A L R e s e a r c h™


The Aging Population From now until 2029, 10,000 people will turn 65 every day in the United States.11 By 2035, the number of seniors will double to 41 million.12 By 2050, 81 million people are projected to be aged 65 and older.13 America is turning gray and aging at an accelerated pace. The median average age in the United States will grow from 37 in 2010 to 41 in 2050.14 The elderly population is growing faster than another other segment. Population estimates can have an error rate; the U.S. census claims an average error rate between 1% and 2% from the 2002 census.15 Projections for the elderly are the most accurate of all the population projections because these people are currently living.16

11Shugarman, Lisa R., and Keyla Whitenhill,. "Long-‐Term Care." SpringerReference. June 2012. http://www.thescanfoundation.org/sites/default/files/us_growing_demand_for_ltc_june_2012_fs.pdf 12 Mace, Beth Burnham. "Aging Well." The Letter-‐ America (2014). Web. http://www.nic.org/wp-‐content/uploads/2014/06/AgingWell-‐June_2014_TIREL_AMERICA.pdf 13 Passel, Jeffrey S., and D’Vera Cohn. "U.S. Population Projections: 2005-‐2050." Pew Research Centers Hispanic Trends Project RSS. 11 Feb. 2008. Web. http://www.pewhispanic.org/2008/02/11/us-‐population-‐projections-‐2005-‐2050/ 14 "Attitudes about Aging: A Global Perspective." Pew Research Centers Global Attitudes Project RSS. 30 Jan. 2014. Web. http://www.pewglobal.org/2014/01/30/attitudes-‐about-‐aging-‐a-‐global-‐perspective/ 15Campbell, Paul. "Evaluating Forecast Error in State Population Projections Using Census 2000 Counts." U.S. Bureau of the Census, Sept. 2002. Web. https://www.census.gov/population/www/documentation/twps0057/twps0057.html 16 Passel, Jeffrey S., and D’Vera Cohn. "U.S. Population Projections: 2005-‐2050." Pew Research Centers Hispanic Trends Project RSS. 11 Feb. 2008. Web.


Birth Rates Over the Last 100 Years

Source: https://www.ncreif.org/documents/event_docs/Miami2013/SeniorsHousing_Mace.pdf

Elderly Population Doubles Since 1990, the elderly has comprised 12% to 13% of the population, which is higher than any other time in our history. With each decade, the percentages are increasing. By 2050, the elderly will be 19% of the United States population. To compare, Florida, which has the highest portion of elderly residents, currently has 17%.17 Altogether, the number of seniors is doubling the pace of the general population.18

17 Passel, Jeffrey S., and D’Vera Cohn. "U.S. Population Projections: 2005-‐2050." Pew Research Centers Hispanic Trends Project RSS. 11 Feb. 2008. Web. 18"Seniors Housing Investment Opportunity." AEW Research, May 2015. Web. http://www.aew.com/pdf/AEWResearchSeniorsHousingInvestmentOpportunityMay2015.pdf


Source: http://www.thescanfoundation.org/sites/default/files/us_growing_demand_for_ltc_june_2012_fs.pdf The elderly population is not the only population undergoing radical changes. Delayed marriage and childbearing for young adults, decreased family size, and changes in family composition and structure are all changing key demographics that will affect the care of the elderly.19 The chart below shows estimates for the populations segments in the United States. As the population of 65 and over grows, the population of younger than 15 falls stagnant and is surpassed.

19 Families and elder care in the twenty-‐first century.: Future Child 2011 ;21(2):117-‐40: Ann Bookman, Delia Kimbrel.


Growing Number of Aged Presents a Problem America is currently the youngest of all the developing nations, but we are quickly catching up. “Americans are less likely than most of the global public to view the growing number of older people as a major problem. They are more confident than Europeans that they will have an adequate standard of living in their old age. And the U.S. is one of very few countries where a large plurality of the public believes individuals are primarily responsible for their own well-‐being in old age.”20 According to a Pew survey, three in ten adults with at least one parent aged 65 or older report helping their parents financially, and twice that say they have assisted a parent with personal care or day-‐to-‐day tasks.21 76% of adults view providing financial assistance to aging parents as a responsibility.22 According to another Pew survey, “roughly six-‐in-‐ten Americans (62%) think that at some point in their life they will be responsible for caring for an aging parent or

20 "Attitudes about Aging: A Global Perspective." Pew Research Centers Global Attitudes Project RSS. 30 Jan. 2014. Web. 21 "Family Support in Graying Societies." Pew Research Centers Social Demographic Trends Project RSS. 21 May 2015. Web. http://www.pewsocialtrends.org/2015/05/21/family-‐support-‐in-‐graying-‐societies/ 22 "Family Support in Graying Societies." Pew Research Centers Social Demographic Trends Project RSS. 21 May 2015. Web.

