The Outlook for Senior Housing in 2024
Release Date: February 14, 2024
Written By: Lloyd Jones Investor Relations
As we enter 2024, the case for senior housing as an investment asset class remains incredibly strong. In this article, we’re going to explore the arguments in support of this asset class including the current demographic trends, supply and demand imbalances, and the burgeoning healthcare needs which highlight why senior housing is one of the most attractive asset classes.
Housing an Aging Baby Boomer Generation
Perhaps the most critical trend that’s driving demand for senior housing is that the generation born between 1946 to 1964–often referred to as the baby boomer generation–is continuing to leave the workforce en masse as they begin to transition into their next chapter in life. This trend is so significant that the Population Reference Bureau called it “one of the most significant demographic trends in the history of the United States.”
According to the Population Reference Bureau’s (PRB) report “Aging in America”:
“The number of Americans ages 65 and older is on course to more than double from 46 million today to over 98 million by 2060, while the 65-and-older age group’s share of the total population will rise to nearly 24 percent from 15 percent.”
Similar findings have been corroborated across a wide range of studies, including:
Joint Center for Housing Studies of Harvard University estimates that the number of older adults–defined as people who are at least 65 years old–is growing: In 2022, America was home to nearly 58 million older adults. This represents 17% of the total population, which is up from 14% (43 million) in 2012.
The US Census Bureau estimates that the number of people in the US who are 85 or older will nearly triple by 2060: A generation of seniors, unprecedented in number, is currently entering their eighties. The number of people in the US who are 85 years and older is expected to nearly double by 2035, from 6.5 million to 11.8 million, and then to nearly triple by 2060 to 19 million people, according to the US Census Bureau. Additionally, according to the 2020 US Census, one in six people in the United States were over the age of 65.
The Alzheimer's Association’s Facts and Figures for 2023 projects that the number of Americans ages 65 or older will grow from 58 million in 2021 to 88 million by 2050: Another unfortunate reality is that the number of Americans living with Alzheimer’s or a similar disease is expected to grow since the risk of developing one of these diseases increases with advancing age. The population of Americans aged 65 and older is projected to grow from 58 million in 2021 to 88 million by 2050.
As this generation continues to age and leave the workforce, they will be faced with the difficult decision of where and how to spend their retirement. While many baby boomers may choose to stay put, there are many who will seek the lifestyle and care offered by senior housing communities. By 2060, PRB estimates that there will be more than 98 million seniors ages 65 and older. With such a large group, even just a small percentage of that group can move markets with their decisions. For example, if just 30% of the estimated 98 million seniors opt to move into a senior housing community, then it will result in 29.4 million seniors looking for lifestyle- and care-appropriate housing. This massive demographic shift in America will require a reconsideration of the housing options and needs in the country. At the forefront of this shift will be the need for alternative, age-appropriate housing options for a population that is rapidly aging out of the traditional housing market. Understanding the demographic shift and investing in solutions to accommodate their changing needs is simultaneously obvious and astute.
Supply & Demand Imbalance in Senior Housing
The demographic trends alone, or the fact that baby boomers are aging, may not be enough to excite all investors. However, when you consider the fact that the United States is drastically underprepared to house this generation, the investment profile becomes much more attractive.
According to Globest, demand for senior housing has outpaced new supply for nine consecutive quarters In primary markets. Net absorption rose 1.3%, or 7,583 units, from the previous quarter and 4.3%, or 24,627 units, over the prior year. The stock of senior housing in these markets rose 0.4% from 2Q 2023, and 1.3% above the prior year. Due to this rising imbalance between supply and demand, the value of senior housing as an asset class is expected to double in the next 10 to 15 years. Locust Point Capital, a Miami-based senior housing lower-mid-market lender, estimates that the asset value of senior housing will expand from $500 billion to $1 trillion over the next decade and a half. To keep up with the current demand, the US will likely need 991,000 additional units over the coming decade. This comes out to 54,000 new units per year between 2020 and 2025; 95,000 annually between 2025 and 2030, and 105,000 annually between 2030 and 2040, according to the National Investment Center. Additionally, the rate of individuals moving into senior housing has outpaced the number of new senior housing units coming onto the market. The NIC estimates that for every 10 units of senior housing that the industry added in 2023, 28 more units were occupied. This signals that there is room to add a significant number of units to the market without fear of over-saturating it. Further consider that, with their long entitlement, development and licensing processes, new developments can take as long as 4 to 5 years from inception to delivery. The anticipation then is that demand will far outpace supply over the next decade as America looks to move its housing model to meet this housing shift.
