Seniors Housing in the Limelight

Investors remain bullish on the seniors housing sector, based on CBRE’s recent survey of the most influential seniors housing and care investors, developers, lenders and brokers in the U.S.

Our latest U.S. Seniors Housing & Care Investor Survey found a generally upbeat view of the sector confirmed by low and tightening cap rate pricing. The survey questions dealing with investor sentiment questions are summarized below.

How might you change your exposure to seniors housing over the next 12 months?

Interest in seniors housing investments remains very strong. Sixty percent of respondents planned to increase the size of their portfolios, essentially unchanged from the spring survey, and 34% expected no change in the size of their portfolio. With only 6% of respondents looking to decrease the size of their portfolio, the lack of available product to buy will help keep pricing strong.

In which seniors housing product segment do you see the biggest opportunity for investment?

The more lifestyle-focused categories continued to see greater interest from investors, with independent living topping the list at 36% of respondents. While assisted living came in second at 23%, investor interest in active adult increased to 13% of respondents. Memory care properties continued to lose ground, with investors now seeing the least opportunity for this property type, presumably due to the overbuilding of this segment in recent years.

Has your asset sales marketing time changed from the last year?

Average marketing time can provide an indication of investor appetite. The survey aimed to better understand any changes in marketing time for seniors housing & care asset transactions, from offering to contract. Marketing time (offering to contract) remained unchanged for about half (49%) of respondents; however, 38% indicated that the length of the marketing period has increased. This is the result of limited supply available for sale.

What are you seeing for spreads between a going-in cap rate and a terminal cap rate for stabilized investments?

With sustained competitive pricing, previous CBRE investor surveys revealed tightening spreads between going-in cap rates and terminal cap rates beginning in 2015. Since the Spring 2017 survey, the spread has remained essentially unchanged, with 41% of respondents underwriting spreads of 50 to 75 bps. The distribution of spreads also remained relatively unchanged, indicating that investors are settling in with more rational market pricing.

What are your top concerns relating to market changes that would negatively impact the seniors housing & care market over the next 12 months?

Increased property level operating and development costs eclipsed increased construction activity as the top concern for 35% of respondents, as staffing concerns (availability and cost) continued to increase nationally. Construction activity (oversupply) remained a top concern at 30%, followed by rising interest rates (12%). With construction starts down, operators are focusing more on property level operations.

What is your 12-month outlook for seniors housing cap rates?

Survey respondents were more confident that cap rates will hold firm than they were in the prior survey. At 63%, most respondents expected no change in cap rates over the next 12 months. The percentage of respondents anticipating a rise in cap rates decreased to 32% from 44%, and only 4% expected a decrease.

By Jeanette Rice, Americas head of Multifamily research, CBRE.

To download the U.S. Seniors Housing & Care Investor Survey, Winter 2018, with detailed cap rate tables and further information on investors opinions of the sector, click here.