41 ATTITUDES ABOUT AGING: A GLOBAL PERSPECTIVE

www.pewresearch.org

867,6521,842,237 2,034,447

1,529,700

4,543,4396,026,928

128,427

530,507

1,489,570

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050

Younger than 15 15 to 64 65 and older

2,525,779

6,916,183

9,550,945

42,596 61,947 72,759

102,175

209,506242,115

13,043

40,794

85,979

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050

Younger than 15 15 to 64 65 and older

157,813

312,247

400,853

Estimates of the Global Population, by Age, 1950 to 2050 Thousands

Source: United Nations, Department of Economic and Social Affairs, World Population Prospects: 2012 Revision, June 2013, http://esa.un.org/unpd/wpp/index.htm

PEW RESEARCH CENTER

Estimates of the U.S. Population, by Age, 1950 to 2050 Thousands

Source: United Nations, Department of Economic and Social Affairs, World Population Prospects: 2012 Revision, June 2013, http://esa.un.org/unpd/wpp/index.htm

PEW RESEARCH CENTER


another elderly person. Another 13% volunteer that they are currently caring for an aging adult or have done so in the past.”23

PEW SOCIAL TRENDS Sept. 1-‐15, 2011. Q16. Figures may not add to 100% because of rounding

Increased Life Span The elderly are also benefiting from advances in medical care that increase the average life span, which allows the population aged 85 and older to grow at three time the national population growth rate.24 Increased longevity among elderly extends the years of caregiving that is needed. This can mean that adult children, many of them who have children of their own who require care, have to balance as many as four elderly parents living. They can also be responsible for more parents or relatives that are also in need of care.25

23 "Generational Views." Pew Research Center for the People and the Press RSS. 02 Nov. 2011. Web. http://www.people-‐press.org/2011/11/03/the-‐generation-‐gap-‐and-‐the-‐2012-‐election-‐3/11-‐3-‐11-‐63/ 24 "Retirement Communities in the US: Market Research Report." IBIS World, Dec. 2015. Web. http://www.ibisworld.com/industry/default.aspx?indid=1599 25 Families and elder care in the twenty-‐first century.: Future Child 2011 ;21(2):117-‐40: Ann Bookman, Delia Kimbrel


Today there are approximately 6.3 million seniors aged 85 and older, by 2035, that number will double to 12 million.26 By 2049, it will have tripled and those aged 85 and over are projected to account for 4.5 percent of the U.S. population.27 In the 2010 Census, there were 53,364 centenarians (people 100 and older), an increase of 5.8 percent since 2000.28

The Sandwich Generation Research now indicates that adults will spend more time caring for their parents than for their adult children. Because families today tend to be smaller, the sibling networks are also smaller to care for parents, creating a larger workload. Almost 60 percent of caregivers are employed, balancing their responsibilities to their children, parents, and work.29 These caregivers are called the “sandwich generation” a term coined by sociologist Dorothy Miller to refer to specific generational inequalities in the exchange of resources and support. Millers research highlighted the stress on the middle generation of employees who are caring for two groups of dependents while receiving little support.”30

26"Housing Market Drivers." NCREIF Conference 2013, 14 Nov. 2013. Web. https://www.ncreif.org/documents/event_docs/Miami2013/SeniorsHousing_Harry.pdf 27 Ortman, Jennifer, Victoria Velkoff, and Howard Hogan. "The Older Population of the United States." Current Population Reports (2014). U.S. Department of Commerce, 2014. Web. https://www.census.gov/prod/2014pubs/p25-‐1140.pdf 28 Ibid. 29 Families and elder care in the twenty-‐first century.: Future Child 2011 ;21(2):117-‐40: Ann Bookman, Delia Kimbrel. 30 Ibid.


Almost half of adults in their 40s and 50s have a parent aged 65 or older and are raising or caring for a dependent child. And about one-‐in-‐seven middle-‐aged adults (15%) is providing financial support to both an aging parent and a child.31 While these “sandwich generation” adults are devoting more resources to their grown children these days, the survey finds that they value the support given to aging parents more than support for grown children. They also found that 75% of adults say they have a responsibility to provide financial assistance to an elderly parent who is in need; only 52% say parents have a similar responsibility to support a grown child.32 However, this idea is outmoded, partially because more than one generation may provide the elder care. Many children are living at home long past 18, sometimes even into their 30s. These grandchildren are called upon to help with their elders and provide relief for their parents. Conversely, having three generations interact, share funds, space, and exchanging emotional and personal care creates additional stressors that are lacking within this model.33

31 "Family Support in Graying Societies." Pew Research Centers Social Demographic Trends Project RSS. 21 May 2015. Web. 32 Ibid. 33 Families and elder care in the twenty-‐first century.: Future Child 2011 ;21(2):117-‐40: Ann Bookman, Delia Kimbrel


Caregiver Support Shrinking According to a Genworth Cost of Care Survey, at least 70% of people over the age of 65 will require some form of long term care services and support during their lives.34 However, with the population of elderly increasing, and the younger age segments slowing, caregiver support ratios will shrink from 7 potential care givers to 4 by 2030.35 The dependency ratio is “a demographic and economic indicator that compares the size of non-‐working-‐age groups—children and the elderly—with that of the working-‐age population. In 2005, there were 59 elderly people and children for every 100 Americans of working ages. In 2050, assuming current trends continue, that dependency ratio will rise to 72. The main reason for the increase is that the elderly population will grow more rapidly over the next four decades than the working-‐age population. Most of the increase in the number of elderly will occur by 2030 as the baby-‐boom generation enters the retirement years.”36

34Genworth 2015 Cost of Care Survey. Genworth, 20 Mar. 2015. Web. https://www.genworth.com/dam/Americas/US/PDFs/Consumer/corporate/130568_040115_gnw.pdf 35"Housing Market Drivers." NCREIF Conference 2013, 14 Nov. 2013. Web. 36 Passel, Jeffrey S., and D’Vera Cohn. "U.S. Population Projections: 2005-‐2050." Pew Research Centers Hispanic Trends Project RSS. 11 Feb. 2008. Web.