Given these trends, investors who are investing in senior housing should expect a favorable environment over the next decade. The senior housing market appears set for a steady and ongoing recovery, with occupancy levels in 2024 expected to meet or exceed pre-pandemic levels, provided no unforeseen difficulties occur.
The question then is that while there may be a metaphorical tidal wave of baby boomers entering senior housing- what of their ability to pay for senior housing? Based on Federal Reserve data, these older Baby Boomers as a group have accumulated over $14 trillion in additional net worth since the close of 2019, and their share of the nation's wealth has soared to a record 30%. By all accounts, the Baby Boomer generation is a wealthy, successful generation with adequate resources to support itself as it ages.
As the supply and demand imbalance continues to grow, the presumed response by the market will be increased occupancy, increased rental rates and an overall strengthening of value in the asset class.
Meeting Healthcare Needs for Seniors
The trend of increasing healthcare needs among the aging population presents significant opportunities in the senior housing market, particularly for facilities that integrate health care and specialized services. As the above statistics demonstrate, the aging baby boomer population is beginning to enter senior facilities en masse and, while affordability is always a concern, many boomers have gained the resources necessary to pay for their care.
Let’s take a more detailed look at the healthcare needs that most seniors face as they age.
Aging Population and Health Challenges: As people age, they are more likely to face a range of health issues, including chronic conditions like heart disease, diabetes, and arthritis, as well as cognitive impairments such as dementia and Alzheimer's disease. This shift necessitates more comprehensive healthcare services within living arrangements.
Specialized Care Units: There's a growing demand for communities with specialized care units, such as memory care wings for residents with Alzheimer's or other forms of dementia. These secured units are designed with safety and care in mind and are staffed by professionals trained in dementia care.
Rehabilitation and Wellness Programs: communities that offer rehabilitation services, like physical therapy, occupational therapy, and speech therapy, are increasingly in demand. These services are vital for seniors recovering from surgeries or injuries and can significantly improve their quality of life.
Technology Integration: The use of health technology, like remote monitoring systems, wearable health trackers, and telemedicine, enhances the ability to provide proactive and preventive care. This tech integration can lead to better healthcare delivery and increased satisfaction among residents.
Customized Care Plans: Communities today must provide personalized care plans, tailored to each resident's unique health needs and preferences. This approach ensures that residents receive the specific care and attention they need, enhancing their overall well-being.
Attractiveness to Residents and Families: Communities offering comprehensive healthcare services are more appealing to potential residents and their families, as they provide peace of mind knowing that healthcare needs will be met promptly and effectively.
Why Senior Housing May Be the Best Asset Class
By this point, we’ve outlined the core reasons why senior housing may very well be the most promising asset class over the next few decades:
An aging population driven by the Baby Boomer generation.
A significant and growing supply and demand imbalance in the senior housing market.
The care and lifestyle needs of an older population.
An effective real estate investment strategy requires a basic understanding of the dynamics that drive the market and a willingness to invest ahead of the curve. Whether it’s the migration to the urban core for young adults, the shift to single family suburban lifestyles by 30 somethings, the growing need for logistic facilities along major transportation routes, or the growing biomedical office requirements for the healthcare sector, the underlying needs of the population it serves have long driven the investment decisions of the best investors. Identifying, and being out in front of, those demographic trends has created significant wealth in the real estate market. Today, with “one of the most significant demographic trends in the history of the United States” slowly making
its way through our nation, there is an incredibly strong confluence of factors that portend the success of the Senior Living asset class as an investment vehicle. The opportunity is now.
