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Thinking Differently About Senior Living As An Asset Class

Chris is Founder and Chief Executive at Radius Realty, a top 10 real estate company with a technology-first approach.

Residential senior living has been growing in popularity as an alternative to nursing homes. Those who decide on what type of facility to choose often aren’t the seniors themselves, but their children. Much of the time, this middle-aged generation lives far away or otherwise doesn’t have the time or resources to properly care for the needs of their parents.

A strong desire for maintaining quality of life is leading many to choose residential assisted living, where seniors can live in small homes while also receiving some basic care and assistance. The senior housing market has been on an upward trend for some time, and this will accelerate over the next few years. The current market not only needs more suitable facilities, but demands them.

In the next decade, there will be increasing demand to serve an aging population. Unlike large nursing home facilities, residential senior housing is similar to traditional family homes. Residential senior care offers an attractive investment due to its current and projected market growth.

The Evolution Of Senior Living

When my mother needed care following several health challenges, we explored multiple options but couldn’t find anything that met her desire to be in a home-like setting while meeting the family’s requirement for quality, nurturing care. This got me thinking about elderly care in our community and how it could be done differently. Why weren’t there more high-quality senior care options for at-home living? I decided to pursue a unique business niche within the senior living industry with a model that’s proven successful and is growing in popularity: residential senior living.

• An urgent necessity in a growth market: The elderly care and assisted living market are the most rapidly growing industries in the United States. According to American Senior Communities, as of 2016, “around 1 million Americans live in some type of senior living community, and that number is expected to double by the year 2030.” 

A driving factor in the development of senior care housing is the need to accommodate the growth in the elderly care market segment, which is far exceeding the availability of care beds. AARP International reports that 10,000 Baby Boomers turn 65 each day in the U.S. and that the number of seniors over 65 is expected to double by 2050. The growth of this population will require an increase in senior housing over the next 30 years.

• Moving away from large facilities: Here in the Midwest, where my business operates, senior living is primarily confined to large facilities where one caregiver might have the responsibility of caring for 15 to 20 or more residents; juxtapose that to residential senior living with one caregiver for every five to eight residents. Residential senior living is fueled, predominantly, by the desire to serve seniors with assisted living and memory-care needs in an environment that is more approachable and where residents get more one-on-one attention.

• Lower population density: Small-home senior living may emerge from the current era as a more attractive option, particularly to those concerned about the spread of infectious diseases, such as coronavirus or the flu. Residential housing’s small group units limit the number of residents under one roof and therefore need fewer caregivers on premises. Residents can gather in a living room or dining room while maintaining social distancing and an overall smaller social bubble. Seniors stay safe without being completely isolated, preserving their quality of life.

Choosing Residential Senior Care As An Investment Avenue

So, how do you look for the best opportunity in senior living investing? Let’s start by looking at the broader commercial property types compared to senior living. According to NIC Map Data Service, senior living is one of the highest returning asset classes as compared to all other commercial property assets classes. This means that you have a better chance at a higher return just by investing in senior living.

Now, what should you look for in a specific project? The good and (arguably) bad thing about any specific project is that they can be structured very differently from one to the next. A few of the things that you should look for are:

• Is the project raising funds under a private placement memorandum (PPM) or more “friends and family”? A PPM means there are specific Securities and Exchange Commission rules being followed for the fundraising, the group raising the funds can publicize the project to the public and, generally speaking, smaller amounts of money can be invested. Alternatively, a “friends and family” raise means you must have a personal relationship with project owners, and most will want to work with as few people as possible, which means larger investment amounts.

• Are you investing in just the real estate asset or in the operations as well? Real estate and operations of senior living can be a good investment. Some projects have both aspects, while some will only have a real estate asset for investment. You should do your due diligence in any investment you are investing in, but make sure you are confident in the operators if you have a stake in that part of the project only because there will not be a physical asset.

• What is the size of the project? Senior living can be as small as a home with three or four people or as large as up to 300 or 400 residents. I advocate for residential-based (smaller) senior living projects, but that doesn’t mean you can’t group several homes together to get the benefits and efficiencies of a larger project.

• What are the projected returns? This is important no matter what investment you are looking at. Make sure you understand how the project returns are calculated and realize that anything you are reviewing is just pro forma and nothing is guaranteed.

As this trend unfolds, and as more investors provide needed funding, we should see improvements in the quality of care provided thanks to the increasing availability of resources.


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