Elderly Will Have Fewer and Fewer to Depend on Between 2010 and 2050, the total dependency ratio is projected to increase from 67 to 85, largely because of the increase in the old age dependency ratio. As all of the baby boomers move into the 65 and older category, the old-‐age dependency ratio will increase from 22 to 3 5.37

Accelerated Growth With the increases in the senior population, the growing dependency ratio, and the growing need for housing for seniors, the retirement care and community industry is projected to have accelerated growth over the next two decades. Approximately 1.3 million people 65 and older -‐ or 3.1 percent of this population -‐ lived in skilled-‐nursing facilities in 2010.38

37 Vincent, Greyson, and Victoria Velkoff. "The Older Population of the United States." Population Estimates and Projections (2010). U.S. Department of Commerce, May 2010. Web. https://www.census.gov/prod/2010pubs/p25-‐1138.pdf 38 Vincent, Greyson, and Victoria Velkoff. "The Older Population of the United States." Population Estimates and Projections (2010). U.S. Department of Commerce, May 2010.


Since the first quarter of 2010, when the first of the baby boomers began entering into retirement, the average occupancy rate for both independent living facilities and assisted living facilities increased consistently to 90.2% in the first quarter of 2015.39

Rising Occupancy Levels According to the National Investment Center for Seniors Housing and Care (NIC), “The average occupancy rate for seniors housing properties in the fourth quarter of 2015 was 90.1% as net absorption of units outpaced the additions to inventory. This represented an increase of 0.2 percentage point from the prior quarter, and was 0.2 percentage point shy of its cyclical peak of 90.3% that was reached one year earlier. As of the fourth quarter of 2015, occupancy was 3.3 percentage points above its cyclical low of 86.9% during the first quarter of 2010.”40

Occupancy Rates for Senior Housing

Independent living facilities showed strong growth, the sector finished the year at 91.4%. Freestanding independent living facilities showed the most annual occupancy improvement of any care type. Assisted living showed very strong growth with occupancy reaching 88.4% by the end of 2015. This modest improvement is more significant when it is considered that supply grew by 2.5% during this period.41

39 "Seniors Housing Posts Slight Gain in Occupancy in 1st Quarter." National Investment Center. 2014. Web. http://www.nic.org/news-‐press/seniors-‐housing-‐posts-‐slight-‐gain-‐occupancy-‐1st-‐quarter-‐rent-‐growth-‐remains-‐stable-‐construction-‐pace-‐slows/ 40 "Seniors Housing Occupancy Rises to 90.1% as Strong Demand Surpasses Inventory Growth for Second Consecutive Quarter -‐ National Investment Center." National Investment Center. 2016. Web. http://www.nic.org/news-‐press/seniors-‐housing-‐occupancy-‐rises-‐90-‐1-‐strong-‐demand-‐surpasses-‐inventory-‐growth-‐second-‐consecutive-‐quarter/ 41 The State of Seniors Housing 2004. Washington, DC: American Seniors Housing Association, 2015. IRR -‐ Seniors Housing & Health Care. Web. http://www.irrshhc.com/articles/2015-‐Seniors-‐Housing-‐Outlook.pdf


By the end of 2015, the rate of seniors asking rent growth was at 2.6%, which was slightly above the previous year’s growth and unchanged from 2014. The seniors housing annual absorption ended the year at 2.0%, which was slightly up from the previous year.42 NIC also found that “in the fourth quarter of 2015, the seniors housing annual inventory growth rate was 2.2%, up 0.1 percentage point from the prior quarter and its strongest pace since 2010. Current construction as a share of existing inventory for seniors housing accelerated 0.2 percentage point to 5.5% as of the fourth quarter of 2015, which represents a new cyclical high.”43

Mega-‐Trend Attracts Investment Capital The number of industry establishments is projected to rise at an annual rate of 4.1% over the next five years to meet the demands of the aging population.44 According to the IBIS World Industry Report, “The retirement community’s industry is forecast to perform strongly in the five years to 2020, generating annualized revenue growth of 6.1% to $83.1 billion. Revenue is forecast to increase 5.8% in 2016, as demand continues to pick up.” Industry revenue will grow at annualized rate of 3.7% per year to reach $61.9 billion.45

IBIS World Industry Report

A quarter of households move in their 50s to more accessible housing, rising to a third in their 70s, and more than half in their 80s.46 This move to more accessible housing leads many to independent and residential assisted living options. The need for housing is clear. There is a clear gap between current housing and the needs of the population boom that is rapidly coming. Construction is currently booming within this sector. Independent living is accelerating moderately and has for several years, as of 2014 representing 3.7% of existing inventory. Builders added 42 "Seniors Housing Occupancy Rises to 90.1% as Strong Demand Surpasses Inventory Growth for Second Consecutive Quarter -‐ National Investment Center." National Investment Center. 2016. Web. 43 Ibid. 44 "Retirement Communities in the US: Market Research Report." IBIS World, Dec. 2015. Web. 45 "Retirement Communities in the US: Market Research Report." IBIS World, Dec. 2015. Web. 46 Fernald, Marcia, ed. "Housing America’s Older Adults—Meeting the Needs of an Aging Population." (2014). Joint Center for Housing Studies of Harvard University. Web. http://www.nado.org/wp-‐content/uploads/2014/09/Harvard-‐Housing-‐Americas-‐Older-‐Adults-‐2014.pdf

Seniors Housing & Care Property Market

Estimated National CountsAs of 4Q12

Source: NIC Research & Analytics, NIC MAP® Data & Analysis Service

This document was presented during the 2013 NCREIF Fall Conference. The author(s) take full responsibility for all content. This posting is for informational purposes only; neither NCREIF nor its Board express any opinion of the content presented herein.


