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Seniors Housing Demand Accelerates - Daily News Article - GlobeSt.com

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You are here: Home > Daily News > Demand Accelerates for Seniors Product

Last Updated: October 27, 2014

Demand Accelerates for Seniors Product
By Paul Bubny | National
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CALABASAS, CA—This past spring, Marcus & Millichap reported that across-the-board positive momentum
was building in the seniors housing sector for the first time in several years. The past six months have, if
anything, accelerated that momentum as a strong economy drives demand for all product classes in the sector,
MMI says in a follow-up report issued last week.
Here as in other commercial property sectors, seniors can count favorable macroeconomics among the drivers.
As retirees are now able to unlock home equity that had been trapped by a soft housing market, they’re putting
the funds toward entrance-fee continuing-care retirement communities or other seniors housing options, a
Murdy leads Marcus & Millichap's

trend that’s expected to result in an 80-basis point increase in CCRC occupancy this year to an average of
90.6%. “Additionally, the stock markets are near post-recession highs and seniors feel more secure about their

seniors housing group.

prospects,” according to the MMI report, prepared under the aegis of Brian T. Murdy, VP and national director
of the firm’s National Seniors Housing Group.

Although they may still be two or three decades away from moving into seniors housing themselves, baby boomers, too, have benefited the healthier
economic situation, the report states. “Boomers’ parents are the primary utilizers of assisted living facilities and, equipped with refilled retirement
accounts, this group will feel more comfortable with the expenditure for seniors housing when the need arises.”
Improved demand has spurred development activity, as well, although MMI notes that to date it’s largely concentrated in a few states with
comparatively low barriers to entry. In other states, meanwhile, projects are on the drawing boards, “though the permitting and entitlement processes
will take longer to execute,” according to the report.
With construction still far way from keeping pace with increased demand, many smaller would-be owners are getting priced out. “REITs and institutions
are acquiring portfolios, and sometimes each other, at a staggering pace,” according to MMI. “The resulting consolidation is creating economies of scale
for these large owners and management companies, which, in turn, is lifting their ability to offer high prices for properties.”
Strong operations have also limited the number of properties that these entities are willing to sell after mergers, although buying opportunities still exist.
“Investors that can find underperforming assets and improve the census to achieve higher reimbursements will be rewarded, though these owneroperators will need to be well-versed in local laws and the Affordable Care Act,” the report states.
By product type, the highest occupancy rate is expected to be that of independent living facilities. MMI predicts that by year’s end IL’s occupancy will
climb 80 bps from the year prior to 91.5%.
Rents at IL facilities will increase 3.1% year-over-year to $2,859, and although that’s a healthy increase, it represents neither the biggest Y-O-Y gain nor
the highest average rent. Skilled nursing facilities are expected to see a 3.6% increase Y-O-Y, while assisted living will command the highest
monthly rent at $4,218 on average.
The highest-occupancy market overall for seniors housing is Minneapolis/St. Paul, with current occupancy in Twin Cities IL facilities at an average of
95.3% and that of AL facilities at 93%. However, although Atlanta is ranked fifth overall nationwide, it saw the biggest Y-O-Y gain in occupancy for
either of these two product types: 500 bps to 93.6% for IL facilities.
As a GlobeSt.com's investment research thought leader, Marcus & Millichap provides expert commentary and analysis on macroeconomic issues and trends impacting the
commercial real estate market. For MORE insights and updates, click here.

About Our Columnist
Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been
reporting on business since 1988 and on commercial real estate since 2007. He is
based at ALM Real Estate Media Group's offices in New York City. Contact Paul

About ALM | Customer Support
Copyright © 2014 ALM Media Properties, LLC. All rights reserved.

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