All operational business sectors struggled during the COVID-19 pandemic. Senior living (mostly skilled nursing) had the added hardship of devastating resident deaths from the virus and an onslaught of bad press. As a result, the sector maintains somewhat of a poor public image — with some investors avoiding it as an asset class.
However, the senior living industry is poised to ramp up at an unprecedented rate as it recovers post-pandemic. The demand for modern, quality senior living communities is skyrocketing as Boomers age into the space and begin to redefine what constitutes senior living.
The data, as we’ll show below, simply does not lie. Now is the ideal time to invest in the right kind of senior living.
2 pivotal distinctions before investing in senior care
Nearly everyone touches senior living in one way or another; it plays a pivotal role in society. Perhaps you’ve looked for care for your own aging parents, or you’ve considered its investment potential. Unfortunately, not all of these senior living encounters are positive.
From a personal perspective, senior living sometimes conjures images of a sterile environment with a lack of compassionate, quality care. From an investment perspective, the asset class can seem intimidating because of operating challenges and perceived regulatory hurdles.
But know this, there are two crucial distinctions that need to be made regarding the senior living sector to illuminate its strong investment potential:
1. Skilled nursing vs. senior living
There is a massive difference between high acuity skilled nursing facilities and facilities that offer the full continuum of independent living, assisted living, and memory care. We refer to the latter three as senior living communities.
Assisted living as a part of a senior living community, for example, offers a supportive environment for seniors seeking help with daily tasks. On the other hand, skilled nursing provides intensive medical care and rehabilitation for people (not just seniors) with complex health needs.
Investing in skilled nursing also requires navigating the complicated regulatory environment of federal and state reimbursement rates. On the other hand, investing in private pay senior living communities does not because the acuity of care is lower. All to say, you can and should invest freely in private pay senior living communities without having to worry about the significant red tape of government regulations.
Further, it’s often skilled nursing facilities (not modern senior living communities) to which people assign negative connotations. That’s in part due to the fact that it’s also skilled nursing that suffered the greatest negative impacts to residents from the pandemic. True, senior living communities experienced occupancy drops from precautionary lockdowns and a pause in sales tours, but COVID deaths were not necessarily the main driver of senior living’s pandemic decline.
Regardless, as COVID restrictions were lifted, seniors still needed housing and care. They’ve since returned to senior housing at an historic rate. Meaning senior living as an asset class is prime for investment.
2. Traditional vs. modern senior living communities
Not only are senior living communities wholly different from skilled nursing facilities, they’ve also been completely reimagined for the Baby Boomer generation.
For example, NexCore’s Experience Senior Living’s name says it all. These communities are not for sitting idle. They offer experiences tailored to individual tastes — and for people as young as 55. It’s a true continuum of care, including:
- Active Adults
- Independent Living
- Assisted Living
- Memory Care
These communities have countless amenities, marrying top features of the multifamily and hospitality industries. Moreover, these are not places where seniors just come to spend their final days. Studies show people are living longer in the best of the best, newer senior living communities. So, investing in senior living is a sound choice, even in the long run.
Additional reasons to choose senior living to diversify your investment portfolio
With the above distinctions in mind, let’s further explore reasons to invest in the kind of modern senior living communities we’re talking about.
More seniors means more demand for senior living
Demographics prove that the senior population in the United States has and continues to grow exponentially. Consequently, there’s a projected requirement for 806,000 senior living units by 2030. Baby Boomers already occupy senior living communities and more and more of this generation are looking for these spaces.
Aside from the current population trends, senior living is and will always be a needs-based asset. There will always be senior citizens who require housing, making it a lasting investment.
Scarcity of supply plus outdated existing facilities make way for modern senior communities
There’s not enough housing for today’s seniors, let alone to accommodate the population growth discussed above. Compounding the issue, the senior housing options that do exist are functionally obsolete. They’re outdated and don’t meet the desires of Baby Boomers who want more from senior living communities than past generations. Plus, Boomers are the wealthiest generation to-date and can generally afford these desired amenities and updated communities.
Aging in place is also expected to be increasingly challenging, adding again to the need for more senior living communities — and more investment in the space.
Senior living’s market performance speaks for itself
Even if you disregard everything stated above, senior living is still a solid investment. Why? Because it’s performing better than traditional asset classes have been over the past decade.
Consider the office market. Its value has been cut in half since 2020. These are expensive properties that sit empty because so many people work remotely. The multifamily market isn’t faring any better. Apartment buildings are significantly overbuilt and overleveraged. Meanwhile, brick and mortar retail faces the well-known challenge of competing with Amazon and other online retailers. And industrial real estate is oversupplied.
But while these traditional investment options have been struggling, data shows the senior living market is thriving on multiple fronts:
- Occupancy increased for the 11th consecutive quarter.
- Occupied units continue rising at record levels.
- Inventory growth rate remains low (meaning there’s a market for more housing — and investment).
Remember, unlike the traditional (and faltering) asset types discussed above, senior living is a needs-based asset class. So, while it’s true the pandemic paused lease-up in senior living, the pent up demand — the need — was so great post-pandemic, these facilities backfilled at an incredible rate. And the need for more senior living communities persists, as shown.
Even if you’ve typically relied on traditional asset classes, so many factors show it’s an opportune moment to give senior living a serious look. For more information on investing, please reach out to us.
Written by: Michael Ray, Chief Investment Officer and Jeremy Allen, VP, Investment Research