4,263 independent living units during 2014, expanding the current offerings by 2.2%. Another 7,257 independent living units are currently under construction as part of more than 53 different building projects, 18 of which are expansions.47 Assisted Living construction continues to hover above 5% of existing inventory as of the end of 2014. Builders have 2,127 units starting construction at the end of 2014. Another 16,161 assisted living units are currently under construction as part of more than 184 different building projects, 32 of which are expansions.48 Memory care and skilled nursing are also expanding although a little more slowly with a large focus on freestanding units and additions to current offerings. According to NIC, nearly every market has projects going through the entitlement process, and new developers are entering the space weekly.49 Larry Rouvelas and Phil Downey of Senior Housing Analytics prepared an analysis in 2014, which estimates that to keep pace with the forecasted demand for senior housing, inventory growth will need to increase from 17,000–18,000 units per year in the 2010–2015 period to 22,000–29,000 units per year in the 2015–2020 period and more than 50,000 units per year after 2020.50

47 The State of Seniors Housing 2004. Washington, DC: American Seniors Housing Association, 2015. IRR -‐ Seniors Housing & Health Care. Web. 48 Ibid. 49 The State of Seniors Housing 2004. Washington, DC: American Seniors Housing Association, 2015. IRR -‐ Seniors Housing & Health Care. Web. 50 Mace, Beth Burnham. "Aging Well." The Letter-‐ America (2014). Web.


Consolidation on the Rise One of the key words within this industry is consolidation. Seniors are offered a wide variety of choice, both in the type and offerings of housing. These have led to a national trend of consolidation in an effort to build brand equity. IBIS World explains “as operators grow larger, they have more resources at their disposal and are able to take advantage of economies of scale. Despite increased acquisition activity by industry leaders, unabated industry growth and renewed construction have prompted new operators to enter the industry; IBIS World estimates that the number of industry enterprises grew at an average annual rate of 2.4% to 18,076 companies over the five years to 2015.”51 There has been a large interested in acquisitions, which saw the highest number of transactions in 2014 with a total of 533 compared to 445 in 2013. NIC found that the “total transaction including seniors housing and nursing care for 2014 registered $17.4 billion which is up 17.5% from $14.8 billion in 2013 and the highest volume since 2011 which registered just over $27 billion. Seniors Housing acquisitions continued to dominate over nursing care transactions for 2013 and 2014.”52 Three of the largest REITs (Real Estate Investment Trust) are now health care REITs.53 According to REIT.com, the National Investment Center for Seniors Housing & Care (NIC) recorded 2014 as the most active year on record for transactions in the sector, with more than 500 senior housing deals closed. Acquisitions of senior housing and care properties by public, private and institutional real estate investors stood at $17.4 billion for the year, up nearly 20 percent from the previous year. Publicly traded companies accounted for nearly $10 billion of that total.54

51 "Retirement Communities in the US: Market Research Report." IBIS World, Dec. 2015. Web. 52 The State of Seniors Housing 2004. Washington, DC: American Seniors Housing Association, 2015. IRR -‐ Seniors Housing & Health Care. Web. 53 Senior Housing and Care: Where Growth Meets Opportunity; 2014 UNC Real Estate Conference 54 Borchersen-‐Keto, Sarah. "Health Care REITs Stay on the Hunt for Senior Housing." REIT.com. 8 May 2015. Web. https://www.reit.com/news/reit-‐magazine/may-‐june-‐2015/health-‐care-‐reits-‐stay-‐hunt-‐senior-‐housing


Big Money Moving In In an article by REIT.com, “Daniel Bernstein, an analyst at Stifel Nicolaus & Co., says “Given the decrease in interest rates and the continued increase in capital availability, it’s very likely that the REITs are going to be very aggressive buyers.” Matthew Whitlock, senior vice president at CBRE National Senior Housing Group, agrees. “The overall marketplace is very healthy although it’s also very aggressive.”55 However, REITs are not the only player. According to Seniors Housing Business, “private equity buyers accounted for 10 percent of the $6.8 billion in U.S. seniors housing transactions completed during the third quarter of 2014, according to the National Investment Center for the Seniors Housing & Care Industry (NIC). Private equity firms are raising money from institutions and individuals around the world who are hungry for relatively high-‐yielding investments.” These buyers are chipping away at the dominance of the REITs and are in bidding wars to buy equity stakes in senior housing.56

55 Borchersen-‐Keto, Sarah. "Health Care REITs Stay on the Hunt for Senior Housing." REIT.com. 8 May 2015. Web. 56 Anderson, Bendix. "Private Equity Pours into Seniors Housing." From The Magazine, 16 Nov. 2014. Web. http://www.seniorshousingbusiness.com/from-‐the-‐magazine/23-‐from-‐the-‐magazine/private-‐equity-‐pours-‐into-‐seniors-‐housing


