Senior Housing Market Turns Corner

According to a new report by Marcus & Millichap looking at the first half of 2011, the slowly expanding U.S. economy is going to restore numerous facets of seniors housing demand.

Driving this momentum? Aging baby boomers who are looking ahead. With some new job creation (though it is slow) there has been a resumption of health care benefits. This is enabling the "re-employed" to move ahead with procedures requiring rehabilitative services in skilled nursing facilities.

Specifically, think rehab after your shoulder surgery, or knee surgery, etc. Quickly moved out of hospitals following surgery, patients often spent their rehabilitation time in senior housing facilities that, or their residents, offer superior rahabilitation services.

But on top of that, the study is showing that as health-care oriented operations are stabilizing, and a growing share of baby boomers are on the brink of retirement, cash-rich REITs are back in the marketplace and driving sernior housing sales activity. They are buying mostly large portfolios, and not individual properties. But investor demand for single "modernized" facilities is remaining high.

Interestingly, two areas that weathered the economic downturn better than others was student housing, senior housing and, overall, multifamily housing (MUH). Seniors housing probably had a tougher time of the three because, well, people keep aging and passing away, but boomers put on hold their plans to move into such facilities. Or they simply couldn't afford to make the transition because their plan had been to sell their homes and move. But with home prices falling so drastically, many could not afford to make that decision, or elected to wait out the recession and re-evaluate after a price rebound.

Here in Central Ohio, a group of us put together a package to re-develop a mothballed senior housing project that just weeks prior to completion was shut down by lenders. With a creative touch, and a fresh look at the possibilities, and with enthusiastic input by suburban city leaders in which it is located, we placed the detailed plan in front of a handful of qualified investors. Several were excited about the possibilities, as they had been previously led to believe it was just a hole in the ground. One outstanding player came out with 14 key decision makers and representatives from all over the nation and were impressed not only with our re-development plan and how the facility could be completed to complement their business model, but also how the adjacent acreage eventually could developed into a community with benefits to the new owners.

But (and its always a big but, isn't it?), obstinant banks and a recalcitrant receiver who had convinced that player they didn't need our development group in the mix pretty much killed the deal. Now the banks remain stuck with a property they padlocked more than two years ago. And an underserved seniors market goes unmet in Central Ohio.

With the slight uptick in the economy and the drive in healthcare-related seniors housing, someone is going to step in fill that need -- and soon.

But this example is the exception. Seniors housing will remain strong. This year's building pipeline is expected to remain light now that we are already in the second half of 2011. And as the M&M report notes, quality assets brought to market will receive multiple offers.

Frankly, I would wager that cash-rich, aggressive seniors housing buyers are also contacting current owners, making unsolicited offers for what they feel are quality operations.