Real estate developers are betting big on U.S. housing for the elderly, preparing for a surge in demand as the population of senior citizens almost doubles in the next 35 years. They may be building too fast.
A jump in supply is forecast to cut growth in senior- housing net operating income to 1.8 percent in 2015 and 1.4 percent in 2016 from 3.3 percent this year, according to Green Street Advisors Inc. The increase may hurt health-care real estate investment trusts and companies including Brookdale Senior Living Inc., which is buying competitor Emeritus Corp. for about $1.4 billion to become the biggest owner of senior properties, the research firm said.
“Increased supply is always worrisome in any type of commercial real estate,” said Jim Sullivan, a managing director at Newport Beach, California-based Green Street. “In senior housing, new construction has ramped up considerably over the last two years.”
Health-care REITs, which soared to records early last year, have been the worst-performing part of the property-trust market in the past 12 months. The U.S. had 526,144 senior-housing units in the 31 largest markets in the first quarter, up 1.4 percent from a year earlier, and an additional 16,181 units are under construction, according to the National Investment Center for the Seniors Housing & Care Industry, a trade group based in Annapolis, Maryland.
The Bloomberg health-care REIT index fell 17 percent in the 12 months through yesterday, compared with a 3.7 percent decline for the broader Bloomberg REIT index. The companies, which were trading at large premiums to their net asset values, have been hurt over concern about a narrowing of the spread between their capital costs and property prices, said Ian Goltra, a money manager at Forward Management LLC in San Francisco.
Aging Populace
Building and owning housing for the elderly have become more popular as baby boomers age. The population of people 65 and older is projected to surge to 83.7 million in 2050 from 43.1 million in 2012, the U.S. Census Bureau said this month. Baby boomers -- those born between mid-1946 and mid-1964 -- began turning 65 in 2011, according to the bureau.
Housing for the elderly varies greatly. Independent-living communities serve those who need little assistance with daily living, and sometimes include meals and activities, Brookdale’s website shows. At assisted-living properties, residents usually receive help with bathing, dressing, transportation and medication management, according to the Assisted Living Federation of America, a senior-housing trade group based in Alexandria, Virginia.
Walking Path
Some properties have a mix of services. One example is the Hallmark, a high-rise on Chicago’s lakefront north of downtown that offers independent- and assisted-living options. The property, operated by Brentwood, Tennessee-based Brookdale, has transportation services, meals, a walking path, housekeeping and an exercise room.