Industry Strengths Senior housing is on the rise, driven by a demand that is speeding up, not slowing down. The movement of the baby boomers (born between 1946 and 1964) into the senior housing population is creating a swell. The population of today’s senior housing market has an average age of 84. This suggests that it will be another decade or so before the demand starts to peak.57 NIC has added several other factors that show the rise of senior housing. They have noticed that “while exact causality has not yet been statistically proven, rising consumer confidence as well as improved job prospects for adult children appear to support demand for senior housing. Senior housing operators identify that move-‐in rates are affected by the state of the stock market and over-‐ all attitudes about wealth and financial well-‐being. Household net worth and perceptions of wealth affect the willingness of seniors to consider moving into senior housing. The recovery in the housing market, both in sales velocity as well as home values and home equity, also appears to be an increasingly positive demand factor, as the ability to sell one’s home is an important determinant of the timing for an inquiry or a move into an independent living property.”58 The rise in caregiver support ratio (or the dependency ratio) is also creating more demand. AARP published a study that estimates that the ratio of caregivers aged 45 to 64 years old relative to the population of 80 years and older will shift from 7:1 today to 4:1 in 2030 and to less than 3:1 in 2050.59 This, again, provides an opportunity for growth in the senior housing industry, specifically in residential assisted senior care homes. “Senior housing is America’s best real estate opportunity for the next twenty years,” says Gene Guarino, residential assisted home investor and founder of Residential Assisted Living Academy.60

Home Style Assisted Living Strongly Preferred The growth of the assisted living industry is driven in large part by consumer preference. According to studies by Harvard Medical School in Boston, Massachusetts, “people who need assistance in performing everyday activities such as bathing, eating, or dressing prefer to receive supportive services in the least institutional and most homelike setting possible. A general population survey found that people would prefer to be cared for in an assisted living facility over a nursing home if they needed twenty-‐hour care, by a margin of six to one. In addition, for

57 Mace, Beth Burnham. "Aging Well." The Letter-‐ America (2014). Web. 58 Ibid. 59 Ibid. 60 "Interview with Gene Guarino." Telephone interview. 20 May 2016.


some people with less intensive care needs, it may be possible to purchase assisted living care at lower prices relative to nursing home care.”61 Gene Guarino, founder of Residential Assisted Living Academy says, “Residential homes with a low resident to caregiver located in everyday neighborhoods is becoming the housing option of choice for an elderly parent as well as for the family members caring for them. The only challenge is that there are currently so few of them.”62 IBIS World has a very positive outlook for this industry, stating, “in the five years to 2020, an improving economic environment, an aging population, healthcare reform and new services will facilitate industry growth. IBISWorld estimates industry revenue will grow at an annualized rate of 6.1% to $83.1 billion by 2020. As the housing market grows, more seniors will be able to sell their homes and pay resident fees.”63

Private Pay Housing on the Rise The housing market is also surging, which allows for more seniors to have the option to go into senior housing. According to IBIS World, “home equity can be used to pay for costs associated with entry into retirement and assisted living facilities, particularly for private-‐pay and more expensive services. An improving housing market will help seniors sell their homes and be able to afford industry services, boosting demand. The housing price index is expected to increase in 2015.”64 According to studies, 80% of seniors use the profits from selling their homes to finance the costs of entering an independent living facility, tying the housing industry to the demand for senior housing.65 Because of all these growth factors, and the rising housing price index, private-‐pay senior housing is expected to rise well into 2020.66

61 Health Aff. January 2010. Vol. 29. No. 1 pg. 35-‐43. http://content.healthaffairs.org/content/29/1/35.full 62 "Interview with Gene Guarino." Telephone interview. 20 May 2016. 63 "Retirement Communities in the US: Market Research Report." IBIS World, Dec. 2015. Web. 64 Ibid. 65 Ibid. 66 The State of Seniors Housing 2004. Washington, DC: American Seniors Housing Association, 2015. IRR -‐ Seniors Housing & Health Care. Web.


Industry Threats / Competitive Opportunity The largest threats to this industry include sensitivity from being private-‐pay, the lack of public knowledge, high levels of new construction, normal real estate risks, and the lack of skilled workers. According to the CCIM, a commercial real estate industry leader, “competition exists, and it will grow quickly in the coming years. Cheaper home care and adult day-‐care services will emerge. Other drawbacks are the management-‐intensive nature of the business, possible lower-‐skilled labor shortages, and the high turnover rate. The average length of stay in a facility is two-‐and-‐a-‐half years; most vacancies result from death or the need for medical care. So an added expense is an ongoing marketing campaign to maintain constant occupancy.”67 “The opportunity for competing with residential senior care home operators is that many of them don’t know how to market their business well, they are mom and pop shop operators leaving me more opportunity than ever.” says business expert / investor Tom Bissmeyer, master trainer at Residential Assisted Living Academy.68 According to Health Marketing Quarterly, 90% of assistive living homes are private pay, which leads them to be more highly sensitive to market forces and leads them to form strategies different from traditional nursing homes, which are sensitive to

67 Roth, Dennis. "Golden Opportunities in Assisted Living." The Why and How of Entering the Burgeoning Senior Housing Market. CCIM Institute. Web. http://www.ccim.com/cire-‐magazine/articles/golden-‐opportunities-‐assisted-‐living/?gmSsoPc=1 68 "Interview with Tom Bissmeyer." Telephone interview. 20 May 2016.


regulation forces. To be successful and competitive, an assistive living home needs to meet the demands and needs of their customers, which includes not only the residents but also the family members.69 This means that the public opinion is a large factor, as well as the contentment and happiness of the current residents.

