baby boomers will be key driver of future seniors housing ......65% 70% 75% 80% 85% 90% 95% austin...

Baby boomers will be key driver of future seniors housing development

Research & Forecast Report

TEXAS | SENIORS HOUSING & CAREMid-Year 2018

Seniors Housing & Care Trends

Commentary by Elena Bakina, PhD, CCIM

Stability and strength of the Texas economy, population growth, median income and household values are driving a continuing interest in the seniors housing market.

Seniors housing inventory has increased as much as 20 percent since late 2014 in parts of Texas. Supply has outpaced demand in almost all major metros. However, developers and operators still find pockets of opportunities for new developments. New construction may have an adverse impact on the existing facilities, reducing their short-term occupancy rates and rent growth.

A recent survey by the Associated Press-NORC Center for Public Affairs Research revealed opportunities for improved cultural accommodation in long-term care. In some instances assisted living communities are perceived in a better light than nursing homes or home health care. Developers in Texas’ major metros have begun to build seniors housing for various cultural communities to accommodate the multicultural population.

Developers and investors continue to enter the market in anticipation of the upcoming Silver Tsunami of baby boomers that will be new additions to seniors housing.

Supply and Demand Trends

In Texas major metro areas the aggregate stabilized seniors housing (SH) occupancy rates have decreased by 210 basis points from 86.5 % in the first quarter of 2018 to 84.4% in the second quarter. However, there was some occupancy growth in various property types and markets in Texas major metros. Assisted living (AL) occupancy rates in Dallas and Houston metros have improved in the second quarter of 2018 compared to the first quarter, but they are still below the levels in Q2 2017. Continuing care retirement communities (CCRCs) occupancy has increased from Q2 2017 in these markets.

A year ago, in Q2 2017, Austin metro had the highest stabilized

Market IndicatorsMajority IL & AL Annual Change

Nursing CareAnnual Change

STABILIZED OCCUPANCY

ABSORPTION

INVENTORY GROWTH

UNDER CONSTRUCTION

AVERAGE MONTHLY RENT

82.0%

82.5%

83.0%

83.5%

84.0%

84.5%

85.0%

85.5%

86.0%

86.5%

87.0%

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018

Texas Major Metros - Senior Housing (Majority AL & IL)Absorption Inventory Growth Occupancy

74.0%

74.5%

75.0%

75.5%

76.0%

76.5%

-500

-400

-300

-200

-100

0

100

200

300

400

Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018

Texas Major Metros - Majority NCAbsorption Inventory Growth Occupancy

Supply and Demand Trends

65%

70%

75%

80%

85%

90%

95%

Austin Dallas Houston San Antonio

IL Stabilized Occupancy

2Q 2017 1Q 2018 2Q 2018

Stabilized OccupancySource: NIC MAP Data Service

70%

75%

80%

85%

90%


AL Stabilized Occupancy

2Q 2017 1Q 2018 2Q 2018

65%

70%

75%

80%

85%


NC Stabilized Occupancy

2Q 2017 1Q 2018 2Q 2018

60%

65%

70%

75%

80%

85%


MC Stabilized Occupancy

2Q 2017 1Q 2018 2Q 2018

75%

80%

85%

90%

95%

100%


CCRC/LPC Stabilized Occupancy

2Q 2017 1Q 2018 2Q 2018

2 Texas Research & Forecast Report | Mid-Year 2018 | Senior Housing & Care | Colliers International

occupancy rates in all property sub-types, except for AL, where rates in Dallas were higher than in Austin by 20 basis points. In Q2 2018 independent living (IL) stabilized occupancy rates in Austin fell by 760 basis points from Q2 2017 and the rates for all other property sub-types remained the highest in Texas.

San Antonio stabilized occupancy rates have remained the lowest in the Texas market. However, majority memory care (MC) occupancy has increased there by 790 basis points from Q2 2017 to Q2 2018.

IL and CCRCs recorded the highest stabilized SH occupancy rates in all combined metros. Nursing care stabilized occupancy rates grew by 50 basis points from 74.8% in Q1 to 75.3% in Q2 2018. Austin continued to show the highest stabilized occupancy rates among major metros.