The Lloyd Jones Approach to Senior Housing
For over four decades, Lloyd Jones has successfully invested in and operated multifamily and senior housing real estate, as managers for the FDIC in the ‘80s and as developers, investors, and managers of multifamily and senior housing assets thereafter. Since 1990, the firm has developed, owned, and managed approximately $1.2 billion in multifamily real estate.
At Lloyd Jones, we are making strategic decisions and investments now to ensure that we can take full advantage of this mass migration of seniors as they transition into the next chapter of their lives. As an investment platform, Lloyd Jones’ senior living investments focus on two investment ideologies: (1) value-add opportunities in newer vintage communities whose operations are at or near a breakeven financial point and which can be bought below replacement value or (2) more vintage communities (year 2000+) with an operational or occupancy turnaround with a higher value-add component which can be acquired at a steep discount to replacement cost.
When it comes to capitalizing on these opportunities, Lloyd Jones takes a balanced approach which includes key initiatives:
Vertical Integration: To enhance returns for investors, Lloyd Jones has taken control over most aspects of the commercial real estate investing process including investment, development, construction, and senior living management. Investment: Lloyd Jones is a highly experienced real estate investment platform that brings 40 years of success in the real estate investment world. Intricate knowledge of both the investment and development markets, exceptional underwriting capabilities, proven full-circle investment projects, institutional partnerships and a strong reputation are all part of the Lloyd Jones offering. Construction: AB Lloyd Construction is Lloyd Jones’ in-house construction team and oversees both its development and capital improvement projects. The expertise and capabilities of our construction teams allow us to identify investment concerns up front, address any property upgrades at cost-effective pricing, and take advantage of opportunities in the market in either the development or value-add space.
Management: Aviva Senior Living is our in-house senior-living management platform. Run by industry experts, our management platform allows us to operate under our own license(s), affording a level of control beyond what would be expected with an institutional operator. Complete with best-in-class operators from large institutional companies, we have combined operating knowledge with a hands-on investment approach to drive outsized results for our investors. The Aviva team supports its senior-living assets with in-house experts on sales, marketing, operations, clinical services and dining. The expertise of these individuals is part of the property management support that Aviva brings to the communities to support their operations and help them achieve the investment goals.
Alignment of Investment Goals: Lloyd Jones makes it a point to ensure that goals are aligned between an investor and the operator. That is the reason why Lloyd Jones and/or its principal(s) invest side-by-side with our investors. We realize that for most real estate investors, the investment decision is about trust. To ensure that we are in lock step with our investors, Lloyd Jones’ financial incentives are completely aligned by virtue of the investment structure. By investing with you, under the same terms, you can be certain that we share the goals for the investment.
Variable Staffing Model on Operations: More than two- thirds of the operating expense for operating senior living housing is in the labor requirements for our communities. It’s truly a people-driven business. Our dynamic staffing model is designed to be flexible, with staffing requirements easily fluctuating depending on the occupancy of each of our assets as well as broader market trends. This adaptable approach allows us to scale up to meet higher demand when needed as well as pull back during periods of slower occupancy. This dynamic approach to the largest cost center for the communities is a key strategic initiative of Aviva Senior Living and can provide a strategic advantage over competitors.
Financial Transparency in Reporting: A full-service accounting and reporting team in-house is utilized on all our senior living investments to allow for institutional-level reporting and transparency across our portfolio. Paramount to investors, the level of accountability and transparency in our financial operations allows our investment partners the peace of mind that is pivotal in the relationship between investor and operator.
The 2024 year is off to a strong start with the closing on our newest acquisition: Aviva Baldwin Park. This asset is a 136-unit independent living, assisted living, and memory care community in Staunton, Virginia. The acquisition of Baldwin Park adds to Lloyd Jones' expansive portfolio of 1,763 units across 16 communities in key markets across the United States.
Over the past decade, Lloyd Jones has delivered 29.03% IRR and 2.71x equity multiple to our investors across all our platforms and is looking forward to continuing this success in today’s exciting investment climate.