Public Awareness / Education Needed There is little empirical marketing data on assisted living, which leaves us with little firm ideas beyond the need for them. In addition, according to surveys conducted most consumers have limited knowledge of the services provided by an assisted living facility, “in a survey conducted by the Harvard School of Public Health and Louis Harris & Associates, almost 70% of the respondents were not familiar with the services provided by assisted living facilities.”70 According to the Graduate School of Public Health in Pittsburg, Pennsylvania, who compiled a survey of assisted living residents, they found data that shows a “very cumbersome AL search and selection process is common for consumers. This situation of a cumbersome AL search and selection processes is contrary to stated consumer and policy maker's preferences. Consumers and policy makers both favor the use of AL settings, but the information available to choose a setting is far from ideal, and may represent a barrier to both consumers and policy makers' agendas. Moreover, a major barrier to almost all consumers was the information available on AL. Only 16% of residents and 21% of family members were satisfied with the sources of information used.71 “Our goal at RALAcademy.com is to train and equip as many entrepreneurs with the knowledge and resources needed to become high quality operators of assisted homes and to educate the public.” Says, Gene Guarino of Residential Assisted Living Academy.72 Furthermore, “in a survey by John Hancock Mutual Life Insurance Company and the National Council on Aging, while 70% of the respondents indicated they were familiar with long-‐term health care services, only 4% of the adults correctly answered more than half of the questions relating to long-‐term health care. Although 49% of the respondents indicated they were familiar with assisted living facilities, it is highly likely that their level of knowledge is not adequate to make an informed decision. This lack of information by the decision-‐makers for long term health care needs was collaborated in a study by Anderson.”73

69 Winston, William J. Health Marketing Quarterly. New York: Haworth. Print. 70 Clow, Kenneth, David O'Bryan, and Jane O'Bryan. "The Marketing of an Assisted Living Facility–An Exploratory Study." Journal of Professional Services Marketing 21.1 (2008): 125-‐42. Print. 71 Castle, Nicholas G., and Kristen E. Sonon. “The Search and Selection of Assisted Living Facilities by Elders and Family”. Medical Care 45.8 (2007): 729–738. Web 72 "Interview with Gene Guarino." Telephone interview. 20 May 2016. 73 Clow, Kenneth, David O'Bryan, and Jane O'Bryan. "The Marketing of an Assisted Living Facility–An Exploratory Study." Journal of Professional Services Marketing 21.1 (2008): 125-‐42. Print.


In addition to the risks outlined above, according to NIC, “high levels of new construction are being cited as a potential issue by more and more industry observers. There are concerns that the available data is not capturing all the new construction, and further concerns of a possible “bulge” in starts in 2015 based upon the significant levels of pipeline activity. In nearly every market, there are projects going through the entitlement process, and new developers are entering the space weekly.”74 There are additional risks that all real estate investors bear, obsolescence risk (i.e., the physical plant no longer meets the needs of its tenants), supply risk, operator risk (the ability of the operator to create a successful environment for residents and staff); liability risk associated with standards of care for residents; resident credit risk (although most of today’s residents are of the generation that meets their financial obligations); and turnover risk associated with a high churn rate for the product type.75

Decline in Trained Professionals The health care industry is facing a looming employment crisis for trained professionals in the geriatrics field. IBISWorld estimates that employment will increase at an annualized rate of 2.2% to 909,415 people in the five years to 2015.76 However, there are not currently enough professional for this increase, and the industry is currently shrinking. According to The Health Resources and Services Administration, the U.S. population of nurses is projected to shrink — by 50,000 between now and 2015, and 130,000 by 2020.77 According to CSC Health group, the Association of American Medical Colleges (AAMC), the American Hospital Association (AHA) and other industry groups all investigated the impacts of demographic changes such as baby boomer aging, population growth and chronic disease growth. They found that “although projections vary slightly, one agreement among these studies has been that there will be a shortage of caregivers for the senior population and it will become substantial. Most studies before passage of the Affordable Care Act projected shortages of at least 124,000 physicians and 500,000 nurses by 2025; and there is general agreement that the additional 32 million covered lives resulting from the Affordable Care Act requires inflating those projections.”78

74 The State of Seniors Housing 2004. Washington, DC: American Seniors Housing Association, 2015. IRR -‐ Seniors Housing & Health Care. Web. 75 Mace, Beth Burnham. "Aging Well." The Letter-‐ America (2014). Web. 76 "Retirement Communities in the US: Market Research Report." IBIS World, Dec. 2015. Web. 77 “What is Behind HRSA’s Projected Supply, Demand, and Shortage of Registered Nurses,” HRSA, September, 2004. Web. 78Zywiak, Walt. "U.S. Healthcare Workforce Shortages: Caregivers." CSC, 2013. Web. https://assets1.csc.com/health_services/downloads/CSC_US_Healthcare_Workforce_Shortages_Caregivers.pdf