Texas major metros had 68,281 seniors housing and 61,651 majority nursing care units as of Q2 2018. Seniors housing inventory grew by 1,343 units, and nursing care inventory decreased by 282 units during the first half of 2018. The pace of seniors housing inventory growth declined both from quarter-to-quarter and over the past 12 months. From Q1 to Q2 2018 inventory growth was reduced by 467 units, and from Q2 2017 to Q2 2018 it was reduced by 191 units. In Houston, the pace of inventory growth was positive, but saw a decrease of 400 units from Q1 to Q2 2018, and by 40 units from a year ago. In Dallas, inventory grew from Q1 to Q2 2018 by only 4 units, but it fell over the past 12 months by 757 units. In Austin, inventory was reduced by 73 units from Q1 to Q2 this year and by 277 units from a year ago. In San Antonio, inventory continued to decline. Inventory fell by 20 units over the year, and by 4 units during the first six months of 2018.

Independent living and assisted living facilities contributed most to the SH inventory growth during the first two quarters of 2018. In Dallas, Independent living inventory grew by 219 units and in Houston by 453 units over the first two quarters. Assisted living inventory grew by 593 units in Dallas and 229 units in Houston. CCRC/LPC inventory declined in Dallas by 276 units, but increased in Houston and Austin by 80 and 69 units, respectively.

Year-to-date, the pace of nursing care inventory growth has declined in all Texas metros, except Austin.

Overall seniors housing absorption accelerated in the second quarter of 2018. The number of occupied units increased by 153 units in Houston and 203 units in Dallas. Absorption in Austin slowed down by 103 units. In San Antonio absorption fell from 28 units in Q1 to 24 units in Q2.

Nursing care absorption was negative in the second quarter and during the first half of 2018. Dallas was the only market where absorption was positive during the first two quarters of 2018.

The average seniors housing asking monthly rent in Texas major metros was $3,651 in Q2 2018, 8.2% below the national average of $3,979. It grew 1.3% over the past 12 months.

As of the second quarter, the nursing care average asking monthly rate was $6,651, 2.3% higher than in Q2 2017.

NIC MAP, our data provider, reports show a decrease in the construction

Construction ActivitySource: NIC MAP Data Service

0

400

800

1200


IL Units Under Construction

Q2 2017 Q1 2018 Q2 2018

0400800

120016002000


AL Units Under Construction

Q2 2017 Q1 2018 Q2 2018

0

400

800

1200


NC Units Under Construction

Q2 2017 Q1 2018 Q2 2018

0

100

200


MC Units Under Construction

Q2 2017 Q1 2018 Q2 2018

0300600900

1200


CCRC/LPC Units Under Construction

Q2 2017 Q1 2018 Q2 2018

3 Texas Research & Forecast Report | Mid-Year 2018 | Senior Housing & Care | Colliers International3

activity in U.S. primary markets in the second quarter of 2018. However, in Texas major metros the construction activity slightly increased in Q2 2018. There were 4,955 seniors housing and 1,369 nursing care units under construction in Q2 2018.

New Development

According to NIC MAP data, Dallas ranked first in the southwest region in Q2 2018 by the number of units under construction (2,446); Austin ranked second (1,496 units), and Houston ranked third (1,028 units). Dallas ranked fifth in the U.S. by the number of units under construction.

Developers still see opportunities in the urban areas. However, due to the high barriers to entry, there are more high-rise luxury continuing care communities coming to the market.

Higher demand for active adult communities resulted in robust construction activity in this sector in the first quarter of 2018. Demand slowed down in the second quarter of 2018 in all major metros, except in Dallas, where it was on the rise.

New construction may have an adverse impact on the existing facilities, reducing their short-term occupancy rates and rent growth. It is getting harder for existing communities to compete with newer facilities that offer modern amenities and technology.

There has been a new development trend in seniors housing in the first half of 2018. There are several projects under construction targeting different cultural communities.

Houston

In Q2 2018 Houston’s inventory had 19,441 seniors housing units and 17,552 majority nursing care units. There were 1,028 seniors housing units and 406 nursing care (NC) units under construction in the second quarter of 2018. Of all the senior housing sub-types, Independent living had the most units under construction.

A few examples of the construction in Houston metro include Tradition Senior Living, The Village of Southampton and The Pipes of Bellaire. Tradition Senior Living has broken ground on a 23-story, 314-unit continuing care retirement community (CCRC). Tradition-Woodway will feature 222 independent living residences and 92 assisted living and memory care units. The facility is scheduled to open in April 2020.

Bridgewood and joint venture partner Harrison Street Real Estate Capital LLC are developing The Village of Southampton near Rice University in Houston. The 17-story, 204-unit CCRC is expected to deliver in spring 2020.

There are two seniors housing projects underway in Houston that target a specific cultural niche. An Indian-focused active adult community ShantiNiketan is underway in southwest Houston. A Florida-based developer will break the ground in early 2019 and plans to complete construction by June 2020.

The Pipes at Bellaire, an assisted living and memory care community,

4 Houston Research & Forecast Report | Mid-Year 2018 | Senior Housing | Colliers International4

broke ground in southwest Houston. The 143-unit three-story project located close to Houston’s Chinatown is targeting Houston’s aging Asian population. It will feature a mostly Chinese- and Vietnamese-inspired menu and bilingual staff. The building’s colors, material and orientation will also be centered on Feng Shui design and philosophy. The first phase of the property is set to be complete by the summer of 2019.

Dallas

In Q2 2018 inventory in Dallas metro consisted of 31,275 seniors housing units and 29,198 majority nursing care Units. There were 2,446 seniors housing units and 1,005 majority nursing care units under construction in Q2 2018. In the first quarter, the highest construction activity was in the AL sector, but it slowed down in the second quarter from 1,063 to 613 units. There was an increase in IL construction by 544 units and CCRC by 517 units from Q1 to Q2.

Examples of current construction in Dallas include The Legacy Midtown Park, Hidden Spring and The Ventana. The Legacy Senior Communities, a non-profit charitable organization, broke ground on its 8-story, 316-unit CCRC in Dallas on 10 acres just off North Central Expressway. The Legacy Midtown Park will be the only Jewish-sponsored rental retirement community in Dallas. However, it will be open to people of all faiths. The first phase of construction is anticipated to be complete by 2020.

The Ventana by Buckner, a two-tower, 12-story senior living community is underway near North Park Center in Dallas. The 322-unit continuing care retirement community will bring luxury living to Dallas seniors. The project’s projected occupancy is in mid-2019. Buckner is the second largest provider of non-profit senior living in Texas.

PMRG, a Houston based full-service commercial real estate firm, has acquired land in the Dallas suburb of McKinney for the development of 200-unit independent living, assisted living and memory care community known as Hidden Spring. The 215,000- square foot community is scheduled for completion in July 2019.

Austin

Development activity in Austin’s market was not as robust as in Dallas and Houston. Austin’s metro had 8,014 SH units and 6,710 NC units inventory in Q2 2018. There were 1,496 SH units and no NC units under construction in the last quarter.

A California-based developer is entering the Texas market with the first of its kind in north Austin. Senior Resource Group, based in Solana Beach, CA, is building the 230-unit independent living, assisted living and memory care community Maravilla at The Domain. The project is a complex of three buildings – 6, 7 and 11 stories tall. Delivery is expected by summer 2019.

San Antonio

San Antonio inventory had 9,551 SH units and 11,280 NC units in Q2 2018. In the first quarter, there were 64 IL, 349 AL and 68 CCRC units under construction in San Antonio. In the second

quarter, the only construction activity reported was 68 CCRC units.

Investment Activity

According to the Real Capital Analytics data, sales volume in Texas, decreased during the last three quarters and reached the lowest volume of $98M since Q2 2014 when the volume was $931M.