Investment Benefits According to the Commercial Real Estate Development Association, “Investor demand for assisted living properties, which make up nearly half of the seniors housing market, is currently insatiable. When combined with a dementia care unit, cap rates for these properties dip into the low-‐8 percent area, partially due to demographic trends.”79

Investor Demand Strong Beth Mace, National Investment Center for Seniors Housing and Care chief economist and director of capital markets research said that “demand for seniors housing will continue in 2016, driven by a strong economy, strong job growth, stable consumer confidence and an improving housing market. These favorable demand-‐drivers will allow absorption to keep pace with new construction activity, and my expectation is that occupancy rates through 2016 will largely stay close to where we are today.” Seniors housing occupancy in the fourth quarter of 2015 was 90.1%, according to NIC's MAP Data Service.80

Investment Niche Rapidly Expanding Tom Bissmeyer, longtime business expert / real estate investor, says he’s now focused on buying homes to turn into residential assisted living homes. “What I love about this space is the individual investor can get one, two, three or four of these and can build a very respectable yield for themselves. It’s easy to have a 15 percent to 25 percent yield, depending on how you structure it,” For Bissmeyer, it is important that his facilities reflect a home environment rather than an institutional one. Every resident has their own bedroom, but everyone eats in the same dining room, and home-‐cooked meals are prepared in the kitchen.81 These smaller facilities that offer a more home-‐like feel provide all the benefits of senior housing investments, with some of the risks being mitigated. The CCIM Institute, which is a commercial real estate industry leader, says “from a business standpoint, assisted-‐living facilities offer an easier, less risky entry into retirement housing than the other market segments. The smaller facilities require less

79 "Better Market Spurs Seniors to Sell Homes, Move to Senior Housing by Marcus & Millichap." NAIOP. 2013. Web. http://www.naiop.org/en/E-‐Library/Business-‐Trends/Better-‐Market-‐Spurs-‐Seniors-‐to-‐Sell-‐Homes-‐Move-‐to-‐Senior-‐Housing.aspx 80 Bowers, Lisa. "What's Ahead for Seniors Housing in 2016." What's Ahead for Seniors Housing in 2016. Mcknights Senior Living, 10 Jan. 2016. Web. http://www.mcknightsseniorliving.com/news/whats-‐ahead-‐for-‐seniors-‐housing-‐in-‐2016/article/464190/ 81 Cone, J. (2015, May 15). Real Estate Investing Opportunities in Assisted Living. Retrieved from http://money.usnews.com/money/blogs/the-‐smarter-‐mutual-‐fund-‐investor/2015/05/14/real-‐estate-‐investing-‐opportunities-‐in-‐assisted-‐living


investment and start-‐up capital for land and construction and have lower operating expenses because they don't use professionally trained medical staff. Less government regulation than nursing homes means more freedom in designing "homier" facilities that appeal to consumers.”82

Financial Performance Outstanding The average cost of living in an assisted living facility nationwide is $3,600 a month. This is an increase of 2.86% and has had a five-‐year annual growth of 2.48% In California, the costs vary with a state median of $3,750 a month per tenant in 2014.83 The performance of senior housing does as well or better than other real estate investments. According to NIC, “the seniors housing sector has proven to be recession-‐resilient. While occupancy rates declined approximately 450 basis points to just below 87% during the great recession, annual net absorption and rent growth remained in positive territory throughout the downturn. This is very different than the other property types where rent declines were significant and cash flow was more severely affected. According to NCREIF, over the past ten years’ seniors housing has generated annualized total returns of 14.7% versus 8.1% for apartments and 8.4% for the NCREIF NPI. The outperformance has become more pronounced recently with one-‐year total returns of 19.5%, 10.3% and 11.8% for seniors housing, apartments and the NPI, respectively.”84

82 Roth, Dennis. "Golden Opportunities in Assisted Living." The Why and How of Entering the Burgeoning Senior Housing Market. CCIM Institute. Web. 83 Genworth 2015 Cost of Care Survey. Genworth, 20 Mar. 2015. Web. 84 Mace, Beth Burnham. "Aging Well." The Letter-‐ America (2014). Web.


The Real Capital Analytics and the National Investment Center for the Seniors Housing & Care Industries found that in the first quarter of 2014, transaction volume totaled $13.4 billion on a four-‐quarter moving average, the second-‐highest first-‐quarter annualized volume on record.85