The 12-month average cap rate in Texas was 7.7%, 20 basis points above the national average of 7.5%.

The most active investors in the Texas market over past 12 months were Welltower, NHI and Sabra REITs, Aspect Investment Partners/Life Care Services, LLC, Invesque, Columbia Pacific and Kayne Anderson.

Welltower acquired 12 Quality Care properties in Texas as part of the 313-property portfolio.

In February of 2018, Invesque acquired the Grand Brooke portfolio of three AL properties that were built between 2004 and 2006. The 133-unit portfolio sold for $21,500,000.

Aspect Investment Partners/Life Care Services, LLC acquired a six-property portfolio from New Senior Investment Group in Q4 2017 for $186,000,000. The portfolio included IL, AL and NC properties.

Sabra Healthcare REIT acquired 23 Care Capital properties as part of 263 SNF portfolio in Q3 2017 for approximately $470,000,000. Properties ranged from 16 to 156 units which were built between 1967 and 2008.

0

500,000,000

1,000,000,000

1,500,000,000

2,000,000,000

2,500,000,000

3,000,000,000

Q2 '14 Q2 '15 Q2 '16 Q2 '17 Q2 '18

Rolling 12-mo. Total Quarterly Vol

-200.0%

0.0%

200.0%

400.0%

600.0%

800.0%

1000.0%

Q2 '14 Q2 '15 Q2 '16 Q2 '17 Q2 '18

Sales Change

5 North American Research & Forecast Report | 2014 | Office Market Outlook | Colliers International

Copyright © 2015 Colliers International.The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.

Colliers International | Market000 Address, Suite # 000 Address, Suite #+1 000 000 0000colliers.com/<<market>>

5 North American Research & Forecast Report | 2014 | Office Market Outlook | Colliers International

Copyright © 2018 Colliers International.The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.

Colliers International | Houston1233 West Loop South, Suite 900 Houston, Texas 77027+1 713 222 2111colliers.com/houston

Oversupply of seniors housing and care product in the Texas market has led to reduced, below national average occupancy rates and falling interest from investors. REITs have been much less active, but are still somewhat active buying larger and newer communities. Private equity firms are looking mostly for value-add assets. Looking forward, the seniors housing industry will continue to grow, due to very strong demographics and a healthy Texas economy.

Final Thoughts

FOR MORE INFORMATIONLisa Bridges CPRCDirector of Market Research | Houston+1 713 830 [email protected]

CONTRIBUTORElena Bakina PhD, CCIMSenior Vice President | Houston +1 713 830 [email protected]

MarketNo. of

PropertiesNo. of Units

Stabilized Occupancy Absorption

Inventory Growth

Units Under Construction

Avg. Monthly Rent

ALL MARKETS 598 68,281 84.4% 693 1343 5,038 $3,642

AUSTIN 75 8,014 87.1% -109 67 1,496 $4,303

DALLAS 284 31,275 85.5% 327 518 2,446 $3,378

HOUSTON 162 19,441 85.4% 423 762 1,028 $3,558

SAN ANTONIO 77 9,551 79.5% 52 -4 68 $3,328

Year-to-Date 2018 Senior Housing Market Statistical Summary - Includes IL and AL Majority

MarketNo. of

PropertiesNo. of Units

Stabilized Occupancy

AbsorptionInventory Growth

Units Under Construction

Avg. Monthly Rent

ALL MARKETS 496 61,651 75.3% -620 -282 1,411 $6,640

AUSTIN 55 6,710 78.3% -149 1 0 $6,905

DALLAS 216 27,569 72.6% 31 -73 1,005 $6,643

HOUSTON 137 16,933 75.3% -297 -171 406 $6,780

SAN ANTONIO 88 10,439 75.1% -205 -39 0 $6,232

Year-to-Date 2018 Nursing Care Statistical Summary

6 Texas Research & Forecast Report | Mid-Year 2018 | Senior Housing & Care | Colliers International6

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baby boomers will be key driver of future seniors housing ......65% 70% 75% 80% 85% 90% 95% austin...

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