Senior housing is known for giving portfolio diversification and significant returns. As expressed by NIC, “Senior housing’s favorable return and portfolio diversification attributes are attractive to investors. While the data is quantifiable for only a limited number of institutional-‐quality properties, NCREIF has been collecting income and appreciation returns for senior housing since 2004 from its tax-‐exempt plan sponsors. The data show that senior housing returns have been quite strong. In fact, returns for fourth quarter 2013 were 240 basis points higher than for the broad NPI property index. On a one-‐year basis, the margin was a larger 450 basis points, while out-‐ performance for a longer timeframe is even more compelling, with a nearly 600 basis point gap. This equated to a 10-‐year total return for senior housing of 14.59 percent versus the NPI of 8.64 percent.”86 Residential and diversified real estate investments do just a bit worse, averaging 10.6%. Real estate investment trusts perform better with an average annual return of 11.8%.87 Single-‐family dwellings do poorly at 4.5%, with luxury homes only gaining 8%.88 Senior housing achieved an 11% annualized 15-‐year return and the table below shows average returns of other investments. 85 Mace, Beth Burnham. "Aging Well." The Letter-‐ America (2014). Web. 86 Ibid. 87 Maverick, J. (2015, June 04). What average annual return is typical for a long term investment in the real estate sector? | Investopedia. Retrieved from http://www.investopedia.com/ask/answers/060415/what-‐average-‐annual-‐return-‐typical-‐long-‐term-‐investment-‐real-‐estate-‐sector.asp 88 Carlozo, L. (2015, April 22). The Good, Bad and Ugly of Real Estate Investments. Retrieved from http://money.usnews.com/money/personal-‐finance/mutual-‐funds/articles/2015/04/22/the-‐good-‐bad-‐and-‐ugly-‐of-‐real-‐estate-‐investments.


Source: http://www.raymondjames.com/branches/c2c/33o/cincinnatiwealth/pdf_files/Client_AIG_Brochure.pdf

Conclusion According to Brookdale Senior Living Solutions, the first assisted living facility opened in 1981 by Dr. Karen Brown Wilson on the advice from her mother who was living in a nursing home. Dr. Brown purposely designed her facility to feel less institutionalized, emphasizing privacy and warmth.89 This started a decade long process of creating the home-‐style assisted living of today also referred to as “residential assisted living”. The emphasis is on providing the residents all the comforts and privacy of home instead of a more “institutionalized” setting. Residents have control and autonomy within residential assisted care homes that institutional assisted living facilities and nursing homes lack. Seniors, defined as mostly retirees 65 years of age and older, are currently experience a growth boom as the baby boomers begin to reach retirement. Baby boomers, those born during the post-‐World War II baby boom (those born between 1946 and 1964), started to turn 65 in 2011, and will continue to do so until 2029.90 This will cause another growth boom in the elderly population, aged 85 and older. Today there are approximately 6.3 million seniors aged 85 and older, and by 2035 that number will double to 12 million.91 By 2049, it will have tripled and those aged 85 and over are projected to account for 4.5 percent of the U.S. population.92 This is creating a mega-‐trend investment opportunity in the senior housing industry. Seniors begin their later years journey in with independent living. This is usually at home and with any help or care coming from family. As they age, they begin to need more and more help with activities of daily living (ADLs), basic self-‐care such as; housework, medications, bathing, etc. 93 When does a person need this level of care? Gene Guarino, founder of the Residential Assisted Living Academy, says you will

89 "What Is the History of Assisted Living?" Brookdale Senior Living Solutions. Web. 90 Passel, Jeffrey S., and D’Vera Cohn. "U.S. Population Projections: 2005-‐2050." Pew Research Centers Hispanic Trends Project RSS. 11 Feb. 2008. Web. 91"Housing Market Drivers." NCREIF Conference 2013, 14 Nov. 2013. Web. https://www.ncreif.org/documents/event_docs/Miami2013/SeniorsHousing_Harry.pdf 92 Ortman, Jennifer, Victoria Velkoff, and Howard Hogan. "The Older Population of the United States." Current Population Reports (2014). U.S. Department of Commerce, 2014. Web. https://www.census.gov/prod/2014pubs/p25-‐1140.pdf 93 "Benefits of Assisted Living | Senior Living Articles." Elmcroft Senior Living. Web.


know “when they are forgetting medication, not able to cook or clean adequately or you are afraid they aren’t able to care for themselves at night.”94 Once they move beyond what is referred to as “independent living”, they will need some form of assisted living in the activities of daily living. Assisted living varies from single residential homes to huge faculties with hundreds of residents. Big box assisted living and residential homes are all put into one category by some, although the approach to meeting residents’ needs varies greatly. Professionally operated residential assisted living homes generally have a higher resident to caregiver ratio, usually around 5 to 1. These specialized senior care homes are focused on creating a feeling of “home”, with an emphasis on privacy and care right outside the door. They primarily serve a “private-‐pay” senior population.95 Government subsidized elderly housing such as HUD or state facilitated Medicaid housing programs generally pay significantly less than a private-‐pay option, which in many cases, is one-‐third to one-‐half what a private-‐pay arrangement would be.

Gene Guarino, founder of Residential Assisted Living Academy says, “Residential homes with a low resident to caregiver located in everyday neighborhoods is becoming the housing option of choice for an elderly parent as well as for the family members caring for them. The only challenge is that there are currently so few of them.”96

94 "Assisted Living Tips." News4Jax. Web. 03 May 2016. http://www.news4jax.com/news/morning-‐show/assisted-‐living-‐tips 95 Park-‐Lee, Eunice, Christine Caffrey, Manisha Sengupta, Abigail Moss, Emily Rosenoff, and Lauren Harris-‐Kojetin. "Residential Care Facilities: A Key Sector in the Spectrum of Long-‐term Care Providers in the United States." NCHS Data Brief, Number 78, December 2011. U.S. Department of Health and Human Services. Web. https://www.ahcancal.org/ncal/resources/Documents/11%20NCHS%20Issue%20Brief%20on%20RCFs.pdf 96 "Interview with Gene Guarino." Telephone interview. 20 May 2016.